Opinion
Case No. 00-36767, Chapter 13
September 28, 2001
MEMORANDUM OPINION AND ORDER
Hearing was held June 13, 2001, on Charles and Linda Hanks' objection to debtors' chapter 13 plan. At conclusion of the hearing, the matter was taken under advisement. For the reasons stated herein, the court will deny the Hanks' objection.
Procedural History and Positions of the Parties.
Debtors filed for bankruptcy under chapter 13 on December 29, 2000. On January 16, 2001, debtors filed a chapter 13 plan. Then on January 31, 2001, debtors filed an amended plan.
On February 9, 2001, the Hanks filed an objection to debtors' amended chapter 13 plan. No response was filed.
Hearing was held March 21, 2001, and an evidentiary hearing was set. Hearing was held April 4, 2001, and it was continued to June 13, 2001.
The Hanks assert that debtors' plan violates 11 U.S.C. § 1325 and cannot be confirmed because debtors' plan fails to provide for all disposable income to be paid into the plan. The Hanks argue that debtors' proposal to keep their two vehicles and make car payments outside of the plan is unreasonable. The car payments and insurance on the vehicles constitute 35% of debtors' total expenses while unsecured creditors are receiving a mere 26% distribution. Moreover, the Hanks argue that debtors' plan was not proposed in good faith because the plan "allows them to drive around town in a luxury automobile that they want, but do not need, at the expense of their unsecured creditors."
Debtors contend that all disposable income is being paid into the plan, and they need both vehicles.
Findings of Fact.
According to their schedules, debtors have $36,883.00 in assets and $57,525.16 in liabilities. Schedule I indicates that debtors are married and have four children. Mr. Wallace is a painter and earns approximately $3,527.00 per month. Mrs. Wallace does not work and does not contribute to their monthly income.
Two of the children reside with debtors and two reside with Mr. Wallace's ex-wife.
Schedule J shows that debtors have approximately $3,143.00 in expenses per month. This leaves $384.00 per month in disposable income.
The largest expense, $944.00 per month, is for car payments to be paid outside of the plan.
Debtors amended plan proposes to pay $383.26 per month for fifty-four months for a total of $20,696.04 to be paid into the plan. This would result in a 26% distribution to unsecured creditors if all unsecured creditors file a proof of claim.
Debtors own two vehicles. One is a 1995 Dodge van that Mr. Wallace uses for business purposes solely. The other is a 1995 BMW sedan that Mrs. Wallace uses for family and personal use. Debtors propose to make the regular monthly payments on these vehicles outside of the plan.
The Dodge van payment is $401.50, and the BMW payment is $542.51 per month.
Conclusions of Law.
Section 1325(b)(1)(B) requires all of debtors' projected disposable income to be paid into the plan. See 11 U.S.C. § 1325(b)(1)(B) (2001). The court has reviewed debtors schedules of assets, liabilities, income and expenses. Debtors expenses are reasonable and the court is satisfied that debtors are paying all of their disposable income into the plan.
Section 1325(a)(3) requires debtors' plan be proposed in good faith. See 11 U.S.C. § 1325(a)(3). Debtors have the burden of proving good faith. See In re Harrison, 203 B.R. 253, 255 (Bankr.E.D.Va. 1996) (citing Tillman v. Lombard, 156 B.R. 156, 158 (E.D.Va. 1993)).
Since good faith is not defined in the Bankruptcy Code, courts have some discretion in making a determination of whether a plan is proposed in good faith. See Deans v. O'Donnell, 692 F.2d 968, 972 (4th Cir. 1982). Courts should consider the totality of the circumstances when making this determination. See id.
Factors that may be considered in determining whether the good faith requirement has been met include:
(1) the percentage of the proposed repayment; (2) debtor's financial situation; (3) the period of time over which payment will be made; (4) debtor's employment history and prospects; (5) the nature and amount of unsecured claims; (6) debtor's past bankruptcy filings; (7) debtor's honesty in representing facts; and (8) any unusual or exceptional problems facing the particular debtor.
In re Harrison, 203 B.R. at 255 (citing Deans, 692 F.2d at 972).
Debtors plan proposes a 26% distribution to unsecured creditors. The Hanks objected because the percentage paid to cover the cost of the vehicles would exceed the proposed distribution they would receive on their unsecured claim. However, based on the claims filed, debtors plan will yield a much higher percentage of repayment to unsecured creditors. Although the chapter 13 trustee has not certified the actual percentage of payout to unsecured creditors, the court estimates that the percentage will exceed 75%.
The nature and amount of unsecured claims do not raise any red flags in this case. In fact, since the Hanks are the largest unsecured creditor in this case they will receive the largest portion of money to be distributed to unsecured creditors. The other unsecured debt consists of credit card debt, legal fees and veterinary bills. No other creditor objected to the plan. Mr. Wallace's income has fluctuated over the past few years due to injury and starting a new business. He is currently earning a steady income as a painter and supplementing that income with his power washing business. At the time of hearing, debtors were current with their payments to the chapter 13 trustee.
The Hanks filed two unsecured claims; one is for $5,605.08, and the other is for $2,621.33.
Debtors' plan is for fifty-four months. Debtors could extend the life of the plan if circumstances changed or an unexpected large claim was filed.
Finally, debtors were in a chapter 7 case previously, and they received a discharge in 1998. They have honestly represented the facts in their schedules and to the court. Moreover, the court is not aware of any exceptional problems facing debtor.
Considering the totality of the circumstances and the fact that debtors' plan will pay out at a much higher percentage than originally anticipated, debtors have met their burden and demonstrated to the court that their plan was proposed in good faith. Accordingly,
IT IS ORDERED that the Hanks' objection to debtors' modified plan dated January 31, 2001, is OVERRULED.
The trustee is directed to submit an order of confirmation for the modified plan dated January 31, 2001.