572 B.R. 848
Bankr. W.D. Mich.2017Background
- Debtor Darcy A. Frantz-Hager filed Chapter 13 after a prior Chapter 7 discharge; she works as a contract paralegal and proposed $2,780 monthly plan payments.
- Plan depends on $750/month contribution from her ex-husband (who lives in the same condominium) for housing; unsecured creditors would receive a $2,000 dividend against roughly $79,289 in general unsecured claims.
- Debtor seeks to keep an underwater lakeshore condominium (no equity; first mortgage exceeds value) and a 2013 Chevrolet Equinox purchased six months before filing.
- Creditor and former attorney Lawrence W. Newmeyer objected to confirmation, arguing the plan is not feasible and was filed in bad faith because Debtor gambled post- discharge, incurred post-discharge debt, and is maintaining an improvident housing choice.
- At hearing the Trustee recommended confirmation, but the court held an evidentiary hearing, received testimony and exhibits, and took the matter under advisement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Feasibility of plan payments | Debtor: income from paralegal work plus ex-husband’s $750/month makes plan feasible | Newmeyer: plan depends on unreliable ex-husband contribution; no proof he will continue payments | Plan not feasible — court finds Debtor failed to prove payments likely, reliance on ex-husband too speculative |
| Good faith in filing Chapter 13 | Debtor: purchase of car was reasonable for long commute; seeking treatment for gambling; intends to pay creditors | Newmeyer: post-discharge gambling, incurring new debt, and retention of an expensive resort condo show bad faith and abuse of Chapter 13 | Plan not filed in good faith — totality of circumstances (gambling losses, post-discharge debt, and imprudent housing) demonstrates lack of good faith |
| Retention of condominium | Debtor: condo is primary residence; ex-husband contributes; children may need it | Newmeyer: condo is an underwater, resort property far from work; unnecessary expense that reduces funds for creditors | Court disallows creditor-subsidized retention of condo as improvident; housing cost too high and not justified |
| Purchase and retention of vehicle | Debtor: Equinox was reasonable replacement to commute 136 miles/day | Newmeyer: recent purchase is indicia of bad faith and diverting funds | Court accepts vehicle purchase as not dispositive of bad faith — reasonable transportation need recognized |
Key Cases Cited
- Alt v. United States (In re Alt), 305 F.3d 413 (6th Cir. 2002) (applies totality-of-circumstances test for good faith issues in bankruptcy)
- Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030 (6th Cir. 1988) (lists factors to evaluate good faith in Chapter 13 confirmation)
- Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir. 1990) (debtor bears burden to establish plan meets confirmation requirements)
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (a creditor holds a "claim" even if debtor’s personal liability was discharged)
- Cohen v. de la Cruz, 523 U.S. 213 (1998) (discusses policy favoring relief to the "honest but unfortunate" debtor)
- Grogan v. Garner, 498 U.S. 279 (1991) (discharge policy and standards)
- Brown v. Felsen, 442 U.S. 127 (1979) (chapter policy context for discharge)
- Local Loan Co. v. Hunt, 292 U.S. 234 (1934) (characterization of the honest but unfortunate debtor)