Banks v. Vandiver (In Re Banks)Banks v. Vandiver (In Re Banks)
Debtor Ronald W. Banks appeals from the bankruptcy court’s 1 order determining that he filed his chapter 13 plan in bad faith and from the bankruptcy court’s subsequent order of dismissal. We have jurisdiction over these appeals from the final orders of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
BACKGROUND
The Debtor, Ronald Banks, was an Air Force pilot and officer for many years. During 20 of those years, he was married to Sandra Vandiver. On May 27, 1982, they dissolved their marriage in the state of California. However, their divorce decree left open the issue of whether Vandi-ver would later be entitled to a portion of the Debtor’s military pension. The Debtor began drawing his military рension in November 1988.
In 1990, Vandiver filed a state court action in Arkansas to determine her entitlement to a portion of the Debtor’s military pension. Rather than setting aside the contested portion of the pension money he received, the Debtor spent all the funds “as he saw fit,” including paying attorney fеes incurred contesting Vandiver’s claim. Applying Arkansas law, the state court dismissed Vandiver’s suit. However, the Arkansas Court of Appeals reversed the trial court, holding that the law of California-not Arkansas-governed the case. On remand, the state court dismissed the case again, finding that the original California divorce court had made a final adjudication with respect to Vandiver’s claim and that Vandiver’s suit was barred by res judicata, collateral estoppel, and an applicable California statute of limitations. On appeal a second time, the appellate court again revеrsed the trial court, holding that no adjudication of Vandiver’s claim had occurred in the California divorce proceeding and that Vandiver’s lawsuit was not barred by res judicata, collateral estoppel, or the California limitations statute cited by the trial court. After the second appellаte ruling in her favor, Vandiver voluntarily nonsuited her case and timely refiled it, claiming her community property interest in the Debt- or’s military pension benefits as a tenant in common and bringing an action for partition. The case then went to trial. Afterward, the trial court dismissed Vandiver’s lawsuit a third time, and Vandiver appealed yet again. On appeal, the Arkansas Supreme Court held that the prior rulings by the Arkansas Court of Appeals were the law of the case and that the trial court erred in dismissing Vandiver’s lawsuit and in failing to award Vandiver 37.28 percent of the Debtor’s military pension benefits.
Shortly after the Arkansas Supreme Court’s decision, the Debtor filed a chapter 13 petition in bankruptcy. At the time of filing, the Debtor was in good financial shape, earning an annual income of approximately $62,000. He had no unsecured debt other than the judgment owed to Vandiver. Indeed, the Debtor had paid off approximately $10,000 in unsecurеd debt within a few months prior to filing bankruptcy. The only other significant debt the Debtor had was a home mortgage loan guaranteed by the Veteran’s Administration. Shortly after the petition was filed, the automatic stay was lifted so that any remaining issues regarding the liquidation of Vandiver’s claim could be re
The Debtor responded by filing an objection to Vandiver’s proof of claim, contending that her entire claim was unsecured. In addition, the Debtor proposed an initial chapter 13 plan, and later, a modified plan which treated Vandiver as an unsecured creditor and purported to pay her less than 15 percent of the total amount asserted in Vandiver’s proof of claim. The judgment debt owed to Vandi-ver was the only significant debt to be dealt with under the Debtor’s modified three-year plan. Vandiver objected to confirmаtion of the Debtor’s plan, contending, inter alia, that it was not filed in good faith.
On June 29, 1999, the bankruptcy court conducted a hearing on Vandiver’s objection to confirmation as well as the Debtor’s objection to Vandiver’s proof of claim. On September 17, 1999, the bankruptcy court issued an order that sustained the Debt- or’s objection to Vandiver’s proof of claim without prejudice to her filing an adversary proceeding and motion for reconsideration, reasoning that the procedural safeguards attendant a full adversary proceeding would be necessary for the bankruptcy court to imрose an equitable lien or constructive trust on the Debtor’s property. However, the bankruptcy court also sustained Vandiver’s objection to confirmation on the grounds that the plan was proposed in bad faith. The bankruptcy court specifically stated:
The chapter 13 plan proposes to pay [the Debtor’s] unsecured creditors approximately fifteen percent of the debt owed, over a three year period. However, the only unsecured creditor the debt- or has is his former spouse. The only debt to be paid pursuant to this plan is a portion of a pension he is required to pay to his former spouse. The debtor admits that he filed this chapter 13 case because he was about to be compelled to pay the long-unpaid benefits. Having been finally ordered by the state Chancery Court to pay the past due amounts to his former spouse, he sought tо circumvent the state court’s authority and to thwart his former spouse by filing a bankruptcy case and substantially devaluing her claim.
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This debtor is not in need of bankruptcy relief and filed his chapter 13 plan solely to ensure that his former spouse does not obtain most of the pension money to which she is entitled, but whiсh he chose to spend. The plan proposes to pay his former spouse a meager portion of the amount to which she is not only entitled, but needs. The plan, as such, is not filed in good faith and cannot be confirmed. At minimum, since this debtor filed a case without either the need for relief from debt оr the desire for reorganization, but merely sought to avoid payment of a single debt, any modification which would meet the good faith standard must provide for payment for the entire debt, either in full within the túne limits of chapter 13, or provide that repayment of the debt will be a continuing one.
The bankruptcy court’s order also provided for automatic dismissal of the bankruptcy case in the event that the Debtor failed to file a plan conforming to the bankruptcy court’s decision.
The Debtor filed a motion to amend the bankruptcy court’s order of September 17, 1999. By the order dated October 20, 1999, the bankruрtcy court granted the Debtor’s motion only insofar as removing certain footnotes which were not essential to the court’s decision. On December 13,
The Debtor аppeals from the bankruptcy court’s orders of September 17, 1999, October 20, 1999, and December 13, 1999. The Debtor argues that the bankruptcy court clearly erred in making certain findings of fact, including the finding that he proposed his chapter 13 plan in bad faith.
STANDARD OF REVIEW
On appeal, we review the bankruptcy court’s findings of fact for clear error and its conclusions of law
de novo.
Fed. R. Bankr.P. 8013;
Hatcher v. U.S. Trustee (In re Hatcher),
DISCUSSION
In order to be confirmed, a chapter 13 plan must be proposed “in good faith and not by any means forbidden by law.” 11 U.S.C. § 1325(a)(3). A determination as to whether a chapter 13 plan was proposed in good faith is a finding of fact reviewable under the clearly erroneous standard.
Nielsen v. DLC Investment, Inc. (In re Nielsen),
The bankruptcy court’s finding of bad faith is subject to review under the cleаrly erroneous standard. Although the Debtor contests various subsidiary fact findings, he ultimately fails to show that the bankruptcy court’s finding of bad faith was clearly erroneous. For example, the Debtor argues that the bankruptcy court should not have found that he accumulated $107,000 in a savings account, that his demeanоr revealed rancor, or that he failed to assist his children in pursuing a college education. Indeed, some of the factual issues raised in the Debtor’s argument appear to have only scant relevance to the ultimate finding of bad faith. Nev
Furthermore, there is ample evidence in the record to support the bankruptcy court’s finding that the Debtor proposed his chapter 13 plan in bad faith. First, the nature of the debt at issue is closely tied to the Debtor’s pre-filing conduct, and these factors bode against a finding of good faith. The debt in controversy arose out of eight years of bitter litigation in the state courts. Although ownership of a portion of his military pension was in dispute, the Debtor nevertheless spent the entire pension monies he received in complete disregard of the pоtential consequences for doing so. A possible inference to be drawn from such conduct is that the Debtor
never
intended to pay Vandiver her share of the pension, even if she prevailed in the state court litigation. Indeed, it seems apparent from the record that the Debtor funded his legal battlе against Van-diver, at least in part, with pension monies that were ultimately adjudicated to be Vandiver’s marital community property. Second, the potential dischargeability of the debt under chapter 7 bodes against a finding of good faith. If the Debtor had filed for protection under chapter 7 of the Bankruptcy Code, it is likely that Vandiver would have had at least a colorable claim for nondischargeability of the debt at issue.
See
11 U.S.C. § 523(a)(5), (15). Third, the Debtor’s motivation and sincerity in seeking chapter 13 relief bode against a finding of good faith. In this case, the Debtor admitted that his sole motivation for filing bankruptcy was to avoid paying Vandiver on the debt at issue.
2
This admission, combined with the fact that the Debtor proposed only a three-year plan that paid less than 15 percent of Vandi-ver’s claim, supports the bankruptcy court’s finding that the Debtor’s modified plan was proposed in bad faith as yet one more attempt to deny Vandiver her marital community property interest in the Debtor’s pension.
See In re Zaleski,
Finally, the bankruptcy court dismissed the case based on the Debtor’s failure to file a new modified plan satisfying the good faith requirement of 11 U.S.C. § 1325(a)(3). The bankruptcy cоurt’s dismissal of the case was correct and is hereby affirmed as well.
CONCLUSION
For the foregoing reasons, we affirm the bankruptcy court in all respects.
Notes
. The Honorable Mary D. Scott, United States Bankruptcy Judge for the Eastern and Western Districts of Arkansas.
. Seeking chapter 13 relief to avoid or lessen the effеcts of state court litigation is not "bad faith constituting unfair manipulation of the Bankruptcy Code”
per se. Bayer v. Hill (In re Bayer),