In re Girdaukas
| Decision Date | 18 October 1988 |
| Docket Number | Bankruptcy No. 88-02849. |
| Citation | 92 BR 373 |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
| Parties | In re Timothy E. GIRDAUKAS, Debtor. |
Timothy Girdaukas, pro se.
James Conway, Joseph Hemsing, Sheboygan, Wis., for debtor.
Thomas King, Standing Chapter 13 Trustee, pro se.
Jeff Liotta, Milwaukee, Wis., for Federal.
Deirdre Elliott, Milwaukee, Wis., for Van Engel.
DECISION
Federal Insurance Company (Federal) and Kurt Van Engel Commission Co., Inc. (Van Engel) have objected to confirmation of the debtor's proposed plan on the ground that it has not been proposed in good faith as required by Section 1325(a)(3) of the Bankruptcy Code.1 Hearing on the objections was had on September 20, 1988. At the hearing, the debtor appeared in person and by Attorneys James Conway and Joseph Hemsing; the standing chapter 13 trustee, Thomas King, appeared in person; Federal appeared by Attorney Jeff Liotta; and Van Engel appeared by Attorney Deirdre Elliott.
The debtor is presently employed by Austin Grey Iron Foundry of Sheboygan, Wisconsin. For 24 years and until a year or so ago, he had worked as a produce buyer for Schultz Sav-O Stores, Inc. (Schultz). On May 26, 1988, Schultz filed a civil action in the U.S. District Court against Kurt Van Engel, Kurt Van Engel Commission Co. and the debtor. The complaint in that action alleges that the debtor violated various state and federal laws by accepting kickbacks from Van Engel. It states that on and after 1983, as purchaser of fruits and vegetables for Schultz, he had contracted to pay excessive prices in return for cash payments (kickbacks) to himself. A deposition of the debtor in that action, scheduled to be held on June 29, 1988, was canceled when the debtor filed his chapter 13 petition on June 28, 1988. Federal is involved because of employee theft insurance which it afforded to Schultz. Schultz has submitted a claim to Federal alleging losses in excess of $250,000 as a result of dishonest and fraudulent conduct on the part of the debtor.
Besides the two secured claimants set out above, unsecured creditors are listed in the schedules as follows:
If disputed,
Consideration or Amount of amount admitted
Creditor basis for debt Claim by debtor
Elan Fin. Services Mastercard credit card $4,444.03 Not disputed
Kurt Van Engel ) Alleged civil damages Unknown All claims unliquidated,
Commission Co., Inc. ) under "RICO", "PACA" and contingent
) "WCCEA" and other federal and disputed
Schultz Sav-O Stores, Inc. ) and state laws. $14,000,000 " "
) (Actions pending-U.S. plus fees
) District Court-Eastern and costs
Kurt Van Engel ) District of Wisconsin.) Unknown " "
Federal Insurance Indemnification as Unknown " "
insurance carrier for
Schultz Sav-O Stores, Inc.
(Mrs. Girdaukas is jointly liable on the United S & L and Elan obligations.)
The United Savings and Loan Association home mortgage is current, and all monthly mortgage payments are to be made to United by the debtor direct. For all other creditors, the debtor has proposed a three year plan, with bi-weekly payments of $175 until March 1, 1989 and $250 bi-weekly thereafter. The debtor's gross income for the last calendar year was $30,814.00 and that of Mrs. Girdaukas was $319.00. Her occupation is described as "homemaker and seamstress." According to the budget in his schedules, monthly take home pay of $2,420 and expenses of $2,058.42, the debtor has committed all of his projected disposable income to make payments under the plan. § 1325(b)(1)(B). Information provided by the debtor in his schedules indicates that creditors will receive at least as much under the plan as they would if the estate of the debtor were liquidated under chapter 7. § 1325(a)(4).
About $8,560, 55% of the available funds, is to be paid to the credit union at the monthly contract rate of $237.79, so as to satisfy its lien on the Nissan automobile. The remaining 45% of available funds, estimated at about $7,000, is to be paid to the unsecured creditors. The plan states that the unsecured creditors are "to be paid less than 10% of accepted claim." Claims have been filed by Elan and the two secured claimants.
The position of the debtor is that the alleged conspiracy between himself and Van Engel ended in 1987 — that he is now the "little guy" in a dispute between two corporate giants. He himself disputes the claims of Schultz and Van Engel but will not formally dispute them as they may be filed in this case. Inasmuch as he is committing all of his projected disposable income for the next three years to make payments under the plan, the amount of the claims they might file is immaterial so far as he is concerned.
His stated purpose in filing is to avoid the tremendous expense of defending himself in the civil action and to make this money available to his creditors instead. Practicality is the point — to save the cost of participating in the law suit. He has been sued for $14,000,000 and makes $30,000 a year. The cost of contesting the case exceeds his ability to pay. Creditors will be better off in that they will receive this money instead of its being spent in defending the law suit. The debtor notes that although the claims of Van Engel and Federal may be nondischargeable, that is not by itself a ground for refusing to confirm. In re Chaffin, 816 F.2d 1070, 1074 (5th Cir.1987).
Referring to the Section 341 hearing held on August 26, 1988, the trustee, Thomas King, said that the debtor had testified concerning his current assets but, invoking his constitutional privilege under the Fifth Amendment, had declined to answer questions regarding the amount and character of his debts. The trustee was thus unable to reach any conclusion as to the character of the debt. Having in mind that one should look to the totality of the circumstances insofar as the issue of good faith is concerned, In re Smith, 848 F.2d 813 at 817-818 (7th Cir.1988), including such factors as the character of the debt, the timing of the petition, and the manner of treatment of the debt, the trustee said he could not recommend that the plan was filed in good faith or that good faith exists.
Van Engel's attorney noted that the debtor had also invoked the Fifth Amendment privilege at a Bankruptcy Rule 2004 examination on August 18, 1988, refusing to answer questions as to assets he had prior to the filing of the chapter 13 petition, or to verify income tax returns that he had filed.
In response to these comments about the debtor's invoking the Fifth Amendment privilege, his attorney said that he would answer any questions that were asked him concerning his present circumstances. He is willing to testify that the schedules which he filed are true and correct and that they accurately describe all of his assets. The questions he refused to answer and felt he must refuse to answer concerned his transactions with the Van Engel company. He said that if the debtor was questioned with respect to his past transactions with Van Engel, he would claim his Fifth Amendment privilege. Presumably such questions would involve the receipt and possession and transfer or disposition of assets during the course of his dealings with Van Engel.
A debtor may assert the Fifth Amendment privilege in a bankruptcy proceeding. In re Martin-Trigona, 732 F.2d 170 (2d Cir.1984), cert. den. 469 U.S. 859, 105 S.Ct. 191, 83 L.Ed.2d 124 (1984). Absent a grant of immunity, a debtor can assert the privilege, refuse to testify, and still retain the right to a chapter 7 discharge under § 727(a)(6), and it has been held that these rights granted under § 727(a)(6) are also available to the debtor under § 727(a)(5). In re Potter, 88 B.R. 843 (Bankr.ND IL 1988) The fact that Fifth Amendment rights are specifically granted to the debtor in a chapter 7 case, however, does not necessarily mean that the debtor can safely claim them in the context of a chapter 13 case. Those sections are only applicable to a case under chapter 7. § 103(b).
It is questionable whether a debtor can ever obtain confirmation of a ...
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