516 B.R. 733
Bankr. E.D. Pa.2014Background
- Debtors (the Soppicks) filed Chapter 13 on July 9, 2013 to halt a sheriff sale of their Moir Avenue property after a Montgomery County judgment (March 18, 2013) in favor of West Conshohocken Borough for accumulated zoning fines. Borough holds an allowed secured claim (~$100,878.65 after lien avoidance rulings).
- At filing debtors reported minimal income and dependence on (a) a long‑pending personal injury/product‑liability suit against Emergency One, Inc., (b) a pending Commonwealth Court appeal attacking part of the Borough judgment, and (c) potential social‑security disability or other sources.
- Debtors proposed multiple amended Chapter 13 plans (Aug 2013, May 2014, Aug 2014) that relied heavily on speculative future receipts (litigation verdict/settlement, appeal reduction of Borough claim, refinancing or lump‑sum funds) and included step‑up payments plus a balloon/lump‑sum component.
- Borough moved to dismiss under 11 U.S.C. § 1307(c) (bad faith; unreasonable delay prejudicial to creditors; infeasibility / confirmability failures). Borough also moved for relief from stay; debtors sought limited relief to pursue the Commonwealth Court appeal while keeping the Borough stayed.
- After evidentiary hearings the bankruptcy court held debtors’ plans were speculative and non‑confirmable (violating feasibility, good‑faith, and §1325(a)(5)(B)(iii)(I) equal‑periodic‑payments rule); debtors had not meaningfully prosecuted the state tort suit during the case; court dismissed the Chapter 13 case under §1307(c) rather than convert to Chapter 7.
Issues
| Issue | Debtors' Argument | Borough's Argument | Held |
|---|---|---|---|
| Whether dismissal under §1307(c) is warranted for bad faith / prejudicial delay | Filing aimed to preserve property and reorganize; planned funding from pending litigation, appeal, disability, or future income; requested more time to confirm amended plan | Filing was primarily to stay Borough execution; debtors repeatedly failed to propose a confirmable plan and delayed prosecution of key litigation | Court: Dismissal under §1307(c) granted — debtors filed in bad faith/unreasonably delayed to prejudice creditors; no further time warranted |
| Whether proposed plans are feasible under §1325(a)(6) (ability to make all payments) | Plans show step‑up payments and a final lump sum from likely litigation recovery or successful appeal; debtors may increase income or refinance | Reliance on litigation/appeal and speculative income is insufficient and speculative; cannot demonstrate present/future capacity to pay Borough in full with interest | Court: Plans not feasible — funding is speculative (tort suit recovery, appeal success, disability, refinancing not demonstrated) |
| Whether plans violate §1325(a)(5)(B)(iii)(I) equal monthly payments requirement (no balloons) | Lump sum payments from other sources (litigation, retroactive benefits, sale/refinance) are permissible in addition to equal periodic payments | Statute prohibits backloading/balloon payments to secured creditors over objection; plans that couple periodic payments with a balloon violate the statute | Court: Plans violate §1325(a)(5)(B)(iii)(I); balloon/lump‑sum scheme and step‑up structure unacceptable and non‑confirmable |
| Whether debtors could pursue Commonwealth Court appeal while staying Borough execution | Debtors sought limited stay relief to prosecute appeal while Borough remained stayed from collection | Borough opposed; argued appeal is unlikely to reduce judgment and debtors never sought a stay in state court | Court: Even assuming appeal could proceed, debtors’ statutory theory (automatic stay of fines) unlikely to succeed; appeal too speculative to support feasibility |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (post‑confirmation interest requirement for cramdown present‑value treatment)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (bankruptcy court discretion re: §1307 and bad‑faith filings)
- In re Lilley, 91 F.3d 491 (3d Cir. 1996) (totality‑of‑circumstances test for good faith in Chapter 13 filings)
- In re Myers, 491 F.3d 120 (3d Cir. 2007) (dismissal for lack of good faith reviewed for abuse of discretion)
- Rake v. Wade, 508 U.S. 464 (1993) (treatment of oversecured claims and allowance of certain interest)
- Taylor v. Slick, 178 F.3d 698 (3d Cir. 1999) (automatic stay stays proceedings against debtor)
- Babin v. City of Lancaster, 493 A.2d 141 (Pa. Cmwlth. 1985) (zoning fines and appellate considerations)
- Babin v. City of Lancaster, 557 A.2d 464 (Pa. Cmwlth. 1989) (supersedeas bond does not stop accrual of daily fines for continuing violations)