In re Hall, CASE NO: 16-20057
| Decision Date | 04 October 2016 |
| Docket Number | CASE NO: 16-20057 |
| Citation | 559 B.R. 463 |
| Parties | In re: Peggy A. Hall, Debtor(s) |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Ralph Perez, The Perez Law Firm, Adelita Cavada, Corpus Christi, TX, for Debtor.
This Memorandum Opinion resolves Chapter 13 Trustee Cindy Boudloche's objection to confirmation of Peggy Hall's Second Amended Chapter 13 Plan. (ECF Nos. 47; 45). Boudloche objects on the grounds that Hall's plan (1) fails to provide for equal treatment to creditors of the same (or substantially similar) class as required by § 1322(a)(3), and (2) is not proposed in good faith as required by § 1325(a)(3). (ECF No. 47).
Hall filed her individual Chapter 13 case on February 12, 2016. (ECF No. 1). Hall's husband is not a joint debtor in this case. (Id. at 6). In her Schedules, Hall claimed an interest in real estate valued at $162,000.00. Hall indicated that she shared her ownership interest in the property with her husband. (Id. at 8). Hall's Schedules reflect that she has no interest in any vehicles. Hall's Schedule D listed the mortgage associated with her real estate as her only secured debt.
In Hall's means test calculation, set forth in Official Form 122C at ECF No. 32, she included the entire amount of her non-filing spouse's income toward her calculation of average monthly income; Hall did not use the marital adjustment for her non-filing spouse's income not regularly paid for the household expenses. (ECF No. 32 at 1). It is undisputed that all of Hall's non-filing spouse's income is regularly contributed to the household expenses of the Hall or her dependents. (ECF No. 42 at 2). Based on Hall's monthly income, she qualifies as an above median income debtor in Texas.1 (ECF No. 32 at 3).
In her Form 122C, Hall claimed the following deductions when calculating her monthly disposable income:2
After making all deductions from her current monthly income, Hall calculated her monthly disposable income to be negative $139.96. (Id. at 12). Despite showing a calculation that she has no monthly disposable income, her proposed plan provides unsecured creditors with a return of approximately 76 cents on the dollar, paying a total of $17,180 over the course of five years, of which $12,805.60 will be available for general unsecured creditors. (ECF No. 45 at 10).
Hall's non-filing spouse has certain unsecured debts that Hall alleges are separate debts and thus receive no treatment under the plan. These debts include:
Hall's non-filing spouse plans to make payments toward these unsecured loans at the same time Hall makes her plan payments. As these unsecured loans are paid off, more of the non-filing spouse's income will be directed toward making plan payments. Hall's proposed plan payments increase substantially over time to reflect this intent. (ECF No. 42 at 2; 45 at 1). It is undisputed that, while the loans are in the name of Hall's non-filing spouse, the debts were incurred for expenses of the household. (ECF No. 42 at 2). In addition to these unsecured debts, Hall's non-filing spouse has an additional secured debt in his name for a vehicle used by Hall's 21-year-old daughter from a previous marriage. Though claimed as a dependent, Hall's daughter is a full-time college student who does not live with Hall and her non-filing spouse. (Id. ).
Boudloche asserts that Hall's plan unfairly discriminates amongst creditors of a similar class in violation of § 1322(a)(3). Boudloche argues that Hall failed to schedule her non-filing spouse's debts, which were incurred for the benefit of the household and are paid directly by Hall's non-filing spouse. (ECF No. 42 at 2). Boudloche argues that because these debts were incurred for the benefit of the household, they are of a similar class as those treated under the plan. However, general unsecured creditors under Hall's proposed plan will receive only a 76% dividend, whereas Hall's non-filing spouse's creditors will, in theory, be paid in full.
Boudloche reasserts these contentions in her argument that the plan was proposed in bad faith.
Boudloche also argues that Hall improperly reduced her monthly disposable income. Hall's means test reflects that she has a negative projected monthly disposable income. (ECF No. 32 at 12). Boudloche points out that no marital adjustment was taken, and accordingly all of Hall's non-filing spouse's income is regularly paid for household expenses. Because Hall's Schedules reflect that she owns no vehicles and has no debt secured by vehicles, Boudloche argues that she is not entitled to deduct the expenses associated with the vehicle ownership when calculating her monthly disposable income under the means test. (ECF No. 44 at 3). There is no dispute that Hall is entitled to deduct a $488.00 vehicle operating expense.
This Court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157.
Alleged discriminatory treatment of similarly situated creditors
At the heart of Boudloche's objection is the concern that Hall's debts incurred for the purpose of paying community expenses should be included in her plan—without regard to whether the debt was incurred by Hall or her non-filing spouse. Boudloche directs the Court to 11 U.S.C. § 101(7), which defines “community claim” as “a claim that arose before the commencement of the case concerning the debtor for which property of the kind specified in § 541(a)(2) of this title is liable ....” Section 541(a)(2) includes in the bankruptcy estate:
11 U.S.C. § 541(a)(2). Boudloche argues that because community property under joint management and control is liable for the debts of Hall's non-filing spouse, the debts are community claims that must receive treatment in Hall's plan.
Creditors holding claims against the debtor or against a nondebtor spouse ... are entitled to participate in the bankruptcy case, so long as under applicable state law the creditor could have satisfied the claim from community property assets of the type passing to the bankruptcy estate under § 541(a)(2). By granting the nondebtor's creditors the status of community claim holders, Section 101 insures that community property passing to the estate will be divided ratably among all creditors who could have satisfied their claims therefrom under state law. ... As a result, a creditor of the debtor or nondebtor spouse or former spouse who would have been able to satisfy a claim prior to bankruptcy from community assets which would be section 541(a)(2) property of the estate holds a “community claim” against the debtor's estate, and is entitled to participate in the distribution of community property assets which have passed to the debtor's estate. ... Thus, an estate containing community property presents a unique situation under the Code in that its assets will be disbursed to both the creditors of the debtor and to entities who are not creditors of the debtor under state law, but who hold community claims under the Code.
2 Collier on Bankruptcy ¶ 101.07[1] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). To determine the extent to which creditors of Hall's non-filing spouse could have satisfied their claims from property of Hall's bankruptcy estate, the Court must look to Texas community property law.
In Texas, all marital property is either separate or community property.
Hilley v. Hilley , 161 Tex. 569, 342 S.W.2d 565, 567 (1961). Separate property is property acquired before marriage or during marriage by gift, devise, or descent. TEX. CONST. ART. XVI, § 15. Community property is property, other than separate property, acquired by either spouse during marriage. TEX. FAM. CODE § 3.202. Community property is either subject to the sole management and control of one spouse, or the joint management and control of both spouses. TEX. FAM. CODE § 3.102. During marriage, each spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single, including: (1) personal earnings; (2) revenue from separate property; and (3) recoveries for personal injuries. TEX. FAM. CODE § 3.102(a). All other community property is subject to joint management and control. TEX. FAM. CODE § 3.102(c).
A creditor of a spouse may satisfy its claim from that spouse's separate property, community property under that spouse's sole management and control, and community property under joint management and control, without regard to whether the debt was incurred for community or separate activities. 2 Collier on Bankruptcy at ¶ 101.07[3][i]; TEX. FAM. CODE § 3.202.
Hall's separate property and the community property that is subject to her sole management and...
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