618 B.R. 748
Bankr. E.D.N.C.2020Background
- Debtors John and Brittany White filed a Chapter 13 petition and plan on Nov. 21, 2019 but did not list a 2005 Scion or creditor 510 Nova, LLC on schedules or the initial plan.
- Nova requested notices on Nov. 27, 2019 and filed a proof of claim on Jan. 29, 2020 asserting a bifurcated claim of $2,807.71 ($1,675 secured by the Scion; $1,132.71 unsecured).
- Debtors filed an amended plan on Jan. 27, 2020 that still omitted Nova’s claim; the trustee objected to confirmation for insufficient funding and for failing to address Nova’s secured claim.
- At the Feb. 12, 2020 confirmation hearing the trustee additionally argued the plan was not proposed in good faith under § 1325(a)(3); the court allowed supplemental briefing.
- The court found the debtors failed to disclose an asset and a secured creditor, concluded that omission violated the duty of full disclosure and good faith, and allowed the trustee’s objection.
- The debtors were given 14 days to amend their schedules and plan; if they again omit Nova, the court will permit further briefing and a hearing.
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Timeliness of trustee’s §1325(a)(3) good-faith objection | Trustee can raise good-faith objections at hearing and has duty to be heard under §1302(b) | Trustee’s good-faith argument was untimely under Rule 3015(f) and should be barred | Court considered it: trustee’s good-faith point tied to objections already raised and court has independent duty to assess good faith, so timeliness objection rejected |
| Whether omission of a known secured claim requires the plan to "provide for" that claim under §1325(a)(5) | Plan must provide for each known allowed secured claim so trustee can administer estate and secured holders’ rights are altered by plan | Debtors say they may choose not to "provide for" a secured claim; omission is within debtor discretion | Court did not fully resolve on merits here (facts unsuitable) but signaled §1325(a)(5) typically requires addressing known secured claims; trustee’s practical administration argument persuasive |
| Whether failure to schedule asset and creditor violates §1325(a)(3) (good faith) | Failure to disclose asset/liability prevents trustee from performing duties and demonstrates lack of good faith | Debtors’ omission was inadvertent or tactical and does not alone show bad faith; they assert procedural protections | Court held nondisclosure of Scion and Nova (and continued failure to amend) breaches disclosure duties and constitutes lack of good faith; plan not confirmable |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (Chapter 13 plan must accommodate each allowed secured creditor)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) (court must address and correct plan defects even if no creditor objects)
- LVNV Funding, LLC v. Harling, 852 F.3d 367 (4th Cir. 2017) (secured creditors’ individual treatment is integral to Chapter 13 confirmation)
- Hurlburt v. Black, 925 F.3d 154 (4th Cir. 2019) (§1325 sets statutory requirements for plan confirmation)
- In re Tully, 818 F.2d 106 (1st Cir. 1987) (good faith and full disclosure prevent debtors from "playing fast and loose" with assets)
- Kestell v. Kestell (In re Kestell), 99 F.3d 146 (4th Cir. 1996) (honesty and disclosure are essential to equitable distribution)
- In re White, 340 B.R. 761 (E.D.N.C. 2006) (under §1325(a)(5), absent creditor approval a Chapter 13 plan must provide for secured claims)
- In re Soppick, 516 B.R. 733 (Bankr. E.D. Pa. 2014) (bankruptcy court may independently determine plan compliance even if no party raises the objection)