Opinion
Case No. 03-32939-DOT.
October 30, 2003
Charles H. Krumbein, for debtors; Edward S. Whitlock III, for creditor.
MEMORANDUM OPINION AND ORDER
Hearing was held October 1, 2003, on the objections to confirmation of debtor's plan filed by unsecured creditors Life Line Credit Union, Inc., Connects Federal Credit Union, and Richmond Postal Credit Union. At the conclusion of the hearing, the court took the objections under advisement.
Debtors filed their chapter 13 petition on March 24, 2003, and their chapter 13 plan on April 29, 2003. Debtors' plan proposes to pay $100.00 for one month and $210.00 per month for 59 months for a 20% repayment to unsecured creditors over a period of 60 months.
Creditors' objections to confirmation assert that debtors' plan is proposed in bad faith. Their objection have two components. First, Life Line Credit Union and Connects Federal Credit Union argue that the debtors seek to discharge debts that were held non dischargeable in a prior chapter 7 case of Mrs. Woodley. Second, the creditors argue that the debtors' budget includes expenses that are unreasonably high. The following budgeted expenses are noted: (1) $270.00 for electricity; (2) $80.00 for water and sewage; (3) $125.00 for telephone; (4) $500.00 for food; (5) $150.00 for clothing; (6) $200.00 for child care; and (7) $150.00 for miscellaneous expenses.
At hearing, debtor D.L. Woodley was examined concerning debtors' budget. Creditors argued that the evidence submitted by debtor to justify monthly living expenses set out above was insufficient. Debtors' counsel argued that the budget must provide for contingent expenses. According to counsel, Mrs. Woodley is undergoing a difficult pregnancy and was hospitalized on the day of the hearing; the budget includes room for contingencies, such as potential medical expenses and child support expenses that may be increased due to failure of a third party to pay.
A review of the court's files reveals the following history of previous bankruptcy cases filed by debtor Mrs. Woodley:
1) Mrs. Woodley, aka Evette P. Boone, filed a chapter 7 case on June 8, 2000, and received a discharge on September 22, 2000. (Case No. 00-33294) In that case, the debts of Life Line Credit Union and Connects Federal Credit Untion were excepted from debtor's discharge.
2) Mrs. Woodley, aka Evette P. Boone, filed a chapter 13 case on April 3, 2001. (Case No. 01-32074) Her plan was confirmed on June 28, 2001, without objection. This case was dismissed on motion of the trustee on December 5, 2001.
The debtors have the burden of proof to establish that their plan was filed in good faith. In re Daniel, 260 B.R. 763, 766 (Bankr. E.D. Va. 2001). The Fourth Circuit has adopted a totality of the circumstances test for evaluating a debtor's good faith in proposing a chapter 13 plan. See Solomon v. Cosby, 67 F.3d 1128, 1134 (4th Cir. 1995); Neufeld v. Freeman, 794 F.2d 149,152 (4th Cir. 1986). Under this test the court must consider the following factors:
(1) the percentage of the proposed repayment; (2) debtor's financial situation; (3) the period of time over which payment will be made; (4) debtor's employment history and prospects; (5) the nature and amount of unsecured claims; (6) debtor's past bankruptcy filings; (7) debtor's honesty in representing facts; and (8) any unusual or exception problems facing the particular debtor.
In re Harrison, 203 B.R. 253, 255 (Bankr. E.D. Va. 1996) (citing Deans v. O'Donnell, 692 F.2d 968, 972 (4th Cir. 1982).
Debtors' petition schedule F reveals that they owe unsecured debt in excess of $49,000.00. The schedule shows that they owe Life Line Credit Union and Connects Federal Credit Union the respective amounts of $1,400.00 and $1,200.00. Because these two non dischargeable debts are nominal in amount in relation to debtors' total unsecured debt and because Mrs. Woodley's chapter 13 plan in a prior chapter 13 plan was confirmed without objection, the court gives little weight to the creditors' argument relative to the nondischargeable debts.
With respect to the objections to the budget, the court concludes from the evidence at hearing that budget amounts claimed for electricity, water and sewage, telephone and miscellaneous expenses are unsupported. While the court believes that it is appropriate for a chapter 13 budget to include some allowance for contingencies, these budgeted expenses appear to be significantly overstated.
Debtors have proposed to make payments over 60 months rather than 36 months. They propose the extended plan in an apparent effort to overcome the issue of bad faith, an issue that is inherent where debtors file a chapter 13 case for the purpose of discharging debts previously held non dischargeable. Although the court has discounted that argument, the debtors' overstated expenses cannot be disregarded, notwithstanding the extended payment period.
Upon consideration of these factors the court concludes that debtors' chapter 13 plan is not proposed in good faith. However, the court would favorably consider a 60 month plan that pays $300.00 per month. Accordingly, IT IS ORDERED that creditors' objections to debtors' plan are SUSTAINED. The clerk is directed to entered an order denying confirmation of debtors' chapter 13 plan.