Matter of Scher
| Decision Date | 16 June 1981 |
| Docket Number | 80-B-11062.,Bankruptcy No. 80-B-12053 |
| Citation | 12 BR 258 |
| Parties | In the Matter of Reid SCHER, Debtor. In the Matter of Barry SELMAN, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Gerald A. Kagan, New York City, for debtors Reid Scher and Barry Selman.
Albert Togut, New York City, Chapter 13 Trustee for Reid Scher.
Lipsig, Sullivan & Liapakis, P.C., New York City, for New York State Higher Education Dept.; Thomas A. Holman, New York City, of counsel.
New York University, by Ada Meloy, Asst. Gen. Counsel., New York City.
Jeffrey Sapir, Yonkers, N.Y., Chapter 13 Trustee for Barry Selman.
The issue common to both of these petitioners is whether their Chapter 13 plans offering minimal payments to their unsecured creditors, the bulk of whom hold student loans, may be confirmed with the attendant benefits flowing from that confirmation.1
On December 2, 1980 Reid Scher filed his voluntary petition as an eligible Chapter 13 debtor under the applicable provisions of the 1978 Code, 11 U.S.C. §§ 109(e) and 301. He holds a Master's Degree in Social Work which he received in June, 1979 from New York University, and has been continuously employed in his chosen profession since graduation. From August, 1980 he has been employed by the Children's Aid Society, where he earns a gross salary of $14,500. For the previous calendar year his gross salary was $6,215. Mr. Scher is single and has no dependents. His Chapter 13 statement indicates a bi-weekly gross salary of $517.31 which, in terms of net take home is $390.23. He occupies an apartment for which he pays a $288. monthly rental. These, coupled with his other ordinary expenses of living, raise his monthly expenses to $778., leaving him with a balance above expenses of $67.49 a month.2 Under his proposed Chapter 13 plan, submitted to the court for confirmation, Scher proposed to pay $40.25 per month over three years to his unsecured creditors, or a total of $1,449. The excess of $27.24 per month is to be set aside as an emergency fund. There are no assets available above Scher's exemptions allowed under 11 U.S.C. § 522(d) were his estate to be liquidated in keeping with the design of Chapter 7, 11 U.S.C. §§ 701-707, 721-728.3 None of these Chapter 7 provisions apply to a Chapter 13 petition. 11 U.S.C. § 103(b) makes this plain.
Scher's schedules disclose $13,173.15 of outstanding unsecured indebtedness. Of this, $10,770.50 or more than 80% constitutes student loans.4 The remaining $2,402.65 is basically the amount owing on credit card purchases which, the debtor testified, had been incurred in his effort to meet the student loan payments.5
The New York State Higher Education Services Corporation (NYSHESC), and New York University (NYU), filed objections to the confirmation of Scher's plan, 11 U.S.C. § 1324, and both appeared at the confirmation hearing called for by that section, to voice parallel objections. They insisted that confirmation had to be refused for any or all of three expressed reasons: (1) that Scher had not proposed his plan in good faith within the meaning of 11 U.S.C. § 1325(a)(3); (2) that Scher's plan should be rejected for cause within the meaning of 11 U.S.C. § 1307(c), as the repayment scheme envisioned is minimal in amount when measured against the outstanding debt; and (3) that Scher would be unable to make his payments and therefore to "comply with the plan within the meaning of 11 U.S.C. § 1325(a)(6)."
Barry Selman, Chapter 13 debtor, filed his petition on July 9, 1980. Like Scher, he, too, is single, is without dependents and is a social worker, having received his degree from Columbia University. Selman is currently employed in his chosen profession by the Jewish Board of Family and Children's Services. Selman's bi-weekly gross wages, at argument of the objections to confirmation of his plan, were $575.76 per month, from which he netted $422.67. His gross salary in the preceding year was $7,500. From his disposable income, Selman allots $200. to his rent and $700. to other reasonable and necessary living expenses, leaving him $15.79.6
His schedules disclose $21,400.00 of unsecured debt, the sum total of which are student loans. His proposed Chapter 13 plan contemplates a $15.00 monthly payment to be made over a three year period, or an aggregate of $540.00. All Selman's properly is claimed to be exempt under 11 U.S.C. § 522(d).7
The standing Chapter 13 trustee, authorized by 28 U.S.C. § 586(b), has objected to confirmation of Selman's plan on the same grounds as were voiced by Scher's objecting creditors.8
Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L.Rev. No. 4 at 529 (1947).
But while we certainly start with the words Congress wrote enroute to the ascertainment of their meaning integrated as part of an entire statutory scheme, Diamond v. Chakrabarty, 447 U.S. 303, 308, 100 S.Ct. 2204, 2207, 65 L.Ed.2d 144 (1980), it is not inappropriate to consider the antecedents of those words and their relation to other enactments. Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L.Rev. No. 4 at 537 (1947).
And so the court first revisits earlier efforts by Congress to provide an alternative to straight bankruptcy.
When Congress saw fit during the final years of the last century and the first 79 years of this one to focus its attention on the plight of the financially pressed wage-earner, it was not writing on a clean slate. By the Act of June 22, 1874, 18 Stat. 182, Congress amended its 1867 Bankruptcy Act, 14 Stat. 517, to provide, in Section 43, for court supervised compositions in lieu of straight bankruptcy. In Perry v. Commerce Loan Co., 383 U.S. 392, 394-5, 86 S.Ct. 852, 854, 15 L.Ed.2d 827 (1966), the Supreme Court discusses the background of Chapter XIII () enroute to holding that a bankruptcy discharge would not bar a Chapter XIII extension filed within six years of the discharge. See Riesenfeld, The Evolution of Modern Bankruptcy Law, 31 Minn.L.Rev. 401 (1947).
Congress also provided in Section 12(a) of the 1898 Bankruptcy Act, 30 Stat. 544, Section 9096, Barnes Federal Code (1919 ed.), for compositions by bankrupts and for the mode of their confirmation.9
Section 12, however, proved unequal to the task envisioned by Congress for the special circumstances of the wage earner whose only hope for the relief given by the section was recourse to his future earnings. A Section 12 composition required acceptance in writing by a majority in number and in amount of all the unsecured creditors. Another problem in this scheme was the requirement that all consideration to be paid to creditors and all moneys necessary to pay priority debts and administration expenses had to be deposited as a condition precedent to confirmation. This requirement, as much as any other, placed Section 12 relief beyond the reach of the average individual wageearner, although it was also available to corporations. The confirmation criteria preceding confirmation by the court fashioned by Section 12(d) were that the plan was in the best interests of the creditors; the plan and its acceptance were in good faith and not made or procured except as Section 12 provided, or not made or procured by any means, promises or acts forbidden; and that the bankrupt was not guilty of any of the acts or failed to perform any of the duties which would be a bar to a bankrupt's discharge.10 Congress thus linked confirmation to the general discharge provisions of the 1898 Act carried in Section 14(b), 11 U.S.C. (1934 ed.) § 32b.
Although Section 12 did not specifically provide for discharge, Section 14(c), as it then read, was made applicable and gave confirmation of a Section 12 composition the effect of a discharge. See generally, Gilbert's Collier on Bankruptcy, (4th ed.) p. 247, et seq., (1937).
But the experience with Section 12 compositions revealed inadequacies. The scheme of the statute ignored the problem of the individual consumer wage earner and his secured creditors. There was no provision for a debtor to modify his confirmed Section 12 plan to accommodate changed circumstances occasioned by the depression of the early 1930's. And so, Congress responded to needs not satisfied by Section 12. It enacted Section 74 to the 1898 Act by the Act of March 3, 1933, 47 Stat. 1467, and amended that enactment by the Act of June 7, 1934, 48 Stat. 922, 11 U.S.C. (1934 ed.) § 202. This statute allowed for compositions or extensions offered by individuals, and, as it dealt with the extension of secured debt and the possibility of court authorized postconfirmation change, was seen as an enlightened, flexible scheme for debtor relief. Section 74(g), 11 U.S.C. (1934 ed.) § 202(g), as had Section 12, among other things, required that the plan and its acceptance were "in good faith", a phrase neither defined, nor the subject of a reported opinion. Vagueness in this statute subdued its utility. Neither "extension" nor "composition" was defined, and the availability of a discharge of affected debts was left at loose ends and was immediately questioned.11 But Congress' insistence in Section 74(e), 11 U.S.C. (1934 ed.) § 202(e), that the debtor deposit all monies, including costs of administration, proved to be the rock upon which this predecessor of Code Chapter 13 foundered. Eventually Section 74 sank but not before much of what...
To continue reading
Request your trial