Opinion
District Court Cause No.: TH 01-217-C-T/H, Bankruptcy Court Cause No.: 00-81309-FJO-13.
April 17, 2002
DECISION ON BANKRUPTCY APPEAL
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion to be sufficiently novel or instructive to justify commercial publication of the Entry or the subsequent citation of it in other proceedings.
The United States of America challenges the Bankruptcy Court's order of confirmation of the Chapter 13 plan of Michael R. Rader. This court now reverses the ruling of the Bankruptcy Court.
I. Factual and Procedural Background
Michael R. Rader filed a voluntary petition for a Chapter 13 bankruptcy on September 13, 2000. Rader initially filed a Chapter 13 Plan that same day, but amended his Plan on May 1, 2001. The United States filed an amended objection to the amended Plan on June 12, contesting the feasibility of the Plan. A hearing on confirmation of the Plan was held on August 9. No evidence was presented at the hearing, although Rader did speak on his own behalf. On August 16, the Bankruptcy Court entered an order confirming the amended Chapter 13 Plan. The plan provides for Rader to pay $200 per month, two balloon payments of $31,800 on September 1, 2001 and 2002 respectively, and a final payment on September 1, 2003, which is estimated to be $126,000. The United States filed a notice of appeal on September 14 and its appellant brief on November 30. Rader did not file an appellee's brief.
II. Standard of Review
This Court must review the Bankruptcy Court's order pursuant to Bankruptcy Rule 8013, which provides in relevant part:
On an appeal the district court . . . may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
A finding of fact will be found to be "clearly erroneous" when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous. Id. at 574. The bankruptcy court's application of the law is reviewed de novo. See Calder v. Camp Grove State Bank, 892 F.2d 629, 631 (7th Cir. 1990).
III. Discussion
Appellant brings six claims of error, which can be summarized into two: (1) the Plan was not feasible and (2) the Plan improperly attempted to direct application of the payments received by the IRS. Because of this court's resolution of the first issue, there is no need to address the second issue. As to the first issue, Appellant specifically contends that the Debtor presented no evidence to show that the Plan was feasible in light of the fact that the Plan requires three balloon payments and has no definite source of funding.
The United States also claims that "the bankruptcy court's finding that the debtor would be able to make all payments under the plan is clearly erroneous" because there was no evidence presented by Rader on this issue. This appears to be another way of phrasing the same issue.
Appellant maintains that the Debtor's ability to make the required payments under the Plan is uncertain and speculative in violation of § 1325(a)(6). Pursuant to § 1325(a)(6), the debtor must "be able to make all payments under the plan and to comply with the plan." 11 U.S.C. § 1325(a)(6). Section 1325(a)(6) requires the Court to determine that the debtor's Plan has a reasonable likelihood of success. See In re Craig, 112 B.R. 224, 225 (Bankr.N.D.Ohio 1990) (citation omitted). The Debtor has the burden of proof and persuasion to show that the Chapter 13 Plan satisfies the statutory requirements of 11 U.S.C. § 1325 and 1326. The Court has an obligation to determine whether a debtor has carried the burden of showing that all elements required of a plan filed under Chapter 13 have been met, regardless of whether any party in interest objects. In re Famisaran, 224 B.R. 886, 892 (Bankr.N.D.Ill. 1998); Matter of Endicott, 157 B.R. 255, 263 (W.D.Va. 1993). "Confirmation of a Chapter 13 plan requires more than a ministerial review; rather, bankruptcy judges should exercise their judicial discretion and assess the evidence to ensure that it meets the guidelines established by section 1325." In re Fantasia, 211 B.R. 420, 423 (B.A.P. 1st Cir. 1997).
Although plans requiring balloon payments are not necessarily unfeasible, courts view such plans with suspicion unless the debtor can show through definite and credible evidence that he will have the financial ability to make the balloon payment. Id. Courts have looked at six factors when considering the confirmation of a plan with a balloon payment:
(1) the equity in the property at the time of filing;
(2) the future earning capacity of the debtor;
(3) the future disposable income of the debtor;
(4) whether the plan provides for the payment of interest to the secured creditor over the life of the plan;
(5) whether the plan provides for payment of recurring charges against the property, including insurance, local property taxes and utility charges; and (6) whether the plan provides for substantial payment to the secured creditor.
Id.
In this case, Debtor proposed a plan calling for him to make payments of $200 per month, balloon payments of $30,800 in the twenty-fourth and thirty-sixth months, and a final payment of $126,000. In support of the feasibility of this plan, the Debtor testified that he had paid $20,000 and was prepared to pay another $15,000 as soon as "one of [his] clients can come in to sign the settlement papers.) (App. at 11.) The Debtor mentioned another settlement in a medical malpractice case, with no reference to its dollar amount, and the fact that he had $100,000 in Pfizer stock he could sell. The Plan calls for Rader to pay $225,000 and, by his own testimony, he only has $120,000 in definite assets with the promise of two more settlements. This is simply insufficient to establish that Rader will be able to make all the payments under the Plan. Fantasia, 211 B.R. at 423 ("mere speculation" about the source of funds does not establish feasibility).
On Schedule B, the list of personal property, Rader listed his Pfizer stock options as having a value of $119,000.
This amount might be $107,000 because during the confirmation hearing, the Bankruptcy Court granted Rader's request to use $13,000 to fix up a piece of property to sell.
A review of the record shows that in his original plan, Rader estimated making $6224 a month and spending the same, with no allowance for payment on his bankruptcy plan. There were no amended schedules in the record, so it is unclear where Rader would obtain the money to pay his amended Chapter 13 Plan.
Furthermore, it is impossible for this court to review the factors identified in Fantasia because there is simply inadequate information in the record. The Bankruptcy Court did not engage in vigorous questioning of the Plan, but rather opined that there was no "down side" to the Plan and that the IRS "should be friendlier and gentle these days." (App. at 18.) This ignores the valid concern expressed by the Endicott court that "[b]ecause a debtor files for bankruptcy in the first instance after experiencing financial difficulties, it would be a waste of the bankruptcy system's resources to affirm plans that debtors are unable to follow." Endicott, 157 B.R. at 263. Because Rader presented no evidence that his amended Chapter 13 plan was feasible, the order of confirmation cannot stand.
IV. Conclusion
For the foregoing reasons, the judgment of the Bankruptcy Court is REVERSED.
ALL OF WHICH IS ORDERED.