Opinion
Case No. 10-1681.
September 7, 2011
MEMORANDUM OPINION
Robert and Kimberly Kramp (the "Debtors") seek confirmation of their Chapter 13 plan that allows them to make direct payments on a Harley Davidson motorcycle while repaying their unsecured creditors 5% of their allowed claims. For the reasons stated herein, the court will deny confirmation of the Debtors' proposed plan because the Debtors' plan has not been proposed in good faith under 11 U.S.C. § 1325(a)(3).
On August 4, 2010, the Debtors filed for relief under Chapter 13 of the Bankruptcy Code, and, on August 26, 2010, the Debtors filed their plan of reorganization. All parties in interest received notice of the proposed plan and had an opportunity to object. On April 22, 2011, a hearing was held to consider confirmation of the Debtors' plan, at which time the Chapter 13 Trustee recommended confirmation and notified the court that she would prepare an order confirming the plan. On May, 2, 2011, the proposed order confirming the Debtors' plan was filed with the court.
Bankruptcy courts may confirm a chapter 13 plan only if, among other things, the plan has been proposed in good faith. 11 U.S.C. § 1325(a)(3). Notably, bankruptcy courts have an independent obligation to ensure that proposed plans comply with applicable provisions of the Code. See e.g., United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367, 1381 (2010) ("[T]he Code makes plain that bankruptcy courts have the authority — indeed, the obligation — to direct a debtor to conform his plan to the requirements of §§ 1328(a)(2) and 523(a)(8)."); In re Martin, 444 B.R. 538 (Bankr.M.D.N.C. 2011) ("Bankruptcy courts cannot confirm plans that do not comply with the Code simply because a creditor fails to come forward.").
A good faith determination under § 1325(a)(3) is made based on the totality of the circumstances, In re Delbrugge, 347 B.R. 536, 540 (Banrk.N.D.W. Va. 2006), and consideration of a number of factors, including: the debtor's financial situation, the percentage of proposed repayment, the period of time payment will be made, the debtor's employment history and prospects, the nature and amount of unsecured claims, the debtor's past bankruptcy filings, the debtor's honesty in representing facts, and any unusual or exceptional problems facing the particular debtor. Neufeld v. Freeman, 794 F.2d 149, 152 (4th Cir. 1986). The Fourth Circuit further instructs that "[t]he object of the inquiry is to determine whether or not, considering `all militating factors,' there has been `an abuse of the provisions, purpose, or spirit' of Chapter 13 in the proposal or plan." (Citation omitted).
Here, the Debtors are both employed and earn a combined annualized income of $103,938.00. The Debtors' monthly disposable income, as calculated on Official Form B22C ("Form 22C"), is $1,046.10. The Debtors' proposed plan contemplates monthly plan payments of $2,500.00 to be made to the trustee, of which $1,871.00 is to be paid as the Debtors' on-going mortgage payment, leaving an estimated 5% dividend to be paid to unsecured creditors during the court of the Debtors' 60-month plan. Mr. Kramp has been employed as a truck driver by Giant Foods for 22 years, and Mrs. Kramp has been employed as an administrative assistant by Valley Health for 4 years. It appears that their employment will continue into the future. The Debtors have $36,527.50 in unsecured debt, a large portion of which is a result of the Debtors' credit accounts. According to the Debtors' Schedule B, they own 3 vehicles, including a 2008 Harley Davidson. On Schedule J, the Debtors list their monthly payment on the motorcycle at $410.00, which they propose to pay directly to Tower Federal Credit Union for 48 months, in full satisfaction of the obligation secured by the motorcycle.
Although it appears that the Debtors have been honest and forthright, a plan that deprives unsecured creditors of $19,680.00 ($410.00 * 48 = $19,680.00) while making direct payments on a debt secured by a luxury item fails to satisfy the good faith requirement of § 1325(a)(3). See In re Kelly, 416 B.R. 232, 239 (Bankr.E.D.Va. 2009) ("Having considered all the circumstances, the court is left with the conviction that the plan does not represent an honest effort to repay creditors to the extent that the debtor's financial ability and circumstances will permit."). The purpose of Chapter 13 is to ensure that those debtors who can repay their creditors do repay their creditors. Ransom v. FIA Card Services, N.A., 131 S.Ct. 716, 725 (noting that Congress drafted BAPCPA with the purpose of ensuring that debtors repay creditors the maximum amount they can afford).
Therefore, the court will deny confirmation of the Debtors' proposed plan that forces unsecured creditors to pay for the Debtors' retention of a luxury item as not being proposed in good faith. See e.g., In re McNeely, 366 B.R. 542, 548 (Bankr.N.D.W. Va. 2007) (denying confirmation based on debtors' failure to satisfy the "good faith" test of § 1325(a)(3) where debtors proposed to repay their unsecured creditors 7.54% of the allowed claims while paying $465.88 a month to maintain the on-going payments on their obligation secured by a houseboat); In re Allawas, C/A No. 07-06058-HB, 2008 WL 6069662 (Bankr.D.S.C. March 3, 2008) (denying confirmation of the debtor's plan that proposed a 1% repayment to general unsecured creditors while retaining and paying for her motorcycle).
The court will enter a separate order denying confirmation of the Debtors' proposed plan.
Notice Recipients
Recipients submitted to the BNC (Bankruptcy Noticing Center) without an address: Recipients of Notice of Electronic Filing: Recipients submitted to the BNC (Bankruptcy Noticing Center):
District/Off: 0424-3 User: trs Date Created: 9/7/2011 Case: 3:10-bk-01681 Form ID: pdfdoc Total: 32 cr JPMorgan Chase Bank, N.A. TOTAL: 1 ust United States Trustee ustpregion04.ct.ecf@usdoj.gov tr Helen M. Morris ch13info@wvtrustee.org aty Brian J. McAuliffe mcalaw2000@aol.com aty Fabio Crichigno fcrichigno@siwpc.com aty Sarah Crichigno scrichigno@siwpc.com aty Susan Cannon-Ryan scryan@wvtrustee.org TOTAL: 6 db Robert Kramp 863 Forrestview Drive Berkeley Springs, WV 25411 jdb Kimberly Kramp 863 Forrestview Drive Berkeley Springs, WV 25411 cr WELLS FARGO BANK, NA Bankruptcy Cash Management MAC# X2302-04C One Home Campus Des Moines, IA 50328 cr Recovery Management Systems Corporation Attention: Ramesh Singh 25 S.E. 2nd Avenue Suite 1120 Miami, FL 33131-1605 1251482 American Express Centurion Bank c/o Becket and Lee LLP POB 3001 Malvern PA 19355-0701 1229036 Amex P O Box 297871 Fort Lauderdale, FL 33329 1229037 Bur Acct Mgm Bureau Of Account 3607 Rosemont Camp Hill, PA 17011 1242698 CR Evergreen, LLC MS 550 PO Box 91121 Seattle, WA 98111-9221 1229039 Chase P O Box 15298 Wilmington, DE 19850 1229040 Citi Cards P O Box 6497 Sioux Falls, SD 57117 1229041 HSBC/Polaris 90 Christiana Rd New Castle, DE 19720 1242696 JP Morgan Chase Bank, N.A. Attn: Bankruptcy Department 2901 Kinwest Pkwy Irving, TX 75063-5812 1294661 JPMorgan Chase Bank, N.A. c/o Shermeta, Adams Von Allmen, P.C. P.O. Box 80908 Rochester Hills, MI 48308-0908 1229042 MTBank 1 Fountain Plz Fl 3 Buffalo, NY 14203 1236768 MTBank 1100 Wehrle Drive Williamsville, NY 14221 1229043 Mcydsnb 9111 Duke Blvd Mason, OH 45040 1237074 Recovery Management Systems Corporation 25 S.E. 2nd Avenue, Suite 1120 Miami, FL 33131-1605 1237015 State Farm Bank c/o Becket and Lee LLP POB 3001 Malvern PA 19355-0701 1229044 State Farm Financial Services 3 State Farm Plaza N-4 Bloomington, IL 61791 1229045 Tower Federal C U 7901 Sandy Spring Rd Laurel, MD 20707 1229046 Tower Federal Credit U 7901 Sandy Spring Rd Laurel, MD 20707 1237343 Tower Federal Credit Union PO Box 123 Annapolis Junction, MD 20701-0123 1232211 Wells Fargo Bank, NA 1 Home Campus Bankruptcy Payment Processing Des Moines, IA 50328 1229047 Wells Fargo Home Mortgage 8480 Stagecoach Cir Frederick, MD 21701 1229048 Winchester Medical Center P.O. Box 3508 Winchester, VA 22604-2545 TOTAL: 25