In re Faltz
| Decision Date | 23 February 2023 |
| Docket Number | 22-00096-GS |
| Parties | In re: JAMES STORM FALTZ, Debtor(s) |
| Court | U.S. Bankruptcy Court — District of Alaska |
MEMORANDUM ON CONFIRMATION OF DEBTOR'S CHAPTER 13 PLAN
On November 2, 2022, the court held the continued hearing on confirmation of the debtor's chapter 13 plan (ECF No. 19) (Plan). The parties dispute whether future bonus payments qualify as projected disposable income that must be included within the debtor's plan and paid within the applicable commitment period. On the facts presented, the court holds that the bonuses are projected disposable income that must be paid within the applicable commitment period.
On August 9, 2022, James Faltz voluntarily filed his chapter 13 bankruptcy petition. He then timely filed his schedules statements, and the Plan. In Schedule I, he lists his job as a "landscape worker" for Faltz Landscaping, where he has been working for nine years "with breaks." His monthly income was scheduled at $6,893.47, including $200 per month contributed from his annual Alaska Permanent Fund dividend and $1,625 described as "65 percent of the net income of the Debtor's significant other." ECF No 14-7 at p. 2. The debtor also included a note under item 13 stating that he "has taken on additional responsibilities at work and expects a raise in the next 12 months that is likely to be in excess of 10 percent." Id.
The debtor's expenses on Schedule J totaled $5,625 per month. See ECF No. 14-8. His Schedule J reflects that his two minor children reside with him part time. Id. at p. 1. Based on his stated expenses, the debtor has a total monthly net income of $1,268.47, when pro-rating the anticipated annual Alaska Permanent Fund Dividend to his monthly income. Id. at p. 3.
Additionally, in response to item 30 of his Schedule B, the debtor listed "accrued, unpaid wages and accrued bonuses" of $5,000. ECF No. 14-1 at p. 9. That $5,000 was listed as exempt under 11 U.S.C. § 522(d)(5) in the debtor's Schedule C. ECF No. 14-2 at p. 2.
In his Statement of Financial Affairs the debtor listed gross income of $38,428 in 2021 and $13,846 in 2020 from "[w]ages, commissions, bonuses and tips." ECF No. 15. Separately, he listed $24,920 in unemployment compensation he received in 2020. Id.
The debtor also filed his Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period (Form 122C) on August 23, 2022. See ECF No. 16. Based on the debtor's gross income of $6,510, plus $600 listed as "net monthly income from rental or other real property,"[1] the debtor's reported gross income was $7,110 per month. Id. at p. 2. Notwithstanding his Schedule J that lists two children and his statement in response to item 13 of Form 122C that he is married, the debtor states that his household size consists of two people. No party in interest has challenged the applicable household size. The applicable Alaska median income for a household of two is $90,698. The debtor's annual income totals $85,320 and falls below the median income. As a consequence, his plan commitment period is limited to three years instead of five. Id. at p. 3.
The debtor, however, proposes a five-year plan to cure significant mortgage arrears that he cannot fund within a three-year plan. The Plan requires monthly payments of $1,050 for 60 months, but it also provides that the plan will terminate "at the point when the Debtor's mortgage arrearage has been cured, priority claims have been paid and unsecured creditors have received $2,000.00 in the aggregate." ECF No. 19 at p. 2. Because the Plan estimates the prepetition mortgage arrears to be $73,000, it also provides for an increase in monthly plan payments beginning in the third year of the Plan. The debtor has committed to paying an additional $450 per month in year three of the Plan. This would add an additional $5,400 to the Plan within the applicable three-year commitment period.
The debtor further proposes to contribute an additional $700 per month in year four and $1,000 per month in year five. Id. at p. 3. The debtor also commits his annual Permanent Fund Dividends over the course of the five-year plan. These additional payments bring the debtor's total estimated Plan payments to $96,000. Id. at p. 8. The debtor projects that unsecured creditors would receive $3,100 over the term of the five-year Plan if completed on these terms (though it is unclear how that is reconciled with the termination of the Plan upon payment of $2,000 to the unsecured creditors).
On October 4, 2022, the chapter 13 trustee filed her negative recommendation regarding confirmation of the Plan. See ECF No. 22. Among other things, the trustee argued that the Plan did not comply with 11 U.S.C. § 1325(b)(1)(B) requiring commitment of all the debtor's disposable income for a minimum of 36 months. Id. at p. 1. The trustee reported that at the § 341(a) meeting of creditors, the debtor stated "that he expects to receive a commission check for approximately $8,000-$10,000 by the end of the year." Id. The trustee contends that the bonuses are part of the debtor's projected disposable income and must be paid into the Plan for the first three years as they are received.
At the confirmation hearing held on October 5, 2022, counsel for the debtor argued that the debtor's stepped-up plan payments in years three through five already incorporate the debtor's anticipated bonus income. The debtor further argues that he has satisfied the requirements of § 1325(b)(1)(B) by committing to pay more than what is required, including the projected bonuses, but he simply seeks to spread the payments over the five-year term to make the Plan more feasible. The court requested additional briefing and continued the confirmation hearing. See ECF No. 25.
After reviewing the supplemental briefing filed by the parties the court heard additional argument at the continued confirmation hearing held on November 2, 2022. At that hearing the debtor stated that he "basically didn't work for" Faltz Landscaping in 2020 and 2021 and thus did not receive any bonus income during those years.[2] ECF No. 31, recording at 1:37-2:01. But he also explained that he was being "put back on sales," and in 2023 and 2024 under his contract he would receive 10% of anything he sold. Id. at 2:32-2:53. Both parties informed the court they had no further evidence to present and the court took this matter under advisement.
The trustee objects to confirmation of the debtor's Plan for failing to commit all disposable income during the applicable commitment period. Section 1322(a)(1) requires that a chapter 13 plan "provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan." 11 U.S.C. § 1322(a)(1). A court "shall confirm a plan" if "(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title; ... [and] (3) the plan has been proposed in good faith and not by any means forbidden by law...." 11 U.S.C. § 1325(a). However, "[i]f the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan -(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or (B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan." 11 U.S.C. § 1325(b)(1). "Stated in plain English, if a contested Chapter 13 plan does not provide for a 100% distribution on unsecured creditors' claims, the plan must provide that all of the debtor's projected disposable income to be received in the applicable commitment period...will be applied to make payments to unsecured creditors under the plan." In re Trobiano, 532 B.R. 355, 358 (Bankr. D. Colo. 2015) [internal quotation omitted].
When a trustee objects to confirmation under § 1325(b)(1)(B), "the applicable burden of proof is a shifting one." In re Aquino, 630 B.R. 499, 547 (Bankr. D. Nev. 2021). " " Id. (quoting In re Rodriguez, 606 B.R. 410, 415 (Bankr. E.D. Cal. 2019) [internal quotations omitted])). The shifting burden must be satisfied by a preponderance of the evidence. Id.
Here, the debtor has not sought to pay all unsecured debt, and the trustee has objected to his Plan triggering the requirement that he commit all projected disposable income to be received in the applicable commitment period. The amount of a debtor's "'projected disposable income' is to be calculated according to the statutory definition of 'disposable income' found in 11 U.S.C. § 1325(b)(2)." In re Garcia, 282 Fed.Appx. 549, 551 (9th Cir. 2008). Section 1325(b)(2) provides:
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