In re Ratmansky, Bankruptcy No. 80-00519G.

• Decision Date: 23 December 1980
• Docket Number: Bankruptcy No. 80-00519G.
• Parties: In re Samuel C. RATMANSKY, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

7 B.R. 829 (1980)

In re Samuel C. RATMANSKY, Debtor.

Bankruptcy No. 80-00519G.

United States Bankruptcy Court, E.D. Pennsylvania.

December 23, 1980.

Jack K. Miller, Philadelphia, Pa., for debtor.

Margaret Graham, Philadelphia, Pa., Trustee.

Jeanne P. Wrobleski, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for Bernice Gordon, a creditor.

OPINION

EMIL F. GOLDHABER, Bankruptcy Judge:

There are two issues before us which, because of their interrelationship, we will consider in this opinion. One involves the motion of a creditor to dismiss the debtor's Chapter 13 case and the other embraces the confirmation of the debtor's Chapter 13 plan. While we cannot dismiss the instant case for any of the reasons advanced by the creditor, we conclude that the debtor's case should be dismissed because the debtor's plan cannot be confirmed because of the lack of good faith demonstrated by the debtor before this court.

The facts of the instant case are as follows:¹ Samuel C. Ratmansky ("the debtor") first appeared before this court on September 19, 1978, when he filed a petition under Chapter XIII of the Bankruptcy Act ("the Act"). During the course of that proceeding, Liberty Federal Savings and Loan Association ("Liberty") filed a complaint seeking relief from the automatic stay to permit it to proceed with foreclosure of its mortgage on the debtor's residence. That complaint was settled by the execution of an agreement between the parties. When the debtor failed to abide by that agreement, Liberty filed another complaint for relief from the stay. In an opinion and order dated February 25, 1980, we granted Liberty's requested relief.² Thereafter, on March 5, 1980, after his plan had been confirmed, the debtor moved that we dismiss his Chapter XIII case without prejudice, which we did on March 10, 1980, pursuant to Rule 13-215(a) of the Rules of Bankruptcy Procedure.³

On March 11, 1980, the debtor filed a petition under Chapter 13 of the newly enacted Bankruptcy Code ("the Code").⁴ Ignoring the fact that our decision in the prior Chapter XIII case was res judicata of the issue, Liberty again filed a complaint for relief from the automatic stay. A hearing was held on that complaint on September 2, 1980. Thereafter, another creditor of the debtor's Bernice Gordon ("Gordon"),⁵ filed an application for an order requiring the debtor and his sons, Paul and Joel Ratmansky, to appear for examination pursuant to Rule 205(a) of the Rules of Bankruptcy Procedure.⁶ We granted that application and the debtor was examined by Gordon's attorney on April 28, 1980. On August 26, 1980, Gordon filed a motion to dismiss the debtor's Chapter 13 case which was heard on September 3 and 5, 1980. On November 6, 1980, while the complaint of Liberty for relief from the stay and the motion of Gordon to dismiss this case were pending, a hearing to confirm the debtor's plan was held. Because we find that the actions of the debtor before this court evidence a lack of good faith on his part, we conclude that we cannot confirm the debtor's plan and we will consequently dismiss the debtor's Chapter 13 case. In view of that decision the issue of relief from the automatic stay is moot.

I. The Motion to Dismiss.

Gordon has based her motion to dismiss on three contentions. Firstly, she argues that, since the debtor had originally filed under Chapter XIII of the Bankruptcy Act, he is prohibited from now filing under Chapter 13 of the Bankruptcy Code by section 403(a) of the Bankruptcy Reform Act of 1978. That section provides:

A case commenced under the Bankruptcy Act, and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act the Code had not been enacted, and the substantive rights of parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the Act the Code had not been enacted.⁷

We conclude that that section is inapplicable to the case at bench. Here, there is no case under the Act which is presently pending before us. The case which had been filed by the debtor under the Act has already been dismissed and the only case before us is the one filed under the Code which is, therefore, governed by the provisions of that legislation, not the provisions of the Act.

The cases which Gordon cites in support of her argument are clearly distinguishable. In those cases there were cases pending under the Act which the debtors wished to have dismissed in order to permit them to refile under the Code. In each of the cases, the court denied dismissal citing section 403(a) as authority. See In re Blue and In re Lynch, 4 Bkrtcy. 580 (D.Md.1980) (bankruptcy judge refused to dismiss straight bankruptcy cases filed under the Act because there was a likelihood or possibility that the bankrupts would refile under the Code). See also, In re Geiger Enterprises, Inc., 4 Bkrtcy. 444 (W.D.N.Y.1980)⁸ (dismissal of Chapter XI case under the Act where the debtor desired to refile under Chapter 11 of the Code in order to consolidate the case with related cases already filed under the Code); In re Eagson, 1 Bkrtcy. 777 (E.D.Pa.1980) (where we dismissed a case filed under Chapter 11 of the Code where there was already a case involving the debtor pending under the Act). The above cited cases are also distinguishable from the instant case in that they dealt with cases under Chapter IV or XI of the Act and not under Chapter XIII and the provisions for a voluntary dismissal by the bankrupt or debtor are different under those chapters from the provision for dismissal under Chapter XIII.⁹

Gordon's second argument is that the instant case should be dismissed because the debtor is not an individual with regular income and is, thus, not eligible to file under Chapter 13. Section 109(e) of the Code states that "Only an individual with regular income . . . may be a debtor under Chapter 13 of this title." 11 U.S.C. § 109(e). Section 101(24) of the Code defines an "`individual with regular income' as an individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under Chapter 13 of this title." 11 U.S.C. § 101(24).

In response to this argument, the debtor correctly asserts that a debtor under Chapter 13 need not have a regular source of income because section 1322(b)(8) states that a Chapter 13 plan may provide for payments to the unsecured creditors from the sale of the debtor's property rather than from the debtor's future income. While this is true, the debtor has offered no proof that he intends to sell his property. On the other hand, the debtor's Chapter 13 plan and statement were not introduced into evidence in the proceeding dealing with the motion to dismiss and, consequently, there is no evidence from which we can conclude that the debtor proposes to do anything other than make payments to the trustee from his future income.¹⁰ Thus, the debtor's argument under section 1322(b)(8) is of no avail.

However, the burden of proving her case is on Gordon and it is at this point that her evidence falls short of what the law requires. In support of her contention that the debtor is not an individual with regular income, Gordon directs us to the debtor's own testimony given at the Rule 205(a) examination. However, Gordon did not offer the transcript of that testimony into evidence at the hearing held on her motion to dismiss and, therefore, that evidence is not before us in this matter. As the United States Court of Appeals for the Third Circuit stated in In re Aughenbaugh, 125 F.2d 887 (3d Cir. 1942):

In passing upon this question we may consider only the evidence which was presented to the referee in bankruptcy at the hearing upon the trustee\'s exceptions to the mortgagee\'s priority claim. We may not consider other evidence which may have been in the files of the referee in the bankruptcy administration proceeding. To hold otherwise would be to violate the fundamental concept of procedural due process that a party to litigation is entitled to have the evidence relied on by his opponent presented at the hearing of his case so that he may have opportunity to cross-examine his opponent\'s witnesses and to offer evidence in rebuttal.

Id. at 889.

Although a motion filed by a creditor to dismiss a debtor's Chapter 13 case is not an adversary proceeding under the Rules of Bankruptcy Procedure,¹¹ it is a contested matter involving two opposing parties, with many of the features of a true adversarial proceeding.¹² Consequently, we conclude that the rule stated in Aughenbaugh is applicable and that the only evidence which we may consider in resolving this contested matter is the evidence introduced at the hearing by one of the parties. Here, although Gordon referred throughout her motion and brief and at the hearing held herein to the testimony given at the Rule 205(a) examination and although we presided at that examination and heard that testimony, the notes of testimony of that examination were never introduced into evidence at the hearing on the motion to dismiss. Consequently, the debtor was not given an opportunity to object to the relevancy or admissibility of that evidence nor was he given an opportunity to rebut it. Furthermore, since the scope of a Rule 205(a) examination is extremely broad — amounting to a fishing expedition in many cases¹³ — it is particularly important to give the debtor an opportunity to question the relevancy and admissibility of testimony given at that examination in light of the particular issue relevant in a contested matter. To deny the debtor that opportunity would be a denial of his due process rights. In light of the above, we will not consider the testimony of the debtor given at the Rule 205(a) examination in deciding Gordon's motion to dismiss.

Absent that testimony, there is no evidence before us that the...