LeMaire, In re

• Decision Date: 05 July 1989
• Docket Number: No. 88-5275,88-5275
• Citation: 883 F.2d 1373
• Parties: , 21 Collier Bankr.Cas.2d 678, 19 Bankr.Ct.Dec. 1016, Bankr. L. Rep. P 73,005 In re Gregory A. LeMAIRE, Debtor. Paul HANDEEN, Appellant, v. Gregory A. LeMAIRE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1373

883 F.2d 1373

58 USLW 2045, 21 Collier Bankr.Cas.2d 678,

19 Bankr.Ct.Dec. 1016, Bankr. L. Rep. P 73,005

In re Gregory A. LeMAIRE, Debtor Paul HANDEEN, Appellant, v. Gregory A. LeMAIRE, Appellee.

No. 88-5275.

United States Court of Appeals Eighth Circuit.

July 5, 1989.

Before McMILLIAN, JOHN R. GIBSON, and MAGILL, Circuit Judges.

MAGILL, Circuit Judge.

In this appeal, we consider for the first time the dischargeability under Chapter 13 of the Bankruptcy Reform Act, 11 U.S.C. Secs. 1301 et seq., of a civil judgment owed to an assault victim by an assailant. The creditor-victim urges us to adopt a bright line rule prohibiting the discharge of any debt incurred as a result of a debtor's heinous criminal activity. Such a rule would effectively extend the nondischargeability provision of 11 U.S.C. Sec. 523(a)(6) to Chapter 13 proceedings, a result directly contrary to Chapter 13's terms and unsupported by the statute's legislative history. We refuse to engage in such judicial activism.

The creditor asserts that the court's failure to adopt a bright line rule will result in Chapter 13 becoming a "haven for criminal debtors" to discharge their otherwise nondischargeable debts arising out of criminal conduct. We disagree. While we recognize the potential for abuse inherent in allowing such a discharge, our refusal to make the debt automatically nondischargeable does not mean that the circumstances underlying a debt are irrelevant. The bankruptcy court and district court must consider the circumstances underlying the debt as one factor in determining a debtor's good faith for purposes of Sec. 1325(a)(3). Education Assistance Corporation v. Zellner, 827 F.2d 1222 (8th Cir.1987); In re Estus, 695 F.2d 311 (8th Cir.1982). Because we find that the bankruptcy court ¹ and district court ² properly determined that the debtor in this case was acting in good faith, we affirm.

I.

The debt at the heart of this case arises from a civil judgment entered against Gregory LeMaire after LeMaire intentionally shot and seriously injured Paul Handeen. This court is not privy to all the facts underlying LeMaire's attack on Handeen, but the viciousness of that attack is not in dispute. LeMaire intended to kill Handeen, attempted to do so, and very nearly succeeded. The nature of the attack is made clear by the record before us. In July 1978, LeMaire shot at Handeen nine times with a bolt action rifle, hitting him five times. LeMaire fired several of the shots at point blank range. Handeen almost died.

LeMaire pled guilty to aggravated assault and received a sentence of one to ten years. He served twenty-seven months, and was released in 1981. After his release, LeMaire returned to graduate school at the University of Minnesota. He received his Ph.D. in experimental behavior pharmocology in January 1985. Since then, he has served as a research fellow at the University, and expects to continue to work as a researcher for a scientist at the University after completing a third year as a research fellow.

Handeen obtained a civil judgment for $50,362.50 against LeMaire in September 1985. Shortly thereafter, Handeen attempted to collect on the judgment by commencing garnishment proceedings. On January 16, 1987, LeMaire filed for Chapter 13 protection. In addition to Handeen, LeMaire's debt schedule names two additional creditors: the University of Minnesota ³ and his parents. The schedules show a $900 debt to his parents secured by a 1980 Datsun station wagon and an $11,822 debt to his parents based on a promissory note LeMaire signed the day before he filed in the bankruptcy court. ⁴

LeMaire's original plan proposed payments of $175 per month for thirty-six months. Before the confirmation hearing on the original plan, LeMaire modified it to increase the payments to $265 per month for thirty-six months. This modified original plan would have provided creditors with a dividend of approximately 13.75 percent. Handeen objected to the plan. After a hearing, the bankruptcy court denied confirmation. In an order dated May 23, 1987, the court concluded that LeMaire was not applying all of his disposable income to the plan and expressed concern about LeMaire's failure to propose a plan for the maximum statutory period of sixty months. See 11 U.S.C. Sec. 1322(c). The court also denied Handeen's motion to dismiss.

On September 29, 1987, LeMaire filed a new plan increasing the monthly payment to $500 and extending the term of the plan to sixty months. Under this plan, creditors would receive a dividend of approximately 42.3 percent. Handeen objected to confirmation on grounds that the plan was not proposed in good faith and that LeMaire did not dedicate all of his disposable income to the plan. The bankruptcy court held a hearing on Handeen's motion, and confirmed LeMaire's amended plan on November 12, 1987.

The bankruptcy court found that LeMaire had a monthly net income of $1,185.24 and reasonable monthly expenses of $760.87. ⁵ After deducting expenses from income, the court found that LeMaire had approximately $424 per month in disposable income. Although this was less than the $500 LeMaire proposed to pay under the plan, the bankruptcy court confirmed the plan and recognized that LeMaire "will have to make up [the difference] by sacrifices in other areas or by continued financial Support from his Parents.' The Court rejected Handeen's objections that the plan was not proposed in good faith and that the plan did not provide for payments in the amount of LeMaire's disposable income.

Handeen filed a motion for amended findings and conclusions of law on November 25, 1987. He filed a motion objecting to the claims of LeMaire's parents on December 4, 1987, arguing that the LeMaires' claims were gifts to their son and should be disallowed as such. Both motions were heard on January 6, 1988. The bankruptcy court denied Handeen's motion for amended findings and conclusions of law in an order dated January 13, 1988. In an order dated January 7, 1988, the court allowed the LeMaires' claims in the amount of $8,772. ⁶

Handeen appealed to the district court from the bankruptcy court's orders allowing LeMaire's parents' general unsecured claim and denying Handeen's motion for amended findings of fact and conclusions of law. On appeal, Handeen argued that: (1) the plan was not proposed in good faith; (2) the plan does not include all of LeMaire's projected disposable income for the plan's five-year period; (3) LeMaire's research stipend was not regular income for purposes of 11 U.S.C. Sec. 101(29); and (4) LeMaire's debt to his parents was either a gift, or was barred by the statute of limitations or statute of frauds. The district court rejected these arguments and affirmed the decision of the bankruptcy court. Handeen raises the same arguments on appeal to this court. On review, we examine a bankruptcy court's decision to determine whether its factual findings are clearly erroneous and whether its legal conclusions, which are subject to de novo review, are correct. Education Assistance Corporation v. Zellner, 827 F.2d 1222, 1224 (8th Cir.1987); Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir.1987).

II.

Handeen urges that because under 11 U.S.C. Sec. 523(a)(6) an individual debtor may not be discharged "for willful and malicious injury by the debtor to another entity or the property of another entity," a Chapter 13 plan purporting to discharge such a debt should not be confirmed. No one disputes that LeMaire's debt to Handeen arises out of a "willful and malicious injury" for purposes of Sec. 523(a)(6). The issue in this case is whether a debt for willful and malicious injury which is within the scope of Sec. 523(a)(6) (and therefore would be nondischargeable under Chapter 7, see 11 U.S.C. Secs. 523(a), 727) is dischargeable under Chapter 13. This is a case of first impression in this circuit.

Although Sec. 523(a)(6) expressly prohibits discharge under certain sections of the Bankruptcy Code, ⁷ it does not by its terms apply to discharge under Sec. 1328(a). LeMaire has filed an application for discharge pursuant to Sec. 1328(a), which provides:

As soon as practicable after completion by the debtor of all payments under the plan, * * * the court shall grant the debtor a discharge of all debts provided for by the plan * * * except any debt--

(1) provided for under section 1322(b)(5) of this title; or

(2) of the kind specified in section 523(a)(5) of this title. ⁸

11 U.S.C. Sec. 1328(a). Debts under Sec. 523(a)(6) are not included in the list of debts which are nondischargeable under Sec. 1328(a). Based on the express statutory language, we find that debts which fall within the scope of Sec. 523(a)(6) may be discharged pursuant to Sec. 1328(a) if the debtor can meet the requisites of Chapter 13. See Matter of Swan, 98 B.R. 502 (Bankr.Neb.1989); In re Seely, 6 B.R. 309, 311 (Bankr.E.D.Va.1980); In re DeSimone, 25 B.R. 728, 729 (E.D.Pa.1982); In re Chase, 28 B.R. 814, 815 (Bankr.Md.1983), reversed on other grounds, 43 B.R. 739 (D.C.Md.1984) (reversed on Chapter 13 good faith analysis).

11 U.S.C. Sec. 1325(a) sets out six criteria which a debtor must meet before a bankruptcy court will confirm his Chapter 13 plan:

[T]he court shall confirm a plan if--

(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title;

(2) any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid;

(3) the plan has been proposed in good faith and not by any means forbidden by law;

(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;

(5) with respect to each allowed secured claim provided for by...