In re Jensen

• Decision Date: 11 June 2007
• Docket Number: Bankruptcy No. 04-34567ELF.,Adversary No. 05-0530.
• Citation: 369 B.R. 210
• Parties: In re Karen JENSEN, Debtor. Karen F. Jensen, William C. Miller, Trustee, Plaintiffs, v. James A. Froio and Option One Mortgage Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

369 B.R. 210

In re Karen JENSEN, Debtor Karen F. Jensen, William C. Miller, Trustee, Plaintiffs, v. James A. Froio and Option One Mortgage Corporation, Defendants.

Bankruptcy No. 04-34567ELF.

Adversary No. 05-0530.

United States Bankruptcy Court, E.D. Pennsylvania.

June 11, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David A. Scholl, Newtown Square, PA, for Debtor.

James J. Greenfield, Radnor, PA, for James Froio.

Doreena Craig Sloan, Andrew Eisemann, for Mary Drexel Home.

Leroy Etheridge, Philadelphia, PA, for William C. Miller, Trustee.

OPINION

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

This case came before the court for confirmation of the chapter 13 plan filed by Karen L. Jensen ("the Debtor"). The Debtor's brother, James Froio ("James") — a creditor who did not file a timely proof of claim — is the sole remaining objector to his sister's plan. James asserts both good faith and feasibility objections to confirmation. At bottom, his position is animated by his conviction that the Debtor is not among the individuals whom Congress intended be permitted to obtain a fresh start through the bankruptcy process. Characterizing the Debtor as a "high-end retailer's best friend," he argues that his sister's "determination to experience the good life without the requisite resources" resulted in frenetic spending and the mismanagement of her own as well as her mother's finances — practices he contends were carried out at his expense and are indicia of bad faith warranting the denial of confirmation.¹ He also urges the court to find that the Debtor's chapter 13 plan is not confirmable because certain provisions lack feasibility and, indeed, constitute "pure fantasy."²

Consolidated with confirmation was a hearing on the chapter 13 Trustee's Motions to Dismiss this case and trial of an adversary proceeding the Debtor initiated against James, docketed at Adv. No. 05-530 ("the Adversary Proceeding"). In the Adversary Proceeding, the Debtor has requested a determination that she is the sole owner of her home in Haverford, " Pennsylvania ("the Booth Lane Property"),³ notwithstanding the fact that she and James are both listed as co-owners on the recorded deed and accompanying mortgage. The Debtor's chapter 13 plan envisions a refinancing or sale of the home to generate funds to satisfy, in part, the claims of the Debtor's creditors. Thus, the identity of the "true" owner or owners of the property affects the Debtor's ability to implement her plan.⁴

The contested matter arising from the objections to confirmation and the Adversary Proceeding regarding ownership rights in the Debtor's residence require that I resolve issues concerning "party in interest" standing for the purposes of objecting to plan confirmation, the application of the resulting trust doctrine in Pennsylvania and the meaning of "good faith" in the chapter 13 confirmation context.

As detailed below, I conclude that:

(1) The Trustee's Motions to Dismiss will be denied.

(2) James holds title in the Booth Lane Property in a resulting trust in the Debtor's favor and the Debtor is the sole beneficial owner of that property.

(3) James has standing to object to the confirmation of the Debtor's chapter 13 plan on the grounds that the plan does not satisfy the requirements of 11 U.S.C. § 1325(a)(3) and (6).

(4) James' objections to confirmation will be overruled.

(5) Nonetheless, the Debtor's plan cannot be confirmed because it does not comply with 11 U.S.C. § 1325(a)(4).

(6) The Debtor will be granted leave to file an amended plan to cure the § 1325(a)(4) defect.⁵

II. BACKGROUND

A. The Debtor's Family History

Before reviewing the Debtor's chapter 13 plan, the objections James has asserted to confirmation of that plan and the dispute between the Debtor and James that gave rise to the Adversary Proceeding, it is helpful to review the Debtor's family history. The disputes before me all arise " from this history and, in particular, the Debtor's handling of the financial affairs of her mother, Anne Froio ("Mrs. Froio").

The Debtor, a widow, currently resides in the Booth Lane Property, a five-bedroom townhouse. Also living in the property are with the Debtor's son Andrew (aged 16), daughter Lauren (aged 21), and 58-year-old brother Steven Froio ("Steven").⁶ (N.T., 2/12/07, 66, 84-86, 167, 192).

The Debtor purchased the Booth Lane Property approximately five years ago, signing a mortgage and taking title to the property jointly with James, a brother with whom she does not live and with whom she has subsequently developed a fractious relationship.⁷ Beneficial ownership of this property — the Debtor's main asset in her bankruptcy — is a matter of dispute between the Debtor and James and is the subject of the Adversary Proceeding. Additionally, as stated earlier, James objects to the confirmation of his sister's chapter 13 plan.

For many years, the Debtor's mother, Mrs. Froio (now age 86), also lived with the Debtor, both at the Booth Lane Property and at a prior address. (N.T., 2/12/07, 63, 66). Mrs. Froio began living with her daughter in 1994 when Mrs. Froio was approximately 74 years old.⁸ (N.T., 2/12/07, 63, 74). The Debtor assisted her mother with bathing, medications, meals and the tasks of daily living. (N.T., 2/12/07, 66). A former English teacher, Mrs. Froio receives a pension as well as Social Security benefits. (N.T., 2/12/07, 72). With Mrs. Froio's approval, the Jensen/Froio family established a practice of pooling their financial resources, including Mrs. Froio's income, to meet household expenses. (N.T., 2/12/07, 81-82).⁹ With respect to this income, Mrs. Froio's intended that "bide live on it, as a family." (N.T., 12/8/06, 76).

Mrs. Froio's health declined over the years. She has been diagnosed with Parkinson's disease¹⁰ and macular degeneration. By the time she came to live at the Booth Lane Property in 2002, she was blind. (N.T., 2/12/07, 66). In 2003, Mrs. Froio entrusted the Debtor with a power of attorney that included, among other things, authority to manage Mrs. Froio's finances.

In June 2004, Mrs. Froio's health worsened to the point that she became a resident of the Mary J. Drexel nursing facility ("Mary Drexel"). (N.T., 2/12/07, 68-69). While the Debtor's expectations in 2004 were that Mrs. Froio's health would improve sufficiently to permit her to rejoin the family at the Booth Lane Property, Mrs. Froio continues to reside at Mary Drexel today. (N.T., 2/12/07, 71).

Problematically, despite Mrs. Froio's change in residence, the Debtor continued the practice of pooling the Jensen/Froio income to meet household expenses and did not pay the bill for Mrs. Froio's care at Mary Drexel. This led Mary Drexel to file a state court lawsuit against the Debtor, Mrs. Froio and her three brothers ("the State Court Collection Action"), seeking to hold them liable for paying for the care Mary Drexel rendered to Mrs. Froio.¹¹ Mary Drexel based the State Court Collection Action against the Debtor and her three brothers on, inter alia, a Pennsylvania statute that requires children to pay for the care and maintenance of their indigent parents.¹² See 62 Pa. Stat. Ann § 1973, repealed 2005 Pa. Laws 196, No. 43, § 3 (July 7, 2005); 23 Pa.Cons.Stat. Ann. § 4603 (enacted July 7, 2005).

In addition to caring for Mrs. Froio, the Debtor has also been committed to the care of her daughter Lauren, who has special needs. Lauren has been diagnosed with obsessive compulsive disorder, borderline personality disorder, social anxiety disorder, agoraphobia and depression. (N.T., 2/12/07, 176-77). Her medical and psychiatric conditions require distinctive care.¹³ Lauren's agoraphobia is of such severity that she rarely leaves home.¹⁴ Her agoraphobia has also placed restrictions on the Debtor's ability to embark upon her career as a tutor full-time.¹⁵ The Debtor assists Lauren with bathing, food preparation and most other aspects of daily living. (N.T., 2/12/07, 177). Lauren's medical bills have averaged $500 a month. (N.T., 2/12/07, 184).

In addition to caring for her children and Mrs. Froio, the Debtor has also provided her brother Steven, with whom she currently lives, financial assistance over the years. Steven, who was unemployed for several years, testified that the Debtor loaned him a total of $30,000 between July 2002 and November 2004 to help him meet his living expenses. (N.T., 2/12/07, 195).

Against this backdrop, and facing the threat of foreclosure proceedings against the Booth Lane Property due to a substantial delinquency on the mortgage, see Part C., infra, the Debtor filed her chapter 13 petition on November 1, 2004.¹⁶

B. The Debtor's Assets

The Debtor's home, the Booth Lane Property, is the main asset in this bankruptcy case.¹⁷ In the schedules the Debtor filed on November 11, 2004, she valued the Booth Lane Property at $570,000. (See Schedule A). There was testimony at the confirmation hearing about a neighboring town home, of potentially lesser value,¹⁸ selling for $700,000, albeit, in a "unique situation."¹⁹ (N.T., 2/12/07, 87). The Debtor purchased the Booth Lane Property in 2002 for $563,000. (N.T., 2/12/07, 61-62).

C. The Debtor's Liabilities

In addition to being her main asset, the Booth Lane Property is also the source of the Debtor's largest and only secured debt.²⁰ Option One Mortgage Corporation ("Option One"), the company that financed the mortgage on the Booth Lane Property, has filed a proof of claim for $488,854.33, including $57,587.36 in arrearages. Preventing foreclosure on the Booth Lane Property was the Debtor' primary motivation for filing for bankruptcy protection. (N.T., 2/12/07, 48).

Besides the Option One debt, the Debtor has also disclosed 16 creditors (some of which she designated "disputed") holding unsecured, nonpriority claims, for a total unsecured debt of $179,301.17. (See Amended Schedule F). This includes a $20,000 personal loan from her brother James (See Schedule F, filed 11...