Opinion
Case No. 10-14560-A13
06-03-2013
In re MARICELA and MICHAEL GAMBOA, Debtors.
WRITTEN DECISION - NOT FOR PUBLICATION
MEMORANDUM DECISION
RE: CHAPTER 13 TRUSTEE'S
MOTION TO INCREASE
PERCENTAGE PAID TO
UNSECURED CREDITORS
Before the Court is the Chapter 13 Trustee's ("Trustee") motion to increase the percentage paid by the debtors, Maricela and Michael Gamboa ("Debtors"), to unsecured creditors from 8% in the Debtors' initial plan to 50.96%. The Trustee seeks this increase in percentage to distribute the Debtors' tax refunds in accordance with the terms of their pre-confirmation modification dated December 8, 2010 ("PCM"). The Debtors recognize that they must turn over their tax refunds totaling $11,235, and that the dividend to general unsecured creditors should be increased. However, they object to increasing the dividend to 50.96% because the Trustee has failed to deduct from the tax refunds his additional administrative fee to distribute these refunds. Upon further review of the Trustee's calculations and the terms of the PCM, the Court grants the motion but the increased percentage must be adjusted downward to account for the Trustee's administrative fee to distribute the tax refunds.
FACTS
The Debtors filed their Chapter 13 petition on August 16, 2010, and confirmed their plan of reorganization on December 21, 2010. The confirmed plan includes the terms in their initial plan dated August 16, 2010, and the additional terms contained in their PCM dated December 8, 2010 (collectively "Plan"). The Plan requires the Debtors to pay $326.00 monthly to the Trustee for payment of the administrative claims provided for in Paragraph 3 of the Plan, including the Trustee's administrative fee. Additionally, the Plan pays general unsecured creditors a dividend of 8% or a pro rata of $24,060, whichever is greater, calculated as follows: the $15,000 dividend proposed in Paragraph 13 of the initial plan, plus an additional $9,060 agreed to in the PCM, for a total dividend to general unsecured creditors of $24,060. The PCM also added Paragraph 20 which provides:
For the duration of the plan, debtor(s) … shall annually: (i) provide copies of tax returns to trustee; (ii) turnover tax refunds as [and] for additional payments and trustee may increase the dividend to unsecured creditors to distribute those funds.Except for the amendments made in the PCM, the initial plan remained in full force and effect. [ECF No. 36].
The Debtors appear to have made all of their monthly Plan payments and, except for distribution of their tax refunds totaling $11,235, they have completed the Plan. The Trustee filed this motion to increase the percentage paid to general unsecured creditors to distribute the tax refunds, and the Debtors have objected.
ANALYSIS
At issue is the proper interpretation of the provision in the PCM that permits the Trustee to increase the dividend to general unsecured creditors. The Trustee contends that the PCM requires all of the tax refunds to be distributed to general unsecured creditors with no deduction for his administrative fee payable in Paragraph 3 of the Plan. Thus, he calculates the payment to general unsecured creditors to be $35,295 ($24,060 + $11,235 = $35,295), which divided by total general unsecured claims of $69,259.59, yield a 50.96% pro rata dividend. The Trustee argues his administrative fee is built into the payments that are to be paid under the Plan, so there is no basis to deduct his administrative fee from the additional tax refunds simply because the PCM allows the pro rata to general unsecured creditors to be increased. [Hr'g Tr. 7:2-13 (April 24, 2013)] The Trustee did not cite any statute or case authorities in support of his argument, and it is contrary to the terms of the Plan and common sense.
The Trustee's argument ignores that the Debtors have already contributed all of their monthly disposable income for the duration of the Plan. The Debtors also agreed to pay over their tax refunds for the duration of the Plan as "additional payments," presumably because they recognized the tax refunds represent additional disposable income. However, the tax refunds were not built into the monthly Plan payments as the Trustee contends. The Debtors did not receive the tax refunds on a monthly basis, and the amounts were unknown. Therefore, the PCM treats the tax refunds as "additional payments" to be contributed to the Plan if received, and it provides that the Trustee may increase the dividend to general unsecured creditors to distribute these additional payments. Pursuant to Paragraph 3 of the Plan, the Trustee must deduct from his disbursements his administrative fee since this provision remained in full force and effect.
The Trustee's interpretation would require the Debtors to contribute another "additional payment" on top of contributing all of their disposable income and their tax refunds for the duration of the Plan, which is now otherwise complete, merely to pay his administrative fees for distributing these tax refunds. The Debtors have already contributed all that they were required to contribute. The PCM does not require them to contribute more.
CONCLUSION
The Court grants the motion to increase the percentage paid to general unsecured creditors, but the percentage must be adjusted downward to account for the Trustee's administrative fee to distribute the tax refunds. The tax refunds were not built into the Plan payments as the Trustee claims. The Debtors did not receive the tax refunds on a monthly basis, and the amounts were unknown. Consequently, the PCM obligates the Debtors to contribute the tax refunds as "additional payments" if they receive them, and it permits the dividend to be increased by an unspecified amount to distribute these additional payments.
The PCM does not obligate the Debtor to contribute another "additional payment" to pay the Trustee his administrative fee to distribute the "additional payments." The Trustee's interpretation is unsupportable and the Court would not have approved such a provision in this first instance. The Trustee shall submit an order consistent with this memorandum decision within ten days of its entry.
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Louise De Carl Adler, Judge