In re Kinsale

• Decision Date: 02 June 2020
• Docket Number: C/A No. 19-03991-JW
• Citation: 617 B.R. 58
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: IN RE: Jessica E. KINSALE, Debtor(s).

617 B.R. 58

IN RE: Jessica E. KINSALE, Debtor(s).

C/A No. 19-03991-JW

United States Bankruptcy Court, D. South Carolina.

Signed June 2, 2020

Jane H. Downey, Moore Taylor Law Firm, P.A., West Columbia, SC, for Debtor(s).

AMENDED ORDER DENYING CONFIRMATION AND MOTION TO MODIFY CHAPTER 13 PLAN¹

John E. Waites, U.S. Bankruptcy Judge

This matter comes before the Court upon the confirmation of a proposed chapter 13 plan filed on October 11, 2019 ("Proposed Plan") by Jessica E. Kinsale ("Debtor"). An objection to confirmation of the Proposed Plan ("Objection") was filed by Kirk Shawn Kinsale ("Mr. Kinsale") on November 1, 2019. A confirmation hearing was held where the Court indicated that it would deny confirmation of the Proposed Plan. After that indication, Debtor made an oral motion to modify the chapter 13 plan, which the Court took under advisement. This Order memorializes the Court's denial of confirmation and addresses Debtor's motion to modify the chapter 13 plan. Pursuant to Fed. R. Civ. P. 52, which is made applicable to contested matters by Fed. R. Bankr. P. 7052 and 9014(c), the Court makes the following findings of fact and conclusions of law.²

FINDINGS OF FACT

1. Debtor and Mr. Kinsale were previously married. During the marriage, they operated a day care business, which was registered with the South Carolina Secretary of State as Magnanimous Kids Childcare SVC. LLC ("Original Daycare Business"), located at 10115 Farrow Road in Blythewood, South Carolina.

2. In 2013, divorce proceedings were commenced between Debtor and Mr. Kinsale, and on June 30, 2015, the state family court entered a final divorce decree ("Divorce Decree"). The Divorce Decree held that both parties owned an equal share of the Original Daycare Business, which had a stipulated value of $493,321.00 based upon a valuation conducted by an independent party, and that the parties were required to immediately list the business for sale with Mr. Kinsale responsible for overseeing the sale. The Divorce Decree provided that Debtor was required "to allow reasonable and timely access to any real estate agent/broker, potential purchaser and to [Mr. Kinsale]." Debtor was also required under the Divorce Decree to "continue to operate the business and keep it as going concern and ... continue to service and pay all debt associated with the business in a timely manner."

3. It appears the Original Daycare Business ceased operations around October of 2017 as a result of a pending sale of real and personal property to Whaley Street Properties, LLC

4. On November 7, 2017, the state family court entered an Order of Contempt, which found that Debtor has failed to pay the property taxes on the Original Daycare Business for 2015 and 2016, resulting in a tax sale of the property. As a result of the tax sale, the Court found the parties had "to accept a ‘fire sale’ offer to purchase the [Original] Daycare ... with a contract sales price of $250,000.00, plus an additional $5,000.00 for the personal property, a sales figures substantially less than the stipulated value of the [Original] Daycare business and assets as set [in the Divorce Decree]." The family court found that while Mr. Kinsale attempted in good faith to sell the Original Daycare, Debtor "had not cooperated in the sale of the property or protected the asset ...."³

5. It appears Debtor opened a new daycare business, named Magnanimous Kids Learning Center ("New Daycare Business"), around October of 2018 at the location of 1215 N. Brickyard Road, Columbia, South Carolina.

6. On July 30, 2019, Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code. Under Question 4 of the petition, Debtor indicated that she has not used any business names or Employer Identification Numbers. Under Question 12 of the petition, Debtor answered no to "Are you a sole proprietor of any full or part-time business?" Under Question 5 of the petition where you live, Debtor answered 1215 N. Brickyard Road, Columbia, South Carolina, the location of the New Daycare Business.

7. On August 9, 2019, Debtor filed her schedules and statements and proposed chapter 13 plan. Relevant items of these documents include:

• Under Non-publicly traded stock and interests in incorporated and unincorporated business, including an interest in an LLC, partnership and joint venture under Schedule A, Debtor listed "Magnanimous Kids Learning," including some but not all of the assets of the business and stating that " business expenses and debts are larger than income and assets." Debtor lists the value of the business as $0.00. Debtor later amended her schedule to assert the business has a value of $5,068, removing the statement that the business's expenses and debts are greater than its assets and income.

• Debtor's Schedule D indicated she owes one secured claim, a claim of the Internal Revenue Service ("IRS") in the amount of $13,974.76. The IRS's claim filed in this case asserted that it is not a secured claim but a priority unsecured claim in the amount of $14,016.94.

• Debtor's Schedule E/F indicated no priority unsecured claims, and 240,135.15 in non-priority unsecured claims, of which $112,106 of this amount were for claims owed to Mr. Kinsale or his family court's counsel. Of the actual claims filed in Debtor's case, Mr. Kinsale and his family court's counsel constitutes 54.5% of Debtor's non-priority unsecured claims.

• Schedule H indicated that "Magnanimous Kids" at 1215 N. Brickyard Road, Columbia, South Carolina is a co-debtor to Debtor as to the claims of Internal Revenue Service and C. Jeff Stroud AIA Architect, Inc. On Schedule E, Debtor indicated that the claim of C. Jeff Stroud AIA Architect, Inc. was incurred on November 10, 2017 for "architect services open daycare and plans[.]"⁴

• On Schedule I, Debtor listed her employer as "Magnanimous Kids Learning Center" at 1215 N. Brickyard Road in Columbia, South Carolina and indicated she receives monthly gross wages, salary, and commissions of $2,340.50 a month. Debtor's Schedule I indicated that Debtor receives no income from operating a business. Further, she indicated that her non-filing spouse has monthly gross wages, salary and commissions in the amount of $1,606.

• The New Daycare Business's expenses, debts and executory contracts are not designated or otherwise specified in the schedules. It appears Debtor's schedules did not include certain executory contracts related to the New Daycare Business, including the leases for the building and playground sets.

• Under her Statement of Financial Affairs, Debtor listed "Magnanimous Kids Childcare" located at 1215 N. Brickyard Road in Columbia, South Carolina as a business she owned within the four years prior to her filing the bankruptcy petition. For the dates that the business existed, Debtor indicated January 10, 2010 to October 24, 2017 and October 1, 2018, to the date of petition.⁵ Debtor did not specify whether the business was a sole proprietorship, an LLC, or a partnership as required by the Statement of Financial Affairs. Debtor listed only the Employer Identification Number for the New Daycare Business.

• In Debtor's Statement of Current Monthly Income and Calculation of Commitment Period, Debtor indicated that her spouse's average income for the six months prior to the filing of her petition was $461.89 but listed her spouse's income as $0.00 for purposes of calculating her average monthly income.

8. On October 11, 2019, Debtor filed the Proposed Plan. Under the Proposed Plan, Debtor proposes to pay $380 per month for 60 months to the Chapter 13 Trustee to be disbursed to her creditors. In total, Debtor proposes to pay $22,800 to the Trustee over the term of her bankruptcy case.

9. On November 1, 2019, Mr. Kinsale filed the Objection to the confirmation of the Proposed Plan. The Objection alleged that Debtor's plan was not feasible, that the plan was not filed in good faith, that the plan does not provide for full payment of domestic support obligations, and that Debtor is not paying creditors the amounts that would be paid under a chapter 7 liquidation in violation of 11 U.S.C. § 1325(a)(4).⁶ Among other items, Mr. Kinsale alleged that Debtor has been misreporting assets and expenses from the New Daycare Business and using the present bankruptcy case to hide assets.

10. On November 19, 2019, the Court granted relief from the automatic stay to allow the state family court to issue a final order for matters heard at a hearing held pre-petition on May 16, 2019. Thereafter, the state family court entered a Contempt Order on January 6, 2020. In that order, the family court noted that Debtor's financial disclosure filed in that court "intermingled her personal and business expenses and failed to itemize which of the expenses on her financial declaration were personal and which were business." The family court's order also noted "that based on the testimony of [Debtor at the May 16, 2019 hearing], she lives where she works and, therefore, her rent, utilities and other living expenses are being paid for by the business." The family court also found that Debtor's monthly net income from the New Daycare Business was between $4,000 and $4,500 based upon her financial declarations. Under the order, the family court found Debtor liable to Mr. Kinsale for the lost equity that resulted from the emergency sale of the Original Daycare Business.

11. On May 1, 2020, the parties conducted a deposition of Debtor, the transcript and related exhibits of which were later submitted into evidence in their entirety. The deposition testimony included several relevant items to this matter, including:

• Debtor indicated that in July 2019, she moved to and lived at 222 West Bowmore Drive in Blythewood, South Carolina, and that she previously lived at 156 Fallstaff Road in Columbia, South Carolina, an address not listed on her Statement of Financial Affairs. She also indicated that she never lived at the New Day Care Business, 1215 North Brickyard

...