In re Sanders, Bankruptcy No. 81-10342.
| Decision Date | 19 August 1981 |
| Docket Number | Bankruptcy No. 81-10342. |
| Citation | 13 BR 320 |
| Parties | In re Thomas Graham SANDERS, II, Debtor. |
| Court | U.S. Bankruptcy Court — District of Kansas |
Martin E. Updegraff, Wichita, Kan., for John D. Greenstreet.
Dennis J. Molamphy, Wichita, Kan., for United American Bank & Trust Co.
Donald B. Clark, Wichita, Kan., for Thomas Graham Sanders, II.
Debtor Thomas Graham Sanders filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on March 4, 1981. The debtor's plan proposes to make monthly payments to a creditor outside of the bankruptcy proceedings on a mortgage debt on the debtor's homestead. There are no other secured creditors. There are four unsecured creditors:
John Greenstreet $ 2,182.52
James R. Schaefer 2,300.00
United American Bank & Trust 68,508.10
Wood Specialists 360.00
___________
$ 73,350.62
The plan proposes the above creditors be paid pro rata as funds become available until ten per cent (10%) of each claim has been paid. Debtor requests approval for a payment period in excess of three years, but not more than five years. Two creditors, John D. Greenstreet and United American Bank & Trust Company, object to debtor's plan contending a discharge of the debts owed them was previously denied the debtor.
The denial of discharge was in the framework of prior proceedings initiated by Sander's voluntary petition for relief with this court on April 23, 1974. Only two creditors, John B. Greenstreet and United American State Bank & Trust Company (now United American Bank & Trust Company) were listed on the debtor's schedules. After extensive discovery and trial, this court determined debtor Sanders was denied a discharge of his debts for failure to satisfactorily explain losses of assets under section 14(c)(7) of the Bankruptcy Act.1 The decision was affirmed by the Federal District Court for the District of Kansas and an appeal to the Tenth Circuit Court of Appeals was subsequently abandoned by the debtor.
United American Bank & Trust Company (Bank) and John D. Greenstreet, unsecured creditors, object to confirmation of the instant plan, which proposes to pay ten per cent (10%) of their respective unsecured claims, because ninety per cent (90%) of their previously determined nondischargeable debts would thereby be discharged.
MEMORANDUMSection 1325(a) of the Bankruptcy Code sets forth six prerequisites to confirmation of a plan proposed under Chapter 13 of the Code. If these requirements are met, the court is required to confirm the plan. In the instant case Bank argues that debtor's plan fails to meet two of the six requirements. Bank contends (i) a prior denial of discharge prevents the plan from passing the good faith test of section 1325(a)(3) and (ii) the value of property to be distributed to them is less than they would receive if the debtor's estate were liquidated under Chapter 7; therefore, the plan does not satisfy the requirement of section 1325(a)(4).
Pursuant to section 523(a)(9) of the Code, a debt that was scheduled in a prior bankruptcy case in which the debtor was denied a discharge under section 14(c)(7) of the Bankruptcy Act is not dischargeable in a subsequent bankruptcy proceeding. This exception to discharge, however, is not applicable to a discharge granted under section 1328(a) of the Code. The latter states that only debts provided for under section 1322(b)(5) certain long-term obligations specially provided for under the plan or specified in section 523(a)(5) alimony, maintenance, and child support are excepted from discharge. All other debts are dischargeable under a Chapter 13 plan, unless the debtor receives a hardship discharge. This result obtains even though the debts may not be dischargeable in a Chapter 7 proceeding. Under the instant plan, the two objecting creditors would be paid ten per cent of their claims with the corollary that ninety per cent of their debts would be discharged. By contrast, those debts would be entirely nondischargeable in a Chapter 7 liquidation proceeding.
While recognizing that the good faith requirement of section 1325(a)(3) does not explicitly require that relief under Chapter 7 of the Code be available to a debtor before relief under Chapter 13 may be sought, Bank argues that application of the good faith test mandates an examination of all the circumstances surrounding the plan's proposal, including the existence of nondischargeable obligations. This view is consistent with that of other courts.
The good faith requirement of section 1325(a)(3) should be interpreted as meaning that such plans cannot be confirmed without an inquiry into all of the circumstances involved in each individual case. This inquiry is mandated by the spirit of Chapter 13 as evidenced by its legislative history and the application and interaction of particular provisions of the Bankruptcy Code.
In re Schongalla, 4 B.R. 360, 6 B.C.D. 408, 409 (Bkrtcy.D.Md.1980); see In re Hurd, 4 B.R. 551, 6 B.C.D. 412, 418 (Bkrtcy.W.D. Mich.1980).
This court concludes that the existence of a nondischargeable debt is a factor which the court may consider when determining whether a plan has been proposed in good faith pursuant to Code section 1325(a)(3). The plan in the instant case classifies unsecured nondischargeable debts with other unsecured dischargeable debts and proposes to pay ten per cent to all claimants in that class. Such treatment of unsecured claims appears to conform with section...
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