In re Jacobs
| Citation | 102 BR 239 |
| Decision Date | 11 July 1989 |
| Docket Number | Bankruptcy No. 88-70349. |
| Parties | In re David L. JACOBS, d/b/a Jacobs Used Cars, SSN XXX-XX-XXXX Anna Jacobs SSN XXX-XX-XXXX, Debtors. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Oklahoma |
Jimmy Veith, Ardmore, Okl., for debtors.
Stan McKay, Marietta, Okl., for Bank of Love County.
On August 24, 1988, this Court conducted a hearing on the Confirmation of Debtors' Chapter 13 Plan with an accompanying Objection by the Bank of Love County (Bank).
Appearances were entered at the hearing by Jimmy Veith on behalf of the Debtors and Stan McKay for Bank.
At the conclusion of the taking of evidence, the parties were afforded the opportunity to file Briefs in support of their respective positions. All such Briefs were received by September 23, 1988.
Upon review of the evidence, file and the Briefs, this Court FINDS:
FINDINGS OF FACT
1. This is a "core" proceeding pursuant to 28 U.S.C. § 157(b).
2. The Debtors were pre-Petition owners and operators of a wholesale used car sales business in Marietta, Oklahoma. Debtors financed their business by obtaining revolving credit with Bank. This loan was secured by the automobiles and the proceeds of sale, as well as a Second Mortgage on the Debtors' home. The Debtors began experiencing financial difficulties in November, 1985, culminating in the filing of a Chapter 7 Bankruptcy Petition (Case No. 87-00057) on January 20, 1987.
3. Debtors listed as secured debt $89,836.44 with the security being the Second Mortgage on the Debtors' home, valued at $45,000. A First Mortgage of $16,000 also was secured by this home's value. No mention of the disposition of the vehicles was offered.
4. Through an Adversary Proceeding filed March 25, 1987, it was determined by Agreed Order filed November 10, 1987 that Debtors sold the collateral (i.e., automobiles) and converted the proceeds without Bank's permission or consent. The Debtors also failed to maintain any records of the sales as required by the Security Agreement. Debtors attempted to convert to Chapter 13 on July 10, 1987.
This debt, stipulated to be $50,000 in the Agreed Order, was deemed nondischargeable. In the same Order, Debtors withdrew their request for conversion to Chapter 13.
5. Debtors filed for relief under Chapter 13 of the United States Bankruptcy Code on April 4, 1988, listing as unsecured debt $47,836.44 owed to Bank and $767 priority claim owed to the Love County Treasurer.
6. Under the Chapter 13 Plan, Debtors propose to pay $100 per month for thirty-six (36) months to Bank. Debtors' income is estimated at $1,200 per month, with $1,096 in living expenses. Debtor/husband will work in public relations for an automobile auction while Debtor/wife will work as a housewife.
7. Debtors moved for confirmation of this Plan with Bank objecting on the grounds that the Plan is not offered in good faith.
A. Confirmation of any Chapter 13 Plan is contingent upon the satisfaction of 11 U.S.C. § 1325. Specifically, the only provision at issue in this case is § 1325(a)(3) which requires that "The Plan has been proposed in good faith and not by any means forbidden by law."
Although many early cases determined that the mere act of filing a Chapter 13 Petition soon after receiving a Discharge under Chapter 7 constituted per se bad faith, most jurisdictions, including the Tenth Circuit, have adopted a "totality of the circumstances" flexible test for determining if bad faith exists. Flygare v. Boulden, 709 F.2d 1344 (10th Cir.1983); Public Finance Corp. v. Freeman, 712 F.2d 219 (5th Cir.1983); Ravenot v. Rimgale, 669 F.2d 426 (7th Cir.1982); United States v. Estus, 695 F.2d 311 (8th Cir.1982).
However, depending on the facts of the particular case, such a rapid, consecutive filing, often referred to as a "Chapter 20," may be considered as one factor in the totality analysis. In re Baker, 736 F.2d 481 (8th Cir.1984).
B. Generally the object of a bad faith inquiry is to "determine whether or not, considering all militating factors, there has been an abuse of the provisions, purpose or spirit of Chapter 13 in the proposal or Plan." Deans v. O'Donnell, 692 F.2d 968 (4th Cir.1982).
The good faith requirement contemplates "a broad judicial inquiry into the conduct and state of mind of a debtor, with reference to the proposal of the Plan." In re Yavarkovsky, 23 B.R. 756, 759 (Bankr.S.D. N.Y.1982). Included in such an inquiry is an examination of Debtor's pre-Petition culpability, which is not a basis, standing alone, for denying the benefits of the Chapter 13 bankruptcy laws, but is relevant in the totality of the circumstances. Neufeld v. Freeman, 794 F.2d 149 (4th Cir.1986).
C. Perhaps the most complete litmus analysis is found in Flygare v. Boulden, supra, wherein the Tenth Circuit outlined eleven factors to comprise the totality of the circumstances, no one of which is sufficient for a finding of bad faith, but combined may warrant such a finding. This case was cited by both parties in their respective Briefs and this Court finds it useful and binding on its decision.
The factors include:
1) The amount of the proposed payments and the amount of Debtor's surplus.
Although somewhat disputed by the Bank, Debtors appear to have stated reasonable expenses of $1,096 under the Plan. This leaves $100 for distribution under the Plan and a surplus of $3.83. However, this represents a total payment of $3,600 under the term of the Plan to satisfy a $50,000 unsecured indebtedness. The fact that this represents seven percent (7%) in de minimus payment to Bank in and of itself is not sufficient for a finding of "bad faith." However, it is a factor to be figured into the totality equation. Barnes v. Whelan, 689 F.2d 193 (D.D.C.1982).
2) The Debtor's employment history, ability to earn and likelihood of future increases in income.
Debtor has recently obtained employment with a newly established automobile auction at $300 per week. Testimony showed that the income for this new business is uncertain, thus Debtor's length of employment may be uncertain as well. Also, Debtor is responsible for his own expenses which he may incur in his employment. Any expense would be sufficient to undermine this Plan. The ability of Debtor to earn may be present, but the instability of his employment is disturbing and another factor in the totality.
3) The probable or expected duration of the Plan.
The Plan term of 36 months is a substantial effort.
4) The accuracy of the Plan's statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the Court.
A question arises in the mind of the Court that Debtor's schedules list an unsecured debt to Bank of $47,836.44 when in fact the parties agreed to a settlement of $50,000 in Adversary No. 87-0036. However, Bank raises no...
To continue reading
Request your trial