In re Gosch
| Decision Date | 26 March 2021 |
| Docket Number | Bankruptcy Case No. 20-13871 TBM |
| Citation | 627 B.R. 669 |
| Parties | IN RE: Grant GOSCH and Tina Gosch, Debtors. |
| Court | U.S. Bankruptcy Court — District of Colorado |
Adam Goodman, Denver, CO, Pro Se.
Jesse Sweeney, Southfield, MI, for Debtor.
Chapter 13 of the Bankruptcy Code1 "affords individuals receiving regular income an opportunity to obtain some relief from their debts while retaining their property." Bullard v. Blue Hills Bank , 575 U.S. 496, 135 S. Ct. 1686, 1690, 191 L.Ed.2d 621 (2015). The quid pro quo is a Chapter 13 plan. A debtor must propose and obtain Court approval of a "plan under which [the debtor] pay[s] creditors out of ... future income ." Hamilton v. Lanning , 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010) (emphasis added). Under Section 1325(b), a debtor's Chapter 13 plan cannot be confirmed over the objection of a Chapter 13 trustee or creditor unless the plan provides for the debtor either to pay all claims in full or commit "all of the debtor's projected disposable income " to Chapter 13 plan payments over a period between three and five years. It is a very tough bargain — the vast majority of Chapter 13 cases fail.
In this bankruptcy proceeding, the Debtors, Grant Gosch and Tina Gosch (together, the "Debtors") proposed a Chapter 13 plan. The Chapter 13 Trustee, Adam Goodman (the "Chapter 13 Trustee") objected, contending that the Debtors were improperly shielding from creditors money that the Debtors received on the very eve of bankruptcy for personal injuries suffered by Tina Gosch in an automobile crash. The Chapter 13 Trustee argued that some or all of the personal injury funds must be committed by the Debtors as "projected disposable income" for the benefit of their creditors. He also alleged that the Debtors had not proposed their Chapter 13 plan in good faith. The Debtors contested each of the objections.
The Court ultimately concludes that the personal injury funds received by the debtors prior to their bankruptcy petition (during a "gap" period) need not be contributed to creditors as "projected disposable income." Instead, under the particular circumstances of this case, the Debtors may retain the personal injury funds as their exempt asset. The Court also determines that the Debtors proposed their Chapter 13 plan in good faith. Accordingly, the Debtors' Chapter 13 plan may be confirmed after correcting a minor discrepancy.
This Court has jurisdiction to enter final judgment on the issues presented in this bankruptcy case pursuant to 28 U.S.C. § 1334. The plan confirmation dispute is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) (), (b)(2)(L) (confirmation of plans), and (b)(2)(O) (other proceedings affecting the liquidation of the assets of the estate). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
The Debtors filed for protection under Chapter 13 of the Bankruptcy Code on June 5, 2020. (Docket No. 1.)2 The same day, they filed their Schedules. (Id. ) On Schedule A/B Part 4, they identified as an asset a "Savings Account at Key Bank" in the amount of $46,595.45. (Id. ) The Debtors added an additional description:
Settlement funds in the amount of $23,616.97 for Tina and $22,978.48 designated for future medical expenses related to injuries from a motor vehicle accident.
(Id. ) For ease of reference, the Court refers to this $46,594.45 asset as the "Personal Injury Funds." The Debtors and the Chapter 13 Trustee stipulated that the Personal Injury Funds were received by the Debtors on June 1, 2020 — just four days before they filed for bankruptcy. The Personal Injury Funds have not been used by the Debtors. Instead, the Personal Injury Funds remain segregated in the Debtors' bank account.
On their Schedule C, the Debtors claimed the Personal Injury Funds as exempt under COLO. REV. STAT . § 13-54-102(1)(n). (Docket No. 1.) That statute states:
The following property is exempt from levy and sale under writ of attachment or writ of execution ... the proceeds of any claim for damages for personal injuries suffered by any debtor except for obligations incurred for treatment of any kind for such injuries or collection of such damages.
COLO. REV. STAT . § 13-54-102(1)(n).
A few months after the commencement of the bankruptcy case, the Chapter 13 Trustee filed an "Objection to Claimed Exemption in Property," wherein the Chapter 13 Trustee contested the Debtors' claim of exemption in the Personal Injury Funds. (Docket No. 18, the "Exemption Objection.") The Debtors opposed the Exemption Objection and insisted that the Personal Injury Funds were exempt. (Docket No. 20.) The Court conducted a hearing on the Exemption Objection. (Docket No. 38.) Thereafter, the Chapter 13 Trustee and the Debtors submitted additional legal briefing on the contested exemption issues. (Docket Nos. 40 and 41.)
On January 5, 2021, the Court issued an Oral Ruling on the Exemption Objection followed by a confirming Minute Order. (Docket No. 62.) Therein, the Court "DENIED the Chapter 13 Trustee's Exemption Objection and sustained the Debtors' claim of exemption in the [Personal Injury Funds] in the amount of $46,595.[45]." (Id .) Neither the Chapter 13 Trustee nor the Debtors appealed. Thus, the Court already has conclusively determined that the Personal Injury Funds are exempt property of the Debtors under COLO. REV. STAT . § 13-54-102(1)(n).
Contemporaneously with their bankruptcy filing, the Debtors also submitted their initial Chapter 13 Plan. (Docket No. 2, the "First Chapter 13 Plan.") In the First Chapter 13 Plan, the Debtors did not commit the Personal Injury Funds toward the payment of their creditors. Instead, the Debtors limited the source of their proposed Chapter 13 plan payments to their monthly net income from their current jobs as shown on their Schedules I and J. (Docket No. 1.) The Chapter 13 Trustee objected to confirmation of the Debtors' First Chapter 13 Plan on a variety of grounds. (Docket No. 14.) Among other things, the Chapter 13 Trustee asserted that:
The Chapter 13 Plan fails to provide that all net proceeds from the Debtors' [Personal Injury Funds] will be paid to the Trustee for distribution to allowed unsecured claims, as required by 11 U.S.C. §§ 1325(a)(3), 1325(a)(4), and 1325(b).
(Id. ¶ 9.)
The Debtors filed an Amended Chapter 13 Plan to resolve most of the objections. (Docket No. 27, the "Second Chapter 13 Plan.") However, in the Second Chapter 13 Plan, the Debtors still did not propose to use the Personal Injury Funds to pay creditors. So, the Chapter 13 Trustee contested the Second Chapter 13 Plan. (Docket No. 32.) The Chapter 13 Trustee again made the same objection pertaining to the Debtors' treatment of the Personal Injury Funds. (Id. ¶ 6.) The Court set an evidentiary hearing to resolve the confirmation issues. (Docket No. 38.) However, the day before the scheduled evidentiary hearing on the Second Chapter 13 Plan, the Court ruled (as set forth above) on the Exemption Objection, determining that the Personal Injury Funds were exempt property of the Debtors. As a result, the Chapter 13 Trustee and the Debtors suggested that the hearing on the Second Chapter 13 Plan should be vacated and the Debtors permitted an opportunity to submit a further amended Chapter 13 plan. (Docket No. 62.) The Court concurred. (Id .)
So, the Debtors filed another Amended Chapter 13 Plan. (Docket No. 64, the "Third Chapter 13 Plan.") The Third Chapter 13 Plan is the most recent and operative Chapter 13 plan. In the Third Chapter 13 Plan, the Debtors made some modest changes but still did not propose to use the Personal Injury Funds to pay creditors. Instead, the Debtors proposed to pay: (1) two payments of $1,822.00; (2) four payments of $1,260.00; and (3) 54 payments of $1,575.00. (Id. ) Adding it all up, the Debtors proposed to pay a total of $93,734.00 from their future employment earnings over the 60-month plan period. Of this amount, they proposed to allocate: $16,000.00 for unpaid attorneys' fees; $3,657.00 for delinquent federal and state taxes; $37,765.71 for car loans; $9,373.40 for Chapter 13 Trustee fees; and $34,937.89 for general unsecured creditors.3 (Id. ) General unsecured creditors (mostly credit card companies) filed proofs of claim totaling $144,297.14. (See Claims Register.)4 Bottom line, the Debtors propose to pay general unsecured creditors about 24% of their claims over five years.
Congress requires debtors seeking bankruptcy protection to promptly file a welter of forms providing fulsome financial disclosure, including a "schedule of current income and current expenditures," a "statement of the amount of monthly net income," and a "statement disclosing any reasonably anticipated increase in income or expenditures over the 12-month period following the date of the filing of the petition," all as "prescribed by the appropriate Official Forms." 11 U.S.C. §§ 521(a)(1)(B)(ii), (v), and (vi) ; see also FED. R. BANKR. P . 1007(b)(1)(B). Official Forms 106I and 106J embody such requirements.
Official Form 106I (commonly referred to simply as "Schedule I") is titled "Your Income" and asks the debtor (or two debtors in the event of a joint bankruptcy filing) to "describe employment" by listing current employment status and occupation. Then, Schedule I requires "details about monthly income," including estimates of current income based upon "gross income" minus payroll deductions. In a joint filing, the result is "combined monthly...
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