In re Chase

• Decision Date: 24 March 1983
• Docket Number: Bankruptcy No. 82-1-1487.
• Citation: 28 BR 814
• Parties: In re Karl Eugene CHASE, Barbara Ann Chase, Debtors.
• Court: U.S. Bankruptcy Court — District of Maryland

28 B.R. 814 (1983)

In re Karl Eugene CHASE, Barbara Ann Chase, Debtors.

Bankruptcy No. 82-1-1487.

United States Bankruptcy Court, D. Maryland, at Rockville.

March 24, 1983.

Lee Cowan, Washington, D.C. and Stanley Karlin, Silver Spring, Md., for debtors.

Shelly Mintz, Hyattsville, Md., for minor creditor, Selene Harold.

Thomas Lackey, Upper Marlboro, Md., Trustee.

MEMORANDUM OF OPINION

PAUL MANNES, Bankruptcy Judge.

This matter was before the court for the confirmation of the Chapter 13 Plan filed by Karl E. Chase and Barbara A. Chase, debtors. An objection was made to confirmation by Selene Harold, a minor, by her mother and next friend, Sheila Irene Harold.

Debtors' plan proposes the payment of $150.00 to the trustee for a period of 36 months. Debtors list six consumer debts aggregating $923.40, and a judgment of $25,000.00 owing to the objecting creditor. Their plan suggests a payment pro rata, and after the deduction of the trustee's fees and expenses, there would be paid $135.00 a month for a total of $4,860.00 over the 36 months of the plan.

The creditor's claim arises out of a consent judgment entered in the Circuit Court for Prince George's County, Maryland. The judgment was based upon a sexual assault by the male debtor, Karl Eugene Chase, upon the minor. The creditor further charges that "Mrs. Chase was fully aware of her husband's sexual propensities and fondness for young girls, yet nevertheless, took into her home and into her charge the minor creditor, SELENE HAROLD, who was subsequently and predictably assaulted by the debtor, Karl Chase." The creditor argues that the consent judgment was entered into with the expectation of a plea being made to the sentencing court in the hopes of allowing Mr. Chase to remain out of prison earning a living and supporting his family and repaying the victim. In fact, Mr. Chase was placed upon probation.

The creditor urges that because under 11 U.S.C. § 523(a)(6) an individual debtor may not be discharged "for willful and malicious injury by the debtor to another entity or to the property of another entity," that this provision bars confirmation under Chapter 13 of a plan that would purport to discharge such a debt. This is not the law. Debts that fall within the scope of § 523(a)(6) may still be discharged pursuant to § 1328(a) after the completion of a Chapter 13 Plan. In re DeSimone, 25 B.R. 728 (D.C.E.D.Pa.1982). It may be noted that the Chapter 13 discharge is far broader than the Chapter 7 discharge. It covers every item other than those provided for under the plan, and it does not extend to payments for spousal support and child support under § 523(a)(5). In short, the quality of the Chapter 13 discharge is of a far more substantial nature than that of a Chapter 7 discharge, in that this discharge is obtainable so long as the Chapter 13 Plan complies with three requirements of § 1322 (a) and the requirements of § 1325(a).¹

Because § 1325(a)(4) requires only that there be a payout for each allowed unsecured claim not less than the amount that would be paid in liquidation, there have been zero payment plans and minimal payment plans, that is, where there have been payments of either $1.00 a month or nothing to the unsecured creditors. See generally, Matter of Scher, 12 B.R. 258 (Bkrtcy.S. D.N.Y.1981). Perhaps the most graphic example of the generosity of a Chapter 13 discharge is set forth in the case of In re Rimgale, 669 F.2d 426 (7th Cir.1982).² In reversing the order of the District Court denying confirmation, the Seventh Circuit pointed out that the existence of a claim that would have barred discharge that is not paid in full, is not an impediment to confirmation. The bankruptcy court must look to the good faith of the petitioner. 669 F.2d at 431-432.

It is this phrase, "good faith," contained in § 1325(a)(3) that has caused the disputes among the courts. Courts that have been unwilling to confirm Chapter 13 plans have used the peg of good faith upon which to hang their disapproval. "The `good faith' requirement is neither defined in the Bankruptcy Code nor discussed in the legislative history. The phrase should, therefore, be interpreted in the light of the structure and the general purpose of Chapter 13." Memphis Bank and Trust Co. v. Whitman, 692 F.2d 427, 431, 432 (6th Cir.1982) (When the debtor's conduct is dishonest, the plan simply should not be confirmed). On the other hand, the District of Columbia Circuit held in Barnes v. Whelan, 689 F.2d 193 (D.C.Cir. 1982), the bankruptcy court should limit itself "to the traditional meaning of `good faith' as honesty of intention." 689 F.2d 200. The District of Columbia Circuit in Barnes affirmed two nominal payment plans where there was no evidence that the debtors "engaged in any specific conduct, did not intend to carry out the plan, proposed the plan for an improper purpose, or did anything else to bring either case within the ambit of bad faith as traditionally interpreted." Ibid. Shortly after the decision was rendered in the Barnes case, the Fourth Circuit decided the case of Deans v. O'Donnell, 692 F.2d 968 (4th Cir.1982). In Deans, the District Court had affirmed a bankruptcy court's refusal to confirm a Chapter 13 plan, finding that it was not proposed in good faith in that there was no provision for any substantial and meaningful payment to the unsecured creditors. In reversing the District Court, the Fourth Circuit reflected that its task was to construe the statute, not to construct it. Thereafter, the Fourth Circuit laid down the following guidelines:

Our rejection of an implied per se substantial repayment requirement in § 1325(a)(3) should not suggest any endorsement of minimal or no repayment plans. Congress never intended, of course, that Chapter 13 serve as a haven for debtors who wish to receive a discharge of unsecured debts without making an honest effort to pay those debts. While no precise definition can be sculpted to fit the term "good faith" for every Chapter 13 case, we thing the generally accepted definition of "good faith" as used in Chapter 11 of the old Bankruptcy Act, 11 U.S.C. § 766(4) (1976) (repealed), provides the general parameters:

A comprehensive definition of good faith is not practical. Broadly speaking, the basic inquiry should be whether or not under the circumstances of the case there has been an abuse of the provisions, purpose, or spirit of the Chapter in the proposal or plan ....

9 Collier on Bankruptcy 9.20 at 319 (14th ed. 1978), cited in In re Goeb, 675 F.2d 1386, 1390 n. 9 (9th Cir.1982); In re Rimgale, 669 F.2d 426, 431 (7th Cir.1981); In re Terry, 630 F.2d 634, 635 n. 3 (8th Cir.1980).

As noted, repayment to unsecured creditors, although not a requirement for confirmation of every Chapter 13 plan, was one intended purpose of Chapter 13\'s enactment. Failure to provide substantial repayment is certainly evidence that a debtor is attempting to manipulate the statute rather than attempting honestly to repay his debts. But substantiality of proposed repayment is but one factor to be considered in deciding if a plan has been proposed in good faith; a court must make its determination based on all militating factors.

Without attempting either to be exhaustive or to establish a criteria "checklist," these factors might include, depending on the particular case, not only the percentage of proposed repayment, but also the debtor\'s financial situation, the period of time payment will be made, the debtor\'s employment history and prospects, the nature and amount of unsecured claims, the debtor\'s past bankruptcy filings, the debtor\'s honesty in representing facts, and any unusual or exceptional problems facing the particular debtor. Although the court\'s discretion in making the good faith determination is necessarily a broad one, the totality of circumstance must be examined on a case by case basis in order fairly to apply the statute as now written.

As more Chapter 13 cases reach the circuit level, the research became more and more refined. When the Eighth Circuit had In re Estus, 695 F.2d 311 (8th Cir.1982), before it, it had the benefit of In re Rimgale, 669 F.2d 426 (7th Cir.1982), In re Terry, 630 F.2d 634 (8th Cir.1980), In re Goeb, 675 F.2d 1386 (9th Cir.1982), Barnes v. Whelan, supra, and In re Deans, supra, plus several opinions from District Courts and bankruptcy courts, all dealing with the square peg of the good faith requirement and the round holes of zero payment plans, non-dischargeable debts, including educational loans, and the apparent incongruity of the quality of the Chapter 7 and Chapter 13 relief. Building upon the earlier opinions, particularly the analysis adopted by the Fourth Circuit, the Estus court felt that the proper inquiry should be "whether the plan constitutes an abuse of the provisions, purpose, or spirit of Chapter 13. The bankruptcy court must utilize its fact-finding expertise and judge each case on its own facts after considering all of the circumstances of the case." 695 F.2d at 316. The court went on to say:

We make no attempt to enumerate all relevant considerations since the factors and the weight they are to be given will vary with the facts and circumstances of the case. However, in addition to the percentage of repayment to unsecured creditors, some of the factors that a court may find meaningful in making its determination of good faith are:

(1) the amount of the proposed payments and the amount of the debtor\'s surplus;

(2) the debtor\'s employment history, ability to earn and likelihood of future increases in income;

(3) the probable or expected duration of the plan;

(4) the accuracy of the plan\'s statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;

(5) the extent of preferential treatment between classes of creditors;

(6) the extent to which secured claims are modified;

(7) the type of debt sought to be

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