Love, Matter of

• Decision Date: 26 February 1992
• Docket Number: No. 90-3329,90-3329
• Parties: , 26 Collier Bankr.Cas.2d 875, 22 Bankr.Ct.Dec. 1107, Bankr. L. Rep. P 74,537 In the Matter of Robert John LOVE, Debtor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1350

957 F.2d 1350

60 USLW 2618, 26 Collier Bankr.Cas.2d 875,

22 Bankr.Ct.Dec. 1107, Bankr. L. Rep. P 74,537

In the Matter of Robert John LOVE, Debtor-Appellant.

No. 90-3329.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 27, 1991.

Decided Feb. 26, 1992.

James G. Richmond, U.S. Atty., J. Philip Klingeberger, Asst. U.S. Atty., Dyer, Ind., Gary R. Allen, Gary D. Gray, Joel A. Rabinovitz (argued), Dept. of Justice, Tax Div., Appellate Section, Washington, D.C., for appellee.

Rebecca Harper, UAW-GM Legal Services Plan, Marion, Ind. (argued), for debtor-appellant.

Before WOOD, Jr., ^* RIPPLE and MANION, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

This case raises interesting questions regarding the distinction between the good faith standard for filing a Chapter 13 petition and the good faith standard for the confirmation of a Chapter 13 bankruptcy

                plan.   The debtor in this case, Robert John Love, filed a petition for relief under Chapter 13 of the Bankruptcy Code.   The bankruptcy court determined that Love did not file the bankruptcy petition in good faith.   Accordingly, the bankruptcy judge dismissed the debtor's petition pursuant to Section 1307(c) of the Bankruptcy Code.  11 U.S.C.A. § 1307(c).   The district court affirmed this dismissal and Love appeals this district court order
                

I. BACKGROUND ¹

The evidence before the bankruptcy court indicated that Love was involved with a group that protested the payment of income taxes. This involvement began in 1981. In April 1981, as a member of this protest group, Love submitted to his employer W-4 forms claiming he was exempt from the withholding of any federal income taxes. Love continued to submit false W-4 forms at various times during 1981, 1982 and 1983. In May of 1983 the Internal Revenue Service ("IRS") instructed Love's employer to withhold from Love's wages an amount appropriate for a single person. The IRS also told the employer to stop accepting W-4 forms from Love. Love, aware of this action by the IRS, continued to submit signed falsified W-4 forms to his employer.

While associated with this tax protest group, Love refused to pay federal income taxes. Accordingly, Love waited until December of 1986 to file federal income tax forms for the 1981 through 1985 tax years.

When the IRS sent Love correspondence with regard to his tax liabilities, Love forwarded the correspondence to the tax protest group. Love would then pay this tax protest group approximately $50.00, and this group would draft a response to the IRS. These responses refuted Love's obligation to pay taxes. Some of these responses were signed by Love and others were not. The last response prepared by the tax group was on September 30, 1986, (approximately two months before Love filed an emergency petition for bankruptcy relief). This September 30th response was a petition for appeal to the United States Tax Court. This petition was prepared at Love's request and signed by Love. Love testified that he was not involved with the tax protest group after the group prepared this September 30th petition.

In response to Love's continued refusal to pay income taxes, the IRS initiated levies against Love's assets. The first of these levies was initiated sometime prior to 1986. This initial levy was for $1,000.00. The IRS obtained this $1,000.00 by levying Love's credit union account and by garnishing his wages in two separate pay checks. Then in 1986, the IRS implemented a $75.00 a week levy against Love's wages. Shortly thereafter, on December 3, 1986, Love filed an emergency Chapter 13 bankruptcy petition. Then on December 18, 1986, Love filed a document entitled "Original Petition." Love also filed the following documents on December 18, 1986: "Chapter 13 Statement"; "Schedule of Debts and Debtor's Proposed Plan of Dealing With Creditors"; and "Debtor's Plan." (As a matter of convenience we will also refer to these three documents collectively as Love's original Chapter 13 plan.) In December of 1986 after beginning bankruptcy proceedings, Love filed tax returns for the 1981 through 1985 tax years. These returns indicated a substantial tax liability.

Love's original Chapter 13 plan lists 13 creditors. Eleven of these creditors were only listed for notice purposes because Love was only indebted to two of the listed creditors: Barklays Bank of Delaware and the IRS. This plan lists Love's debt to the Love filed an amended plan on February 17, 1987. This plan proposes a $90.00 per week payment ceasing at the earlier of the two following events: 52 months or after Love paid 100% of the secured and priority claims and 10% of the unsecured nonpriority government claims.

                IRS as follows:  a priority debt of $10,234.00 and an estimated $8,000.00 nonpriority debt.   This equals a total estimated debt of $18,234.00 to the IRS.   The debt to Barklays was for a dinette set, on which Love claimed to owe $1,600.00.   The original plan, therefore, lists an estimated total debt of $19,834.00.   This plan proposes a $90.00 per week payment to be distributed to the trustee.   The plan, as required by 11 U.S.C.A. §§ 507, 1322(a)(2), proposes a 100% payment of priority debts.   In addition, this plan proposes a 10% payment of the estimated $8,000 general unsecured debt to the IRS.   These payments were to last no longer than five years
                

There is a dispute with regard to the actual debt and priority debt listed on Love's original plan. That is, with regard to Love's tax debt, the IRS filed a Proof of Claim on January 7, 1987, indicating a tax liability of $20,947.64, as opposed to Love's estimated $18,234.00. This Proof of Claim states claims in the following amounts: a $957.25 secured claim which consisted of prepetition interest on unpaid taxes; a $17,529.44 unsecured priority claim for unpaid taxes and prepetition interest; and a $2,460.95 general unsecured claim for unpaid tax penalties. The IRS Proof of Claim demonstrates a substantially larger priority debt, a correspondingly lower unsecured debt, and a larger total debt than that acknowledged by Love in his original plan. Moreover, it lists a tax lien not listed on Love's initial petition.

Love filed an objection to this Proof of Claim on July 7, 1987. This objection does not refute the classification of prepetition interest as a priority debt. Moreover, Love's modified plan concedes that prepetition interest for the 1981, 1982, 1983 and 1984 tax years is a priority claim and not a general nonpriority claim as reflected in the original plan.

In Love's original plan he listed his total assets as follows: a $1,600 dinette set, $1,500 in household goods, $500 in clothing and jewelry, and $1,267.04 in General Motors Stock. At a hearing before the bankruptcy judge, however, Love stated that his jewelry consisted of "three cheap watches and two stainless steel rings." And, Love stated that he gave the dinette set to Ms. Erman. No other household goods were identified at this hearing.

Love's original plan lists his gross income as totalling $530 per week, which equals $27,560 per year. This calculation excludes any overtime, vacation pay, and bonuses even though Love traditionally earned fairly substantial amounts of overtime and vacation pay. Indeed, Love's previous year's income was listed as $44,303.57, and his 1984 tax return shows that his income for the year before that was $37,720.

This original plan also fails to list at least three life insurance policies. Moreover, after these policies were brought to Love's attention, Love still failed to produce them or list them on an amended plan.

On January 30, 1987, the IRS filed an Objection to Confirmation of Debtor's Plan and a Motion to Dismiss the Debtor's Case. On September 21, 1987, the bankruptcy court conducted a hearing focusing on the issue of dismissal of the Chapter 13 petition on the grounds that Love lacked good faith in filing this petition. The bankruptcy court granted IRS's motion for dismissal and, accordingly, indefinitely postponed a confirmation hearing with regard to the Chapter 13 plan.

Love asked the bankruptcy court to reconsider its dismissal for lack of good faith. The bankruptcy judge rejected this motion. Love then appealed this decision to the District Court for the Northern District of Indiana, and Judge Miller upheld the bankruptcy court's dismissal. Love appealed the district court's decision to affirm the bankruptcy court decision.

Because the bankruptcy court appropriately applied the totality of circumstances test in making its good faith determination, and because it was not clearly erroneous

for the bankruptcy judge to find that Love lacked good faith in filing the Chapter 13 petition, we affirm the district court's decision.

II. ANALYSIS

The bankruptcy court's good faith finding is a purely factual finding evaluated under the clearly erroneous standard of review. In re Smith, 848 F.2d 813, 816, n. 2 (7th Cir.1988). The clearly erroneous standard requires this court to give great deference to the bankruptcy court, the trier of fact. Under this standard, if the trial court's account of the evidence is plausible in light of the record viewed in its entirety, a reviewing court may not reverse even if convinced that it would have weighed the evidence differently as trier of fact. EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 309 (7th Cir.1988). Indeed, reversal under the clearly erroneous standard is only warranted if "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Id. (citations and quotation marks omitted).

The bankruptcy court's and district court's conclusions of law, on the other hand, are subject to de novo review on appeal. In re Newman, 903 F.2d 1150, 1152 (7th Cir.1990). The lower courts' conclusions with regard to the legal standard applicable to good faith determinations are questions of law reviewed under the de novo standard. See United States...