In re Packham, Bankruptcy No. 90C-04129.
| Decision Date | 26 April 1991 |
| Docket Number | Bankruptcy No. 90C-04129. |
| Citation | 126 BR 603 |
| Parties | In re Terence Lee PACKHAM and Lynnette Marie Nilsson Packham, Debtors. |
| Court | U.S. Bankruptcy Court — District of Utah |
Barbara W. Richman, Salt Lake City, Utah, Chapter 13 Trustee.
Robert Fugal, Bird & Fugal, Provo, Utah, for debtors.
Steven T. McMaster, Asst. Atty. Gen., Salt Lake City, Utah, for UHEAA.
The matter presently before the court is the confirmation of the debtors' Chapter 13 plan of reorganization. A hearing was had on December 12, 1990. Robert Fugal, Esq. appeared on behalf of the debtors. Steven T. McMaster, Esq., Assistant Utah Attorney General, appeared on behalf of the Utah Higher Education Assistance Authority (UHEAA). Barbara W. Richman, the standing Chapter 13 trustee (trustee), represented herself. After hearing testimony, reading the memoranda submitted by the parties, and engaging in independent research, the court dismissed the case concluding that the debtors' proposed plan did not meet the requirements of 11 U.S.C. § 1325(b)(1)(B).1 This memorandum opinion is submitted in support of the court's ruling.
The sole issue in this case is whether the debtors' proposed Chapter 13 plan complies with the disposable income test set forth in § 1325(b)(1)(B). In particular, have the debtors provided that all of their projected disposable income be contributed to their plan given the fact that they have allocated a monthly payment in the amount of $217.00 to the Church of Jesus Christ of Latter-day Saints (LDS Church) as a "tithe"2?
On July 5, 1990, the debtors filed a petition seeking relief under Chapter 13 of the Bankruptcy Code. Their supplemental budget reveals that their combined, monthly net income was $2,166.67. (Debtors' Response to Objection to Plan, Exhibit B at 2). Total unsecured debt was $31,683.39. (Debtors' Amended Chapter 13 Statement at 1). Outstanding student loans owed by the debtors were in the amount of $20,220.00. (Debtors' Chapter 13 statement at 13).
According to their plan, the debtors had proposed to make monthly payments in the amount of $285.00 to the trustee for a period of sixty months thereby providing a twenty percent return to unsecured creditors. At the hearing, the debtors also testified that to assure confirmation they would be willing to make a lump sum contribution of the interim payments that they had made to date. (Transcript at 35 & 41).
The trustee and the UHEAA, an unsecured creditor, objected to confirmation of the debtors' plan claiming that it did not comply with the requirements of § 1325(a) and (b). In particular, the objecting parties asserted that the plan was not proposed in good faith and that it did not provide that all of the debtors' disposable income was being contributed. These arguments were focused on the fact that the debtors' supplemental budget indicated that they planned to tithe $217.00 of their monthly net income to the LDS Church. (Debtors' Response to Objections, Exhibit B at 2).
At the hearing, the debtors testified as to the reasonableness of all of the expenses in their supplemental budget. (Transcript at 8-9; 12-15; 20-25; 31-32; 34-38; 40-44). Hearing the testimony, the court found that, with the exception of the tithe payment, all of the expenses that were budgeted by the debtors were reasonably necessary to be expended for their, or their dependents, maintenance or support. The sole issue, therefore, is whether the tithe payment to the LDS Church should be considered a reasonably necessary living expense thereby exempting it from inclusion as disposable income under § 1325(b)(1)(B).3
Mr. Packham testified that he had been a member of the LDS Church all of his life; (Transcript at 9); and Mrs. Packham testified that she had been a member since she was nine years old. (Transcript at 38). The debtors both testified that they had paid a tithe to the Church since they had begun to earn money; (Transcript at 9 & 38); and that they had consistently paid tithing in their recent years as a married couple. (Transcript at 16-17). Mr. Packham testified that he had never received a bill or accounting from the LDS Church, but rather, that tithing was operated on an honor system and it was known that a ten percent tithe is required by the Church. (Transcript at 17-18; 26-27). He also stated that he pays tithing because he (Transcript at 9). Mrs. Packham stated that (Transcript at 46). In response to counsel's question of whether they intended to continue to pay tithing, Mr. Packham testified that (Transcript at 11).
Neither of the debtors viewed tithing to be an option. (Transcript 10 & 38). Both stated that there were numerous material benefits associated with being a member of the Church, such as reduced tuition at Brigham Young University. (Transcript at 10-11; 15-16; 33; 40).4 The debtors testified, however, that those material benefits would not be denied to them if they did not pay tithing. In fact, although Mr. Packham testified that if he did not pay tithing he would not feel completely worthy to participate in Church activities, he stated that he could attend Church and participate in Church-sponsored athletic, social, educational, and cultural activities. (Transcript at 19; 27-29; 33-34).
When questioned on cross-examination, the debtors testified that the only Church-related privilege that they believed would be denied to them if they failed to pay tithing was their ability to obtain a temple recommend.5 Although he could not point to a specific Church mandate and had no personal knowledge thereof, Mr. Packham stated that he believed that persons who did not pay a full tithe would not be entitled to a temple recommend and a recommend was necessary to be chosen for certain callings within the Church hierarchy. (Transcript at 19-20).6 He also testified that the recommend is issued annually and that his failure to obtain a recommend in one year would not preclude him from obtaining a recommend in later years. (Transcript at 29). The failure to have a recommend would, in Mr. Packham's opinion, be a "worry." (Transcript at 30).
Mrs. Packham further testified that, in order to obtain a temple recommend, she had to sign it. One of the questions that she had been asked in the interview that precedes the granting of the recommend was whether she had paid a full tithe. (Transcript at 38-39). She also stated, however, that the interview was not centered on the issue of tithing. (Transcript at 44-45). As her husband, Mrs. Packham did not know whether extenuating circumstances might excuse a Church member from paying tithing.7
Section 1325 of the Code governs the confirmation of a Chapter 13 plan of reorganization. The debtor has the burden of showing that the requirements of § 1325(a) have been met. As the court has stated, the debtors in this case have met their burden under subsection (a).
Given the objection of the trustee and the UHEAA to the debtors' plan, however, the court must examine whether § 1325(b) has been satisfied. That section states, in relevant part, that:
Since a Chapter 13 plan that meets the requirements of § 1325(a) would be confirmed absent the objections of the creditor, the objecting parties have, at a minimum, "the initial burden of producing satisfactory evidence to support the contention that debtor is not applying all of his disposable income" to the plan payments. Education Assistance Corp. v. Zellner (In re Zellner), 827 F.2d 1222, 1226 (8th Cir. 1987) (quoting In re Fries, 68 B.R. 676, 685 (Bankr.E.D.Pa.1986)); In re Fricker, 116 B.R. 431, 437 (Bankr.E.D.Pa.1990). The proponent of a Chapter 13 plan, however, has the ultimate burden of proof as to the requirements of its confirmation. In re Lindsey, 122 B.R. 157, 159 (Bankr.M.D.Fla. 1991); In re Warner, 115 B.R. 233, 236 (Bankr.C.D.Cal.1989); In re Girdaukas, 92 B.R. 373, 376 (Bankr.E.D.Wis.1988); In re Navarro, 83 B.R. 348, 356 (Bankr.E.D.Pa. 1988).
In the present case, the trustee and the UHEAA have met their initial burden by pointing the court to the debtors' amended budget which states that they plan to tithe $217.00 to the LDS Church. The debtors, however, have not met their burden of showing that the money that they have devoted to tithing payments should not be considered disposable income that should be contributed to the plan.
"Disposable income" is defined in § 1325(b)(2), in relevant part, as "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...." It is clear that Congress left the determination of what is reasonable to the courts as the language of the statute is vague and the...
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