Summary
finding that the court may apply a higher standard of feasibility in determining whether to confirm a chapter plan filed after the failure of prior bankruptcy cases
Summary of this case from In re CordovaOpinion
Bankruptcy No. 02-35857DWS
February 18, 2004
MEMORANDUM OPINION
Before the Court is the Debtors' Motion to Reinstate Case (the "Motion"). After several continuances an evidentiary hearing was held on February 12, 2004. After hearing the evidence, both the Chapter 13 trustee (the "Trustee") and Debtors' sole creditor Bank of America Mortgage ("BAM") oppose the Motion. For the reasons stated below, it will be denied.
As discussed below, Debtors contended they could propose a confirmable plan based on a combination of disposable income and the contemplated proceeds of a pending personal injury suit. The adjournments were to facilitate the appearance of Patricia Simmons, Esquire ("Simmons"), personal injury counsel to Francine M. Yeager.
BACKGROUND
William and Francine Yeager ("Debtors") filed this Chapter 13 case, their fourth such case, on November 7, 2002 with new counsel. The Trustee quickly filed a motion to dismiss with prejudice based on the Debtors' bankruptcy history. The first motion to dismiss was settled by consent order dated March 6, 2003 providing that if this case were dismissed for any reason, the Debtors shall be prohibited from filing any subsequent case for 180 days without leave of Court. Doc. No. 28. BAM also quickly filed a motion to dismiss or in the alternative for relief from stay which was denied on February 6, 2003, the Court finding that Debtors had made the post-petition payments due BAM. Doc. No. 24, On May 30, 2003 the Trustee moved for dismissal again on the grounds that the filed proofs of claim (i.e., BAM's claim) exceeded the value of the proposed plan, Doc, No, 35, which proposed monthly payments of $290 for 48 months based on disposable income of $387. Doc. No, 2. BAM had also objected to confirmation of Debtors' Chapter 13 plan for the same reason. Doc. No. 21. However, Debtors had filed an objection to BAM's claim which kept the case alive until the hearing on the claim objection when it was withdrawn. Doc. No, 47. With the plan found to be infeasible, the Chapter 13 case was dismissed on October 9, 2003. Doc. No. 49.
I shall take judicial notice of the docket entries in this and Debtors' prior cases. Fed.R.Evid. 201, incorporated in these proceedings by F.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank. 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991); Levine v. Egidi, 1993 WL 69146, at *2 (N.D. Ill. 1993); In re Paolino, 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa. 1991); see generally In re Indian Palms Associates, Ltd., 61 F.3d 197 (3d Cir. 1995).
Their first Chapter 13 case, 98-30634, was filed on August 21, 1998 and dismissed on May 27, 1999 on a Trustee's motion. In this case, Bank's predecessor filed a motion for relief which was settled by stipulation. Their second Chapter 13 case, 99-31944, was filed on September 21, 1999 and dismissed on January 18, 2001. While a plan was confirmed, the case was dismissed on a trustee's motion. The mortgagee filed two motions for relief, the first being settled and the second granted by default, The third Chapter 13 case, 01-13160, was filed on March 7, 2001, and dismissed on July 25, 2002 on a trustee's motion for failure to make plan payments.
On October 30, 2004, Debtors filed the instant Motion seeking to reinstate the Chapter 13 case contending that the claim objection had been settled and Debtors were prepared to file an amended plan to pay the claim as agreed. Motion ¶ 6. In the Motion the Debtors aver that when the case was dismissed they were about to file a plan that increased the monthly payments and pledged the proceeds of a motor vehicle personal injury claim, They seek the opportunity to do so now.
Counsel claims he incorrectly understood that the Trustee would await the filing of that amended plan before pressing his motion to dismiss. As Debtors' counsel did not appear and as the only information available was that the claim objection was withdrawn, the Trustee understandably sought dismissal of the case. Id. ¶ 8. The Motion also represented that counsel for BAM promised not to object to reinstatement of the case, apparently another misunderstanding held by Debtors' counsel. Id. ¶ 9.
At the time of the final continuance of this Motion on December 22, 2003 I ordered Debtors to file that amended plan by January 29, 2004 along with an amended Schedule I and J. At the hearing counsel handed up the amended Schedules I and J, Exhibit D-1, but acknowledged no plan had yet been prepared.
At the hearing on the Motion, Debtors' counsel indicated that the Debtors had $750 of monthly disposable income to dedicate to an amended plan. With the $2,900 paid prior to dismissal, the plan funds would aggregate $37,400 without regard to the personal injury proceeds. Since the BAM arrears were stipulated to approximate $60,000, the proposed plan is underfunded by approximately $27,600 when the Trustee's commission is included. Debtors rely on the potential personal injury proceeds to prove that a proposed plan is feasible.
Simmons testified that she filed the personal injury case on behalf of Francine Yeager ("Francine") against William Yeager ("William") in whose car she and her daughter were passengers on February 8, 2001 when William ran through a stop sign and collided with another vehicle. Initiated as an arbitration matter in state court, the case has been in "deferred status" due to the automatic stay of this bankruptcy, No request for relief from stay has been made. The arbitration award limit is $50,000, and Simmons indicated that she would accept that amount without demanding a trial de novo. She values the claim between $25,000 and $75,000 and explained that the uncertain impact of Francine's pre-existing injuries account for the range of recovery. She opined that an award of $50,000 is a reasonable expectation. With her contingent attorney's fee of 40% deducted from the award, Francine would have $30,000 to dedicate to an amended chapter 13 plan if and when it was received. With respect to the timing, Simmons estimated a nine month period for an arbitration hearing to be held and another nine months for a jury trial to be held if it were subsequently requested,
Francine also sued the other driver who I note is also suing William and indeed secured relief from stay by stipulation in April 2003 to proceed with her lawsuit limited to William's insurance coverage. Doc. No. 31.
Simmons, a personal injury lawyer, appeared to be unaware that she could get such relief even though the companion suit by the other driver was moving forward having secured leave of this court to proceed.
Neither the Trustee nor BAM were impressed with the prospects of a successful reorganization based on the Debtors' newly discovered ability to commit $750 per month to a plan and their belated pledge of the personal injury proceeds. The Trustee found suspect that Debtors' sources of income had not changed but their ability to fund a plan had more than doubled over the life of this case and especially since it was dismissed. Both found the litigation recovery too speculative to form the foundation of a feasible plan.
DISCUSSION
As Debtors had agreed with the Trustee that they would not be able to file a fifth case if the fourth case was dismissed, their request to reinstate the fourth case is in effect an attempt to gain relief from that agreement. Since the consent order provides that a refiling may be permitted with leave of Court, I will employ the standard I use for making such a determination in the context of the Motion, The basic inquiry is whether there are changed circumstances that would indicate that the new/reinstated case would succeed where the prior cases have not. Debtors proffer two such circumstances: an increase in plan payments and the commitment of the litigation proceeds, I find their explanation to be too little too late.
A review of the amended Schedules I and J which I ordered the Debtors to file indicates a $200 increase in income from an uncle residing with the family as a roomer and a $150 decrease in expenses by the elimination of $150 budgeted for cigarettes. The additional availability of $350 plus the disposable income never committed to the initial plan accounts for the payment increase to $750. The Debtors, while present in the courtroom, were not called to testify in support of the Motion, and no mention was made of these "changed circumstances." Thus, I cannot evaluate the stability of this source of new income as I do not know when or why it came to pass that a relative became a rent paying roomer and what commitments he has made to remain. Nor can I judge the bona fides of the significant savings represented by the recent deletion of the tobacco expense. When did it occur?
The initial plan only committed $290 of $387 of disposable income. Given what Debtors knew about the amount of the BAM claim, this half-hearted undertaking evidences a lack of commitment to this case until it was dismissed.
Is it bound to last? Why I wonder did it take four unsuccessful cases and the existence of a bar against further bankruptcies for the Debtors to take in an uncle as a paying boarder and eliminate the smoking expense. The Debtors have left these important questions unanswered.
While probative, the lack of credibility of Debtors' new budget is not the fatal deficiency in the Debtors' proofs, Rather it is the speculative nature of the supplemental plan funding that compels the outcome of this Motion. First, I would note that the litigation is not a change of circumstance. Indeed the personal injury case has been pending since the beginning of this Chapter 13 proceeding. However, it was not disclosed in the Debtors' Schedules or Statement of Affairs. Why they failed to disclose the existence of this litigation until now is unknown since again they did not testify. In any event, the personal injury suit is not a change of circumstance but rather a circumstance not revealed. I find it untenable to allow Debtors to continue under the protection of this Court on the basis of this source of income when they had concealed this asset of the estate from the Trustee and creditors. I certainly will not do so when the likelihood of its paying the balance of the plan will not be known for nine to eighteen months and the prospect of its doing so is speculative.
Schedule B requires identification of "other contingent and unliquidated claims of every nature and the estimated value of each." The Debtors stated under penalty of perjury that they had none. The litigation proceeds are not reflected in Debtors' exemption Schedule C nor is the pending personal injury suit identified in the Statement of Financial Affairs ¶ 4 which requires listing of "all suits to which the debtor is or was a party within one year immediately preceding the filing of this bankruptcy case." Debtors list only the foreclosure action commenced by BAM.
Debtors had the burden of establishing that they can now propose a Chapter 13 plan that will satisfy the feasibility requirement of § 1325(a)(6), In re Hogue et al., 78 B.R. 867, 872 (Bankr. S.D, Ohio 1987), They have failed to do so. Based on Simmons `testimony a reasonable expectation would be a litigation recovery of $30,000 in nine to eighteen months without regard to any reduction for Francine's pre-existing medical condition that could reduce the award to $25,000. As Francine's share is reduced by the 40% contingent attorney's fee, the best outcome is $30,000 and a possible outcome is $15,000, an amount far below the amount needed to satisfy BAM's claim.
A plan dependent on an uncertain litigation outcome cannot be confirmed because it simply is not feasible. Ewald v. National City Mortgage Co. (In re Ewald), 298 B.R. 76, 81 (Bankr. E.D. Va. 2002) (plan dependent on a favorable lawsuit could not be confirmed as debtor could not prove that she would be able to fund the payments). See also Hogue. supra (debtors did not prove that sales and refinancings contemplated to fund plans were reasonably likely to occur). Moreover, after four bankruptcy cases and the attendant cost and delay of numerous motions for relief and stipulated settlements over a period of five and one half years, it would be unfair to require BAM to wait up to eighteen months to learn that its claim cannot be paid. In re Erickson, 176 B.R. 753, 758 (Bankr. E.D. Pa. 1995) (an amended plan based on a future sale of assets not confirmed where the bankruptcy history of the debtors and prior orders made it clear that failure to achieve confirmation would preclude the debtors from making further efforts). Thus, while the consent order barring further bankruptcy relief without leave of Court left open the possibility of a new Chapter 13 case, the record made by the Debtors is insufficient to satisfy the significant burden of overcoming the bar. Although a plan dependent for its success on a contingent source of income such as a litigation recovery or a sale of assets is not per se defective, a plan proposed after multiple bankruptcy filings over a period of years must have a higher degree of certainty than the one proposed here.
For the foregoing reasons, the Motion is DENIED. An Order consistent with this Memorandum Opinion shall be entered.