In re Iacovoni, Bankruptcy No. B-79-01214
| Decision Date | 21 January 1980 |
| Docket Number | B-79-01265,B-79-01266,B-79-01280 and B-79-01347.,B-79-01261,B-79-01267,B-79-01223,Bankruptcy No. B-79-01214 |
| Citation | 2 BR 256 |
| Parties | In re Richard F. IACOVONI, Hollis Dean Snelson and Renee Cook Snelson, L. Craig Matern and Ranae D. Matern, Manuel G. Montoya and Dorothy E. Montoya, Robert L. Cartwright and Paula E. Cartwright, Garn M. Bishop and Bonnie W. Bishop, Rich Epperson and Shayne Epperson, Michael A. Love and Anna R. Love, Debtors. |
| Court | U.S. Bankruptcy Court — District of Utah |
Evan M. Hansen, standing Chapter 13 trustee.
Richard Calder, Salt Lake City, Utah, for debtors.
Mary Ann Casper, of Sears Roebuck and Co. in In re Iacovoni.
Mel Hanks, pro se.
Charles Mason, for Utah State Employees Credit Union, and counsel for First Security Bank in In re Snelson.
Sylvia Houston, for Avco Thrift in In re Cartwright.
Fred W. Burton, Yreka, Cal., for Murray First Thrift in In re Love.
Since the October 1, 1979, effective date of the new Bankruptcy Code, 11 U.S.C. §§ 101 et seq., several petitions and plans have been filed under Chapter 13, 11 U.S.C. §§ 1301 et seq., which propose to pay either nothing or very little to creditors. Individuals have filed under Chapter 13 whose only regular income is welfare payments. Unsecured debts have been classified and treated separately solely on the basis of the presence of a codebtor. These cases raise three basic questions concerning the interpretation and application of the provisions of Chapter 13: (1) what constitutes regular income for the purpose of qualifying to file under Chapter 13; (2) whether debts can be classified and treated differently solely on the basis of the presence of a codebtor; and (3) whether, and under what circumstances if any, the Court may require some payment to holders of unsecured claims as a prerequisite to confirmation of a Chapter 13 plan. The following facts bring these issues sharply into focus.
1. In re Iacovoni. Petitioner works part time as an English Instructor at the University of Utah earning $444.44 per month or approximately $5,335 a year. He earned $13,000 in the previous year. He has no secured debts, and has accumulated $17,109.40 in unsecured debts, $13,000 of which were incurred as government-insured student loans. He claims all of his property as exempt, claims $4.44 per month as his only excess income, and proposes to pay nothing under his plan to any creditors. Creditors would receive no dividend if the case were filed under Chapter 7, 11 U.S.C. §§ 701 et seq.
2. In re Snelson. Petitioners have a gross income of $914 per month and a net income of $512.16 per month. Their claimed excess over budgeted needs amounts to $76.16 per month. They have accumulated $3,954.66 in unsecured debts, and their secured debts consist of $2,100 to be paid outside of the plan, a $1,000 lien which the debtors seek to avoid under 11 U.S.C. § 522(f), liens of $6,300 and $1,275 concerning which debtors choose to surrender the property in lieu of payment as allowed in 11 U.S.C. § 1325(a)(5)(C), and a lien of $925.03 on which debtors propose to pay $360, the claimed value of the property, under 11 U.S.C. § 1325(a)(5)(B). Payments under the plan would thus consist of nothing to unsecured creditors, as this case would, like Iacovoni, be a no asset case under Chapter 7, and a total of $11.96 each month to one secured creditor with 96 cents being paid each month to the trustee as administrative costs.
3. In re Matern. Petitioners earn a gross income of $961.84 per month resulting in a net income of $741.16 per month. They claim an excess of $101.16 per month after living expenses have been paid. They have secured debts totaling $9,500, $2,800 of which they seek to affirm and to pay outside of the plan. They propose to surrender the property securing the remaining amounts so as to eradicate those secured debts. Their unsecured debts total $3,233. As their assets are all claimed as exempt, leaving no dividend for creditors if filed under Chapter 7, they propose to pay these unsecured creditors nothing with the exception of People's First Thrift, a lender which they propose to pay in full. The only justification for classifying this unsecured creditor in a separate class is the presence of a codebtor on the debt. Of their $101.16 monthly excess over budget, petitioners desire to pay $19.93 per month to be disbursed to People's First Thrift and $1.59 per month to be paid to the trustee as administrative expenses. The plan contemplates no other payments.
4. In re Montoya. Petitioners in this case earn a gross amount of $1,401.96 per month, take home being $1,064.76 per month. Out of this amount, they claim an excess of only $17.76 per month after subtraction of living expenses. Secured debts amounting to $1,823.97 they seek to avoid under 11 U.S.C. § 522(f), and the only other secured debt of $31,200 owed to Mason McDuffie on their personal residence, they propose to keep current outside of the plan. They have unsecured debts totaling $13,160.61, of which they propose to pay nothing, which is equal to the amount which would have been paid under a Chapter 7 liquidation. Thus, the total amount to be paid under the plan is nothing.
5. In re Cartwright. Petitioners earn a gross amount of $1,010.48 per month, bringing home a net amount of $845 per month. They claim an excess of $20 per month after living expenses. Their only secured debts, which total $4,974, they seek to avoid under 11 U.S.C. § 522(f). Their unsecured debts total $5,353.89, of which they propose to pay nothing, the amount which would be distributed if a Chapter 7 had been filed. Thus, the total to be paid out under the plan is nothing.
6. In re Bishop. Last year, these petitioners made $26,000. The husband is now a student, and their only income consists of welfare payments of $836 per month. Out of this they claim an excess of $15 per month. They have only one secured debt in the amount of $4,886.50, which debt they propose to limit to $575, the claimed value of the property secured. This amount is to be paid out under the plan over 36 months. Unsecured debts have been accumulated in the amount of $8,473.51, of which they propose to pay nothing as their case would be a no asset case if brought under Chapter 7.
7. In re Epperson. Petitioners have a gross income of $1,120 per month with net income of $868 per month. Excess after living expenses is $48 per month. A secured debt to Commercial Security Bank in the amount of $712 is to be reduced to $200, the claimed value of the security, and this amount is to be paid out under the plan over 36 months. It is not clear from the plan what the proposed treatment of another secured debt listed in the amount of $4,000 is to be. The debtors have unsecured debts in the amount of $8,712.64. With the exception of $1,200 owing to People's First Thrift, they propose to pay nothing on these unsecured debts, this being the amount which would have been received under a Chapter 7 liquidation. The separate classification of the unsecured debt owed People's First Thrift, to which debtors propose to make 100 percent payment, is based on the fact that this debt has a codebtor.
8. In re Love. Regular income for these petitioners is in the amount of $1,740.80 per month gross and $1,511.32 per month net. Excess is claimed to be $86.84 per month after living expenses. They owe $64,955.55 in secured debts, $60,342.27 of which they seek to affirm and pay on schedule outside of the plan. Of the remaining $4,613.28 owed to the secured creditors they seek to avoid $763.28 under 11 U.S.C. § 522(f), and to abandon the property to eradicate the remaining secured debt. They owe $3,355.50 in unsecured debts. To these creditors, they propose to pay nothing, having claimed all their assets as exempt so as to leave no dividend for creditors in the case of a filing of a Chapter 7. Thus, the total amount to be paid under the plan is zero.
The fact patterns found in these cases and other similar cases filed in this Court reflect the broad statutory invitation to debtor's relief which is Chapter 13. To be determined is the extent, if any, to which the Court must shape and confine these fact patterns to conform with the statute.
The question of what constitutes regular income is raised in the Bishop case, where petitioners' only income is derived from welfare payments. "Regular income" qualifies an individual for requesting relief under Chapter 13. The definition of "individual with regular income" is given in 11 U.S.C. § 101(24):
"individual with regular income" means individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stock broker or a commodity broker;
This definition greatly increases the availability of Chapter 13 relief which, under former law, 11 U.S.C. § 1006(8), was limited to individuals "whose principal income is derived from wages, salary or commissions." (Emphasis added.) The legislative history makes clear that the present definition under the new Code is to be interpreted broadly, and that any stable, regular income from any source, specifically including "welfare, social security, fixed pension incomes, or . . . investment incomes," is sufficient to qualify the individual for Chapter 13 relief. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 312 (1977). S.Rep. No. 95-989, 95th Cong., 2d Sess. 24 (1978), U.S. Code Cong. & Admin. News, pp. 5787, 5810. These reports interpret the statutory definition to include as well self-employed individuals who have regular incomes. Thus, a liberal interpretation of "regular income" is mandated by specific legislative history. The welfare income of the Bishops is sufficient to make them eligible to file under Chapter 13. As discussed later, their income or assets must be adequate,...
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