Opinion
Case No. 09-27858-svk.
August 20, 2009
MEMORANDUM DECISION AND ORDER ON TRUSTEE'S OBJECTION TO CONFIRMATION
The Chapter 13 Trustee objected to the Debtors' Amended Chapter 13 Plan (the "Plan") because the Plan provides for payments of $38 per month for 60 months through the Chapter 13 Trustee and $250 per month directly to Forward Financial Credit Union on a car loan "outside the Plan." The Court must decide whether the Debtors should be required to pay their secured vehicle loan through the Plan. Because the Debtors have not satisfied their burden of establishing a compelling reason to depart from the general presumption that secured vehicle loan payments should be made through the Plan, the Court will sustain the Trustee's objection.
Section 1326 of the Bankruptcy Code determines when and how payments are to be made in a Chapter 13 bankruptcy proceeding. The Seventh Circuit Court of Appeals has explained:
[T]he Bankruptcy Code contemplates that the debtor and/or his employer will typically transmit the specified portion of the debtor's future income to a Chapter 13 trustee charged with disbursing the monies to creditors pursuant to the plan. This notion is reflected in section 1326(c), which provides that `[e]xcept as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan.'
In re Aberegg, 961 F.2d 1307, 1309 (7th Cir. 1992). "In other words, the language of § 1326(c) itself creates a presumption in favor of payments through the Trustee." In re Carey, 402 B.R. 327, 331 (Bankr. W.D. Mo. 2009).
The Bankruptcy Court has wide discretion to determine whether a debtor should be permitted to make payments directly to a secured creditor. Carey, 402 B.R. at 329 (quoting In re Foster, 670 F.2d 478, 486 (5th Cir. 1982) ("Whether a debtor, rather than the trustee, should be permitted to make . . . [direct] payments is `very much a matter left to the considered discretion of the bankruptcy court'"); In re Sanford, 390 B.R. 873, 879 (Bankr. E.D. Tex. 2008) ("Whether the debtor is therefore allowed to act as a disbursing agent for the treatment of a particular claim in a Chapter 13 case is a matter resting within the sound discretion of this Court and, in the face of an objection, it is the duty of the debtor to establish sufficient cause for the application of that exception"); see also 5 Keith M. Lundin , Chapter 13 Bankruptcy § 401.1, p. 401-1 (3d ed. 2000 Supp. 2006) ("[d]irect payment has always been allowed by the Bankruptcy Code in Chapter 13 cases . . . [but] the practice is disfavored").
Using the discretionary power provided for under the Code, many courts have enunciated a general rule that all payments to creditors must be made through the Chapter 13 trustee. See, e.g., In re Perez, 339 B.R. 385, 389 (Bankr. S.D. Tex. 2006) aff'd, Perez v. Peake, 373 B.R. 468, 492 (S.D. Tex. 2007) ("[t]he general rule is that debtors make monthly payments to the trustee, who then disburses the monies to holders of allowed claims"); In re Barber, 191 B.R. 879, 885 (D. Kan. 1996) (holding that "deviation from the normal periodic payments to the trustee should only be departed from when the debtor can demonstrate a significant reason for doing so") (quoting In re Gregory, 143 B.R. 424, 426 (Bankr. E.D. Tex. 1992) (collecting cases)); In re Reid, 179 B.R. 504, 507 (E.D. Tex. 1995) ("the general rule requires that debts provided for in a Chapter 13 plan be paid through the Chapter 13 Trustee"); In re Harris, 107 B.R. 204, 206 (Bankr. D. Neb. 1989) ("in general, debts provided for by the Chapter 13 plan must be paid through the Chapter 13 standing trustee").
The Perez court considered 21 factors in deciding this issue:
(1) the degree of responsibility of the debtor, as evidenced by his past dealing with his creditors; (2) the reasons contributing to the debtor's need for filing a Chapter 13 petition and plan; (3) any delays that the trustee might make in remitting the monthly payment to the targeted creditor; (4) whether the proposed plan modifies the debt; (5) the sophistication of the targeted creditor; (6) the ability and incentive of the creditor to monitor payments; (7) whether the debt is a commercial or consumer debt; (8) the ability of the debtor to reorganize absent direct payments; (9) whether the payment can be delayed; (10) the number of payments proposed to pay the targeted claim; (11) whether a direct payment by the debtor under the proposed plan will impair the trustee's ability to perform his standing trustee duties; (12) unique or special circumstances of a particular case; (13) the business acumen of the debtor; (14) the debtor's post-filing compliance with statutory and court-imposed duties; (15) the good faith of the debtor; (16) the plan treatment of each creditor to which a direct payment is proposed to be made; (17) the consent, or lack thereof, by the affected creditor to the proposed plan treatment; (18) the ability of the trustee and the court to monitor future direct payments; (19) the potential burden on the trustee; (20) the possible effect upon the trustee's salary or funding the U.S. Trustee system; and (21) the potential for abuse of the bankruptcy system.
Perez, 339 B.R. at 409 (internal citations omitted).
The Debtors have not addressed the Perez factors in any meaningful way in their Memorandum. The Trustee points out that his commission on $38 per month will not pay the expenses of the case, which is burdensome to the Trustee. To justify their proposal to pay the Credit Union outside the Plan, the Debtors allege that the Credit Union has promised that when the Debtors need a new vehicle (a distinct possibility, given the age and condition of the present vehicle), the Credit Union will finance the purchase — but only if the Credit Union is paid outside the Plan. There is no evidence from the Credit Union to support this requirement; an Affidavit referenced in the Debtors' Memorandum of Law is nowhere to be found. Even assuming such evidence existed, it is questionable whether the Debtors have carried their burden. Although current mortgage payments may be made "outside the Plan," the payment of vehicle loans through the Trustee is a well-established practice in this District, and ample case law supports the tradition. The Debtors' unique arrangement with the Credit Union does not rise to the level of a significant reason to depart from the general presumption that secured vehicle payments should be made through the Plan. In re Slaughter, 188 B.R. 29, 31 (Bankr. D. N.D. 1995) (citing Foster, 670 F.2d at 486); see also Barber, 191 B.R.at 885.
For the foregoing reasons, the Trustee's Objection to Confirmation of the Plan is sustained. The Debtors shall file a modified Plan within 30 days of the date of this Order, or the Trustee may file an Affidavit of Default, and this case will be dismissed.
IT IS SO ORDERED.