In re Page
MEMORANDUM OPINION AND ORDER DISMISSING DEBTORS’ CASE
THIS MATTER сame before the Court on August 20, 2014, upon Creditor Steven Diaz’s Objection to Confirmation of Second Proposed Chapter 13 Plan. Appearing before the Court were Steven Diaz and his attorney, John Meadows; Russell and Christina Page (collectively, the “Debtors”) and their attorney, Wes Sehollander; and Kathryn Bringle, on behalf of the Office of the Chapter 13 Trustee.' Based upon the pleadings and the arguments of counsel, the Court makes the following findings of fact and conclusions of law pursuant to Rules 9014 and 7052 of the Federal Rules of Bankruptcy Procedure.
JURISDICTION
This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to
FINDINGS OF FACT
Steven Diaz is the ex-husband of Christina Page. They have five biological children, ranging from ages 8 to 21. ■ Mrs. Page divorced Mr. Diaz in 2009 and married Russell Page the same year. Mr. Diaz and Mrs. Page executed a Separation and Property Settlement Agreement on October 16, 2008, in Forsyth County, North Carolinа. The agreement became enforceable through an order of the For-syth County District Court entered on January 26, 2009 (“Separation Order”). The separation was not amicable and remained strained after the divorce. On June 1, 2009, Mr. Diaz filed a Motion in Forsyth County state court (“First Contempt Motion”) requesting that the state court find Mrs. Page in contempt of the Sеparation Order.
After a hearing on Mr. Diaz’s First Contempt Motion and by Order dated May 11, 2010, the Honorable George Bedsworth of the Forsyth County District Court found Mrs. Page in willful violation of the Separation Order and ordered her to pay a reasonable sum toward Mr. Diaz’s legal fees (“First Contempt Order”). Mrs. Page appealed the First Contempt Order to the North Carolinа Court of Appeals on May 26, 2010. The Court of Appeals dismissed Mrs. Page’s appeal of the First Contempt Order, concluding in an opinion issued June 7, 2011, that the appeal was “clearly interlocutory.” Diaz v. Diaz,
On September 2, 2011, Judge Bedsworth ordered Mrs. Page to pay Mr. Diaz $17,000 before December 1, 2011, for attorney’s
Two days after the entry of the Second Contempt Order, Mr. and Mrs. Page filed a petition for relief under Chapter 13 of the Bankruptcy Code. The Debtors listеd $177,400 in secured debt, comprised of a first and a second mortgage on the Debtors’ residence that is titled in the name of the female debtor only and has in excess of $20,000.00 in equity; $13,220 in unsecured priority debt that includes four tax claims and $12,000 in child support arrears owed by Mr. Page to his ex-wife; and $140,115 in general unsecured debt. The Debtors claimed eight dependents, including аll five of Mrs. Page’s biological children with Mr. Diaz (step-children to Mr. Page), two biological children of Mr. and Mrs. Page, and one biological child of Mr. Page (step-child to Mrs. Page). At the time of filing, the Debtors’ sole income was from food stamps, and they had a net monthly income of negative $5,028 per month, partly on account of a monthly obligation of $1,319 for dеpendents living outside the home. Their only other sources of income in 2013 had been from Mr. Page’s unemployment income and Mrs. Page’s child support income. They both had employment income in 2011 and 2012. The Debtors listed $13,695 owed to Mr. Diaz pursuant to the Second Fee Order and classified it as a general unsecured claim. The Debtors did not list any debt from the First Fee Order.
The Debtors’ first Proposed Plan was filed November 27, 2013. The plan provided for a plan payment of $150 per month over 36 months, with an estimated dividend to general unsecured creditors of 0%. Mr. Diaz filed two proofs of claim on December 4, 2013: one for a $17,000 unsecured priority claim on account of the First Fee Order and Second Contempt Order, and оne for a $13,691.16 unsecured priority claim on account of the Second Fee Order. Mr. Diaz listed both claims as being entitled to priority as Domestic Support Obligations, pursuant to
Mr. Diaz filed an Objection to Confirmation on'December 5, 2013, on the grounds that it did not account for his two priority claims. In a brief submitted February 17, 2014, Mr. Diaz additionally argued that the plan was not proposed in good faith. At the hearing on that matter on January 15, 2014, Mrs. Page testified, without objection, that the reason the Debtors filed for relief under Chapter 13 as- opposed to Chapter 7 was because she was advised by counsel that only Chapter 13 would enable the Debtors to discharge debts for attorney’s fees incurred by herself and Mr. Page. Compare
This Cоurt denied confirmation on February 28, 2014, finding that the Debtors’ proposed monthly payments of $150 were insufficient for the required “full payment, in deferred cash payments, of all claims entitled to priority,” namely Mr. Page’s $12,000 child support arrearage.
The Debtors filed a second Proposed Plan on May 22, 2014, which provided for plan payments over 60 months of $150 per month for November 2013 through June 2015 and $375 per month thereafter. The estimated dividend to general unsecured creditors was 3%. The Debtors again proposed to directly pay ongoing child support payments to Mr. Page’s ex-wife but provided for the child support arrearage to be paid through the plan. The Debtors amended their reported income to reflect that Mr. Page had found employment and that their net monthly income was approximately negative $30 per month. The Debtors noted their food stamp benefit would drop or terminate at some future date but that thеir families were willing to assist with plan payments.
Mr. Diaz filed a second Objection to Confirmation on May 27, 2014, on the grounds that the plan still did not account for his two priority claims. On August 20, 2014, Mr. Diaz, through counsel, orally supplemented his objection by arguing that the plan was not filed in good faith under
ISSUE
Whether the Debtors filed their petition in good faith pursuant to
DISCUSSION
Every debtor who files for bаnkruptcy under Chapter 13 of the Bankruptcy Code is required by
Section 1307 governs conversions and dismissals of Chapter 13 petitions. This section provides thаt upon request of a party in interest, the court may dismiss a case for cause under Chapter 13 or convert it to Chapter 7, whichever is in the best interests of creditors and the estate. The section goes on to list eleven non-exclusive examples of cause, none of which include bad faith. There are a minority of cases finding that §' 1307(c) contains no good faith requirement. See In re Ford,
Besides'incorporating a good faith standard as a basis for dismissal in § 1307(c), the Supreme Court provided guidance in defining the concept of good faith. In footnote 11, the Court noted:
We have no occasion here to articulate with precision what conduct qualifies as “bad faith” sufficient to permit a bankruptcy judge to dismiss a Chapter 13 case or to deny conversion from Chapter 7. It suffices to emphasize that the debt- or’s conduct must, in fact, be atypical. Limiting dismissal or denial of conversion to extraordinary cases is particularly appropriate in light of the fact that laсk of good faith in proposing a Chapter 13 plan is an express statutory ground for denying plan confirmation. 11 U.S.C. § 1325(a)(3) .
Marrama,
The Fourth Circuit has recognized the lack of good faith as basis to dismiss a Chapter 13 case under § 1307(c). See, e.g., In re Kestell,
In Deans v. O’Donnell, the Fourth Circuit established factors that, while not exhaustive, should be considered in determining good faith. These factors include the percentage of repayment proposed to unsecured creditors, the debtor’s financial situation, the period of time payment will be made, the debtor’s employment history and future prospects, the nature and amount of unsecured debt, the debtor’s prior bankruptcy filings, the debtor’s honesty in representing the facts, and any unusual or exceptional problems facing a particular debtor. Deans,
An additional factоr for determining the good faith of the debtor is whether he or she was eligible to file for Chapter 13 under § 109(e). Section 109(e) states that “[o]nly an individual with regular income ... may be a debtor under chapter 13 of this title.” The term “individual with regular income” is defined in § 101(30) as an “individual whose income is sufficiently stable and regular to enable such individual to make payments under a plаn under chapter 13 of this title ...” This requirement is unique to Chapter 13 cases, as a lack of regular income would not preclude a debtor from filing for Chapter 7. To satisfy the eligibility requirement of § 109(e), the debtor must have regular income at the time of filing the case, or the debtor must give “reasonable assurances” of regular income. In re Smith,
The party who carries the burden of proving the good or bad faith of the debtor is dependеnt on which provision is claimed. Under § 1307(c), the party seeking to dismiss the debtor’s case has the burden of proving that the debtor’s bad faith warrants dismissal. See Love,
The Debtors’ motive for filing under Chapter 13 evidences bad faith. At a hearing on January 15, 2014, when Mrs. Page was asked why she filed for Chapter 13 instead of Chapter 7, she responded that in order “to include domestic attorney fees we needed to file Chapter 13.” By Mrs. Pagе’s own admission, she filed for Chapter 13 to circumvent the First Fee Order that required her to pay $17,000. By filing for Chapter 13, Mrs. Page in essence stayed the Contempt Order and avoided jail. While it is understandable that Mrs. Page wanted to avoid going to jail, her persistent and wrongful behavior over a period of years accumulated a large amount of attorney fеes that she made no effort pay. In contrast to a typical Chapter 13 case, the Debtors’ home was not in foreclosure, and their car was not repossessed. Instead, the Debtors filed for Chapter 13 to secure Mrs. Page from com-plying with a state court order.
The timing of Mrs. Page’s Chapter 13 petition further shows her intent to defeat state court litigation. On May 11, 2010, a state court found Mrs. Page in willful violation of the terms of the Separation Order by intentionally attempting to alienate the children from their father and ordered her to pay a reasonable sum toward Mr. Diaz’s legal fees. When Mr. Diaz and Mrs. Page could not agree on an amount, the court ordered Mrs. Page pay Mr. Diaz $17,000. She was given until Nоvember 30, 2011, to pay these fees. She failed to comply with the order and made no payment on this obligation. The Second Contempt Order found Mrs. Page in willful civil contempt and ordered her to be imprisoned for a minimum of 30 days or until she had purged herself of contempt by paying Mr. Diaz. The proximity in time between the Second Contempt Order and Mrs. Page’s filing, a mеre two days, is not coincidental but instead demonstrates an impermissible attempt to use the protections of the Bankruptcy Code to vitiate the litigation costs imposed on her by the state court.
In addition to her timing and her motive, Mrs. Page willfully and unnecessarily incurred unsecured debt at the expense of Mr. Diaz. On May 26, 2010, the female debtor appеaled the May 11 Order which changed physical custody of her three children. Despite repeated notices from counsel for Mr. Diaz that her appeal was interlocutory Mrs. Page did not withdraw her appeal. After the North Carolina Court of Appeals dismissed her appeal as “clearly interlocutory,” Judge Menefee entered an order requiring her to pay Mr. Diaz the sum of $13,691.16 for his appellate attorney fees. Diaz v. Diaz,
The Debtors.were not honest with the Court regarding the facts of their case. In
This Court also weighs the Debtors’ questionable eligibility to file a Chapter 13 case. At the time of filing, the Debtors’ income consisted entirely of food stamps and contributions from family and charitable organizations. They had a negative net income in excess of $5,000 per month. The Debtors’ income from food stamps was not sufficient to cover the Debtors’ expenses and plan payments when they filed this case. See Smith,
The only factors in the Debtors’ favor are that they are not repeat filers and they have been candid with the court by admitting they filed Chapter 13 tо wipe out the debt owed to Mr. Diaz. They also stated it was their understanding that such debt would not be discharged in a Chapter 7 proceeding. However, after weighing the Debtors’ candidness against their bad motives, obvious timing, manner of accumulating debt, their dishonesty with the Court, and their questionable ineligibility to file for Chapter 13, it is clear that the Debtors filed their petition in bаd faith.
Based on the totality of the circumstances, the court finds that cause exists to dismiss this Chapter 13 case and
IT IS ORDERED, ADJUDGED AND DECREED THAT THIS CASE IS DISMISSED. THE DISMISSAL ORDER WILL BE HELD FOR A PERIOD OF TEN DAYS IN THE EVENT THE
Notes
. It is important to note that the factors for determining a good faith filing under Chapter 13 are not the same as those under Chapter 7. Compare