In re Williamson
| Decision Date | 21 February 2023 |
| Docket Number | 22-60625 |
| Parties | In Re: Merl E. Williamson and Barbara Jayne Williamson, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
This cause comes before the court on an Objection to Confirmation of Plan filed on August 11, 2022, by the Chapter 13 Trustee, Dynele L. Schinker-Kuharich, [Doc. #16] by which the Trustee objected to confirmation of the Chapter 13 Plan, filed by Merl E. Williamson and Barbara Jayne Williamson (the "Debtors") on July 14, 2022. [Doc. #2]. On September 16, 2022, the Debtors filed their Brief In Support of Their Position Regarding Objection to Confirmation of Plan ("Debtors' Brief"). [Doc. #25]. On September 26, 2022, in response the Trustee filed her Brief in Support of Objection to Confirmation ("Trustee's Brief"). [Doc #26].
The court has subject matter jurisdiction of this case under 28 U.S.C. §1334 and the general order of reference issued by the United States District Court for the Northern District of Ohio. General Order 2012-7. This is a core proceeding under 28 U.S.C. §157(b) and the court has authority to enter final orders. Pursuant to 28 U.S.C. §§1408 and 1409, venue in this court is proper.
The Debtors filed their petition for relief under Chapter 13 of the Bankruptcy Code on June 24, 2022. [Doc. #1].
In Schedule I, Official Form 106I, the Debtors listed gross monthly wages of $3,042 on Line 2, with a deduction for "Tax, Medicare, and Social Security" of $649 on Line 5a. [Doc. #1, pp. 27-28]. In response to the question "How long employed there?" at the top of Schedule I, Mr. Williamson listed "3 months." [Doc. #1, p 27]. On Line 8e, Debtors listed Social Security in the amount of $1,751 per month for Mr. Williamson, and $870 per month for Mrs. Williamson.[1] [Doc. #1, p. 28]. Their total monthly income was listed as $5,013.91 on Line 10. [Id.]
The Debtors also filed Form 122C-1 (Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period). As allowed by 11 U.S.C. §101(10A)(B), the Debtors did not include on Line 9 of Form 122C-1 any amount received that was a benefit under the Social Security Act. On Line 15 of Form 122C-1, the Debtors' annualized current monthly income (without including Social Security) was $19,890,[2] which is below the median family income for a two-person household in the State of Ohio, which appears to have been $70,209. [Doc. #1, p. 41, Official Form 122-C1, Line 16].
Debtors' Chapter 13 Plan [Doc. #2] proposes a payment of $100 per month for 36 months. The Trustee's Brief estimated that the Debtors' Plan would pay approximately 2.707% to unsecured nonpriority creditors.
The Debtors also filed Schedule J, Official Form 106J. [Doc. #1, p. 29-30]. On Line 21 of Schedule J, which allows deductions for "Other: Specify" the Debtors deducted $880 for "social security back out." [Doc. #1, p. 30]. In this initial filing, the Debtors deducted $880 in Social Security income on Schedule J, rather than the full $2,621 per month they receive in Social Security. This resulted in Line 23 of Schedule J stating "monthly net income" of $100, the exact amount they proposed to pay into their Chapter 13 Plan. [Id.].
On August 11, 2022, the Trustee filed the Objection to Confirmation of Plan. The Trustee's Objection asserted that the Debtors' Chapter 13 Plan: 1) does not commit all their disposable income under 11 U.S.C. §1325(b)(1), and 2) was not proposed in good faith. [Doc. #16, p. 1].
On August 18, 2022, the Debtors filed Amended Schedules I and J. [Doc. #17]. Line 8g of amended Schedule I included the Debtors' pension or retirement income of $149 ($149 per month for Mr. Williamson and $0.00 per month for Mrs. Williamson). On Line 21 of amended Schedule J, the Debtors deducted an additional $149 of their Social Security income as "social security back out" for a total deduction of $1,029. The Debtors deducted $1,029 in Social Security income on amended Schedule J, rather than the full $2,621, again leaving $100 on Line 23c, conforming to their proposed monthly payment under the Chapter 13 Plan.
On August 24, 2022, the Hon. Russ Kendig held a hearing on the Trustee's Objection and indicated the court would issue a scheduling order.
On August 31, 2022, Judge Kendig issued the Scheduling Order, and gave the Debtors until September 16, 2022, to submit their brief justifying the Social Security "backout" listed on Line 21 of Schedule J, and gave the Trustee until September 26, 2022, to submit a response. [Doc. #21].
On September 16, 2022, Debtors submitted their brief, which provided certain background information. [Doc. #25]. For example, it was stated that Mr. Williamson intends to reduce the number of hours he currently works to twenty hours a week, starting in December 2022 when Mrs. Williamson was scheduled to have knee replacement surgery. This reduction would cut his employment income in half.
The Debtors are trying to accumulate some savings to pay for emergency expenses, and they anticipate having to pay out-of-pocket for Mrs. Williamson's knee replacement surgery in December 2022. The Debtors also point to their monthly expense of $300, which is "savings for a car." The Debtors state that if this expense is not allowed, the Debtors would simply deduct an additional portion of their Social Security income as "social security back out" to make room for this expense.
The Debtors' brief justifies excluding Social Security income on two grounds. First, Social Security income is excluded from the definition of "current monthly income" under 11 U.S.C. §101(10A)(B). Second, the Social Security Act shields benefits received under the Act. 42 U.S.C. §407.
On September 26, 2022, the Trustee submitted her Brief in response, which provided additional background information. [Trustee's Brief, Doc. #26]. For example, the Trustee points to amended Schedule I indicating Mr. Williamson is employed with Valley Hydraulic Service and earns a monthly gross income of $3,042, with a combined monthly income for the Debtors of $5,013.91.
At the time of filing, the Debtor-husband was 70 years old. [Trustee's Brief, Doc. #26, p. 10]. The Debtor-wife was 68 years old. Id.
Trustee also states the Debtors had $3,000 in a checking account that the Debtors claim as exempt under Ohio Rev. Code §2329.66(A)(3), a general exemption for cash on hand, and §2329.66(A)(13), an exemption for the personal earnings of a debtor.
Further, Trustee pointed to the fact that Debtors did not amend Form 122C-1, after amending Schedule I, to disclose the additional $149 per month in pension or retirement income, which had been omitted in the original filing. Lastly, the Trustee lists the Debtors' prior bankruptcy filings: 1) a 1993 Chapter 13 case that was completed and discharged; 2) a 2003 Chapter 13 case that was dismissed; 2) a 2005 Chapter 7 that was discharged; and, 4) a 2016 Chapter 7 case in which Debtors received a discharge.
The Trustee asked the court to: "sustain her Objection to Confirmation, hold that Debtors have sufficient disposable income with which to pay creditors in full, hold that the Chapter 13 plan as filed was not proposed in good faith as required by 11 U.S.C. §1325(a)(3); and order such other relief as this Court deems just and appropriate." [Trustee's Brief, Doc. #26, p. 13].
The Trustee raises two main arguments in opposing confirmation of the Debtors' Chapter 13 Plan.
First, the Trustee argues that the Debtors are not committing all of their disposable income to the Chapter 13 Plan. The Trustee takes the position that Social Security benefits must be used to pay for living expenses. In other words, the Trustee argues that a debtor must commit Social Security benefits to meet basic needs. In turn, this frees up nonexempt income, the "surplus" according to the Trustee, to pay unsecured creditors.
Second, the Trustee generally argues that the Debtors' Chapter 13 Plan has not been proposed in good faith. For example, the Trustee argues the failure to disclose pension income, the perceived inaccuracy of the Debtors' filing (in comparison to their bank statements) and their proposal not to pay all of their "surplus," which includes Social Security income, indicates the Debtors have not proposed their Chapter 13 Plan in good faith.
On September 30, 2022, the parties were notified that this case will be transferred from the Hon. Russ Kendig to Judge Gustafson effective October 1, 2022. [Doc. #27].
The issues before the court involve the relationship between benefits received under the Social Security Act "disposable income," and "good faith."[3] The court begins with some historical background relating to the statutes in issue.
Chapter 13 allows eligible debtors with regular income to repay or discharge certain debts after making payments to creditors for the specified commitment period pursuant to a plan confirmed by the bankruptcy court. "Section 1325 of Title 11 specifies circumstances under which a bankruptcy court 'shall' and 'may not' confirm a plan." See, Hamilton v. Lanning, 560 U.S. 505, 508, 130 S.Ct. 2464, 2469, 177 L.Ed.2d 23 (2010).
Generally, where an objection based on the adequacy of payments has been filed, if the plan does not propose to pay unsecured creditors in full, the court may not confirm the plan unless the plan provides that all of the debtor's "projected disposable income" will be applied to pay unsecured creditors. 11 U.S.C. §1325(b)(1)(B).
When the Bankruptcy Code was enacted in 1978, there was no...
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