In re Hayes, CASE NO. 15-04581-5-DMW
| Decision Date | 05 February 2018 |
| Docket Number | CASE NO. 15-04581-5-DMW |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | IN RE: RICHARD THOMAS HAYES LOLETTA S. HAYES DEBTORS |
IN RE: RICHARD THOMAS HAYES LOLETTA S. HAYES DEBTORS
CASE NO. 15-04581-5-DMW
UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA RALEIGH DIVISION
February 5, 2018
CHAPTER 13
ORDER DENYING MOTIONS TO MODIFY PLAN
The matters before the court are the Debtors' Motion to Modify Chapter 13 Plan and Fee Application ("Debtors' Motion") filed by Richard Thomas Hayes and Loletta S. Hayes ("Debtors") on January 31, 2017, the Trustee's Amended Response in Objection to Motion to Modify Chapter 13 Plan ("Objection") and Trustee's Motion to Modify Plan ("Trustee's Motion") filed on April 11, 2017 by Chapter 13 trustee John F. Logan, Esq. ("Trustee"), and the Debtors' Response to Chapter 13 Trustee's Motion to Modify filed by the Debtors on May 1, 2017. The court conducted a hearing on September 6, 2017 in Raleigh, North Carolina. Cort I. Walker, Esq. appeared for the Debtors, and Michael B. Burnett, Esq. appeared for the Trustee. At the conclusion of the hearing, the court took the matters under advisement and provided the parties an opportunity to file supporting memoranda. After reviewing those filed memoranda and considering the evidence and
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arguments of counsel presented at the hearing, the court denies without prejudice both the Debtors' Motion and the Trustee's Motion for the reasons set forth below.
This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O) which the court has the authority to hear and determine pursuant to 28 U.S.C. § 157(b)(1). See In re Swain, 509 B.R. 22, 24 (Bankr. E.D. Va. 2014) (holding that a proceeding regarding modification of a chapter 13 plan is a core proceeding). The court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference entered on August 3, 1984 by the United States District Court for the Eastern District of North Carolina.
The Debtors filed a voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code1 on August 24, 2015, and the court appointed the Trustee to administer the case pursuant to § 1302. The Debtors then resided and continue to reside at 785 Warren Bullock Road, Henderson, North Carolina ("Residence"), which consists of real property and a manufactured home owned solely by the female Debtor. At the time of the petition, the Residence had a scheduled value of $80,000.00 and was subject to a perfected mortgage lien in favor of Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt"). On September 3, 2015, Vanderbilt filed a proof of claim for the amount of $44,630.54 due as of the petition date. The female Debtor claimed a $34,758.46 homestead exemption in the Residence pursuant N.C. Gen. Stat. § 1C-1601(a)(1), leaving no significant equity in the Residence available for the benefit of unsecured creditors.
On September 8, 2015, the Debtors filed a Chapter 13 Plan ("Plan") which proposed monthly payments to the Trustee in the amount of $1,262.00 for a period of 60 months for a total
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"plan base" of $75,720.00. The monthly payment amount of $1,262.00 was derived directly from the Debtors' Schedule I of income and Schedule J of expenses filed on September 8, 2015.2 Schedule I reflects that at that time, the male Debtor had been employed since August, 2015 (only a month) as a temporary worker with Staffmasters earning a monthly take-home pay of $2,271.23. The female Debtor had been employed for four years with Trialcard, earning a monthly take-home pay of $1,184.46. The Debtors reported additional tax refund income spread out over 12 months and allocated to the Debtors as $100.00 and $200.00 per month, respectively. The Debtors' monthly expenses reported on Schedule J totaled $2,494.00 and did not include payment on the Vanderbilt mortgage. Subtracting these monthly expenses from the Debtors' combined monthly income resulted in a net monthly income of $1,261.69 as follows:
| Male Debtor's take-home pay | $ 2,271.23 |
| Female Debtor's take-home pay | 1,184.46 |
| Male Debtor's tax refund | 100.00 |
| Female Debtor's tax refund | 200.00 |
| Total income | $ 3,755.69 |
| Monthly expenses | (2,494.00) |
| NET MONTHLY INCOME | $ 1,261.69 |
The Plan provides for the Trustee to use a portion of the plan base to make monthly conduit mortgage payments in the estimated amount of $611.00 to Vanderbilt, with pre-petition arrearages to be cured over the life of the Plan. Three additional secured claims that are respectively related to the Debtors' vehicles are also to be paid through the Plan. The Debtors scheduled no claims entitled to priority pursuant to § 507. Finally, the Plan provides that "[g]eneral unsecured claims
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shall be paid through the plan pro rata to the extent that funds are available after disbursements are made to pay secured claims, arrearage claims, priority claims, and other specially classified claims." (Ch. 13 Plan ¶ 11, ECF No. 10).
The Debtors' case proceeded swiftly, and shortly after conducting the Debtors' meeting of creditors pursuant to § 341, the Trustee moved for confirmation of the Plan. Based upon the liquidation analysis required for confirmation by § 1325(a)(4), the Trustee determined that the Plan does not require any payment to general unsecured creditors and established an "unsecured pool" of $0.00; however, the Trustee's motion for confirmation states that "the Unsecured Pool shall be increased by the 'base' amount not needed to satisfy allowed secured, priority, and administrative claims (including the Trustee's commission)." (Mins. of 341 Mtg. and Mot. For Confirmation of Plan ¶ 8, ECF No. 12). At the time of his motion for confirmation, the Trustee projected a twenty-five percent (25%) dividend to unsecured creditors, but this projection was later decreased to eight percent (8%) after unscheduled and higher-than-scheduled unsecured claims were filed. On November 6, 2015, the court entered an Order Confirming Chapter 13 Plan.
As quickly as the Plan was confirmed, the Debtors defaulted in their payments, and the Trustee filed a Motion to Dismiss on February 17, 2016. The Debtors cured the delinquency pursuant to the terms of a Consent Order between the parties; however, the cure was short-lived, and the Trustee filed a second Motion to Dismiss on September 19, 2016. This motion was also resolved by a Consent Order which provided for a cure of the Debtors' default.
In early 2017, the Debtors' luck took a turn for the better when their friend, Tamesha M. Jenkins, paid directly Vanderbilt's mortgage claim in full. After this mortgage satisfaction, Vanderbilt returned funds received from the Trustee and amended its proof of claim to $0.00. In the Debtors' Motion, the Debtors are requesting the court to modify the Plan pursuant to
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§ 1329(a)(3) to discontinue conduit payments to Vanderbilt and decrease the plan base to $43,714.00 by providing for payments totaling $19,204.00 through January, 2017 and monthly payments of $570.00 for 43 months thereafter, beginning in February, 2017. The Trustee objects to this proposed modification, contending that the reduced plan base will not satisfy the liquidation test of § 1325(a)(4) in light of the increased equity in the Residence caused by Ms. Jenkins' payment to Vanderbilt. The Trustee's Motion offers an alternative modified plan base of $69,284.00 reached by payments totaling $20,924.00 through April, 2017 followed by monthly payments of $1,209.00 for 40 months.
A couple months after filing the Debtors' Motion, and in response to the Objection and the Trustee's Motion, the Debtors provided the Trustee with amended Schedules I and J3 which reflect a reduction in their net monthly income to approximately $570.00, the proposed modified monthly Plan payment. The difference is mostly the result of decreased income from the male Debtor who is reported in the amended Schedule I to have been employed with Advantage Care since August, 2016 with a monthly take-home pay of $1,170.93. The female Debtor remains employed with Trialcard and reported an increased monthly take-home pay of $1,926.12. The Debtors' combined income was further reduced by cessation of the tax refund income. The distribution of the Debtors' expenses changed slightly from their original Schedule J and totaled a marginally greater amount of $2,527.00. The resulting net monthly income was $570.05 as follows:
| Male Debtor's take-home pay | $ 1,170.93 |
| Female Debtor's take-home pay | 1,926.12 |
| Total income | $ 3,097.05 |
| Monthly expenses | (2,527.00) |
| NET MONTHLY INCOME | $ 570.05 |
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At the hearing, the female Debtor testified that her husband is a diabetic and suffered three strokes after they filed their bankruptcy petition, the first and most significant being in October, 2015. She attributed their defaults under the Plan to the male Debtor's medical conditions which affected his ability to work and also to expenses related to her mother's illness and death. The...
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