In re Wilfredo Madera And Sandra M. Madera

• Decision Date: 01 March 2011
• Docket Number: C/A No. 10–08464–DD.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Wilfredo MADERA and Sandra M. Madera, Debtors.

445 B.R. 509

In re Wilfredo MADERA and Sandra M. Madera, Debtors.

C/A No. 10–08464–DD.

United States Bankruptcy Court, D. South Carolina.

March 1, 2011.

Patti H. Bass, Bass & Associates, PC, Tucson, AZ, for HSBC Bank Nevada, N.A.John R. Cantrell, Jr., Cantrell Law Firm PC, Goose Creek, SC, for Sandra M. Madera, Wilfredo Madera.

ORDER ON CONFIRMATION

DAVID R. DUNCAN, Bankruptcy Judge.

This matter is before the Court on Wilfredo Madera and Sandra M. Madera's (“Debtors”) chapter 13 plan filed November 29, 2010 (“Plan”). Debtors' Plan generally follows this District's form plan and contains additional provisions that are the subject of this Order. Joy Goodwin, the chapter 13 trustee (“Trustee”), notified Debtor's counsel that she would object to confirmation of the plan unless interest was paid to the unsecured creditors due to Debtors' significant amount of excess disposable income. Debtors agreed to amend the plan to do so, as discussed below. A confirmation hearing on Debtors' Plan was originally scheduled for February 7, 2011. At that hearing, Debtors' counsel, apparently believing that all issues were resolved, had another attorney stand in for him. Because the Court had concerns about the Plan's non-conforming provisions which could not be addressed in Debtors' counsel's absence, the confirmation hearing was continued at that time to February 14, 2011. A confirmation hearing on Debtors' Plan was held on February 14, 2011. At the confirmation hearing, the Court questioned the Plan's non-conforming provisions.¹ After Debtors' counsel provided responses and arguments in favor of the non-conforming provisions, the Court took the matter of plan confirmation under advisement. After consideration of the issues and the materials submitted to the Court by Debtors' counsel, the Court makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

Debtors filed for chapter 13 protection on November 24, 2010. Debtors are an above-median income family whose Schedule J discloses disposable income of $2,063.82 per month. Debtors' secured debt totals $176,759, consisting of a mortgage debt in the amount of $137,019 and three other accounts listed in Debtors' schedules as revolving or installment accounts, one of which is apparently a second mortgage.² Debtors' Schedule D lists both of Debtors' mortgage debts as disputed, although Debtors' Plan treats the obligations as current, with payments to be made by Debtors directly to the lienholders outside the plan. Debtors' Schedule F lists a total of $62,946.00 in unsecured debt.

Debtors' Plan was filed November 29, 2010. Debtors' Plan provides for payments of $1,535 per month for 57 months. Ordinarily, the applicable commitment period for above-median debtors is 60 months. However, Debtors' Plan will pay 100% of general unsecured claims and therefore, the commitment period of only 57 months is proper. Prior to the confirmation hearing, Trustee requested, due to the large amount of excess disposable income, an amended plan increasing the plan payments be filed in order to pay interest to unsecured creditors. As of February 14, 2011, the date of Debtors' continued confirmation hearing, no amended plan had been filed. Debtors' counsel indicated at the hearing that he did not believe that Trustee's request was “legal”; nevertheless, Debtors' counsel indicated that Debtors had agreed to file an amended plan in order to pay 5.25% interest to unsecured creditors, because “[they] would rather pay the extra $10,000 than fight with [Trustee].” Debtors' counsel indicated that the amended plan would provide an increased payment of $1,700 per month. No amended plan has been filed to date.

The non-conforming provisions that Debtors' counsel has included in Debtors' Plan are set forth in three different sections of the form plan. The first non-conforming provision is contained in the Assumption or Rejection of Executory Contract/Unexpired Lease section of the form plan, and states that Debtors reject “all arbitration provisions in all contracts with all creditors.” This provision also requires that the bankruptcy court resolve all disputes. The second provision added by Debtors' counsel is in the Long–Term or Mortgage Debt section of Debtors' Plan. It provides that Debtors reserve the right to dispute their mortgage debt, both as to amount and validity, if their mortgage creditor cannot prove “amounts due or legal ownership” of their loan. Finally, Debtors' counsel has added numerous non-conforming provisions at the end of the form plan, which set forth the effect of confirmation in the event the plan provides for payments of arrearages. These provisions require the creditor to apply payments received from the trustee only to arrearages and payments received directly from Debtors to the post-petition period. The provisions additionally state that Debtors and Debtors' counsel should be provided notice of any post-confirmation charges, fees, costs, or other changes to the loan, and also reserve the right for Debtors to cure or waive post-confirmation defaults. The final nonconforming provision states that no provisions in Debtors' Plan will be deemed to waive or adversely affect any action under 11 U.S.C. § 524(i).

CONCLUSIONS OF LAW

I. Judge's Duty of Independent Review

The United States Supreme Court has stated that even if no objections to a proposed chapter 13 plan are filed, a bankruptcy court is required to undertake an independent examination of the debtor's plan in order to ensure that it complies with the requirements of the Bankruptcy Code. United Student Aid Funds, Inc. v. Espinosa, ––– U.S. ––––, 130 S.Ct. 1367, 1381, 1381 n. 14, 176 L.Ed.2d 158 (2010). See also In re Martin, No. 10–8127113, 2011 WL 309600, at *6 (Bankr.M.D.N.C. Jan.26, 2011) (rejecting Debtors' argument that Espinosa “places the burden on creditors to object ... and [requires] bankruptcy courts [ ] to perceive a creditor's inaction as an implicit acceptance of the plan” and stating that “[b]ankruptcy courts cannot confirm plans that do not comply with the Code simply because a creditor fails to come forward”); In re Russell, No. 10–11720–S SM, 2010 WL 2671496, at *4 (Bankr.E.D.Va. June 30, 2010) (“[A] bankruptcy court has an independent duty to ensure that a chapter 13 plan meets the statutory requirements for confirmation.”) (citing United Student Aid Funds, Inc. v. Espinosa, –––U.S. ––––, 130 S.Ct. 1367, 1381 n. 14, 176 L.Ed.2d 158 (2010); United States v. Easley, 216 B.R. 543, 544 n. 1 (Bankr.W.D.Va.1997); In re Bowles, 48 B.R. 502, 505 (Bankr.E.D.Va.1985)).

Debtors' counsel nevertheless asserts that because no creditors have objected to Debtors' proposed plan, all creditors accept the plan and it must be confirmed. Debtors' counsel's authority for this assertion is Judge Waites' opinion in In re Thomas,³ as well as the language of 11 U.S.C. § 1325 ⁴ and the language in the Notice to Creditors and Parties in Interest portion of the form plan, which states, “Failure to object may constitute an implied acceptance of and consent to the relief requested in this document.”

In another context, this Court has held that failure to object does not constitute an acceptance. See In re Carolina Park Assocs., LLC, 430 B.R. 744, 749 (Bankr.D.S.C.2010) vacated on other grounds, 2010 WL 3893628 (D.S.C. Sept.30, 2010) (“ ‘Consent’ and ‘fails to object’ are simply not synonymous.”) The fact that Debtors have received no objections to their plan from their creditors does not mean that all creditors endorse Debtors' Plan. Additionally, as explained above, even if all creditors could be found to have accepted the plan, the Court has an independent duty to examine Debtors' Plan to ensure compliance with the Bankruptcy Code. After such a review, the Court finds that Debtors' Plan does not satisfy the requirements of the Code and should not be confirmed.

Debtors' counsel relies in part on Thomas as support for his argument that a creditor's failure to object to a debtor's plan constitutes acceptance of the plan. In Thomas, a secured creditor argued, after the debtor's plan was confirmed, that its failure to timely object to the original proposed plan was excusable due to recent changes in the Local Rules. Thomas, Case No. 96–79381–W, at 3 (Bankr.D.S.C. July 11, 1997). The creditor further argued that the amendment of the proposed plan provided it with a new opportunity to object. Id. Judge Waites first held that the creditor's ignorance of the Local Rules was not excusable neglect, and then turned to the creditor's argument regarding its opportunity to object. Id. at 4, 5. Judge Waites held that because the creditor had failed to timely object to the original plan and was not adversely affected by the amended plan, it was not required to be served with the amended plan and did not gain a new opportunity to object upon amendment to the plan. Id. at 5–7. Thomas involved a creditor seeking to amend its treatment under a debtor's confirmed plan after that plan was confirmed in the absence of any objection. This is an entirely different situation than the one currently before the Court. As a result, the reasoning and holdings in Thomas are simply not applicable here.

Debtors' counsel also relies on section 1325, which states, “Except as provided in subsection (b), the court shall confirm a plan if ... the plan complies with the provisions of this chapter and with the other applicable provisions of this title.” Debtors' counsel argues that this section leaves the Court with no discretion and requires it to confirm a plan in the absence of any objections from creditors. However, section 1325 requires that the plan comply with all the provisions of chapter 13 and any applicable provisions of title 11, even in the absence of objections. Therefore, even if no creditor objects to confirmation of the proposed plan, it must still meet the requirements of section 1325(a). If the trustee or an unsecured...