Opinion
Case No. 02-68911-DOT.
February 3, 2004
MEMORANDUM OPINION
Hearing was held December 15, 2003, on objection to confirmation of debtor's modified chapter 13 plan filed November 10, 2003, and on motion to dismiss case filed by debtor's former spouse, Bonnie Buchanan. The basis for the objection and motion was that debtor's plan and case have not been filed in good faith. At the conclusion of hearing, the court ruled from the bench that confirmation would be denied and that debtor would have twenty days under the Local Rules to file a second modified plan. The court advised Mr. Buchanan that based on his testimony at hearing it did not appear that he filed the case in good faith and that it was unlikely that he can succeed in the case without the assistance of counsel. However, the court decided not to dismiss the case before debtor had an opportunity to file a modified plan and stated that if a modified plan was timely filed, the court would review the plan before deciding whether to dismiss the case. An order denying confirmation of the modified plan of November 10 was entered December 16, 2003.
Debtor filed a second modified plan on January 5, 2004, and Bonnie Buchanan filed an objection to confirmation.
After reviewing debtor's new plan the court finds that it is not proposed in good faith and is therefore not confirmable. Because debtor has also failed in his burden to prove that the case was filed in good faith, the case must be dismissed. The basis for this finding was stated in the court's summary at the conclusion of hearing on December 15, 2003, and this opinion supplements the court's bench ruling.
Facts.
Debtor filed this chapter 13 case on October 17, 2002. At the time of filing, debtor was represented by counsel, but at present he is pro se. Debtor filed a modified chapter plan on November 10, 2003. Bonnie Buchanan filed an objection to confirmation of the plan on November 21, 2003.
Debtor was formerly married to Bonnie Buchanan. They were divorced prior to debtor's filing bankruptcy. On August 6, 2002, the Circuit Court of Mecklenberg County, Virginia, entered in favor of Bonnie Buchanan an equitable distribution award of $105,000.00 and an attorney's fee award of $27,000.00. An additional attorney fee award was entered on November 1, 2002, nunc pro tunc to October 11, 2002.
Objection To Confirmation.
In her objection to confirmation Bonnie Buchanan asserted that the plan is filed in bad faith, that debtor has sufficient assets to pay 100% of unsecured claims, and that the plan fails to pay all priority claims. The objection includes the following supporting allegations:
1) Debtor filed the chapter 13 case on the day before he was scheduled to report for incarceration at Mecklenberg County, Virginia, jail for failing to pay the equitable distribution and attorney fee awards rendered in Mecklenberg Circuit Court.
2) In January 2001 debtor sold business equipment to his father for $30,500.00. The Mecklenberg Circuit Court had determined the equipment had a value of $43,500.00.
3) During 2001 and 2002 debtor either spent frivolously or secreted away the following sums of cash, all of which constituted marital property:
a) $50,000.00 borrowed by debtor on the parties' marital home.
b) $11,000.00 held in a bank account that had been ordered preserved by the circuit court.
c) $36,300.00 borrowed by debtor in violation of a circuit court order.
4) Debtor claims to have sold a boat in July 2002 for $15,500.00 that had been valued by stipulation in the parties' divorce proceeding at $56,000.00. Sale of the boat was in violation of a court order and the boat was marital property.
5) Debtor claims to have sold a motorcycle in August 2002 for $4,000.00 that had been purchased in 2001 for $12,500.00. The transfer violated a circuit court order.
6) In March 2001 debtor paid his mother $12,500.00 and his father $5,750.00. These transfers were held by the circuit court to be fraudulent.
7) Debtor failed to list all assets in his schedules and understated his income. He claims to have sold his business to his father but continues to operate the business in the same manner as before.
8) Debtor has been dishonest with his former wife and the courts and has hidden and wasted assets.
9) Part of Bonnie Buchanan's claim represents nondischargeable marital support but the modified plan does not provide for its full payment.
Discussion and Conclusions of Law.
Bankruptcy Code § 1307(c) authorizes the court to dismiss a chapter 13 case for cause on motion of a party in interest. See 11 U.S.C. § 1307(c). Section 1325(a) provides that the court shall confirm a debtor's plan if designated criteria are met, including the requirement that the plan has been "proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1325(a)(3). The denial of confirmation on the basis that a debtor's plan is not proposed in good faith may lead the court to conclude that the case was not filed in good faith, which constitutes cause to dismiss the case under § 1307(c).
The burden of proof for confirmation of a plan, including the requirement of good faith, rests with the debtor. See In re Harrison, 203 B.R. 253, 255 (Bankr. E.D. Va. 1996). "Good faith" is not defined in the Bankruptcy Code, and courts must rely on the facts and circumstances of individual cases to determine whether the requirement has been met. The factors to consider in this determination include:
(1) percentage of 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 debtor.
See Deans v. O'Donnell (In re Deans), 692 F.2d 968, 972 (4th Cir. 1982).
In this case debtor has failed to carry his burden of proving that either the modified plan or the more recent second modified plan was filed in good faith. The court notes, among other defects, 1) neither plan provides a 100% payout to creditors, yet debtor has not provided evidence to rebut Ms. Buchanan's allegation that he has the ability to pay 100% of his obligations; 2) the state of debtor's finances is difficult to determine because he has failed to account for most of the funds that Ms. Buchanan alleges he has secreted away; 3) debtor likewise has not accounted for important details of financial transactions he engaged in during the year preceding the filing of the case with family, friends, and creditors alike; 4) debtor's second modified plan provides for payments that will be gradually stepped up over time, yet his ability to make these payments has not been supported by evidence; thus debtor's plan fails the feasibility test that requires him to prove he can make the payments proposed. See 11 U.S.C. § 1325(a)(6).
Because the court must conclude that debtor's plans have not been filed in good faith, they cannot be confirmed. Likewise debtor has failed to prove the case was filed in good faith, and there is no basis to allow debtor to propose another plan. The court will therefore dismiss the case for cause pursuant to § 1307(c).