In re Martellini
ORDER DENYING CONFIRMATION
This matter comes before the Court for confirmation of a Chapter 13 plan submitted by the debtor, Anthony Martellini (“Debtor”), on July 25, 2012. The Chapter 13 Trustee (“Trustee”) objected to confirmation on July 30, 2012. The Court held a hearing regarding confirmation of the proposed plan on October 15, 2012. The Court has jurisdiction over this matter as a core proceeding pursuant to 28 U.S.C. §§ 1334 and 157. After careful consideration, the Court issues the following findings of fact and conclusions of law with respect to Debtor’s July 25, 2012 plan.
Debtor filed his Chapter 13 petition on July 15, 2012. His wife did not join in the petition with him. The filing was precipitated by a change in job status and income for Debtor. From 2007 through 2010, the United States Navy’s Space and Naval Warfare Command employed Debt- or in Orangeburg, South Carolina as a civilian within the information technology field. At the hearing, Debtor indicated that he knew his assignment in Orange-burg was temporary. According to Debt- or’s memorandum, his employer notified Debtor in late summer 2010 of the termination of his assignment in Orangeburg and relocated his position to Charleston, South Carolina. This change in his job assignment also meant a reduction in his salary, and Debtor began searching for other positions within the federal government. Shortly thereafter, he accepted a position with the Army Corps of Engineers in Charleston that had a slightly higher salary than the position to which he was being reassigned by Space and Naval Warfare Command. Debtor asserts this change in his job status resulted in the Martellinis’ gross household income decreasing by $42,376.
Debtor indicates his estimated gross monthly income is $7,727 on his Schedule I. Thus, Debtor’s annual estimated gross income is $92,724. His non-filing spouse’s estimated gross income, as listed on Schedule I, is $7,067. Consequently, Mr. and Mrs. Martellini’s combined annual gross income is $177,528, which is significantly higher than the $52,428 median family income for their state of residence, as indicated on Debtor’s Form 22C. Debt- or’s average monthly income after payroll
On Schedule A, Debtor indicates he and his wife purchased their home, which is located in Irmo, South Carolina near Lake Murray, in 2006 for $459,900. He lists the current value of the property at $413,000. On Schedule D, he states there are two mortgages on the property totaling $414,348.71. Debtor indicates the monthly payment on the mortgages is $3,153. Other secured claims listed on Schedule D include a $33,223.87 claim secured by a 2011 Chevrolet Camaro valued at $30,000; a $28,624.84 claim secured by a 2004 Four Winds 24 foot deck boat (“boat”) valued at $27,500; a $8,455.87 claim secured by a 2010 Seadoo jet ski (“jet ski”) valued at $7,500; and a $4,875.50 claim on a 2005 Chevrolet Silverado valued at $4,825. At the hearing, Debtor testified he and his wife purchased the boat in March 2007 for approximately $39,000 and the jet ski in 2009 for approximately $12,000. The Ca-maro was purchased at or near the time Debtor learned of the change in his job situation. According to Schedule E, the Internal Revenue Service has a $14,800 unsecured priority claim for Debtor’s 2009 income taxes. On his amended Schedule F, Debtor lists $71,850.79 in unsecured nonpriority claims, consisting mostly of credit card debt. At the hearing, Debtor indicated that most of the purchases made with these credit cards were for the benefit of his family, not just himself.
Debtor lists monthly expenditures totaling $9,563 on Schedule J, resulting in a monthly net income for him and his spouse of $1,413. The expenditures listed include $2,920 in other expenditures. In part, these other monthly expenditures consist of a $375 boat payment, a $241 jet ski payment, a $200 storage fee for the boat,
Debtor proposes a Chapter 13 plan under which his plan payments will be $1410 per month for a period of 60 months. Under the plan, $631 of the $1410 plan payment will go to the lien holder on the Chevrolet Camaro. Debtor proposes to surrender his interest in the 2005 Chevrolet Silverado to the lien holder on that vehicle. Debtor also proposes to surrender his interest in the boat and jet ski to the lien holders on those items. However, these two watercraft will not be surrendered as his non-filing spouse will remain current on the payments outside of the plan. The Trustee estimates that under the plan, Debtor will pay 26% of his unsecured debt.
The Chapter 13 Trustee objects to the plan, asserting that Debtor is not applying all of his projected disposable income to pay unsecured creditors in violation of 11 U.S.C. § 1325(b)(1) and that Debtor has not filed his plan or petition in good faith. More specifically, the bases of the Trustee’s objection are: (1) Debtor, through the artifice of surrendering his interest in luxury items and having his non-filing spouse pay for them outside the plan, is not applying all of his disposable income to the plan payment; and (2) Debtor and his
Under 11 U.S.C. § 1325(b)(1), a court may not approve a Chapter 13 plan to which the Trustee has objected, unless “the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or ... the plan provides that all of the debt- or’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.” Section 1325(b)(2) describes how projected disposable income is calculated by defining income and allowed expenses. In re Barnes,
The Trustee also asserts Debtor has not filed his plan or petition in good faith. Title 11, United States Code, Section 1325(a) provides that a plan must be “proposed in good faith and not by any means forbidden by law” and that “the action of the debtor in filing the petition [must be] in good faith.” See 11 U.S.C. § 1325(a)(3), (7). “While no precise definition can be sculpted to fit the term ‘good faith’ for every Chapter 13 case,” the Fourth Circuit Court of Appeals has stated that “[b]roadly speaking, the basic inquiry [is] whether or not under the circumstances of the case there has been an abuse of the provisions, purpose, or spirit of [the Chapter] in the proposal or plan.” Deans v. O’Donnell,
As the Trustee notes in her objection, if this Chapter 13 petition was a joint filing by Debtor and his spouse, the Mar-tellinis most likely would not be able to keep the watercraft at the expense of their unsecured creditors. See In re Loper,
The present case is different because Debtor plans to surrender only his interest in the watercraft, but his family will keep the watercraft as a result of the non-filing spouse paying for them outside the plan. However, this is not the first time a court has faced such a set of circumstances. In In re McNichols, the Bankruptcy Court for the Northern District of Illinois, when confronted with a situation similar to that presented here, reasoned that “[t]he family is a functioning unit, of which the Debtor is an integral and important member, and the totality of the family’s income and expenses is appropriately considered in calculating both the disposable income of the Debtor for purposes of § 1325(b)(2) as well as the good faith requirement of § 1325(a)(3).” In re McNichols,
While a nondebtor spouse can understandably be expected to pay for certain family expenses in amounts greater than the Debtor, there is no compelling logic, as the Debtor argues, to have some reasonably necessary expenses paid 50/50 while others are borne by the spouse at a much higher percentage, especially the nonessential luxury items, such as vacation home, timeshare, housekeeper, hairdresser and manicure expenses. True enough, some of those items are purportedly to be paid for by the spousefrom his income, but the Debtor has the direct or indirect benefit and enjoyment of same. It is not appropriate for the Debtor to “cherry pick” the family expense budget and have luxury items paid for through allocation to the non-debtor spouse so that the net effect is to maintain a luxurious lifestyle, but only pay a small dividend to unsecured creditors ....
Id. at 170. Moreover, while the McNi-chols court stated it would favor an approach where the debtor and non-filing spouse “proportionally bear reasonable and necessary family expenses to maintain the family in the same relative ratio as their respective net incomes,” it also indicated it “would disallow all unnecessary luxury items from the family budget in determining the Debtor’s disposable income.” Id. at 172. In sum, the court found it “simply inappropriate and unfair to the unsecured creditors to allow luxury items to be paid for through the expedient ploy of budgetary allocation to pay for same from the spouse’s net income when, in fact, the Debtor directly or indirectly benefits therefrom.” Id.; see also In re McNichols,
In In re Nahat, the United States Bankruptcy Court for the Northern District of Texas overruled the trustee’s objections to a Chapter 13 plan where the non-filing spouse dedicated the balance of her income to the plan after paying debts she personally incurred. In re Nahat,
Debtor also asserts that courts favor distributing household expenses pro rata between a Chapter 13 debtor and a non-filing spouse in order to ensure that “the bankruptcy estate has not assumed responsibility for a disproportionate share of the reasonable household expenses.” In re Herrmann, C/A No. 10-06523-JW,
It is not the role of this Court to instruct a non-filing spouse how to spend her income. Rather, it is this Court’s role to evaluate whether the plan before it has been proposed in good faith, and Debtor
For the reasons set forth herein, it is hereby ORDERED that the Trustee’s objection to confirmation is sustained and confirmation of Debtor’s July 25, 2012 plan is denied. Debtors are given ten (10) days from the date of this Order within which to propose and file an amended plan. If no amended plan is filed within ten (10) days, this case may be dismissed without further notice or hearing.
AND IT IS SO ORDERED.
Notes
. Debtor testified at the hearing that it is necessary to store the boat somewhere else because it is too large to fit in Debtor’s driveway.
. In the Chapter 7 context, courts have confronted a similar issue in connection with arguments that the granting of relief to a debtor would amount to an abuse of the bankruptcy system. See In re Travis,
. Additionally, the Court questions whether Debtor's renting a room in Charleston for $600 actually saves him money. He states he began renting the room after discovering his fuel expenses if he commuted from Irmo to Charleston every day would be approximately $1,000 per month. At the hearing, he testified this number was based on spending about $50 for fuel per round trip. At the hearing, he also testified that he still commutes to Charleston at least two or three times a week for various reasons. Assuming it is two times per week, his fuel costs would be $100 a week. Multiply $100 by four weeks in a month and add the $600 for rent, and it equals $1,000.
. At the hearing, Debtor indicated the reason he has not sold the boat or made more of an effort to do so is that he cannot sell it for more than what he and his wife owe on it. As for the jet ski, Debtor indicated they were close to the breakeven point where they might be able to sell it for at least what is owed on it. Even assuming the boat cannot be feasibly