In re Navarro

• Decision Date: 17 March 1988
• Docket Number: Bankruptcy No. 87-03022F.
• Citation: 83 BR 348
• Parties: In re Anastacio NAVARRO and Amelia M. Navarro, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

83 B.R. 348 (1988)

In re Anastacio NAVARRO and Amelia M. Navarro, Debtors.

Bankruptcy No. 87-03022F.

United States Bankruptcy Court, E.D. Pennsylvania.

March 17, 1988.

COPYRIGHT MATERIAL OMITTED

Mitchell W. Miller, Miller & Miller, Philadelphia, Pa., for debtors, Anastacio Navarro and Amelia M. Navarro.

Edward J. Leonard, Philadelphia, Pa., for movant, Philadelphia Federal Credit Union.

Edward Sparkman, Philadelphia, Pa., trustee.

OPINION

BRUCE I. FOX, Bankruptcy Judge:

This contested matter involves an unsecured creditor's objection to the debtors' chapter 13 plan on the sole ground that it does not meet the disposable income test set forth in 11 U.S.C. § 1325(b). The creditor, Philadelphia Federal Credit Union ("PFCU"), argues that because the debtors propose to continue to tithe to their church and send a child to parochial school during the period of their chapter 13 bankruptcy plan, their plan may not be confirmed because it does not commit all of the family's disposable income to payments under the plan. Although I sympathize with the creditor's position and find the issues presented here to be difficult, I find that the applicable standard mandated by the disposable income test precludes the relief sought by the creditor.

I.

The facts presented are not in dispute.¹ The debtors are individuals whose current income for themselves and two children is $1,148.00 monthly, earned by Anastacio Navarro, the debtor/husband as a mechanic. Amelia Navarro, the debtor/wife recently resigned from her job as a lace finisher in order to care for the debtors' disabled daughter, who otherwise would have required special child care.

The debtors propose and apparently have commenced making 60 monthly payments under their chapter 13 plan of $135.00 each. Also included in their schedule of monthly expenses are payments of $220.00 for utilities, $400.00 for food, $150.00 for medical expenses, $100.00 for recreation, $260.00 for child care, $220.00 monthly for tuition for one child at parochial school, $260.00 paid as a tithe to the debtor's church, and $85.00 for various miscellaneous expenses including clothing and laundry.

At hearing in this matter, PFCU offered the debtors' schedules and plan into evidence. Mrs. Navarro, the debtor/wife, then testified that she had recently resigned from her job, thus drastically altering the family's current income and budget. Mrs. Navarro stated that the family's reduced circumstances have resulted in elimination of expenditures for medical care (health insurance), recreation and child care.² Additionally, the amount of the expenditure for parochial school has been reduced to $100.00 monthly and the family's tithe has decreased to $120.00 each month. The debtors continue to propose $135.00 monthly payments to the trustee under their bankruptcy plan for 60 months.³ Taking into account the debtors' reduced current income and expenditures, there is virtually no cushion to be retained by the debtors over and above their expenses and plan payments.

Ms. Navarro further testified that she and her family are devout Seventh Day Adventists. She stated that she considers the obligations to tithe and provide a religious education for her son⁴ as central to her personal beliefs and the tenets of her faith. Upon inquiry by her attorney, Mrs. Navarro stated straightforwardly and credibly that she considered her obligation to tithe to be indispensable so that she would find a way to continue to do so no matter how the court rules in this matter.

The creditor, PFCU, is the largest general, unsecured creditor of the estate with a claim of approximately $8,000.00. It is undisputed that if the debtors' plan is confirmed as proposed, PFCU will receive less than 3% of its claim.

II.

11 U.S.C. § 1325(b) provides:

(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(b) the plan provides that all of the debtor\'s projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

(2) For purposes of this subsection, "disposable income" means income which is received by the debtor and which is not reasonably necessary to be expended—

(A) for the maintenance or support of the debtor or a dependent of the debtor; and

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

Because it is clear that the value of the property to be distributed under the plan to PFCU is less than the amount of PFCU's claim within the meaning of section 1325(b)(1)(A), both the creditor and the debtors correctly focus on the provisions of section 1325(b)(1)(B) and the definition of disposable income found in section 1325(b)(2)(A). PFCU argues that religious contributions and religious education are not "reasonably necessary to be expended —for the maintenance or support of the debtor or dependent of the debtor" so that the debtors are not committing all of their disposable income to the plan. The debtors respond that not only is their right to make religious contributions and provide religious education for their children constitutionally protected by the free exercise clause of the first amendment, but also that such payments are reasonable and necessary for the maintenance of the debtors and their family according to their personal ethic and beliefs.

III.

I note at the outset that both the debtors and the creditor here have constitutional arguments based on the First Amendment. The debtors argue that their right to tithe is protected by the free exercise clause of the First Amendment and that forcing them to choose between tithing and proposing a confirmable bankruptcy plan by application of the disposable income test would deprive them of constitutionally protected substantive rights. See In re Green, 73 B.R. 893 (Bankr.W.D.Mich.1987). Alternatively, the creditor implicitly argues that by allowing the debtor to contribute funds to a church which could otherwise be used to pay unsecured creditors, the court is indirectly compelling the creditor to support religious endeavors in violation of the establishment clause and right to freedom of association found in the First Amendment. See In re Green. Cf. In re Curry, 77 B.R. 969 (Bankr.S.D.Fla.1987) (the effect of allowing a chapter 13 debtor to tithe during the period of his plan "is to permit the debtor to require that his creditors contribute to his chosen charity") (emphasis in original).

Upon reviewing the relevant precedents, I find I need not resolve this matter on constitutional grounds. Neither the debtors' argument under the free exercise clause nor the creditor's potential arguments under the establishment clause and the freedom of association guarantee compel or preclude confirmation.

In Hobbie v. Unemployment Appeals Commission of Florida, ___ U.S. ___, 107 S.Ct. 1046, 94 L.Ed.2d 190 (1987), the Supreme Court for the third time in the last 25 years held that in certain circumstances a state's denial of unemployment benefits may unconstitutionally burden a applicant's right to free exercise of religion. See also, Thomas v. Review Board of the Indiana Employment Security Div'n., 450 U.S. 707, 101 S.Ct. 1425, 67 L.Ed.2d 624 (1981); Sherbert v. Verner, 374 U.S. 398, 83 S.Ct. 1790, 10 L.Ed.2d 965 (1963). In Hobbie, the court reversed a decision to deny unemployment benefits to an individual who lost her job for refusing to work on Saturday⁵ stating:

"Where the state conditions receipt of an important benefit upon conduct proscribed by a religious faith, or where it denies such a benefit because of conduct mandated by religious belief, thereby putting substantial pressure on an adherent to modify his behavior and to violate his beliefs, a burden upon religion exists. While the compulsion may be indirect, the infringement upon free exercise is nonetheless substantial."

Hobbie, 107 S.Ct. at 1049 citing Thomas, 450 U.S. at 717-718, 101 S.Ct. at 1431-1432 (emphasis added). In Sherbert, Thomas, and Hobbie the court stated that denial of a benefit because of conduct mandated by religious belief "must be subjected to strict scrutiny and could be justified only by proof by the state of a compelling interest".

The case at bench is distinguishable from Hobbie and its precursors because the role of the bankruptcy court under 1325(b) is not to award or deny substantive government benefits, but rather to balance the interest of various private parties according to neutral principals emanating from Congress. See United States v. Lee, 455 U.S. 252, 102 S.Ct. 1051, 71 L.Ed.2d 127 (1982). I note that having insufficient income to meet one's obligations either inside or outside of bankruptcy, always results in pressure on a debtor to reorder his or her financial priorities. By allowing a creditor to enforce its rights, whether such rights involve foreclosure, bankruptcy or any other remedy, against a person who chooses to make religious contributions, a court is inevitably an instrument of pressure on the debtor to either forego the contributions or to allow the creditor to exercise its rights.⁶ Cf. United States v. Lee, 455 U.S. at 261, 102 S.Ct. at 1057 (". . . every person cannot be shielded from all burdens incident to exercising every aspect of the right to practice religious beliefs. When followers of a particular sect enter into commercial activity as a matter of choice, the limits they accept on their own conduct as a matter of conscience and faith are not to be superimposed on the statutory schemes which are binding on others in that activity.")

Moreover, to the extent that the...