Dale Recycling & Used Auto Parts, Inc. v. Wade (In re Wade)

• Citation: 598 B.R. 34
• Decision Date: 11 February 2019
• Docket Number: Case No. 17-21607-JRS,Adversary Proceeding No. 18-02014-JRS
• Parties: IN RE: Arnold WADE and Winnifred Herring Wade, Debtors. Dale Recycling & Used Auto Parts, Inc., Plaintiff, v. Arnold Wade and Winnifred Herring Wade, Defendants.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

598 B.R. 34

IN RE: Arnold WADE and Winnifred Herring Wade, Debtors.Dale Recycling & Used Auto Parts, Inc., Plaintiff,

v.Arnold Wade and Winnifred Herring Wade, Defendants.

Case No. 17-21607-JRS

Adversary Proceeding No. 18-02014-JRS

United States Bankruptcy Court, N.D. Georgia, Gainesville Division.

Signed February 11, 2019

Thomas Richelo, Richelo Law Group, LLC, Atlanta, GA, for Plaintiff.

Jonathan D. Clements, Kelley & Clements, Gainesville, GA, for Debtor.

ORDER

James R. Sacca, U.S. Bankruptcy Court Judge

The principal issue before this Court is whether the 87-year-old Mrs. Wade and 74-year-old Mr. Wade, both of whom live on fixed incomes from social security and pensions, converted their case from Chapter 7 to 13 in bad faith to gain the benefit of the more generous discharge provisions in Chapter 13. This issue arises through an Objection to Confirmation of Amended Plan and Amended Motion to Dismiss (the "Motion to Dismiss") [Bnkry. Doc. 54] and an Amended Complaint to Object to Discharge of Debtors, to the Dischargeability of Their Debt to Plaintiff, to Determine the Validity and Priority of Claims, and to Subordinate Certain Claims and/or for Damages¹ (the "Amended Complaint") [Adv. Doc. 10] filed by judgment creditor Dale Recycling & Used Auto Parts, Inc.'s ("DRUAP").

The underlying bankruptcy case was filed by Arnold and Winnifred Wade on August 24, 2017 [Bnkry. Doc. 1]. The Wades are elderly, fixed-income debtors against whom DRUAP obtained a judgment in the amount of $ 20,000, the circumstances of which will be discussed below. In its Amended Complaint, DRUAP seeks to: (1) deny confirmation of the Wades' plan, (2) deny the Wades' discharge (and find that the debt owed to DRUAP is specifically non-dischargeable), and (3) direct the trustee to pursue fraudulent transfer claims or allow DRUAP standing to do so.² The Motion to Dismiss, of which the Amended Complaint is largely duplicative, requests that the Court deny confirmation of the Amended Plan and dismiss the case on the grounds it was allegedly filed (and subsequently converted) in bad faith by the Wades. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(L) and this Court has jurisdiction under 28 U.S.C. § 1334. For the reasons below, this Court will dismiss DRUAP's Amended Complaint, deny the Motion to Dismiss and confirm the Wade's Amended Plan.

FACTS

The Wades are retired and subsist on income from social security and pension plan payments. Mrs. Wade is 87-years-old, and Mr. Wade is 74-years-old. DRUAP's claim arises from a longstanding and contentious dispute between DRUAP and certain nearby residents, including the Wades, over the existence and operation of DRUAP's recycling and automobile salvage business. The Wades, the Clarks, the Gerrins, and Nancy Ledford (collectively the "Neighbors") engaged in litigation with DRUAP over the course of five years, culminating in a judgment in favor of DRUAP in the Superior Court of Jackson County against the Neighbors in 2017. DRUAP's pleadings allege that the Neighbors engaged in a smear campaign, spearheaded by the Clarks, to shut down DRUAP by attempting to generate broad opposition to its continued operation. DRUAP alleges that the Clarks disseminated false information about the legality and safety of DRUAP's operations, both verbally and in the form of lawn signs and flyers. The Wades displayed some of the signs on their property.

DRUAP contends that the Neighbors tried to extort money from it, and when that proved unsuccessful, the Neighbors hired an attorney who issued a cease and desist letter to DRUAP. Shortly thereafter, the Neighbors, while represented by an attorney, sued DRUAP for nuisance and trespass in the Superior Court of Jackson County in a case styled Jackie Clark, et al. v. Dale Recycling & Used Auto Parts, Inc. , No. W14CV0705 (the "Lawsuit"). The action sought damages and a permanent injunction of DRUAP's business activities.³ In response, DRUAP counterclaimed for defamation, tortious interference with business relations, and conspiracy.⁴ The Lawsuit was then tried before a jury, which rendered a general verdict. In its verdict, the jury found that DRUAP was not liable for nuisance or trespass and generally found in favor of DRUAP on DRUAP's counterclaims. The judgment awarded DRUAP $ 20,000 against the Wades,⁵ and other judgments were awarded against the Neighbors, the largest of which was $ 70,000 against the Clarks. The Wades then filed a voluntary Chapter 7 petition on August 24, 2017, one day prior to DRUAP conducting its post-judgment discovery. The Chapter 7 trustee filed a Report of No Distribution on September 25, 2017. About a week before the deadline by which DRUAP had to file a complaint to determine the dischargeability of its claim and object to the discharge of the Wades, the Wades moved to convert their case to Chapter 13 and an order was entered converting the case to Chapter 13 on December 1, 2017 [Doc. 28]. DRUAP thereafter filed a timely proof of claim in the Wades' bankruptcy.

At the time of filing, the Wades' primary assets consisted of their residence which they valued at less than $ 90,000, another home they valued at $ 69,000, a 2011 Chevy Tahoe worth $ 23,000, a 20-year-old Ford F-150 pick-up truck worth $ 2,500, a burial plot worth $ 2,500, typical household goods worth a few thousand dollars, and a few thousand dollars in a credit union account. The Wades claim to have no equity in any of these assets. With respect to their secured liabilities on the petition date the Wades had a reverse mortgage on their residence for $ 160,000, a mortgage on the other home for $ 81,000, a lien on the Chevrolet Tahoe for $ 26,000 in favor of a credit union, and a right of set-off in favor of the credit union with respect to the cash held in the Wades' credit union account. The Wades' other liabilities consisted of the DRUAP judgment, which is secured by a judgment lien on the real estate but which the Wades have sought to avoid under § 522 to make it an unsecured claim, a claim for abusive litigation, a judgment against Mr. Wade in favor of Midland Credit for about $ 19,000, a credit card debt to Capital One for $ 6,000, and a medical debt owing to North Georgia Medical Center for about $ 1,300.

The Wades' initial Chapter 13 plan proposed a plan payment of $ 710 per month and a zero percent dividend to unsecured creditors. Based on their income, any plan proposed by the Wades' is subject to an applicable commitment period of 36 months. The Chapter 13 trustee and DRUAP objected to this initial proposed plan. The Wades have since filed an amended Schedule J that showed an increase generally in their expenses and consequently decreased the disposable income available to contribute to a plan along with an amended Chapter 13 plan that reflected that decrease which reduced the proposed plan payment to $ 550 per month and retained that zero percent dividend to unsecured creditors. The Wades proposed to surrender their second home and the balance in their credit union account under both plans. Under the initial and amended plan, after the trustee takes her commission and the Wades' attorney's fees are paid, only the credit union will be paid on its secured claim on the Chevrolet Tahoe. The Chapter 13 trustee is satisfied with the Amended Plan, has withdrawn any objections, and recommends confirmation of the Amended Plan. DRUAP has continued to object to the Wades' amended plan.

DRUAP's objections to the Amended Plan can generally be summarized as follows. First, DRUAP argues that the Wades have inappropriately scheduled expenses for the care of their non-custodial great grandchild and improperly borrowed funds to pay the bail of Winnifred Wade's son.⁶ Second, DRUAP alleges that the Wades' conversion to Chapter 13 constitutes a bad faith attempt to discharge a debt that would not be dischargeable in Chapter 7 and the Wades' plan does not propose to pay DRUAP anything on the judgment. Third, DRUAP asserts that the Wades should be required to pay into their plan for 60 months in order to pay something to unsecured creditors even though they qualify for a 36 month applicable commitment period. Finally, DRUAP asserts various other objections to alleged post-petition payments and debtor's amended schedules that this Court will address in assessing DRUAP's allegations of bad faith.

DISCUSSION

A. Dischargeability in Chapter 7 as Opposed to Chapter 13

Section 523(a)(6) of the Bankruptcy Code dictates that a Chapter 7 debtor may not discharge any debt arising from "willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). The consequence of this is that a Chapter 7 debtor may not discharge any debt which arises from the debtor's intentional injury of another person or entity. In re Jennings , 670 F.3d 1329, 1334 (11th Cir. 2012) ("[A] debtor is responsible for a ‘willful’ injury when he or she commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury.")(quoting In re Walker , 48 F.3d 1161, 1165 (11th Cir. 1995) ).

However, § 523(a)(6) does not apply to Chapter 13 debtors. In re Adams , 478 B.R. 476, 486 (Bankr. N.D. Ga. 2012) (Diehl, J.). Instead, § 1328(a)(4) more narrowly prevents a debtor from discharging any restitution or damages, "awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual ." 11 U.S.C. § 1328(a)(4) (emphasis added). Rather than broadly preventing the discharge of any willful or malicious injury to any "entity," § 1328(a)(4) only bars the discharge of willful or malicious "personal injury to an individual." Compare 11 U.S.C. § 523(a)(6), with 11 U.S.C. § 1328(a)(4).

When Congress uses particular language within one section of a statute, but uses different language in another section, this difference is presumed to be intentional. Se...