In re Rodriguez

• Decision Date: 11 February 2013
• Docket Number: No. 13–12–12381 JA.,13–12–12381 JA.
• Citation: 487 B.R. 275
• Parties: In re Kenneth Daryle RODRIGUEZ, Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

487 B.R. 275

In re Kenneth Daryle RODRIGUEZ, Debtor.

No. 13–12–12381 JA.

United States Bankruptcy Court, D. New Mexico.

Feb. 11, 2013.

Chris W. Pierce, Leslie Dyer Maxwell, Hunt & Davis, P.C., Albuquerque, NM, for Debtor.

Stephen C.M. Long, Albuquerque, NM, for Denise Comstock.

Kelley L. Skehen, Albuquerque, NM, Chapter 13 Trustee.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, Bankruptcy Judge.

There are two pending matters before the Court: 1) confirmation of the Debtor's proposed First Amended Chapter 13 plan (Docket No. 68); and 2) the Debtor's Motion to Continue the Automatic Stay under 11 U.S.C. § 362(c)(3)(B) (“Motion to Continue Stay”) (Docket No. 9). The Debtor's former spouse, Denise Comstock, objected to both matters.¹ Because confirmation of the Debtor's First Amended Plan and the Motion to Continue Stay raised common issues regarding the Debtor's good faith, the parties agreed to have the Court hear both matters together. The Court held a final, evidentiary hearing on confirmation of the Debtor's First Amended Plan and on the Motion to Continue Stay on December 20, 2013, and took the matters under advisement. Chris W. Pierce and Leslie Maxwell appeared at the final hearing on behalf of the Debtor. Stephen C.M. Long appeared at the final hearing on behalf of Denise Comstock. The Chapter 13 Trustee also appeared.²

After consideration of the evidence and testimony admitted at the final hearing as well as the trial briefs submitted by counsel for the Debtor and counsel for Ms. Comstock, and being otherwise sufficiently informed, the Court concludes that the Debtor filed his Chapter petition in good faith notwithstanding his prior failed Chapter 11 case. However, based on the totality of the circumstances, the Court concludes further that the First Amended Plan fails to satisfy the good faith requirement under 11 U.S.C. § 1325(a)(3). Finally, because the Debtor cannot at this time demonstrate by clear and convincing evidence that this Chapter 13 case will result in a confirmed plan that will be fully performed, the automatic stay terminated with respect to the Debtor and to the Debtor's property on the thirtieth day after the date this Chapter 13 case was filed. The Court will, therefore, deny the Motion to Continue the Automatic Stay.

FINDINGS OF FACT

This case is not the Debtor's first bankruptcy filing. On September 13, 2010, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code as Case No. 10–11–14645 (the “Chapter 11 Case”). During the Chapter 11 Case, the Debtor failed to timely file monthly operating reports. An amended monthly operating report for December 2010, and the monthly operating reports for the months of January 2011, February 2011, March 2011 and April 2011 were filed on June 22, 2011. See Exhibits 8–12. Monthly operating reports for May 2011, June 2011, July 2011, August 2011, September 2011 and October 2011 were filed on December 29, 2011. See Exhibits 15–20. Monthly operating reports for November 2011 and December 2011 were filed on May 1, 2012. See Exhibits 26–27. The Debtor testified at the final confirmation hearing that he understood he was obligated to file operating reports as part of his Chapter 11 Case, but the he did not know that the reports were to be filed monthly. The Debtor provided financial information to his accountant at the request of the Debtors' bankruptcy counsel, and the accountant prepared the monthly operating reports filed in the Debtor's Chapter 11 Case. The Debtor did not sign any of the monthly operating reports filed in his Chapter 11 Case.

The Debtor opened a debtor-in-possession bank account (the “DIP account”) as part of his Chapter 11 Case. The monthly operating reports and account records from the DIP account reflect that the Debtor spent significant sums of money during the pendency of the Debtor's Chapter 11 Case on personal travel and entertainment. The Debtor took a trip to Lima, Peru, where he got engaged. He purchased an engagement ring. He took a trip to Las Vegas with his sons to see the University of New Mexico Lobos basketball team play. Some of the expenses characterized in the bank account summaries as “recreation and entertainment” reflect an address of 8301 Golf Course. This expense is not for golf, though the Debtor testified that he plays golf once or twice a month. The address on Golf Course is the location of a Smith's grocery store where the Debtor purchased groceries. Other expenses include payments to dating cites such as E–Harmony. The debtor did not request permission from the Court to incur debt during his Chapter 11 Case before incurring his travel expenses.

The Schedules filed in the Debtor's Chapter 11 Case reflect that $5,000 was placed in his parents' bank account. See Exhibit 5–2. The Debtor testified that he placed those funds in his parents' account so that in the event the Internal Revenue Service levied his bank account, he would still have some funds available to him. The Debtor testified that he relied on his attorney in preparing and filing his Schedules and Statement of Financial Affairs and in filing the monthly operating reports in his Chapter 11 Case, and that he believes his attorney did not adequately advise him about the requirements and restrictions on a Chapter 11 debtor in possession. The Debtor retained different counsel to represent him in this Chapter 13 case.

The United States Trustee filed a motion seeking to dismiss or convert the Debtor's Chapter 11 Case for cause based on the Debtor's failure to file a plan and disclosure statement within the exclusivity period, the Debtor's failure to timely file monthly operating reports, and the Debtor's failure to pay quarterly fees to the United States Trustee. See Exhibit 7. Ms. Comstock filed two motions seeking to dismiss the Debtor's Chapter 11 Case. See Exhibits 14 and 22. The Debtor ultimately consented to dismissal of his Chapter 11 Case, and an Order Dismissing [Debtor's Chapter 11] Case was entered on May 10, 2012.³

Prior to the filing of the Chapter 11 Case, Denise Comstock filed dissolution of marriage proceedings against the Debtor in the Second Judicial District Court, State of New Mexico, County of Bernalillo in case No. D–202–DM–2003–04507 (the “Dissolution of Marriage Proceeding”). As part of the Dissolution of Marriage Proceeding, Ms. Comstock obtained an order determining that the Debtor cashed in various Individual Retirement Accounts and Retirement Funds in the amount of $123,870.00, one-half of which were owned by Ms. Comstock. See Exhibit 1. The Debtor admits that he took the one-half of the retirement funds awarded to Ms. Comstock in the Dissolution of Marriage Proceeding, but testified that when he cashed in the retirement funds, he thought that the funds had already been split, leaving only his share in the account. Ms. Comstock also obtained an order in the Dissolution of Marriage Proceeding determining that the Debtor had violated prior orders of that court. See Exhibit 2. The Debtor was held in contempt of court and sent to jail because of his failure to make payments to Ms. Comstock as required by the orders entered in the Dissolution of Marriage Proceeding. On September 10, 2010, an order was entered in the Dissolution of Marriage Proceeding requiring the Debtor to pay Ms. Comstock $15,000 as a condition to release from custody, with an additional requirement to pay Ms. Comstock an additional $14,000 by Friday, September 17, 2010. See Stipulated Order Resolving Emergency Motion to Set Terms and Order Release from Custody (“Conditional Release Order”)—Exhibit 34. Failure to pay the additional $14,000 would result in the issuance of another bench warrant. Id. The Debtor obtained funds from his parents to make the $15,000 payment required under the Conditional Release Order. Because the Debtor did not have sufficient funds to make the additional $14,000 payment required under the Conditional Release Order, the Debtor filed his Chapter 11 Case the day before the deadline for that payment contained in the Conditional Release Order.

The Debtor filed this Chapter 13 case on October 31, 2012, forty-three days following the dismissal of his Chapter 11 Case. During the period between the dismissal of the Debtor's Chapter 11 Case and the filing of this case, the Debtor's former counsel sent a letter to Ms. Comstock's counsel forwarding a check for $14,000 representing the additional payment due under the Conditional Release Order and further seeking to settle the balance of her claim. See Exhibit 30. The settlement efforts were not successful. Also during this period the Internal Revenue Service (“IRS”) had threatened to levy his bank account. The Debtor testified that he had received collection notices and an intent to levy. The IRS in fact had levied $8,000 from the Debtor's bank account in the past.

The Debtor testified that he filed this Chapter 13 case primarily because of his tax debt due to the IRS, and because he was afraid he would not be able to pay his bills and meet his obligations to his children if the IRS were to levy his bank accounts.

The Debtor is a dentist. At the time he filed his Chapter 11 Case, he was unemployed. See Exhibit 5–19. He is currently employed as a dentist for the Pueblo of Sandia earning gross wages of $14,664.15 per month. Schedule I reflects that he has been employed by Sandia Pueblo for 1.5 years. Schedule I also reflects that the Debtor contributes $733.20 per month to a 401(k) retirement plan.

In 2008 the Debtor sold his former dental practice. The sale of the Debtor's dental practice was not listed in the Debtor's Statement of Financial Affairs filed in his Chapter 11 Case, though the income from the sale was reported on the Debtor's Schedule I filed in his Chapter 11 Case. See Exhibit 5–19. Schedule B filed in this Chapter 13 case on July 13, 2012 reflects three promissory notes arising from the sale of the Debtor's dental practice, that the payments to...