MEMORANDUM OF DECISION ON MOTION FOR RELIEF FROM STAY OR, IN THE ALTERNATIVE, TO DISMISS THE CASE WITH PREJUDICE AND DETERMINE THE DEBT NONDISCHARGEABLE
The basis for this motion is highly unusual: the Chapter 13 Debtor, who was the former employer of the movant, Guy Rufo, withheld more than $16,000 from Mr. Rufo’s wages. In blatant disregard of a Probate Court order, the Debtor, on 188 occasions, failed to remit almost all of those funds to the Department of Revenue.
Background and Facts
The Debtor, David Virden, filed this Chapter 13 bankruptcy case on November 29, 2001. His Schedules disclose that the Debtor owns no real property, indeed no property of any kind beyond the small amounts of personal property that he exempts pursuant to 11 U.S.C. § 522(d). The Debtor lists only two creditors, both holding unsecured nonpriority claims: $340 owed to B & C Realty, and $54,039.64 owed to the present Movant, Guy Rufo, representing a judgment of $25,000 plus attorneys fees of $29,039.64. On Schedule I, the Debtor describes himself as a construction manager earning $7,132.67 per month, also lists his spouse, a high school teacher, earning $3,982.51, and lists his eighteen-year-old daughter as his only dependent. The combined monthly income after taxes is $7,724.90. Schedule J reports combined monthly expenses of $7,444.00. Selected monthly expenses included in this total are listed as: mortgage or rent $747, food $830, child’s college expenses $2,000, “attached itemized expenses” (actually not attached, nor itemized) $653. The Debtor discloses excess monthly income of $280.90, and proposes to pay $245 per month into his Chapter 13 plan. On the Statement of Financial Affairs the Debtor discloses his income from employment for the last three years as $65,000, $68,000 and $60,000. He also asserts business income of $4,000 per annum, that he labels “management fee for 250 Beacham Street Limited Partnership”. The Debtor lists an ownership stake in this limited partnership on Schedule B, valued at $5,000 and claimed as fully exempt, and also states that he is the general partner of this business. Elsewhere in the Statement of Financial Affairs, the Debtor says that he holds or controls a commercial warehouse valued at $2.5million on behalf of 250 Beacham Street Limited Partnership. The Debtor’s Chapter 13 Plan proposes payments of $245 for 36 months, the minimum permissible period under 11 U.S.C. § 1325. Thus, plan payments will total $8,819.97. The Court observes that the Debtor has designated the entire amount of his own attorney’s fee for this case, $2,500, to be paid through the Plan, thus diluting the amount available for his creditors. The upshot is that unsecured creditors, in other words Mr. Rufo, will receive only 10 cents on the dollar.
The Debtor’s filing of this Chapter 13 bankruptcy case on November 29, 2001, was precipitated by a state court judgment entered against him in favor of Mr. Rufo. The circumstances giving rise to that judgment are most pertinent to this dispute and are eloquently described by Probate & Family Court Judge McGovern in the decision she issued on June 12, 2001. The precis that follows is condensed from Judge McGovern’s decision.
Guy Rufo is a divorced father of three children. Pursuant to a divorce judgment
Beginning in July 1992 and continuing to January 1997, the Debtor as Rufo’s employer deducted approximately $70 per week from Rufo’s wages in accordance with the divorce judgment and income assignment. 3 Rufo first became aware that his child support obligation was in arrears in 1993 when his income tax refund was intercepted by the MDOR and IRS. Between 1993 and 2000, over $10,000 of Rufo’s federal and state income tax refunds and other property were seized or intercepted by the MDOR in satisfaction of accrued child support arrears. This ar-rearage was entirely the result of the Debtor David Virden’s failure to comply with the income assignment order. Rufo testified, apparently very credibly, that when confronted the Debtor assured him that he would remedy the situation. However, the Debtor never did so. The Debt- or was unable to explain to the State Court where Rufo’s withheld wages ended up, or why he failed to comply with the income assignment order. The Court found the Debtor’s wilful failure — -or utter refusal— to properly forward Rufo’s child support for roughly five years, egregious. Judge McGovern found that on one hundred and eighty-eight (188) occasions from July 1992 to January 1997, the Debtor disobeyed the clear and unequivocal order of the Probate Court and the income assignment. In total during this period, the Debtor was responsible for withholding $16,450 from Rufo’s wages, but forwarding only $3,272.50 to the MDOR. 4
As a direct result of the Debtor’s malfeasance, Rufo was classified as a “deadbeat dad” and suffered many negative consequences: his income tax refunds and a bank account containing some $1,300 were seized by the MDOR or IRS; beginning in 1996, Rufo was denied a renewal of his driving license and was unable to drive for several years; he was unable to obtain credit cards and was denied loans; he was denied employment after background checks revealed his child support arrear-age. Furthermore, in order to sort out
Judge McGovern also found the manner in which the Debtor had structured and managed his business endeavors and real estate holdings to be “deceptive and misleading”. She found that the Debtor had “manipulated his personal property, real property, earnings, accountings, and investments so as to insulate himself from the contempt judgment liability, and so as to create the appearance of an inability to comply with the contempt judgment”. Further, Judge McGovern says:
“The evidence produced at trial indicates at first blush that it might be difficult for Virden to comply with the Judgment of Contempt. The Court finds, however, that Virden has the ability to do so and is more than capable of complying with the Judgment of Contempt.
... In light of the creative manner by which Virden has structure(d) his finances and assets, Virden should have no difficulty in finding a creative way to comply with the Court’s Judgment.” 5
Procedural History, Findings of Fact, and Conclusions of Law on Defendant/Plaintiff-in Cross-Claim’s Complaint of Contempt, at 10.
Judge McGovern went on to find the Debtor’s “nefarious conduct” wholly responsible for Rufo’s attorney’s fees in the amount of $29,039.64. Furthermore, the Judge found the Debtor liable for statutory penalties pursuant to M.G.L. c. 199A, § 12(f) in the amount of $25,000. 6
Following the entry of Judge McGovern’s decision, the Debtor made no attempts to pay Rufo’s claim but instead filed this Chapter 13 bankruptcy case in an effort to see the debt discharged.
Discussion
The movant first argues that his debt is one for child support and as such the automatic stay does not apply by operation of 11 U.S.C. § 362(b)(2)(B)
7
. This argument must fail. It is well settled that the scope of the reference to alimony, maintenance or support contained in Section 362(b)(2)(B) is consistent with that contained in Section 523(a)(5). That is to say, the term “support” is restricted to amounts payable by the debtor
to a spouse, former spouse, or child of the debt- or
in connection with a separation agreement, divorce decree or other order of a court of record. That is not the nature of the debt here, and consequently, the movant’s claim is not excepted from the application of Section 362(a). Neither can the debt owed to Mr. Rufo be nondischargeable pursuant to 11 U.S.C. § 523(a)(5) for the same reason. Alternatively, Mr. Rufo seeks a declaration that his claim is non-
Finally, the movant objects to the Debtor’s Chapter 13 plan on the grounds that he is the only creditor and asks that the case be dismissed. 8 Clearly, Mr. Rufo feels that the Debtor filed this bankruptcy case with the sole objective of avoiding payment of his judgment. This objection, focusing on the single creditor nature of the case, necessarily raises the issue of the Debtor’s good faith in filing his Chapter 13 petition and plan.
The Bankruptcy Code itself does not define the term “good faith”, and the search for its meaning has given rise to substantial litigation, often in the same setting as here: the use of Chapter 13’s “superdischarge” to discharge a debt that would be nondisehargeable under Chapter 7.
9
There are two instances in a Chapter 13 case when good faith becomes an issue. First, Section 1307(c) of the Code provides that the court may dismiss a case or convert it for cause, and numerous courts have held that filing a Chapter 13 petition in bad faith is cause for conversion or dismissal.
E.g., In re Mattson,
Courts differ in their approach to a determination of the debtor’s good faith, but the majority favor a totality of the circumstances analysis. Early versions of this analysis included a laundry list of nonexclusive factors encompassing the debt- or’s ability to pay, whether the plan proposed a fair treatment of creditors, and the debtor’s integrity in the bankruptcy process.
United States v. Estus (In re Estus),
In this circuit, the Bankruptcy Appellate Panel has articulated a purportedly simpler approach in
In re Keach,
Conversely, Keach specifically does not stand for the proposition that the circumstances surrounding a debtor’s Chapter 13 filing must be irrelevant to a good faith determination:
“We do not hold today that an examination of the surrounding circumstances is inappropriate in determining whether a debtor has met the good faith requirement ... Even the simplistic word ‘honesty’ can be elastic in its perception and application, subsuming as it does the elusive element of ‘intent’ which can be judged only by examining surrounding circumstances ...”
Keach at 871. 11
I agree with the
Keach
court that intent, or motive, is a relevant factor to be examined, as do many other courts.
Keach
at 871;
e.g. In re Lilley,
I conclude that the Debtor’s filing was motivated by a desire to avoid payment to Mr. Rufo, rather than by any inability to meet his liabilities, such as they are. This, harnessed with the findings of Judge McGovern as to the Debtor’s deceptive financial arrangements, leads to the inescapable conclusion that the Debtor is not making an honest effort to repay his debt to the best of his ability, and this constitutes bad
ORDER ON MOTION FOR RELIEF FROM STAY OR, IN THE ALTERNATIVE, TO DISMISS THE CASE WITH PREJUDICE AND DETERMINE THE DEBT NONDIS-CHARGEABLE
For the reasons stated in the memorandum of decision issued today, the Motion to Dismiss is allowed, and the case is hereby dismissed.
The request for a determination that the debt owed to the movant, Guy Rufo, is nondischargeable is denied. The motion for relief from the automatic stay is moot.
Notes
. Strictly speaking, the Movant should be seeking a declaration that the automatic stay does not apply, rather than relief from stay.
.The MDOR subsequently sought to dismiss the complaint against Rufo stating that it could not show that Rufo had disobeyed the probate court divorce judgment. The state court denied the MDOR’s request noting that Rufo was entitled to more than mere dismissal of the charges against him. He was entitled to a finding that he was, in fact, not guilty of civil contempt against the probate court.
. From 1992 to sometime in 1994, Rufo worked for Canon Contracting. He then switched to the Debtor’s other business, AA Environmental, and worked there until January 1997.
. In May 1997, the Debtor entered into a settlement with the MDOR whereby he would pay $16,537.50 in satisfaction of the child support arrearage that was owed.
. Judge McGovern observed that the bulk of the Debtor's payments to the MDOR pursuant to the settlement was made with checks drawn on the Debtor's wife’s bank account.
. Judge McGovern noted that a strict application of the statute would result in statutory penalties totaling $94,000 (being $500 for each of the 188 occasions that the Debtor failed to remit the child support). However, the Judge reasoned that imposing such a penalty would be as unconscionable as the Debt- or’s habitual violation of the court's income assignment order. The reduced amount of $25,000 was held to be "more than fair and reasonable in light of Virden's deplorable behavior”. Id. at 11.
.Section 362(b) states that the filing of a bankruptcy petition does not operate as a stay of:
(B) ... the collection of alimony, maintenance, or support from property that is not property of the estate.
11 U.S.C. § 362(b)(2)(B).
. In fact, Rufo also objects that he holds a nondisehargeable claim, but as already discussed, he does not.
. Chapter 13 offers a broader discharge to debtors than does Chapter 7, and most of the debts classified as nondisehargeable in Chapter 7 pursuant to 11 U.S.C. § 523(a), are discharged pursuant to 11 U.S.C. § 1328(a). Section 1328(a) reads, in pertinent part:
... the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—
(1) provided for under section 1322(b)(5) of this title;
(2) of the kind specified in paragraph (5), (8), or (9) of section 523(a) of this title; f or
' (3) for restitution, for a criminal fine, included in a sentence on the debtor's conviction of a crime.
11 U.S.C. § 1328(a).
.The full list of factors in
Estus
is: (1) the amount of the proposed payments and the amount of the debtor’s surplus; (2) the debt- or’s employment history, ability to earn and likelihood of future increases in income; (3) the probable or expected duration of the plan; (4) the accuracy of the plan’s statements of debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court; (5) the
. Keach is therefore somewhat self-contradictory. On the one hand, apparently eschewing the totality of the circumstances approach, Keach urges a simpler test focusing only on the debtor’s simple honesty of purpose. But on the other hand, the decision explicitly recognizes that intent is an element of honesty, and further, that intent must be gauged from the surrounding circumstances. Perhaps the difference in approach comes down to the Keach court's belief that other courts have placed too much emphasis on the debtor's pre-petition conduct.
. Tangentially, the Court notes that although the BAP decision may be persuasive authority, it is not binding precedent on this Court. This important aspect of federal jurisdiction has not yet been addressed by either the United States Supreme Court nor any Circuit Court of Appeals, but the topic is thoroughly researched and discussed in
In re Carrozzella & Richardson,
. The other listed debt of $340 is a mere token.