In re Chase
| Citation | 43 BR 739 |
| Decision Date | 30 April 1984 |
| Docket Number | Civ. No. Y-83-1971. |
| Parties | In re Karl Eugene CHASE, et al., Debtor. |
| Court | U.S. District Court — District of Maine |
Shelly E. Mintz, Hyattsville, Md., for plaintiff.
Thomas R. Bateski, Laurel, Md., for defendant.
The debtors in this case, Karl Eugene and Barbara A. Chase, filed a Chapter 13 petition for reorganization, which was confirmed by Bankruptcy Court Judge Paul Mannes on May 18, 1983. One creditor, Selene Harold, a minor, filed objections to confirmation of the bankruptcy plan through her mother, Sheila I. Harold, and has filed this appeal from the order of the Bankruptcy Court confirming the plan.
The basic question under consideration is whether Judge Mannes correctly determined that the plan was filed in good faith. In making such a determination, background details are helpful.
The difficulties between the parties in this case arose several years ago when Selene Harold, then a 9-year-old girl, spent the night at the Chases' house with her friend Cynthia Chase, the debtors' daughter. Apparently, on that night, Mrs. Chase left her husband alone with the children, and her husband sexually assaulted Selene Harold and his daughter, Cynthia. As the creditors' former counsel later explained, this incident wasn't
Karl Chase either entered a guilty plea or was convicted on criminal charges brought in connection with his conduct that night. At the time of the sentencing, the lawyer for the parents of the Harold girl— who had filed a civil suit against the Chases —negotiated a consent judgment with the Chases. The gist of the judgment was that the Chases would pay the Harolds $25,000 in exchange for the Harolds' agreement not to testify at the sentencing hearing (and presumably, although this is not clear from the record, in agreement for dropping the civil suit). Chase has admitted that the purpose of signing the judgment was to procure a lighter sentence; he further admitted that at the time he signed the consent judgment he did not expect to pay the money Deposition of October 12, 1982. Chase received probation in lieu of a jail sentence and Harold now claims that at least part of the reason Chase was not being incarcerated was the fact that he had entered into the consent judgment.
As it turned out, the consent judgment was flawed. The original complaint had been filed against Karl and Cynthia Chase, rather than Karl and Barbara Chase, as a result of an oversight by the Harolds' lawyer. Both Mr. and Mrs. Chase signed the consent decree anyway.
Several months later, the Harolds discovered that the complaint had been filed, and judgment entered, against the wrong parties, and they moved to have the judgment amended. This was done by Judge Jacob Levin, who, on September 17, 1982, found that a "fraud" had been "perpetrated on this Court and I'm going to change it." Judgment was amended to reflect that it had been entered against Karl and Barbara Chase, husband and wife.
During the period after the initial judgment was entered, the Chases made no attempt to pay on the judgment and the Harolds initiated garnishment procedures against the Chases. Chase's wages were garnished, and immediately thereafter, on September 29, 1982, the Chases filed a joint petition for reorganization under Chapter 13 of the Bankruptcy Code.
In their petition for reorganization, the debtors listed a secured debt of less than $900 (secured by their car), and unsecured debts of $25,923 (apparently there is an error in the addition performed on the figures listed in their petition, since they list debts of $25,000 to Selene Harold and other debts which total more than $1,400). The debtors also stated that they were earning approximately $175 a month in excess of their expenses.
After two hearings, Judge Mannes confirmed the Chapter 13 plan, modified to show a biweekly payment to the Harolds of $75 over a five-year period as opposed to the requested 3 years. He found that the plan had been filed in good faith, considered the assertion that the discharge of the $25,000 consent judgment amounted to bad faith by payment of $9,750 over five years, and found that it did not, reasoning that the consent judgment as to Mrs. Chase would have been dischargeable under Chapter 7, as she was at most guilty of gross negligence in leaving her husband alone with Selene Harold and their daughter, and gross negligence is not enough to constitute willful and malicious conduct required to make the debt non-dischargeable under Chapter 7. While Judge Mannes conceded that Mr. Chases's debt would have been non-dischargeable under Chapter 7, he noted that the purpose of Chapter 13 was to allow discharge of debts which the more restrictive Chapter 7 would not allow. Hence, the nature of the debt being discharged was not sufficient to find that the plan had been proposed in bad faith. (See Memorandum and Order, docket number 19).
The appellants have appealed the order of the Bankruptcy Court which confirmed the Chases' Chapter 13 plan. The basis of the appeal is that the court erred in its finding that the plan submitted by the appellees/debtors was in "good faith" and thus in compliance with Chapter 13.
The starting point for an assessment of this appeal is the bankruptcy law. The present provisions of Chapter 13 were enacted by Congress as part of the Bankruptcy Reform Act of 1978. 11 U.S.C. §§ 1301-1330. The former Chapter 13 was liberalized to provide an effective system for dealing with consumer bankruptcies and to encourage more debtors to pay their debts under bankruptcy court supervision. In Re Estus, 695 F.2d 311 (8th Cir.1982), citing 1978 U.S. Code Cong. and Admin. News 5763-66, 5787.
Chapter 13 contains provisions enabling certain debtors to repay all or a percentage of their debts according to a court-approved plan. Chapter 13 debtors make payments to creditors out of future income over a three- to five-year period, after which they are entitled to a broad discharge of their obligations. 11 U.S.C. §§ 1301-1330. Flygare v. Boulden, 709 F.2d 1344 (10th Cir.1983). The bankruptcy court must confirm the Chapter 13 plan if it meets the six criteria Congress set out in § 1325(a):
Following the confirmation of a plan by the Bankruptcy Court, the District Court may review that confirmation if a timely notice of appeal has been filed. Emergency Rule 51-A(e)(2)(A)(1). The District Judge may accept, reject or modify the order of the Bankruptcy Judge. Emergency Rule 51(e)(2)(B).
The issue for this Court is to determine whether the Chapter 13 plan submitted by the Chases has met the good-faith requirements of § 1325(a). The interpretation of that requirement has recently generated a substantial body of case law and has spawned a host of scholarly comment. See articles cited in In Re Goeb, 675 F.2d 1386, 1388 n. 3 (9th Cir.1982). While courts differ in their assessment of what factors are most important in determining whether or not a plan complies with the good-faith requirement, there is general agreement that such an inquiry involves a broad assessment of many factors. The court in Matter of Yavarkovsky, 23 B.R. 756 (S.D. 1982), aptly describes the tenor of such an assessment:
The good faith requirement contemplates a broad judicial inquiry into the conduct and state of mind of the debtor, with reference to the proposal of the plan. It goes much farther than whether there has been technical compliance with statutory obligations. . . . Such an inquiry properly enters into all aspects of fair dealing relevant to the proposal of the plan. It looks not only to the lawfulness of the debtor\'s conduct, but also . . . to his good faith in dealing with the creditors and their claims. Id. at 759.
This Court must make such an inquiry against a backdrop of rapidly evolving case law. In the past several years, most of the Circuits have attempted to define what goes into an assessment of "good faith." Several of the earlier decisions emphasized that an examination of the good-faith requirement should be directed at determining "whether or not there has been abuse of the provisions, purpose, or spirit of the Chapter in the proposal." In Re Rimgale, 669 F.2d 426 (7th Cir.1982), citing Collier on Bankruptcy: In Re Terry, 630 F.2d 634 (8th Cir.1980).
As courts have grappled with the issue of what behavior on the part of the debtor might constitute an abuse of Chapter 13, a number of factors to be considered in making a good faith assessment have been articulated. The Fourth Circuit, in one of the earlier cases, described 8 factors which could be looked at in a good faith inquiry: substantiality of proposed repayment, the debtor's financial situation, the period of time over which payment will be made, the debtor's employment history and prospects, the nature and the amount of the 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. Deans v. O'Donnell, 692 F.2d 968, 972 (4th Cir.1982). In developing this list, the court emphasized...
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