Gary Lynn Warwick and Terica Michelle Warwick
MEMORANDUM ON
CONFIRMATION OF CHAPTER 13 PLAN
APPEARANCES:
Debra L. Miller, Esq.
Zachary S. Burroughs, Esq.
314 Erin Drive
Suite 201
Knoxville, Tennessee 37919
Attorney for Chapter 13 Trustee
LAW OFFICES OF MAYER & NEWTON
John P. Newton, Esq.
Kevin S. Newton, Esq.
Richard M. Mayer, Esq.
8351 E. Walker Springs Lane
Suite 100
Knoxville, Tennessee 37923
Attorneys for Debtors
This contested matter is before the Court on confirmation of Debtors’ Chapter 13 Plan filed on May 24, 2024 [Doc. 2], and the Chapter 13 Trustee Objection to Confirmation filed by Debra L. Miller, Chapter
I. FACTS
For seventeen years, Debtors have lived in their home in Powell, Tennessee, which has a fair market value of $310,000.00. [See Trial Ex. 1 at pp. 20, 30.] Debtor Gary Warwick is employed as a production manager with Coorstek, and Debtor Michelle Warwick3 works as a cafeteria worker with Knox County Schools.4 [Doc. 53 at ¶ 14; Trial Ex. 1 at p. 43.] In March 2023, Mr. Warwick received a gross annual bonus of $22,700.00, from which he received net proceeds of $15,969.45. [Doc. 53 at ¶ 18.] His 2024 annual bonus was $7,080.00, with net proceeds of $4,980.78. [Id.]
Approximately seventeen months before Debtors filed their Chapter 13 petition on May 24, 2024, Mr. Warwick, as “Gary L. Warwick d/b/a Gary L. Warwick, Sole Proprietor,” executed a Capital Application Form (“BHG Application“) with Bankers Healthcare Group (“BHG“) seeking a loan of $100,000.00 for “Business Development.” [Doc. 53 at ¶ 12; Trial Ex. 6 at p. 1.] The loan was approved for $75,000.00 plus a $750.00 “Doc Fee” to be repaid at 18.49% interest by monthly payments of $1,613.93.5 [Trial Ex. 6 at pp. 2-3.] Debtors provided an accounting to the Trustee, reflecting that they received $74,961.09 in net loan proceeds from BHG on January 4, 2023, which they used to pay the following debts:6 $28,470.65 to American Express; $2,036.20 on a Best Buy credit card; $3,789.00 on a Chase credit card; $1,000.00 on a different Chase credit card; and
In 2022, Debtors received $7,777.00 from a retirement account withdrawal, and in 2023, they received $8,290.00 from a second withdrawal, both of which withdrawals they used to pay outstanding debts. [Doc. 53 at ¶ 19; see also Trial Ex. 1 at p. 11.] Also in 2023, Debtors refinanced their home mortgage with a loan of $229,600.00, from which they received cash totaling $65,375.11. [See Trial Ex. 8 at p. 6; Claim No. 3-1 at p. 5.]
In addition to the funds received from BHG in January 2023 and their regular wages,8 Debtors also deposited the following amounts into their First Horizon checking account xxxx6608 (“Account xxxx6608“) from February 15, 2023, through June 12, 2024:
| RECEIVED FROM | DATES | AMOUNT |
|---|---|---|
| American Express | between February 15 and March 13, 2023 | $40,000.00 |
| Fidelity Investments | between April 13 and May 11, 2023 | $3,567.14 |
| Mortgage Connect LP mortgage refinance | between May 12 and June 12, 2023 | $65,375.11 |
| unknown source | between June 13 and July 12, 2023 | $683.89 |
| unknown source | between July 13 and August 10, 2023 | $2,458.02 |
| transfer Account xxxx28079 | between August 11 and September 13, 2023 | $4,000.00 |
| American Express | between September 14 and October 13, 2023 | $10,000.00 |
| Fidelity Investments | between November 14 and December 12, 2023 | $3,894.12 |
| Bank of America | between November 14 and December 12, 2023 | $9,400.00 |
| unknown source | between January 12 and February 13, 2024 | $4,500.00 |
| Internal Revenue Service (refund) | between February 14 and March 12, 2024 | $5,200.00 |
| transfer Account xxxx2807 | between March 13 and April 11, 2024 | $500.00 |
| transfer Account xxxx2807 | between April 12 and May 13, 2024 | $5,500.00 |
| transfer Account xxxx2807 | between May 14 and June 12, 2024 | $4,000.00 |
[Doc. 53 at ¶ 16; Trial Ex. 8 at pp. 3, 5-10, 12, 14-18; Trial Ex. 11 at pp. 2, 4, 6.]
From December 2022 through May 2024, the beginning and ending balances in Account xxxx6608 were as follows:
| DATES | BEGINNING BALANCE | TOTAL DEPOSITS10 | ENDING BALANCE |
|---|---|---|---|
| Dec. 14 - Jan. 12 | $1,086.16 | $81,501.98 | $41,684.41 |
| Jan. 13 - Feb. 14 | $41,684.41 | $6,468.25 | $543.09 |
| Feb. 15 - Mar. 13 | $543.09 | $62,824.44 | $23,038.19 |
| Mar. 14 - Apr. 12 | $23,038.19 | $6,777.12 | $9,499.14 |
| Apr. 13 - May 11 | $9,499.14 | $12,370.03 | $4,219.93 |
| May 12 - June 12 | $4,219.93 | $71,857.66 | $38,151.47 |
| June 13 - July 12 | $38,151.47 | $6,396.04 | $17,515.96 |
| July 13 - Aug. 10 | $17,515.96 | $8,158.00 | $6,518.43 |
| Aug. 11 - Sept. 13 | $6,518.43 | $11,784.63 | $5,460.78 |
| Sept. 14 - Oct. 13 | $5,460.78 | $19,545.12 | $7,115.99 |
| Oct. 14 - Nov. 13 | $7,115.99 | $5,527.84 | $2,169.44 |
| Nov. 14 - Dec. 12 | $2,169.44 | $20,153.30 | $11,484.32 |
| Dec. 13 - Jan. 11 | $11,484.32 | $6,721.49 | $1,961.39 |
| Jan. 12 - Feb. 13 | $1,961.39 | $11,471.33 | $1,411.68 |
| Feb. 14 - Mar. 12 | $1,411.68 | $12,455.20 | $254.28 |
| Mar. 13 - Apr. 11 | $254.28 | $14,826.40 | $3,145.02 |
| Apr. 12 - May 13 | $3,145.02 | $11,902.41 | $446.42 |
| May 14 - June 12 | $446.42 | $11,271.13 | $1,918.23 |
In March 2021, Mr. Warwick had leased a 2021 Lexus MX300 (“Lexus“) for thirty-six months, with a scheduled maturity date of March 14, 2024. [Doc. 53 at ¶ 10; Trial Ex. 5.] The purchase option for the Lexus at the end of the lease term (March 2024) was $23,076.90.11 [Id.] Mrs. Warwick drove the Lexus. Mr. Warwick testified that he went to the Lexus dealership to discuss getting another vehicle, but the salesman “pressured” him to upgrade to a vehicle that would have cost $1,400.00 per month. He decided then to go to another dealership to trade in the Lexus and purchase a vehicle comparable to the Lexus so that Mrs. Warwick would have a vehicle similar “to what she was used to driving.”
On January 6, 2024, sixty-eight days before the Lexus lease matured, Mr. Warwick executed a “Loan and Security Agreements and Disclosure Statement (Dealer Direct)” with Knoxville TVA Employees Credit Union (“Credit Union“) for the purchase of a new 2024 BMW X3 SUV (“BMW“) for $75,297.00 (paid by the trade-in of the Lexus for a credit of $2,669.00 and financing of $73,224.2612 with the Credit Union at an 8.19% interest rate for a term of 98
months13). [Doc. 53 at ¶¶ 8, 9; Trial Ex. 4 at p. 5.] Payment in full under the BMW note totals $100,395.84. [Doc. 53 at ¶ 9; Trial Ex. 5 at p. 5.] Debtors made monthly car payments of $1,045.79 to the Credit Union on February 15, March 13, April 12, and May 9. [Doc. 53 at ¶ 11; see
Before Debtors purchased the BMW, they were paying $3,389.20 in monthly installments on various debts (i.e., $522.00 to the Credit Union on a 2019 Chevrolet Silverado (“Silverado“); $1,613.93 to BHG; and $1,253.27 to American Express). [Doc. 53 at ¶ 15.] When Mr. Warwick purchased the BMW, Debtors also were responsible for their $1,594.75 monthly mortgage payment plus monthly credit card payments on balances owed to Citi, CBNA, Bank of America, Synchrony Bank, and Service Finance Company.15 [Id.]
Debtors used credit cards extensively in the two years preceding the bankruptcy case. For example, they routinely paid for food and consumer services through a Disney Rewards Chase credit card (“Disney Card“).16 [See Trial Ex. 10.] The Disney Card statements for January and February 2024 reflect that Debtors charged $12,381.81 and made payments (including any credits from vendors) totaling $5,439.78.17 [Id.] Mr. Warwick’s Marriott Bonvoy Chase credit
card (“Marriott Card“)18 statement for March 2024 reflects a beginning balance of $0.00 and charges of $4,979.90 on a maximum credit line of $5,000.00. [Trial Ex. 9 at p. 1.] Most of the March 2024 charges related to a trip to Orange Beach, Alabama and New Orleans, Louisiana.19 [Id. at p. 2] Debtors had made no payment on that debt as of May 1, 2024. [Id. at p. 3.]
On February 12, 2024, thirty-seven days after purchasing the BMW and three days before making the first payment on it to the Credit Union, Debtors first consulted with the law firm of Mayer & Newton through a thirty-minute phone call. [Doc. 53 at ¶ 11.] Mr. Warwick testified that he contacted the firm a second time in April, with plans to file in May, and as reflected in their Statement of Financial Affairs,
Debtors filed the Voluntary Petition commencing this Chapter 13 bankruptcy case together with their statements and schedules on May 24, 2024. [Doc. 53 at ¶ 4; Trial Ex. 1.] Schedule I reflects a combined monthly income of $7,751.83,20 and Schedule J reflects monthly
expenses of $5,801.75,21 leaving monthly net income of $1,950.08. [Doc. 53 at ¶ 14; Trial Ex. 1 at pp. 43-46.]
On January 22, 2024, Debtors financed $5,886.00 for a family trip for the summer of 2024 to Munich, Germany, to celebrate Debtors’ thirtieth wedding anniversary. [Trial Ex. 1 at p. 38.] Mr. Warwick testified that they financed the trip with Uplift before they had financial concerns. He also testified that because they could not get a refund for the trip, they still traveled to Germany postpetition in June, spending approximately $2,000.00 from their savings during the week-long vacation for the three of them.
Through their Chapter 13 Plan, also filed on May 24, 2024, Debtors initially proposed to make biweekly payments of $900.00 for 60 months and to remit tax refunds over $1,500.00. [Trial Ex. 2 at pp. 1-2.] Debtors propose as long-term debt obligations extending beyond the life of the plan their $1,594.75 monthly mortgage maintenance payment and the $1,045.18 monthly obligation to the Credit Union for the BMW. [Id. at p. 2.] Debtors also propose to pay for the Silverado “in full” with 10% interest through monthly payments of $245.00. [Id. at p. 3.] Finally, the Plan provides for attorneys’ fees of $4,500.00 and a pro rata distribution to nonpriority unsecured creditors. [Id. at p. 5.]
After the initial meeting of creditors was adjourned from July 11 to August 8, September 4, September 18, and finally to October 2 (when the Trustee concluded the meeting and filed her
objection) [Docs. 13, 32, 36, 38, 43, 44], Debtors proposed on September 3022 to modify their Plan by increasing by $50.00 their biweekly plan payment beginning October 21, 2024, and
Unsecured creditors shall be paid pro rata on a funds available basis not less than a total $5,690.00 up to 100% to meet best interest requirements of 11 USC § 1325(a)(4); and Unsecured creditors shall be paid pro rata on a funds available basis not less than a total $17,826.80 up to 100% to meet Disposable income. Option providing the largest payment will be effective.
[Id. (emphasis in original).]
The Trustee argued that the Chapter 13 Plan could not be confirmed because it did not propose to pay all of Debtors’ disposable income for the applicable commitment period, did not meet the best interests test, and was not filed in good faith.23 [Docs. 43, 53 at ¶ 6.] As to disposable income, the Trustee argued that Debtors’ monthly disposable income under
II. ANALYSIS
Courts must confirm a Chapter 13 plan that satisfies the requirements of
Bankruptcy courts in the Sixth Circuit perform the good faith analysis for both subsections (a)(3) and (7) under an almost identical standard as cases concerning good faith and dismissal under
Whether a debtor has filed in bad faith requires examination of the totality of the circumstances and is based on past and present circumstances. Soc’y Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588, 591 (6th Cir. 1992); see also In re Gomery, 523 B.R. at 784 (“The concept of good faith under both § 1325(a) and § 1307(c) is an “amorphous notion” that is both flexible and fact-specific.“). “[T]the Court’s evaluation of the Debtor’s credibility is critical to a determination of the Debtor’s sincerity and overall good faith. Moreover, the Court’s evaluation of the Debtor’s credibility will influence all its findings.” In re Anthony, 664 B.R. 418, 435 (Bankr. S.D. Ohio 2024). In making the good faith determination under either subsection (a)(3) or (a)(7), courts generally focus on the following non-exhaustive factors:
(1) the debtor’s income; (2) the debtor’s living expenses[;] (3) the debtor’s attorney fees; (4) the expected duration of the Chapter 13 plan; (5) the sincerity with which the debtor has petitioned for relief under Chapter 13; (6) the debtor’s potential for future earning; (7) any special circumstances the debtor may be subject to, such as unusually high medical expenses; (8) the frequency with which the debtor has sought relief before in bankruptcy; (9) the circumstances under which the debt was incurred; (10) the amount of payment offered by debtor as indicative of the debtor‘s sincerity to repay the debt; (11) the burden which administration would place on the trustee; and (12) the statutorily-mandated policy that bankruptcy provisions be construed liberally in favor of the debtor.
In re Barrett, 964 F.2d at 592 (citations omitted). Other factors include “the accuracy of the plan’s statements of the debts, expenses and percentage repayment of unsecured debt[,] . . . [and] whether any inaccuracies are an attempt to mislead the court,” Hardin v. Caldwell (In re Caldwell), 851 F.2d 852, 859 (6th Cir. 1988) (citation omitted). The Court also may consider
the nature of the debt, including the question of whether the debt would be nondischargeable in a Chapter 7 proceeding; the timing of the petition; how the debt arose; the debtor’s motive in filing the petition; how the debtor’s actions affected creditors; the debtor’s treatment of creditors both before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors.
Alt, 305 F.3d at 419 (citation omitted). Finally, the Court’s analysis may include “a review of the sacrifices made by the Debtor[s], the pursuit of reasonable financial rigor, and efforts made
to address the claims of creditors.” In re Kash, No. 19-20078 (JJT), 2020 WL 6811849, at *1 (Bankr. D. Conn. Nov. 16, 2020).
The factors “are relevant not as an end in themselves as part of a mechanical counting of factors, but rather exist to guide the Court in its analysis of the ‘key inquiry’ - whether the debtor is seeking to abuse the bankruptcy process.” In re Anthony, 664 B.R. at 433 (quoting Alt, 305 F.3d at 419); see also In re Gomery, 523 B.R. at 785 (“[T]he ‘same policy’ of protecting against ‘an abuse of the provisions, purpose or spirit’ of chapter 13 is embodied in both evaluations [as to good faith].“). Weighing the factors - “which ‘may circumstantially reflect the debtor’s motivation, and ultimately his “good
Thus, the Court must make its determination based on a totality of the circumstances by considering the applicable factors. Because many of the factors can more efficiently be measured and discussed cumulatively, the Court has combined the relevant factors into three categories and finds that each weighs against Debtors’ good faith both in the filing of their case and the filing of their plan so that confirmation will be denied.
1. Category 1: Debtors’ income, “reasonably necessary” expenses, and the sacrifice component of Chapter 13
“When a debtor seeks Chapter 13 relief, ‘the entire family is affected by the sacrifices and special efforts required by the Code. [A] family may not continue its prepetition lifestyle to the detriment of creditors.” In re Bacon, 449 B.R. 536, 541 (Bankr. E.D. Ark. 2011) (citations omitted). As stated by one bankruptcy court:
For a financially distressed debtor, . . . the benefits of chapter 13 bankruptcy relief are extraordinary, and include the ability to preserve assets by way of exemptions and extended payment of secured debts, a respite from creditors’ collection efforts and litigation, and ultimately a discharge from financial burdens with a fresh start. But that relief comes with a price: [d]uring the term of a chapter 13 case, a debtor is expected to limit her expenditures to those that are reasonably necessary for her and her dependents’ maintenance and support, and commit her disposable income—what’s left after paying for those necessities—to the repayment of creditors. This quid pro quo is codified at
11 U.S.C. § 1325(b) for plan confirmation purposes. It is contrary to both the spirit and the letter of the Bankruptcy Code for a chapter 13 debtor to expend her income on non-essentials while paying only a small percentage to her creditors . . . .
In re Emery, No. 13-41769-JJR7, 2014 WL 6623948, at *3 (Bankr. N.D. Ala. Nov. 20, 2014) (finding that the debtor’s and her husband’s travel to Europe and California “were [likely] paid at the expense of her unsecured creditors“).
Accordingly, “[d]ebtors should not continue prepetition, spendthrift lifestyles at the expense of their creditors.” In re Cesaretti, No. 22-10454-nmc, 2023 WL 3676888, at *14 (Bankr. D. Nev. May 10, 2023). “[A]s a general rule, ‘reasonably necessary’ expenses as defined in chapter 13 cases means ‘adequate’ but not ‘first class.’ . . . If a debtor is not paying 100% of unsecured creditors’ claims, then courts may require a debtor to forego the luxury expense.” In re Lindsey, 243 B.R. 30, 32 (Bankr. E.D. Tenn. 1999) (citations omitted).
Reasonably necessary expenses are unrelated to the debtor‘s former lifestyle. Id. As one court noted, the debtor “cannot expect to go ‘first class’ when ‘coach’ is available.” In re Kitson, 65 B.R. 615, 622 (Bankr. E.D.N.C. 1986).
. . . .
The key term is “reasonable lifestyle.” Debtors need not be reduced to poverty and granted, some discretionary or recreational spending is not inappropriate, but courts are loathe to favor kindly
expenditures which are for luxury goods or serve to perpetuate a luxury lifestyle.
In re McNichols, 249 B.R. 160, 168, 171 (Bankr. N.D. Ill. 2000); see also In re Trimarchi, 421 B.R. 914, 923 (Bankr. N.D. Ill. 2010) (denying confirmation of the debtor’s plan based on the debtor’s $250.00 monthly expenditure to heat a swimming pool); In re Navarro, 83 B.R. 348,
355 (Bankr. E.D. Pa. 1988) (“The debtor’s expenses should be scrutinized only for luxuries which are not enjoyed by an average American family.” (citation omitted)).24
Even non-discretionary expenditures such as for food and shelter can reflect discretionary lifestyle choices. Thus a debtor whose monthly car payment exceeds that which is reasonably necessary is in reality making a discretionary expenditure to the extent of the excess. . . . The disposable-income test is designed to balance the interest of creditors with the interest of the debtor in obtaining a fresh start. Thus the proper methodology is to aggregate all expenses projected by the debtor which are somewhat more discretionary in nature, and any excessive amounts in the relatively nondiscretionary line items such as food, utilities, housing, and health expenses, to quantify a sum which, for lack of a better term, will be called “discretionary spending.”
The task before me, therefore, is to identify how much of the Debtors’ anticipated expenses are discretionary in nature and to weigh them on this scale. If the discretionary expenses in the aggregate allow the Debtors to exceed their basic needs, including a reasonable reserve for recreation and exigencies (the reasonable “cushion“), then their plan cannot be confirmed.
In re Gonzales, 157 B.R. 604, 608-09 (Bankr. E.D. Mich. 1993) (footnote omitted).
As the analysis relates to expenses, the following guidelines have been adopted by various courts “to protect the integrity of the Chapter 13 system“:
- If there is a general rule, “reasonably necessary” means adequate but not first-class. See In re Easley, 72 B.R. 948 (Bankr. M.D. Tenn. 1987); In re Kitson, 65 B.R. 615 (Bankr. E.D.N.C. 1986); In re Tinneberg, 59 B.R. 634 (Bankr. E.D.N.Y. 1986).
- Luxuries are excluded. See In re Tinneberg, 59 B.R. 634 (Bankr. E.D.N.Y. 1986). In re MacDonald, 222 B.R. 69, 77 (Bankr. E.D. Pa. 1998); In re Zaleski, 216 B.R. 425, 432 (Bankr. D.N.D. 1997); In re Cardillo, 170 B.R. 490, 491 (Bankr. D.N.H. 1994).
- A convenience is not the same as a necessity. See In re Walsh, 224 B.R. 231 (Bankr. M.D. Ga. 1998).
- There is a sacrifice quotient in Chapter 13 cases. Debtors who make the extra effort to provide a few more percentage points for the unsecured creditors are more
likely to survive a good-faith review. See, e.g., In re Wilcox, 251 B.R. 59, 68 (Bankr. E.D. Ark. 2000).
In re McDonald, No. 14-11740, 2015 WL 1524096, at *3 (Bankr. W.D. La. Mar. 27, 2015) (holding that “payment for a luxury item, with little or no payment to unsecured creditors, violates the good faith test in 11 U.S.C. § 1325(a)(3)” and denying
Post-BAPCPA, when debtors are “above median” under the means test, the Bankruptcy Code directs that “reasonably necessary” expenses are determined in accordance with
up’ on new debt in contemplation of a bankruptcy filing.” In re Page, 658 B.R. 178, 192 (Bankr. E.D. Wash. 2024) (citing Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 240-41 (2010)).
Debtors argue that they filed their case in good faith because they have not previously filed for bankruptcy, live in a 1,500 square foot home, are hardworking, and “are not extravagant people.” Mr. Warwick testified that part of the couple’s financial woes stem from the failure of his company to pay profit-sharing bonuses in 2024 that he was accustomed to receiving. Additionally, Mrs. Warwick testified at trial that Debtors have “tightened their belts” as to their expenses since filing their case, including that their daughter had to give up her weekly ice skating lessons and gymnastics as well as her eighth grade trip. These self-serving averments notwithstanding, Debtors have proposed a plan that seeks to rid themselves of their extensive unsecured debts while maintaining the lifestyle to which they have grown accustomed, especially concerning their vehicles and vacations.
Further, the Court finds incredible Mr. Warwick’s testimony that Debtors’ financial difficulties leading to the bankruptcy filing centered around the change to Mr. Warwick’s bonus structure. For example, Mr. Warwick testified that his past salary has included profit-sharing and performance bonuses, such as the $22,000.00 profit-sharing bonus he received in 2023, and that he began to hear “chatter” in February
for 2024, which reflect an annual net income of $103,614.89,27 which equates in monthly net income of $8,634.57 when divided by twelve months. [Compare Trial Ex. 1 at pp. 43-44 with Trial Ex. 12 at pp. 2, 4.] Most importantly, the record as a whole reflects that Debtors engaged in a pattern and practice of incurring debt to pay off other debt to maintain a lifestyle that could not be sustained by their income alone, resulting in escalating debt that they could not pay, regardless of whether Mr. Warwick would have received a 2024 bonus commiserate with what he received in 2023.
The Court also is unpersuaded that Debtors’ expenses are reasonably necessary and evidence sacrifice for the benefit of their creditors. The most glaring evidence in support of such a conclusion is Debtors’ desire to retain a nearly new BMW with a monthly payment of $1,045.18.28 Such would be to the detriment of Debtors’ unsecured creditors, which are to proposed to receive a pro rata distribution of no less than $27,826.80, equating to a dividend of as little as 15%.29 [See Trial Ex. 2 at p. 2; Trial Ex. 3.]
The Court finds insufficient Debtors’ explanation of the decision – little more than one month before seeking advice from bankruptcy counsel – to forego purchase of the Lexus, a three-year-old luxury vehicle that Mrs. Warwick had driven only 36,000 miles since it was leased when new. The Lexus could have been retained at a price of $23,076.90, with monthly payments nearly the same as the lease payment had been. [See Trial Ex. 5 at p. 1.] Instead of paying for the Lexus at $491.00 monthly for a gross capitalized cost of $47,163.28, Mr. Warwick purchased the
BMW, downplaying it at trial as “a low-end model SUV,” by incurring a monthly payment of more than twice what the Lexus purchase would have cost when measured by either a monthly payment or the gross capitalized cost (i.e., $1,045.18 monthly and $100,395.84 total payments). The difference between the Lexus and BMW monthly payments for the sixty-month life of the plan computes to a loss of $33,250.80 to unsecured creditors – more than double the minimum amount proposed to be paid to them.30
As it relates to their discretionary travel, Mr. Warwick first testified that the family routinely took a one-week vacation each year but later acknowledged that in 2023, the family took three vacations: to Disney World, Yellowstone National Park, and New York City. The record also reflects that Debtors and their daughter vacationed twice in 2024: to Orange Beach, Alabama and New Orleans, Louisiana in March (prepetition) and a one-week trip to Munich, Germany in June 2024 (postpetition).
The Court finds incredible Debtors’ testimony that the trip charged to the Marriott Card in March was primarily to visit Mrs. Warwick’s terminally ill grandmother in Birmingham, Alabama. Mrs. Warwick attempted to explain that she and the couple’s daughter had visited her grandmother earlier in 2024, but that her grandmother had not recognized them, so when they went to visit again in March 2024, Mr. Warwick had surprised Mrs. Warwick with the beach and New Orleans trip “to get her mind off things.” She testified that Mr. Warwick made all of the arrangements for the trip and explained that there were no credit card charges from Birmingham because they had dined with her aunt and uncle without incurring any debt. The credit card statements reflect that the March 2024 trip (which was planned early in March, less than one month after Debtors had consulted with bankruptcy counsel) maxed out the Marriott Card and was not done with any budget restrictions in mind.
Concerning the trip to Munich, Mr. Warwick also testified that he and Mrs. Warwick had booked it through United Vacation at the end of 2023, to celebrate their thirty-year anniversary. Debtors financed the entire trip, $5,886.00, through Uplift but never made any payments. [See Trial Ex. 1 at p. 38.] He explained that once it was financed, it was considered “pre-paid” and there were no options for cancellation or a refund. Mr. Warwick also acknowledged that they spent an additional $2,000.00 on that trip, with Mrs. Warwick testifying that those funds had come from their savings.
Examination of the Marriott Card statements establishes that Debtors charged at least $3,763.41 attributable to the trip to
Finally, although the majority of the expenses listed in Debtors’ Schedule J are reasonable for a family of three, there are four categories that appear to be excessive: (a) an aggregate food budget of $1,700.00 per month (including the line item for “work lunches“); (b) a monthly clothing budget of $150.00, which translates to $1,800.00 annually, even though they scheduled their clothing jointly at a value of $400.00; (c) a monthly budget of $150.00 (i.e., $1,800.00 annually) for personal care products and services; and (d) pet expenses for one dog of $145.00 monthly ($1,740.00 annually).31 [See Trial Ex. 1 at pp. 22, 46.] Additionally, Mrs. Warwick testified that they had cut expenses for their teenaged daughter’s ice skating and gymnastic lessons as well as for her eighth-grade trip; however, Schedule J reflects monthly payments of $100.00 (equating to $1,200.00 per year) for unexplained “childcare and children’s education costs.” Although the Court is sympathetic to the sacrifice borne by Debtors’ daughter, that fault falls squarely on the shoulders of Debtors’ financial decisions, including their desire to keep the BMW with its $1,045.18 monthly payment when, even postpetition, they could have surrendered the BMW for a vehicle with a lower monthly payment.
2. Category 2: the nature of the debts, the circumstances under which the debts were incurred, and Debtors’ treatment of creditors both before and after the petition was filed, including the percentage repayment of unsecured debts
“The Bankruptcy Code contemplates that Chapter 13 can and should be available to those whose prepetition misdeeds are the source of their current financial problems. . . . [In fact,] ‘[a] Chapter 13 plan may be confirmed despite even the most egregious pre-filing conduct where other factors suggest that the plan nevertheless represents a good faith effort by the debtor to satisfy his creditors’ claims.‘” In re Colston, 539 B.R. 738, 748-49 (Bankr. W.D. Va. 2015) (quoting Neufeld v. Freeman, 794 F.2d 149, 153 (4th Cir. 1986) (emphasis added)). Nevertheless, even if a plan passes muster under
Debtors’ secured debt as of the petition date, per Schedule D, totaled $308,196.00, consisting of $71,671.00 for the BMW, $10,966.00 for the Silverado, and $225,559.00 for their mortgage. [Trial Ex. 1. at pp. 29-30.] Based on the claims filed by Wells Fargo Bank, N.A. and the Credit Union, the secured debts actually total $306,751.43: $224,496.00 on the mortgage, which was refinanced in May 2023 with Debtors cashing out equity of more than $65,000.00 [Claim No. 3-1]; $10,956.26 on the Silverado purchased nearly new in May 2020 for $34,370.62 [Claim No. 5-1]; and $71.299.17 on the BMW [Claim No. 6-1]. The fair market value of the property securing the home and the Silverado exceeds the debt; however, the fair market value of the BMW is $68,000.00, which leaves the Credit Union under-secured for more than $3,000.00. [see Trial Ex. 1 at pp. 29-30; Claim No. 6-1.]
Debtors have no unsecured priority debt. and they scheduled unsecured nonpriority debt in the amount of $196,358.00, for which claims totaling $183,772.72 have been filed (excluding one medical debt), as
| CREDITOR | TYPE OF DEBT | RELEVANT DATES | OBLIGOR | SCHEDULED AMOUNT | PROOF OF CLAIM AMOUNT |
|---|---|---|---|---|---|
| American Express Travel Services | credit card #1493 | opened 2/23 last active 5/7/24 | Mr. Warwick | $29,392.00 | $29,392.39 |
| American Express Travel Services | credit card #4973 | opened 9/23 last active 5/2/24 | Mrs. Warwick | $9,622.00 | $9,622.58 |
| Bank of America | credit card #9133 | opened 8/22 last active 4/24 | Mr. Warwick | $8,651.00 | $8,693.49 |
| Bankers Healthcare Group | flex loan | incurred 2023 | Mr. Warwick | $68,828.00 | $73,039.47 |
| Barclays Bank Delaware | credit card #8649 | opened 1/17 last active 4/24 | Mr. Warwick | $3,555.00 | $3,555.02 |
| Capital One Bank | credit card #4366 | opened 6/7/18 last active 5/24 | Mr. Warwick | $5,191.00 | $5,191.12 |
| Chase Card Services | credit card #8327 | opened 8/18 last active 4/24 | Mrs. Warwick | $19,744.00 | $19,744.08 |
| Chase Card Services | credit card #6374 | opened 2/14 last active 4/24 | Joint | $9,470.00 | $9,470.28 |
| Chase Card Services | credit card #6844 | opened 7/2018 last active 5/2024 | Mr. Warwick | $5,125.00 | $5,125.93 |
| Citibank/Best Buy | charge account #9502 | opened 12/2008 last active 4/2024 | Mr. Warwick | $3,096.00 | $3,125.30 |
| Costco Citi Card | credit card #6329 | opened 9/22 last active 2/24 | Mr. Warwick | $10,115.00 | $10,115.42 |
| Goldman Sachs Bank USA | credit card #4070 | opened 10/19 last active 4/29/24 | Mr. Warwick | $4,974.00 | not filed |
| Service Finance Company | credit card #3979 | opened 7/22 last active 4/24 | Mr. Warwick | $5,991.00 | not filed |
| Solutions Finance | note loan | opened 11/15/18 last active 1/11/19 | Mrs. Warwick | unknown | not filed |
| Synchrony Bank/ Care Credit | credit card #8211 | opened 1/2021 last active 3/2024 | Mr. Warwick | $2,381.00 | $2,381.47 |
| Uplift/cb | unsecured32 | opened 1/22/2024 last active 3/19/2024 | Mr. Warwick | $5,886.00 | not filed |
| Wells Fargo Bank NA | credit card #6984 | opened 7/2018 last active 4/2024 | Mr. Warwick | $4,337.00 | $4,316.17 |
[Trial Ex. 1 at pp. 32-40; Claim Nos. 1-1, 4-1, 7-1 through 15-1, 17-1, 18-1.33]
With the exception of the debt for a “note loan” with Solutions Finance, which was scheduled as last active in 2019; the American Express debts; the BHG debt, proceeds of which were used to pay down credit card debt in January 2023; the Uplift vacation loan, which was incurred in January 2024; and the sole medical debt of $310.08, the remainder of Debtors’ scheduled, unsecured nonpriority debt is credit card debt totaling more than $88,000.00, for which claims have been filed totaling $71,718.28. Further, based on the dates the accounts were last active and as evidenced in the credit card statements in the record and Debtors’ Schedule E/F, the overwhelming majority of the unsecured debt was incurred in the two years preceding the petition date. Moreover, Debtors were actively incurring credit card debt in the ninety days preceding their bankruptcy case. [See Trial Ex. 1 at pp. 32-40; Trial Ex. 9; Trial Ex. 10 at pp. 21-28.]
The bankruptcy court denied confirmation of the debtors’ plan primarily based on the circumstances under which their debts arose, which the court called “troubling.” Id. at 751. In addition to ignoring their bankruptcy attorneys’ pre-filing advice, which included constructing a new home “with the proceeds of their mostly non-exempt liquidated assets as well as almost $25,000.00 in credit card charges,” the court based its determination on the large amounts drawn from their credit cards as cash advances that they deposited into their bank accounts but did not use to make significant payments on the credit card debts in conjunction with incurring additional credit card debt. Id. Specifically, the court recounted the following:
The circumstances under which Debtors contracted their debts are troubling. After meeting with Mr. Roy in early 1999, Debtors disregarded Mr. Roy‘s advice to finance a home. Instead they elected to fund the construction of a home with the proceeds of their mostly non-exempt liquidated assets as well as almost $25,000.00 in credit card charges. Additionally, Debtors drew almost $40,000.00 in cash advances on their credit cards which they deposited directly into their checking account. Of that, they paid only $12,000.00 toward their credit cards. Moreover, Debtors incurred an additional $66,000.00 of credit card debt, of which only $24,000.00 represented balance transfers. Mrs. Fretwell‘s testimony that Debtors expected to maintain their financial obligations as long as they were able to sell or rent their old house and maintain their jobs is preposterous. If Debtors had sold their large home, they would have reduced their expenses by approximately $22,000.00 annually. During 1999, Debtors’ cash withdrawals alone, not including balance transfers and purchases, exceeded their housing expenses by almost $18,000.00. Debtors’ profligate spending is even more troubling in light of the fact that it occurred after Debtors consulted a bankruptcy
attorney because of their concern about health and financial problems. Debtors knew their continued employment was questionable. They also knew they could not pay back their credit cards if they were not employed. Recognizing the potential consequences of Debtors’ conduct, Mr. Roy advised Debtors during their February 10, 2000 meeting to compile a list of the source of the funds used to pay for their newly constructed house and that it would not be a good idea to file bankruptcy at that time. Debtors took affirmative steps to stave off collection efforts during the filing “moratorium” by making their credit card payments with cash advances from other credit cards. To that end, they drew $48,000.00 in cash advances and paid $35,000.00 toward their credit cards. Additionally, Debtors continued making their $1,637.00 monthly mortgage payments. Despite their intent to file bankruptcy once the “moratorium” was lifted, Debtors continued making purchases on their credit cards, spending over $4,000.00 on vacations alone.
Id. at 751-52. The court also found that the debtors “were not sincere in seeking Chapter 13 relief” and that they filed their case “not in a sincere effort to repay their creditors but rather to avoid dischargeability issues that may have arisen in a Chapter 7 case” because there was a likelihood that “some, if not all of the credit card debt” would be nondischargeable under
Here, as noted, the claims register reflects unsecured claims filed in the total amount of $183,772.72, of which more than $165,000.00 was incurred within two years of the petition date.34 In the two years preceding the petition filing, Debtors35 incurred unsecured credit card and loan debt of more than $121,000.00 while they increased their secured debt by more than $115,000.00.36 While they used some loan funds to pay off older unsecured debt, Debtors did not curb their spending. Thus, rather than paying off old debt as Mr. Warwick testified, Debtors simply incurred new (and more) unsecured debt in place of the old. As reflected in their Affidavit Regarding Use of Money, Debtors received the $74,961.09 BHG loan proceeds on January 4, 2023, and during that month, paid off an American Express loan and a Wells Fargo loan and paid down two Chase credit cards and the Best Buy card. [Trial Ex. 7.] Nevertheless, between February and March 2023, after paying off the American Express loan, $40,000.00 from American Express was deposited into their account [see Trial Ex. 8 at p. 3], and when they sought bankruptcy protection sixteen months later, there were balances on the Chase and Best Buy credit cards and aggregate debt to American Express of more than $39,000.00. [See Trial Ex. 1 at pp. 33-36.] Additionally, Mr. Warwick testified
The Court also finds questionable the nature of and circumstances surrounding the BHG loan. Mr. Warwick testified that he received a solicitation either through the mail or via email from BHG and took out the loan to pay off debts. He acknowledged that he did not research BHG before applying for the loan, he was unaware that it was a business loan, and he is not a sole proprietor. He stated that he may have spoken with someone over the phone once, but otherwise, the transaction was done via email, and he used DocuSign to apply for the loan and sign all BHG documents. Notwithstanding Mr. Warwick‘s contention that he did not understand that the BHG loan was a business loan, both the BHG Application and the Settlement Statement and Disbursement Acknowledgement very clearly reflect the applicant and debtor as “Gary L. Warwick d/b/a Gary L. Warwick, Sole Proprietor” and bear his signature. [Trial Ex. 6 at pp. 1-2.] The BHG Application begins with an informational block entitled “PRACTICE/BUSINESS INFORMATION” with line items entitled “Full Legal Name of Practice/Business“; “Business Structure Type“; Physical Address (No P.O. Box)“; “Business Phone“; “Business Fax“; Date Established“; and “Fed. ID #.” [Trial Ex. 6 at p. 1.] The second informational block is entitled “APPLICANT INFORMATION” and includes line item titles such as “Specialty“; “License State“; “Ownership %“; “Have you ever had any disciplinary actions on your healthcare license?” [Id.] The third informational block is entitled “ADDITIONAL GUARANTOR” and includes the same line items as the previous block (with no information completed). [Id.] The fourth informational block entitled “USE OF FUNDS” includes two line items: “Primary use of funds“; and “Amount needed.” [Id.] Finally, the fifth information block is entitled “ADDITIONAL BUSINESS INFORMATION” with line items of “Home based business?” and “Prior year gross sales.” [Id.] Even if Mr. Warwick was not presented with this specific form and instead was required to input information into a questionnaire from which the BHG Application was later created, the nature of the informational block titles and line-item queries unquestionably indicate that the loan was for a business, and Mr. Warwick signed the BHG Application.
Besides, the answers to specific questions on the BHG Application indicate that Mr. Warwick understood the business nature of the loan for which he was applying as reflected by the following examples:
| LINE ITEM QUESTION | RESPONSE |
|---|---|
| Full Legal Name of Practice/Business | Gary L. Warwick d/b/a Gary L. Warwick, Sole Proprietor |
| Business Structure Type | Sole Proprietorship |
| Date Established | 03/01/2000 |
| Fed. ID # | xxx-xx-173037 |
| Specialty | Non-Healthcare |
| Ownership % | 100 |
| Have you ever had any disciplinary actions on your healthcare license? | No |
| Primary use of funds | Business Development |
| Prior year gross sales | $0.00 |
The BMW purchase discussed in detail above also serves as an example of how Debtors treated creditors prepetition and how their decisions postpetition continue to disadvantage their unsecured creditors. Simply, Mr. Warwick did not explain why he did not merely decline the Lexus salesman‘s pressure to buy a more expensive vehicle when he could have purchased the Lexus with only 36,000 miles for $23,076.90. He did not explain why he chose, instead, to purchase the much more expensive BMW at another dealership, trading in the Lexus for a credit of only $2,669.00 and incurring debt of more than $73,000.00. Moreover, Debtors have not offered to amend their plan to surrender the BMW in exchange for finding a less costly vehicle that would allow for a greater payment to their creditors, especially considering that they incurred, at a minimum, credit card debt of $14,596.21 on the Marriott and Disney Cards after they purchased the BMW. [Trial Ex. 9; Trial Ex. 10 at pp. 17-28.]
3. Category 3: the timing of the petition, the sincerity with which Debtors have petitioned for Chapter 13 relief, the amount of payment offered as indicative of their sincerity, the pursuit of reasonable financial rigor, and whether they are attempting to abuse the spirit of the Bankruptcy Code
“‘Good faith’ requires honesty of intention in the debtor‘s conduct in the submission, approval and implementation of their plan. It requires a determination by the Court that the debtors have not misrepresented facts in their plan, unfairly manipulated the Bankruptcy Code or otherwise proposed their Plan in an inequitable manner.” In re Ollis, 625 B.R. at 313 (citations omitted). As summarized by the Sixth Circuit,
Good faith is an amorphous notion, largely defined by factual inquiry. In a good faith analysis, the infinite variety of factors facing any particular debtor must be weighed carefully. We cannot here promulgate any precise formulae or measurements to be deployed in a mechanical good faith equation. The bankruptcy court must ultimately determine whether the debtor‘s plan, given his or her individual circumstances, satisfies the purposes undergirding Chapter 13: a sincerely-intended repayment of pre-petition debt consistent with the debtor‘s available resources. The decision should be left simply to the bankruptcy court‘s common sense and judgment.
In re Okoreeh-Baah, 836 F.2d 1030, 1033 (6th Cir. 1988). In other words, “a debtor‘s motive in seeking chapter 13 relief is ‘not only an appropriate factor to consider when evaluating a debtor‘s good faith in seeking relief under chapter 13, it is essentially the heart of the
Illustrative of the good-faith analysis, one bankruptcy court denied confirmation of the debtor‘s plan that proposed “to pay approximately $39,050 to unsecured creditors, whose claims total an estimated $127,000.” In re Kash, No. 19-20412, 2020 WL 6811849, at *1 n.1 (Bankr. E.D. Ky. Nov. 10, 2020). The court first observed that “the Debtor and her husband have lived at the extreme end of their financial means pre-petition and now seek to maintain a fairly commensurate lifestyle that their present income cannot support.” Id. at *2. In addition to maintaining an expensive mortgage on a home that was valued at significantly less than the mortgage, the debtor‘s prepetition monthly expenses included $665.12 for a Porsche, $527.00 for a golf membership, an average of $998.00 for dining out, and $659.00 for a loan incurred mere months before the bankruptcy to install a pool. Id. The court was dissatisfied with the debtor‘s incremental attempts to raise the dividend to unsecured creditors, which occurred only after the trustee had objected, stating that it was “not convinced . . . that the Debtor has proposed the ‘fundamentally fair’ treatment of her creditors,” and it was “clear that the Debtor is attempting to maintain a luxurious lifestyle to the detriment of her unsecured creditors.” Id. The court concluded by holding that “[t]he degree to which [the debtor‘s] creditors would be made whole and the amount of disposable income allocated to the Plan do not evidence the Debtor‘s sincerity or proper motivations in seeking Chapter 13 relief.” Id.
Here, Debtors initially proposed a sixty-month plan with $900.00 biweekly payments and tax refunds exceeding $1,500.00. [Trial Ex. 2 at pp. 1-2.] After the Court questioned Debtors’ good faith and after the Trustee raised issues at numerous continued meetings of creditors, Debtors proposed to increase the biweekly plan payments to $950.00 beginning in late October, to commit all tax refunds to the plan, and to commit all net bonuses to the plan. [Trial Ex. 3.] These proposed payments of income into the plan, however, do not overcome Debtors’ pre- and postpetition conduct with respect to the filing of the case and the sincerity of their attempt to repay creditors. Instead, Debtors’ pre- and postpetition treatment of creditors, including their choice to retain the BMW, weigh against a finding of good faith. Also relevant to the Court‘s good-faith analysis is Debtors’ problematic testimony about the nature of the BHG loan and the March 2024 trip to the beach and New Orleans after they sought advice about bankruptcy. Debtors’ testimony about the March 2024 trip was especially troubling because of the initial untrue characterization of the trip as merely a visit to Birmingham to see Mrs. Warwick‘s dying grandmother. Their testimony was fully forthcoming only after detailed questioning by the Trustee and the Court with reference to the Marriott Card statements. Indeed, Mr. Warwick‘s attitude throughout his testimony was blasé, specifically when he was questioned about when Debtors last made payments to creditors in relation to when they met with their attorneys and filed the case and about how Debtors had routinely incurred additional debt while “paying off” old debts, as well as his testimony about the purchase and retention of the BMW.
Last, but not least, the Court concludes that Debtors’ motivation for filing this case was not in good faith. It is clear to the Court that they filed this Chapter 13 case to rid themselves of nearly $200,000.00 in unsecured debt that they incurred to live a lifestyle that was well beyond their means. Taking together Debtors’ choices (1) to incur (and keep) a car payment of more than $1,000.00 for a late-model luxury vehicle,
III. CONCLUSION
In the end, although it may be that Debtors, as they argued, “are not extravagant people” and live in a relatively small home, they nevertheless have lived extravagantly and well beyond their means to the detriment of their creditors. The Court finds that Debtors have not met their burden to show that they filed their case or proposed their Chapter 13 plan in good faith so that confirmation will be denied. See
Further, because the defects in Debtors’ filing of this case without good faith cannot be cured or remedied by filing an amended plan, this Chapter 13 bankruptcy case will be dismissed. See In re Brandland, 570 B.R. 203, 219 (Bankr. E.D. Va. 2017); In re Colston, 539 B.R. 738, 750 (Bankr. W.D. Va. 2015) (“Under [
FILED: March 26, 2025
BY THE COURT
s/ Suzanne H. Bauknight
SUZANNE H. BAUKNIGHT
UNITED STATES BANKRUPTCY JUDGE