In re Cash, Bankruptcy No. 84-06335.

• Decision Date: 12 August 1985
• Docket Number: Bankruptcy No. 84-06335.
• Citation: 51 BR 927
• Parties: In re Hubert Nelson CASH, Jr. and April Ann Cash.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

51 B.R. 927 (1985)

In re Hubert Nelson CASH, Jr. and April Ann Cash.

Bankruptcy No. 84-06335.

United States Bankruptcy Court, N.D. Alabama.

August 12, 1985.

M. Douglas Ghee, Anniston, Ala., for debtors.

FINDINGS, CONCLUSIONS, AND ORDER DENYING CONFIRMATION OF CHAPTER 13 PLAN

L. CHANDLER WATSON, Jr., Bankruptcy Judge.

The above-styled case was commenced November 26, 1984, by a joint petition under chapter 13, title 11, United States Code, filed in this Court, and this case is still pending in this Court under said chapter of the bankruptcy statute. The case came before the bankruptcy judge for a hearing upon confirmation of the debtors' plan, on March 26, 1985. Due to an irregularity of employment experienced by one of the debtors and uncertainty of future employment of this debtor, attendant with the debtors' having moved to Panama City, Florida, the bankruptcy judge withheld a final ruling upon the matter of confirming the plan, and the trustee was requested to report at a later date upon the reliability of the debtors' deposits pursuant to the proposed plan.

The case came before the Court for a continued hearing upon the matter of confirming the plan, on July 9, 1985; whereupon, the bankruptcy judge found that the plan was not then proposed in good faith, concluded that the plan could not be confirmed, and announced that confirmation of the plan was refused.

Findings of Fact

Taking judicial knowledge of the matters appearing of record in the court file for this case, and upon a due consideration thereof, the bankruptcy judge finds the facts as follows:

1. December 19, 1984, was the first day set by the United States trustee, pursuant to Bankruptcy Rule X-1006(a), for the meeting of creditors called, pursuant to 11 U.S.C. § 341(a);

2. With the chapter 13 petition, the debtors filed their Chapter 13 Statement, pursuant to the requirements of Bankruptcy Rule 1007(b) and Official Form No. 10, listing ten debts owed to nine separate creditors, which were there named with their mailing addresses;

3. Neither "Finance One of South Carolina, Inc.," nor "Associates Finance" was included in the list of debts and creditors, but debts owed to these two creditors, respectively, were listed in an amendment which the debtors filed on June 3, 1985, as permitted by the provisions of Bankruptcy Rule 1009; and

4. No proof of claim was filed by either of the latter two creditors in this case except a proof of claim in the sum of $2,062.74 which was tendered for filing by Finance One of South Carolina, Inc., to the clerk of the Court, on June 20, 1985.

Conclusions by the Court

The impediment to confirmation of this plan began with the debtors' omission of the two debts from the list of debts required in part 12 of the debtors' Chapter 13 Statement, Official Form No. 10. In Bankruptcy Rule 2002(a) and (f), it is required that the clerk or some other person directed by the Court give notice to "all creditors" and certain others of the order for relief, the meeting of creditors, and the time allowed for filing claims pursuant to Bankruptcy Rule 3002. The basic source of the names and addresses of the creditors is, of course, the list filed by the debtor or debtors under part 12 of Official Form No. 10. The omission of a creditor or creditors from this list by the debtor results in a lack of knowledge by the creditor or creditors that the chapter 13 case has been commenced, as well as ignorance of the date of the creditors' meeting and of the last date by which a proof of claim may be filed in the case, unless such knowledge comes to the creditor or creditors by other means. There is no indication of the latter in this case.

When a debtor's omission of a creditor is remedied by an amendment filed in time for the creditor to be notified and to file a proof of claim in the case before the claim's deadline, it may be that no substantial injury to the omitted creditor results from the debtor's having filed an incomplete list of debts and creditors. When, however, tardy listing of a creditor by a debtor prevents the creditor from making a timely filing of a proof of claim, it is obvious that different considerations are presented.

With certain exceptions not applicable here, the provisions of Bankruptcy Rule 3002(c) permit the filing of a proof of claim in a chapter 13 case only within 90 days after the first date set for the meeting of creditors called pursuant to 11 U.S.C. § 341(a). In the present case, the creditors' meeting having been first set for December 19, 1984, the last day for the filing of a proof of claim fell on March 19, 1985. Bankruptcy Rule 9006(b) deals with enlargement of time periods by action of the Court, but under subpart (3) of part (b) of that rule, the Court may enlarge the time provisions of Rule 3002(c) "only to the extent and under the conditions stated in" the latter rule. This gives no latitude to the Court except in those circumstances unrelated to this case, as previously noted.¹

As stated, Finance One of South Carolina, Inc., and Associates Finance were not added until an amendment was filed by the debtors on June 3, 1985. Although Bankruptcy Rule 1009 provides that a "Chapter 13 Statement may be amended by the debtor as a matter of course at any time before the case is closed," the failure of the debtors to list these two creditors until long after March 19, 1985, effectively prevented these two creditors from timely filing a proof of claim and deprived them of the opportunity to have an allowed claim as contemplated in 11 U.S.C. §§ 501(a) and 502(a).²

In this situation, it might be suggested that the debts owed to these originally-omitted creditors would not be discharged in this case and that, therefore, no substantial harm to the creditors would result from their being prevented from having the opportunity to hold an allowed claim in the case. This view would rest upon the relevant portion of 11 U.S.C. § 1328(a) which states that "the court shall grant the debtor a discharge of all debts provided for by the plan" after completion of all payments under the plan. It may very well be that a creditor who is not listed by the debtor in the Chapter 13 Statement in time for the creditor to have a reasonable opportunity to file a proof of claim in the case, within the time required by Bankruptcy Rule 3002(c), would hold a nondischargeable debt, because it could not be reasonably said that it was a debt "provided for by the plan." In short, it would be a strained construction to view the plan as providing for a debt owed to a creditor, when the debtor omits the debt and creditor from the Chapter 13 Statement.

Even though it be conceded that the debt would not be subject to the discharge which might be granted to the debtor in such a case, it is easy to conceive of circumstances under which the creditor would still have been seriously prejudiced or injured by the debtor's omission. In the first place, the omitted creditor would not receive any dividend paid under the plan to like creditors holding allowed claims but would be prevented from taking independent action for collection of the debt by the automatic stay provided for under 11 U.S.C. § 362(a). At most, the omitted creditor could seek relief from the stay, but the relief might or might not be forthcoming because of the potential interference with the chapter 13 plan which could result from independent collection efforts by the omitted creditor. To qualify for relief under chapter 13, a debtor is required to be "an individual with regular income" or such a person and that person's spouse.³ By the time that an omitted creditor had obtained relief from the automatic stay or the stay had been terminated by the discharge of the debtor or dismissal or closing of the case,⁴ the debtor's "regular income" may have substantially diminished or have vanished.

This basically unfair treatment of a creditor who is denied effective participation in a chapter 13 case by the debtor's intentional or inadvertent omission of the debt and the creditor from the Chapter 13 Statement, until added by an amendment after the creditor has no opportunity or no reasonable opportunity to file a proof of claim in the case, is not compatible with a finding by the Court that the chapter 13 plan is "proposed in good faith," a prerequisite to the Court's confirmation of the plan.⁵ Whether this would also be the result if the amendment adding the creditor came in time for the filing of a proof of claim but so late as to prevent the creditor from attending the meeting of creditors—or, in another example, from participating in the hearing on confirmation of the plan — is not a question presented to the Court in this case.

Is, however, this issue of whether the plan is proposed in good faith a question presented to the Court in this case? Some may say not. No objection to confirmation of the plan was filed. Not even one creditor appeared or was represented at the continued confirmation hearing; but lack of creditor participation in bankruptcy cases is common. How much participation in a chapter 13 case, beyond tendering to the clerk a proof of one's claim against a debtor, is it reasonable to expect from the holder of an unsecured debt?

Bankruptcy Rule 3020(b)(2), in a fashion similar to 1973 Bankruptcy Rule 13-213(a), provides:

(2) Hearing. . . . If no objection is timely filed, the court may find, without receiving evidence, that the plan has been proposed in good faith and not by any means forbidden by law.

But this provision is obviously permissive and does not purport to dictate what shall be the court's finding on the issue of good faith, when an objection to confirmation is absent.⁶ This rule certainly permits its converse — that the court, in the absence of a timely objection, may find (without taking evidence) that the plan has not been proposed in good faith.

Confirmation of a chapter 13 plan is not properly conceived of as an action which the...