Opinion
Case No. 6:15-bk-03855-LVV
03-23-2021
In re Erik Alexander Egle and Lisa Ann Egle, Debtors.
Chapter 13 ORDER CONDITIONALLY GRANTING IN PART TRUSTEE'S MOTION TO DISMISS
This case came before the Court on October 6, 2020, on the Motion to Dismiss, as supplemented, (collectively the "Motion to Dismiss")(Doc. Nos. 115 and 119) filed by the Chapter 13 Trustee, Laurie K. Weatherford (the "Trustee"). The Trustee seeks dismissal because the Debtor, Erik Alexander Egle ("Debtor"), failed to turn over his 2018 and 2019 federal income tax refunds as required by the order confirming plan. The Debtor responds he used the 2018 and 2019 federal income tax refunds, totaling $10,690 (the "Tax Refunds"), to fund his Chapter 13 Plan and care for his minor children (Doc. No. 116), and under the circumstances, the Court should allow him to "keep" the Tax Refunds. The Court conditionally grants the Motion to Dismiss.
On May 1, 2015, the Debtor and his spouse, Lisa Ann Egle, filed for relief under Chapter 13 of the Bankruptcy Code. Their bankruptcy schedules disclosed they support three minor children (aged 12, 10 and 6 years) and at the time of filing, together earned on average $80,000 a year with marketing occupations. Their Chapter 13 Plan proposed they would submit their projected disposable income to pay creditors over 60 months, with unsecured creditors receiving a pro-rata distribution after payment of priority and secured creditors. The allowed unsecured claims in their case total $90,687.92.
All references to the Bankruptcy Code refer to 11 U.S.C. §§ 101 et seq.
Doc. No. 1, Schedule I and Schedule J. The Statement of Financial Affairs provides Mr. and Mrs. Egle received gross income of $79,222 for 2012, $87,748 for 2013 and $71,924 for 2014. ($79,222 + $87,748 + 71,924 = $238,894 divided by 3 is $79,631.33)
Doc. No. 2.
The Court entered an Order Confirming their Chapter 13 Plan ("Confirmation Order")(Doc. No. 47). The Confirmation Order provides creditors will receive payments over 60 months and requires the Debtor (i) turn over all tax refunds in addition to regular plan payment for distribution to allowed general unsecured creditors, unless the Court orders otherwise, (ii) obtain Court approval before spending any tax refund, and (iii) disclose new assets acquired post-petition by promptly filing amended schedules. As required, Mr. and Mrs. Egle turned over their 2016 tax refund.
Doc. No. 47, ¶¶ 25, 28.
Doc. No. 116.
On July 3, 2017, Mrs. Egle died. The Debtor received $200,000 of life insurance proceeds from Mrs. Egle's death ("Insurance Proceeds"). About two months later, the Debtor's home was damaged by a hurricane and needed repairs. And shortly thereafter, the Debtor became unemployed. The Debtor requested to keep his 2017 tax refund of $2,274 for home repairs, which the Trustee approved. In 2018, the Debtor found employment as a realtor. The Debtor, however, did not timely request to keep his 2018 tax refund of $6,552. And without Court or Trustee approval, Debtor used the tax refund to pay Chapter 13 plan payments and support his minor children.
Doc. No. 111, Schedule J, ¶ 24.
See Motions to Use Cash Collateral, Doc. Nos. 97 and 104, which the Court granted Doc. Nos. 101, 105. The documents attached to the motions provide the loss was due to a hurricane and Debtor had to pay a $6,332 insurance deductible.
Doc. No. 111, Schedule J, ¶ 24. Debtor lost his job January 2018.
Doc. No. 116.
Doc. No. 111, Schedule J, ¶ 24.
Doc. No. 116.
Doc. No. 116.
Two years later, on July 3, 2019, the Debtor filed amended schedules which disclosed receipt of the Insurance Proceeds and a reduction of his household income and expenses. By this time, Debtor had spent most of the Insurance Proceeds—only $8,000 remained. Nobody sought to modify the plan to account for the Insurance Proceeds. The Debtor then timely requested to keep his 2019 tax refund of $4,138, but again without Court order or Trustee approval, used the tax refund to pay Chapter 13 plan payments and support his minor children.
Doc. No. 110, Schedule A/B.
Doc. No. 116. --------
On August 11, 2020, the Trustee filed the Motion to Dismiss for failing to turn over the Tax Refunds. The Trustee also argues had the Debtor timely disclosed the Insurance Proceeds, unsecured creditors could have been paid in full years ago, with a surplus to the Debtor. Now, the Trustee contends unsecured creditors will only receive a 11% distribution on their allowed claims. To avoid dismissal, the Trustee suggests the Debtor modify the plan to 84 months and pay unsecured creditors the Tax Refunds, the 2017 tax refund (as the Debtor could have used the Insurance Proceeds to pay for the home repairs) and $8,000 of the Insurance Proceeds. The total payment to unsecured creditors would increase by $20,964.
The Debtor responds he no longer has the Tax Refunds or other funds available to fund a modified plan suggested by the Trustee. As a realtor, he has had limited house showings due to COVID-19, and simply cannot procure the funds. The Debtor argues unsecured creditors have already received a 15% distribution on their allowed claims, and he used the Insurance Proceeds and Tax Refunds to make plan payments or pay necessary expenses. As a result, Debtor seeks an order allowing him to "keep" the Tax Refunds, pay no more to unsecured creditors and receive a discharge.
Section 1307 of the Bankruptcy Code governs dismissals of Chapter 13 cases. The court may dismiss a Chapter 13 case for cause, including an "unreasonable delay by the debtor that is prejudicial to creditors" or for a "material default by the debtor with respect to a term of a confirmed plan." 11 U.S.C. § 1307 (c)(1), (c)(2). The dismissal of case for a material default is discretionary, and appropriate when a debtor cannot cure a default or modify the plan to make completion feasible. In re Hutchens, 480 B.R. 374, 387 (Bankr. M.D. Fla. 2012).
Here, the Debtor committed a material default with respect to the Confirmation Order. Debtor failed to turn over the Tax Refunds totaling $10,690 and failed to promptly disclose the Insurance Proceeds totaling $200,000. By waiting almost two years to disclose the Insurance Proceeds, such delay prejudiced unsecured creditors. Only $8,000 of the Insurance Proceeds remained at disclosure, and now, there are none. And even if the Court accepts the Debtor used the Insurance Proceeds and Tax Refunds to make plan payments and pay necessary expenses, the Confirmation Order still required the Debtor to turn over the Tax Refunds in addition to regular plan payments, unless the Court orders otherwise. The Debtor spent the Tax Refunds without seeking Court approval.
Still, the Court is sympathetic to the Debtor's circumstances. The Debtor eventually disclosed the Insurance Proceeds and had obtained approval to use the 2017 tax refund for home repairs. Until now, nobody sought to modify the Debtor's plan to account for the Insurance Proceeds. The Court believes the equitable solution is to require the Debtor to turn over the Tax Refunds as required under the Confirmation Order. And because the Debtor's employment has been affected by COVID-19, he could modify his plan to 84 months to pay the Tax Refunds, $10,690, over time.
Accordingly, it is
ORDERED:
1. The Chapter 13 Trustee's Motion to Dismiss, as supplemented (Doc. Nos. 115 and 119) is conditionally GRANTED IN PART.
2. The Debtor must turn over the Tax Refunds, totaling $10,690, for distribution to allowed unsecured creditors' claims.
3. The Debtor may modify his plan for a period up to 84 months to pay the Tax Refunds to allowed unsecured creditors' claims.
4. If the Debtor does not turn over the Tax Refunds or seek to modify his plan as provided in paragraph 3 by April 6, 2021, this case is DISMISSED.
5. If the Debtor does timely turn over the Tax Refunds or seek to modify his plan as provided in paragraph 3, the Court will review the pleadings and enter an appropriate order.
ORDERED. Dated: March 23, 2021
/s/_________
Lori V. Vaughan
United States Bankruptcy Judge
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Chapter 13 Trustee, Laurie K. Weatherford, is directed to serve a copy of this order on all interested parties who are non-CM/ECF users and file a proof of service within three days of entry of the order.