In re McCarthy

• Decision Date: 21 July 2016
• Docket Number: CASE NO. 16–50394–cag
• Citation: 554 B.R. 388
• Parties: In re: John Thomas McCarthy, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Texas

554 B.R. 388

In re: John Thomas McCarthy, Debtor.

CASE NO. 16–50394–cag

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed July 21, 2016

Entered July 22, 2016

J. Todd Malaise, San Antonio, TX, for Debtor.

MEMORANDUM OPINION AND ORDER GRANTING CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN (ECF NO. 7)

CRAIG A. GARGOTTA

, UNITED STATES BANKRUPTCY JUDGE

Came on to be considered the above-numbered bankruptcy case, and, in particular, the Chapter 13 Trustee's Objection to Confirmation of Chapter 13 Plan (ECF No. 7).¹ The Court has jurisdiction over this proceeding under 28 U.S.C. §§ 157

and 1334. Venue is proper under 28 U.S.C. § 1408(1). This matter is referred to this Court under the District's Standing Order of Reference. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(L) (confirmation of plans) in which the Court may enter a final order. The Court notes that, under the Supreme Court's decision in Bullard v. Blue Hills Bank, ––– U.S. ––––, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015), this Court has the authority to hear and enter orders regarding a debtor's chapter 13 plan; but that an order denying confirmation of a chapter 13 plan is not a final order unless the bankruptcy case is also dismissed. The Court finds that this is a contested matter as defined under Fed. R. Bankr. P. 9014

. As such, the Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. The Court took this matter under advisement and finds that the Chapter 13 Trustee's (the “Trustee”) Objection should be GRANTED.

BACKGROUND

Debtor John Thomas McCarthy filed chapter 13 bankruptcy on February 22, 2016 (ECF No. 1). On the same day, Debtor filed his Schedules, Statement of Financial Affairs (“SOFA”), and chapter 13 plan (ECF Nos. 1 and 2). Pursuant to the Chapter 13 Form Plan used in the San Antonio Division, Debtor proposes to pay 100% of all of his allowed administrative, secured, priority, and nonpriority unsecured claims (ECF No. 2, p. 6). The proposed Plan payment is $1,200.00 per month and the Plan length is 60 months. (Id. at pp.6–7).²

The Trustee filed her Objection on April 4, 2016, arguing that, given the Debtor's excess disposable income, Debtor should agree that the chapter 13 plan cannot be modified or changed unless it continues to provide for full payment of unsecured claims (ECF No. 7). Further, the Trustee argues that Debtor must pay all claims in full to receive a discharge under § 1328(a).³

No evidence was taken at the confirmation hearing, although the Trustee provided the Court with additional information that Debtor does not dispute. Debtor individually owns two vehicles with a combined value of roughly $25,000.00, a Keystone RV with a value of $26,135.00, and a 2014 Gator Trax boat with a value of $12,000.00. (ECF No. 1). The Debtor pays $332.00/month on the RV Keystone (per Schedule “J”); $553.97/month on the 2014 Gator Trax boat through the Plan; and $484.15/month on 2012 Toyota Camry. (ECF No. 2, pp. 4–5). The Debtor also owns a 2002 Ford 250 that has no encumbrances on it.

PARTIES' CONTENTIONS

The Trustee argues that, because Debtor has excess disposable income and has personal property provided for in the Plan that are luxury items, Debtor should be required to pay off his plan earlier than the 60 months proposed. The Trustee argues that the creditors risk losing payments of additional disposable income if Debtor is unable to complete his plan. The Trustee calculates that, based upon the total amount of Debtor's projected disposable income, Debtor could complete his Plan within 37 months. Further, the Trustee maintains that the Court can impose the additional condition that, should Debtor be allowed to pay his claims over 60 months without dedicating all his disposable income to the chapter 13 plan, then Debtor shall receive his discharge only if Debtor pays 100% of all allowed unsecured claims. Also, the Trustee asks that Debtor be barred from modifying his chapter 13 Plan unless this proposed modification continues to pay unsecured claims in full.

Debtor argues that the proposed Court imposed conditions are not permitted under the Code and run afoul of § 1325(b)(1), which provides, in summary form, that the Court shall confirm a plan if the debtor provides for all of the debtor's projected disposable income over the applicable commitment period (60 months) or pays all unsecured claims in full. Debtor argues that once § 1325(b)(1) is met, the Court must confirm Debtor's chapter 13 plan as proposed without further conditions. Debtor also argues that, under Law v. Siegel, ––– U.S. ––––, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014)

, the Court cannot impose any additional requirements on confirmation based upon equitable grounds under § 105(a).

FINDINGS OF FACT

No evidence was taken at the hearing and both parties stipulated as to the operative facts. Specifically, Debtor's chapter 13 Plan as proposed provides for payment in full of all claims over an ACP of 60 months. Debtor admits that he is not paying all projected disposable income into the chapter 13 plan. The chapter 13 plan is feasible as proposed and otherwise not contrary to any provision of the Code.

CONCLUSIONS OF LAW

This Court recently observed that:

The ordinary-meaning rule is the most fundamental semantic rule of interpretation. It governs constitutions, statutes, rules, and private instruments ... If possible, every word and provision is to be given effect (verba cum effectu sunt accipienda ). None should be ignored ... it is no more the court's function to revise by subtraction than by addition.⁴

Under this rule of statutory interpretation, Debtor posits that the Court must adhere to the text of § 1325(b)(1) that, once Debtor proposes to pay all of his disposable income over the applicable commitment period, or propose to pay unsecured claims in full, the Court has no discretion but to confirm the chapter 13 plan.⁵ Further, Debtor argues that the Trustee cannot cite to any Bankruptcy Code provision that would allow the Court to contradict § 1325(b)(1) by including conditions to receive a discharge.

There is no controlling precedent in this Circuit other than an unreported District Court decision affirming this Court in rejecting a similar argument made by chapter 13 debtors in another case. See In re Molina, No. SA–14–CA–926, 2015 WL 8494012 (W.D.Tex. December 10, 2015)

(finding that, under § 105(a) the court is authorized to issue any order to carry out the provisions of the Code, including additional conditions on confirming a plan). In Molina,

the District Court found that meeting the requirements of chapter 13 plan confirmation does not preclude the bankruptcy court from requiring conditions such as full payment of unsecured creditors where the debtors have additional income not being utilized to fund their plan. Id. at *2. The District Court in Molina noted that the debtors had no reason to complain about the Court imposed conditions because the debtors received exactly what they asked for—confirmation of their chapter 13 plan—albeit with conditions. Id. Further, the District Court stated that it was not an abuse of discretion to require the debtors to pay all unsecured claims in full as a condition of discharge where the debtors were not dedicating all of their excess income for payment under the plan. Id.⁶

Courts outside this District and at least one treatise⁷ find that, once § 1325(b)(1) is satisfied by paying all disposable income through the plan or paying 100% of all unsecured claims, a court may not impose additional conditions when confirming a plan. In In re Bailey,

the trustee argued that § 1325(b)(1) can be read to require a debtor to pay all claims in full and dedicate all disposable income to payment of claims through the plan because § 1325(b)(1) may be read in the conjunctive. No. 13–60782, 2013 WL 6145819, at *1, *5 (Bankr.E.D.Ky.2013) (emphasis added). Further, the trustee suggested that § 1325(b)(1)(A) does not apply when a trustee objects to a plan. Id. at *2. Like the Bailey court, this Court does agree that the plain language of the statute only requires full payment of all claims or all disposable income being paid over the ACP. Further, the argument that § 1325(b)(1)(A) does not apply to a standing trustee is incorrect. Also, the trustee argued that notwithstanding the plain language of § 1325(b)(1), as a matter of public policy, a debtor could be compelled to pay all of the debtor's disposable income into a plan because creditor claims are protected by being paid earlier. Id. at *6.

The issue in Bailey

was whether the debtors could be compelled to increase their plan payment when two 401(k) loans were paid off during the pendency of the chapter 13 case. The debtors proposed a “stair step” increase when the first loan was paid off, but not for the second loan. In Bailey, the court observed that since 1984 Congress has amended § 1325(b) five times. Further, over this time, the Bailey court noted that Congress has not substantially amended § 1325(b)(1). Id. The Bailey court found that the plain language of § 1325(b)(1) required either payment of all projected income over the term of the plan or payment of unsecured claims in full, not both. Id. The court noted that had Congress wanted to change this requirement, it could have done so when it amended § 1325(b). Id.⁸ Finally, the Bailey court rejected the trustee's argument that the debtors should be required to pay off unsecured creditors sooner as a matter of public policy. Id. at *6

. The court found that public policy cannot override the plain meaning of the statute. Id.

The court in In re Richall,

noted that post–BAPCPA, Congress differentiated between below and above median debtors. 470 B.R. at 249.⁹ In doing so, Congress required an above median debtor to propose a plan length of 60 months, unless unsecured creditors could be paid in full prior to conclusion of the 60 month period. Id. Conversely,...