In re Styerwalt

• Decision Date: 16 December 2019
• Docket Number: Bankruptcy Case No. 19-11247 TBM
• Citation: 610 B.R. 356
• Parties: IN RE: Jeffrey Alan STYERWALT, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

610 B.R. 356

IN RE: Jeffrey Alan STYERWALT, Debtor.

Bankruptcy Case No. 19-11247 TBM

United States Bankruptcy Court, D. Colorado.

Signed December 16, 2019

Stephen E. Berken, Sean Cloyes, Denver, CO, for Debtors.

Adam Goodman, Chapter 13 Trustee, Denver, CO, for Trustee.

MEMORANDUM OPINION AND ORDER DENYING CONFIRMATION OF CHAPTER 13 PLAN

Thomas B. McNamara, United States Bankruptcy Judge

I. Introduction.

Chapter 13 of the Bankruptcy Code¹ "affords individuals receiving regular income an opportunity to obtain some relief from their debts while retaining their property." Bullard v. Blue Hills Bank , 575 U.S. 496, 135 S. Ct. 1686, 1690, 191 L.Ed.2d 621 (2015). The quid pro quo is a Chapter 13 plan. A debtor must propose and obtain Court approval of a "plan under which [the debtor] pay[s] creditors out of ... future income." Hamilton v. Lanning , 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). Under Section 1325(b), if a Chapter 13 trustee or creditor objects to a Chapter 13 plan, then a debtor must either pay all claims in full or commit "all of the debtor's projected disposable income" to Chapter 13 plan payments over a period between three and five years. It is a very tough bargain — the vast majority of Chapter 13 cases fail.

In this bankruptcy proceeding, the Debtor, Jeffrey Alan Styerwalt (the "Debtor"), proposed a Chapter 13 plan. The Chapter 13 Trustee, Adam Goodman (the "Chapter 13 Trustee"), objected, asserting that the Debtor failed in his plan to commit "all of the Debtor's projected disposable income" as required. The Chapter 13 Trustee contended that the Debtor was "shielding income" from his creditors by failing to include alleged bonus income, proposing unreasonable charitable contributions, and refusing to increase Chapter 13 plan payments after the payoff of certain loans. He also alleged that the Debtor had not proposed the Chapter 13 plan in good faith. The Debtor contested each of the objections through trial.

The Chapter 13 plan and objections present a myriad of very difficult legal issues. The case also is hard in other ways. The Debtor has struggled, and continues to struggle, financially and healthwise. But, he has been credible and transparent throughout the bankruptcy process. In the end, the Court overrules all of the Chapter 13 Trustee's objections — save one. Since it is "known or virtually certain" that the Debtor will have more "projected disposable income" when he pays off two loans during the term of the plan, he must "step-up" or increase his plan payments to other creditors then. The Debtor's failure to propose increased plan payments after the loan payoffs dictates that the plan cannot be confirmed. However, if the Debtor resolves that objection through an amendment to the plan, the Debtor may be able to obtain confirmation.

II. Jurisdiction and Venue.

This Court has jurisdiction to enter final judgment on the issues presented in this bankruptcy case pursuant to 28 U.S.C. § 1334. The plan confirmation dispute is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate), (b)(2)(L) (confirmation of plans), and (b)(2)(O) (other proceedings affecting the liquidation of the assets of the estate). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

III. Procedural Background.

The Debtor filed for relief under Chapter 13 of the Bankruptcy Code on February 25, 2019 (the "Petition Date"). The same day, he filed his original Chapter 13 plan. (Docket No. 8.) The Chapter 13 Trustee and Wells Fargo Bank, N.A., objected to the original Chapter 13 plan. (Docket Nos. 13 and 14.) So, the Debtor submitted a second Chapter 13 plan. (Docket No. 18.) Again, the Chapter 13 Trustee objected. (Docket No. 21.) As his third effort, on June 19, 2019, the Debtor filed the current plan. (Docket No. 26, hereinafter, the "Plan.")

The Plan is fairly straight-forward and consistent with L.B.R. 3015(b)(1) and L.B.F. 3015-1.1. The Debtor proposes to make 60 monthly payments of $465 to the Chapter 13 Trustee. Over the term of the Plan, the proposed payments tally to $27,900. Such amount will be used to pay: attorney's fees and costs ($5,400); delinquent federal and state taxes ($4,139); a small mortgage arrearage ($297); and Chapter 13 Trustee fees ($2,790). The remainder ($15,274) is dedicated toward payment of non-priority general unsecured claims. Since creditors filed non-priority general unsecured claims totaling $82,395, the Debtor effectively proposes to pay such claimants about 19% of their claims (assuming that all filed claims are ultimately allowed in full). The Debtor is current on Plan payments, though he generally makes his payments a bit late each month.

A couple of weeks after the Debtor submitted his last Plan, the Chapter 13 Trustee filed his Objection (Docket No. 28, hereinafter cited as "Obj."). The Chapter 13 Trustee presented four main arguments against confirmation under Sections 1325(a)(3), (b)(1), and (b)(2). First, he contends that the Debtor is shielding income from his creditors by excluding future bonuses from his projected disposable income calculation and refusing to turn over any future bonuses to the Chapter 13 Trustee. Second, he asserts that the Debtor's proposed charitable contributions are excessive and unnecessary. Third, he contends that the Debtor's failure to provide for an increase in Plan payments after two loans are repaid improperly shields projected disposable income from his creditors. Fourth, he suggests that the Plan has not been proposed in good faith.²

Given the confirmation impasse, the dispute proceeded to trial. Prior to the evidentiary hearing, the Debtor and the Chapter 13 Trustee agreed to certain facts, as set forth in the "Stipulated Facts Regarding Confirmation Hearing of September 18, 2019." (Docket No. 35, hereinafter cited as "Stip. Fact".) The Chapter 13 Trustee also filed a legal brief on the disputed issues. (Docket No. 34.) The Court conducted a contested confirmation hearing on September 18, 2019. Both the Chapter 13 Trustee and the Debtor called a single witness: the Debtor. The Debtor's testimony was uncontroverted and credible. In terms of other evidence, the Court admitted the Debtor's Exhibits A-J and the Chapter 13 Trustee's Exhibit 6. At the conclusion of the evidence, the parties presented the Court with their oral closing arguments. Thereafter, the Court took the dispute under advisement and now issues its decision.

IV. Findings of Fact

Based upon the evidence presented at the trial and the Stipulation of Facts, the Court makes the following findings of fact under Fed. R. Civ. P. 52(a)(1), as incorporated by Fed. R. Bankr. P. 7052.

A. The Debtor's Background and Employment.

The Debtor is 56 years old and resides in Castle Rock, Colorado. He and his wife divorced six years ago in a fairly contentious manner. He is the father of two adult children, both of whom live out of state, and the grandfather of a young grandson. The Debtor is a graduate of Furman University (South Carolina). During his undergraduate studies, he focused on business and Spanish. He received a Bachelor of Sciences degree. Since graduation, the Debtor has worked primarily in private industry.

For someone who has worked his entire adult life, the Debtor's financial circumstances are fairly modest. He testified that he was "wiped out" during his difficult divorce six years ago. Then, he lost his fairly high-paying job. The Debtor attributes his need for bankruptcy protection to the lingering effects of his divorce and job loss as well as his failure to timely adjust to his own changed financial circumstances.

In any event, the Debtor was forced to accept a couple of lower-paying jobs before joining ProGroup Inc. ("ProGroup") about four and a half years ago as a merchandise manager. (Stip. Fact No. 8.) ProGroup is a large Colorado-based merchandising and marketing firm. It operates primarily in the hardware industry. ProGroup supports independent retail hardware stores that compete with national "big-box" companies. Although the Debtor has experienced his share of employment challenges in the past, and still has not returned to his high pre-divorce salary level, he considers his employment at ProGroup stable and secure.

B. The Debtor's Assets and Liabilities.

1. Assets.

After the Debtor's divorce, he was left with one main asset: his home. The Debtor owns 4375 McMurdo Court, Castle Rock, Colorado (the "Real Property.") (Exhibit D.) The Debtor values the Real Property at $492,000. (Id. ) However, his secured lender has a lien of $418,344 on the Real Property. So, the Debtor has some equity; albeit less than the standard Colorado homestead exemption. He owns an old car — a very high-mileage 2004 Acura — worth about $3,200. (Ex. D.) The Debtor's non-exempt assets consist of a small bank account, some household goods, furnishings, sports equipment, and clothes that altogether tally up to about $4,771 in value. (Id. ) It is not that much. But, he does also have some retirement savings: about $68,000 in a "401(k) or similar plan" (the "401(k) Account"). (Ex. D.)³ Even that is really not a lot for someone on the wrong side of 50 years old and approaching retirement age in the next decade or so.

2. Liabilities.

The Debtor's debt picture is not particularly complex. Fifteen creditors filed proofs of claim against him. (Stip. Fact No. 5.) Far and away the biggest claim is the Debtor's $418,344 mortgage. (Id. )⁴ To his credit, the Debtor was mostly current with his monthly mortgage payments before bankruptcy. The pre-petition mortgage arrearage was only $297. The Debtor did get a little behind on his taxes. He owes the Internal Revenue Service $3,594 and the Colorado Department of Revenue $762. (Exs. B and C.) Most, but not all, of the tax debt is priority under 11 U.S.C. § 507(a)(8). (Id. ) The rest of the creditors are mostly banks, credit card issuers, and debt collection companies. The Debtor's non-priority unsecured debt...