White et al v. Waage

Filing 18

ORDER affirming the findings of the Bankruptcy Court. The Clerk of Court shall close this case. Signed by Judge Elizabeth A. Kovachevich on 9/29/2010. (JM)

UNITED S T A T E S D I S T R I C T C O U R T MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

D A V I D A.

WHITE,

et al.,

Appellants,
v.
JON M. WAAGE, Trustee

CASE NO.

8:09-CV-1555-T-17

Appellee.

ORDER

This

cause

is before

the Court on:

Dkt. Dkt. Dkt.

9 13 16

B r i e f of A p p e l l a n t B r i e f of A p p e l l e e R e p l y of A p p e l l a n t

In t h i s b a n k r u p t c y a p p e a l , A p p e l l a n t s a p p e a l t h e O r d e r of

the Bankruptcy Court dismissing Appellants'

C h a p t e r 13 p e t i t i o n .

A f t e r a h e a r i n g , t h e B a n k r u p t c y C o u r t d e n i e d c o n f i r m a t i o n of
Appellants' C h a p t e r 13 P l a n o n S e p t e m b e r 13, 2 0 0 8 , and granted

l e a v e to f i l e a n A m e n d e d P l a n .

F o l l o w i n g t h e d e n i a l of

C o n f i r m a t i o n , A p p e l l a n t s d i d n o t f i l e a n A m e n d e d C h a p t e r 13 P l a n . O n N o v e m b e r 25, 2 0 0 8 , C h a p t e r 13 P e t i t i o n . the Bankruptcy Court dismissed Appellants'

I.

Standard of

Review

In considering an appeal from a bankruptcy court order,
district court reviews conclusions of law de novo,

the

and reviews

f i n d i n g s of f a c t u n d e r a c l e a r l y e r r o n e o u s s t a n d a r d .

I n Re

Case

No.

8:09-CV-1555-T-17

C e l o t e x Corp. , 232 B.R. 484, 486 (M.D. Fla. 1998) . q u e s t i o n s of l a w a n d fact are r e v i e w e d de novo.
F . 3 d 1336. 1 3 4 0 n. 9 (llch Cir. 2007).

Mixed

In Re Cox, 493

A f i n d i n g of f a c t is

clearly erroneous w h e n the reviewing court on the entire record
is left with the definite and firm conviction that a mistake has

been made.

General Trading,

Inc.

v.

Yale Materials Handling

Corp. , 119 F.3d 1485, 1494 (llch Cir. 1997) .

W h e t h e r a C h a p t e r 13 P l a n h a s b e e n p r o p o s e d in g o o d f a i t h is a f i n d i n g of f a c t r e v i e w a b l e u n d e r t h e c l e a r l y e r r o n e o u s

standard.

I n Re S a v i o r s ,

869 F . 2 d 1434,

1438

(llch Cir.

1989).

U n d e r t h e c l e a r l y e r r o n e o u s standard,

the r e v i e w i n g c o u r t m a y n o t

r e v e r s e s i m p l y b e c a u s e it t a k e s a d i f f e r e n t v i e w of t h e e v i d e n c e or would have decided the case differently, b u t t h i s d e f e r e n c e is

not unlimited: The Court may consider documents and objective
evidence which contradict a witness' story, or take notice that a

s t o r y is i n t e r n a l l y i n c o n s i s t e n t o r s o f a c i a l l y i m p l a u s i b l e t h a t
a reasonable fact finder would not credit it. Anderson v. City

of Bessemer,

470 U.S.

564,

574-5

(1985).

II.

Issues

Appellants contend that:

1)

t h e U.S.

T r u s t e e ' s o b j e c t i o n to

the expense claimed by Appellants for payments due on furniture

t h a t A p p e l l a n t s d i d n o t i n t e n d to k e e p s h o u l d h a v e b e e n
o v e r r u l e d , b e c a u s e t h e p l a i n l a n g u a g e of 11 U . S . C . 1325(b)

r e q u i r e s t h a t the C o u r t r e l y e x c l u s i v e l y o n t h e m e a n s t e s t w h e n c o m p u t i n g the m i n i m u m C h a p t e r 13 p a y m e n t f o r a b o v e - m e d i a n i n c o m e
debtors; Debtors' a n d 2) t h e B a n k r u p t c y C o u r t s h o u l d h a v e c o n f i r m e d t h e plan, because the Bankruptcy Court does not have the

discretion to thwart the means test by use of a good faith

Case N o .

8:09-CV-1555-T-17

justification. Appellants contend that the amount of Appellants' plan payment does not determine whether the plan is proposed in good faith, because the statute specifically prescribes the
a p p r o v e d a m o u n t for p l a n payments.

A.

Context

The B a n k r u p t c y Abuse Prevention and C o n s u m e r P r o t e c t i o n Act
of 2 0 0 5 ("BAPCPA") w a s e n a c t e d to c u r b c e r t a i n a b u s e s i n t h e

b a n k r u p t c y process.

O n e p e r c e i v e d a b u s e w a s the e a s y a c c e s s to

Chapter 7 l i q u i d a t i o n proceedings by consumer debtors who, if
r e q u i r e d to file u n d e r C h a p t e r 13, c o u l d a f f o r d to p a y s o m e
dividend to their unsecured creditors. B.R. 718 (Bk. N.D. Texas 2006). See In re Hardacre, 338

C o n g r e s s i n c l u d e d t h e " m e a n s t e s t " in B A P C P A ,

which

d i f f e r e n t i a t e s b e t w e e n d e b t o r s w h o c a n r e p a y a p o r t i o n of t h e i r

d e b t and, a n d d e b t o r s w h i c h cannot.

T h e " m e a n s t e s t " a p p l i e s to

a d e b t o r w h o s e i n c o m e is a b o v e the s t a t e ' s m e d i a n for a f a m i l y of the same s i z e a n d w h o s e d e b t s are p r i m a r i l y c o n s u m e r debts.
Application of the "means test" allows the U.S. Trustee to

b e n e f i t f r o m a r e b u t t a b l e p r e s u m p t i o n of a b u s e w h i c h a r i s e s w h e n

the amount of disposable income the debtor c o u l d h y p o t h e t i c a l l y
c o n t r i b u t e to a C h a p t e r 13 p l a n r i s e s a b o v e a c e r t a i n t h r e s h o l d . In c a s e s in w h i c h t h e p r e s u m p t i o n of a b u s e d o e s n o t a r i s e o r is r e b u t t e d , t h e U.S. T r u s t e e m a y p u r s u e d i s m i s s a l of a d e b t o r ' s

c a s e u n d e r Sec. 707(b)(3), w h i c h p r o v i d e s that the C o u r t m a y
c o n s i d e r w h e t h e r , u n d e r the t o t a l i t y of the c i r c u m s t a n c e s ,
debtor's financial situation demonstrates abuse.

the

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No.

8:09-CV-1555-T-17

F o r a b o v e m e d i a n i n c o m e debtors,

" d i s p o s a b l e i n c o m e " is

d e f i n e d as a d e b t o r ' s " c u r r e n t m o n t h l y i n c o m e , " a d e f i n e d t e r m
u n d e r Sec. 101(10A), less amounts reasonably necessary "to be

expended" as d e t e r m i n e d by Sec. 707(b)(2)(A) a n d (B).
U.S.C. Sec. 1325(b)(3). "Current monthly income"

See 11

is d e f i n e d as

" t h e a v e r a g e m o n t h l y i n c o m e f r o m all s o u r c e s t h a t t h e d e b t o r
r e c e i v e s (in a j o i n t c a s e , receive) both debtor and debtor's spouse

w i t h o u t r e g a r d to w h e t h e r s u c h i n c o m e is t a x a b l e i n c o m e ,

d e r i v e d d u r i n g t h e 6 m o n t h s p r e c e d i n g the p e t i t i o n date.
U.S.C. Sec. 101(10A).

See 11

For below median income debtors,

the majority of courts have

d e t e r m i n e d t h a t S c h e d u l e s I a n d J m a y b e u s e d to d e t e r m i n e
"projected disposable income." Sept. 18, 2006) In Re Edmunds, 350 B.R. 636 (S.C.

Section 1325(b)(1)(B)

r e q u i r e s d e b t o r s to u s e all t h e i r

"projected disposable income" to pay u n s e c u r e d creditors during
the a p p l i c a b l e c o m m i t m e n t period, the t e r m of the plan.

B.

" P r o j e c t e d D i s p o s a b l e I n c o m e " in 11 U . S . C . Sec.

1325(b)(1)(B)

In this case, the T r u s t e e o b j e c t e d to c o n f i r m a t i o n of the

Appellants' p r o p o s e d Plan, since the p r o p o s e d Plan did not provide that all of Debtors' projected disposable income to be

received during the applicable commitment period would be applied
to make payments to unsecured creditors u n d e r the plan.

Appellants included in "amounts r e a s o n a b l y n e c e s s a r y to be
e x p e n d e d , " an a m o u n t f o r c o n t r a c t u a l p a y m e n t s f o r c o l l a t e r a l

w h i c h A p p e l l a n t s surrendered.

The Trustee a r g u e d that the

Case

No.

8:09-CV-1555-T-17

expense claimed by Appellants for payments due on furniture which
A p p e l l a n t s d i d n o t i n t e n d to k e e p w a s u n r e a s o n a b l e .

R e l y i n g o n the p l a i n l a n g u a g e of the s t a t u t e ,

the a s s i g n e d

B a n k r u p t c y J u d g e f o u n d " t o be e x p e n d e d " to b e a f o r w a r d l o o k i n g concept, a n d t h e i n c l u s i o n of t h i s c o n c e p t e s t a b l i s h e d t h a t

Congress intended debtors and courts to look to the future to

d e t e r m i n e w h a t e x p e n s e s a d e b t o r w i l l b e r e q u i r e d to p a y o v e r t h e
c o u r s e o f h i s C h a p t e r 13 p l a n . collateral, If a d e b t o r i n t e n d s t o s u r r e n d e r

the payments on that debt are not amounts that are

g o i n g to b e e x p e n d e d . that, while Appellants'

The assigned Bankruptcy Judge stated calculation was correct, since

A p p e l l a n t s ' d i d n o t h a v e t h e p r e s e n t i n t e n t i o n to p a y the e x p e n s e s s t a t e d in t h e p r o p o s e d Plan, A p p e l l a n t s ' p l a n w a s n o t

p r o p o s e d in g o o d faith.

To a c h i e v e c o n f i r m a t i o n , C h a p t e r 13

d e b t o r s are r e q u i r e d to p r o p o s e t h e i r p l a n s in g o o d faith, a n d
not by a n y m e a n s f o r b i d d e n b y law. S e e 11 U . S . C . Sec.

1325(a)(3).
Plan,

The B a n k r u p t c y Court did not c o n f i r m the p r o p o s e d

a n d g r a n t e d l e a v e to f i l e an A m e n d e d Plan.

T h e r e h a s b e e n a g r e a t d e a l of d e b a t e o n t h e c o r r e c t m e t h o d

to d e t e r m i n e " p r o j e c t e d d i s p o s a b l e i n c o m e . "

S e e I n re N e c l e r i o ,

393 B.R. 784 (Bankr. S.D. Fla. 2008)(collecting cases for

discretionary approach and for mechanical historical approach).
T h e S u p r e m e C o u r t h a s s e t t l e d t h i s issue, and determined that the

discretionary approach is correct.

The Supreme Court held that,

in determining a Chapter 13 debtor's "projected disposable income, the court may account for changes in the debtor's income
and expenses that are known or virtually c e r t a i n at the time of
confirmation. See H a m i l t o n v. Lanning, 130 S.Ct. 2464 (2010).

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After consideration,

the Court affirms the Bankruptcy

C o u r t ' s r u l i n g s u s t a i n i n g the T r u s t e e ' s o b j e c t i o n to t h e
i n c l u s i o n of p a y m e n t s o n i n d e b t e d n e s s s e c u r e d b y c o l l a t e r a l t h a t

A p p e l l a n t s s u r r e n d e r e d in e x p e n s e s r e a s o n a b l y n e c e s s a r y to be e x p e n d e d f o r t h e m a i n t e n a n c e a n d s u p p o r t of A p p e l l a n t s .

C.

Good Faith

The Bankruptcy Code does not explicitly define "good faith." " G o o d f a i t h " h a s b e e n d e f i n e d b y c a s e law, a p p l y i n g a m u l t i - f a c t o r test,
amendments.

a n d is e s t a b l i s h e d b y

informed by subsequent legislative
898 F.2d 1346 V. (8th C i r . Zellner, 827 F.2d

See In re Lemaire,

1990)(citing Educational Assistance Corp.

1222 (8th Cir. 1987).

Some courts have held that, a f t e r BAPCPA,

a d e b t o r ' s a b i l i t y to p a y is n o l o n g e r a f a c t o r u n d e r S e c .

1325(a)(3), a n d is a p p r o p r i a t e l y c o n s i d e r e d o n l y u n d e r Sec. 1325(b).
2 006).

See, e.g., In re Barr, 341 B.R. 181 (Bkrtcy. M.D. N.C.
Before BAPCPA, the 1984 Code amendments created a formula

to d e t e r m i n e t h e a m o u n t of d i s p o s a b l e i n c o m e a d e b t o r m u s t d e d i c a t e to t h e p l a n ; t h e a m o u n t was d e t e r m i n e d u n d e r Sec.

1325(a)(3) as a m a t t e r of g o o d faith.

Analysis of a debtor's good faith in proposing a Chapter 13 plan includes pre-petition conduct as well as post-petition
conduct. In re M c G o v e r n , 2 9 7 B.R. 650 (S.D. Fla. 2 0 0 3 ) . I n In

re Kitchens, 702 F . 2 d 885, 888 (11th Cir. 1983), the E l e v e n t h

Circuit Court of A p p e a l s explains that:

B r o a d l y s p e a k i n g , the b a s i c i n q u i r y s h o u l d be
whether or not under the circumstances of the
case there has been an abuse of the

p r o v i s i o n s , p u r p o s e or s p i r i t of

[the

Case

No.

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chapter] in the proposal.

Id.

(citing 9

Collier on Bankruptcy para. 9.20 at 319 (14th
ed. 1 9 7 8 ) ; c i t e d in In re Estus, 695 F . 2 d at 316; D e a n s v. O ' D o n n e l l , 692 F . 2 d at 972; I n
re Rimgale, 669 F.2d at 431.

The Kitchens factors include:

(1) t h e a m o u n t o f t h e d e b t o r ' s

i n c o m e f r o m all s o u r c e s ;

(2)

the l i v i n g e x p e n s e s of t h e d e b t o r

and his or her dependents;

(3) the amount of attorney's fees; (4)

the p r o b a b l e o r e x p e c t e d d u r a t i o n of the d e b t o r ' s C h a p t e r 13 plan; (5) t h e m o t i v a t i o n s of the d e b t o r a n d h i s s i n c e r i t y in (6) the

s e e k i n g r e l i e f u n d e r t h e p r o v i s i o n s of C h a p t e r 13;
d e b t o r ' s d e g r e e of e f f o r t ; (7)

the debtor's ability to earn and (8) special
(9) the

t h e l i k e l i h o o d of f l u c t u a t i o n in h i s e a r n i n g s ;

circumstances such as inordinate medical expense;

frequency with which the debtor has sought relief under the

Bankruptcy Reform Act and its predecessors;

(10) t h e
and his

circumstances under which the debtor contracted the debts

or h e r d e m o n s t r a t e d b o n a fides, h i s c r e d i t o r s ; a n d (11)

o r l a c k of same,

in d e a l i n g s w i t h

the burden which the plan's T h e l i s t is n o n

a d m i n i s t r a t i o n w o u l d p l a c e o n the t r u s t e e . Id.

exclusive, a n d o t h e r factors or e x c e p t i o n a l c i r c u m s t a n c e s m a y
s u p p o r t a f i n d i n g of g o o d f a i t h e v e n t h o u g h a d e b t o r h a s p r o p o s e d
n o o r o n l y n o m i n a l r e p a y m e n t to u n s e c u r e d c r e d i t o r s . Id. After

Kitchens,

the f o l l o w i n g factors were added:

(12)

the type of debt

to be d i s c h a r g e d a n d w h e t h e r s u c h debt w o u l d be n o n d i s c h a r g e a b l e ;

(13) the a c c u r a c y of the plan's statements of debts and expenses
a n d w h e t h e r a n y i n a c c u r a c i e s a r e an a t t e m p t to m i s l e a d t h e court;
(14) extent to which the claims are modified and extent of

p r e f e r e n t i a l t r e a t m e n t a m o n g c l a s s e s of c r e d i t o r s .

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The Eleventh Circuit

found that

"the facts of each

bankruptcy case must be individually examined in light of various
c r i t e r i a to d e t e r m i n e w h e t h e r t h e c h a p t e r 13 p l a n at i s s u e w a s

p r o p o s e d in g o o d faith.

Id.

The Eleventh Circuit further found

t h a t r e a s o n i n g w h i c h f o c u s e d o n l y o n the s i m p l e a r i t h m e t i c of 11
U . S . C . Sec. 1325(a)(4) n e g l e c t e d t h e i m p o r t a n c e of t h e g e n e r a l 1325(a)(3). Id. at 888.

g o o d f a i t h l a n g u a g e of 11 U . S . C . Sec.

Under BAPCPA,

Congress added an additional good faith

r e q u i r e m e n t , r e q u i r i n g t h a t a d e b t o r ' s a c t i o n s in f i l i n g a
p e t i t i o n be in g o o d f a i t h , 11 U . S . C . Sec. 1325(a)(7). However,

C o n g r e s s l e f t u n c h a n g e d t h e r e q u i r e m e n t t h a t a p l a n be p r o p o s e d
in good faith, 11 U . S . C . Sec. 1325 (a)(3). The Court does not

r e a d t h e B a n k r u p t c y C o d e to e r o d e p a s t b a n k r u p t c y p r a c t i c e a b s e n t a c l e a r i n d i c a t i o n that C o n g r e s s i n t e n d e d s u c h a departure.
Travelers Cas. and Sur. Co. O f A m e r i c a v.

See

Pacific Gas & Electric

Co.,

549 U.S.

443,

454

(2007).

The p u r p o s e of C h a p t e r 7 p r o c e e d i n g s is d e b t a v o i d a n c e - - t o

give the honest debtor a fresh start; however, the purpose of Chapter 13 proceedings is debt repayment--to repay the debtor's
creditors to the fullest extent possible.
F . 2 d 936 (11th Cir. 1986),

In In re Waldron, 785

the E l e v e n t h C i r c u i t h e l d :

We h o l d that w i t h section 1325(a)(3) Congress intended to provide bankruptcy courts w i t h a d i s c r e t i o n a r y m e a n s to p r e s e r v e the b a n k r u p t c y process for its intended purpose. Accordingly, whenever a Chapter 13 p e t i t i o n
a p p e a r s to be t a i n t e d w i t h a q u e s t i o n a b l e purpose, it is i n c u m b e n t u p o n the b a n k r u p t c y
courts to examine and question the debtor's
motives. If the court discovers unmistakable

m a n i f e s t a t i o n s of b a d f a i t h ,

as we d o h e r e ,

Case

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confirmation must

be denied. of bad faith need

Unmistakable manifestations

n o t b e b a s e d u p o n a f i n d i n g of a c t u a l f r a u d , r e q u i r i n g p r o o f of m a l i c e , s c i e n t e r o r a n intent to defraud. We simply require that the bankruptcy courts preserve the integrity of t h e b a n k r u p t c y p r o c e s s b y r e f u s i n g to
condone its abuse.

In re Waldron,

785

F.2d at

941.

The Court agrees that strict compliance with the means test

d o e s n o t n e c e s s a r i l y s a t i s f y a d e b t o r ' s b u r d e n of d e m o n s t r a t i n g
good faith in the proposal of his plan. In re Edmunds, 350 B.R.

636

( B k r t c y . D . S . C . 2006) .

Subsequent code amendments have

overridden some of the Kitchens factors; others remain viable.

" O n c e Sec. 1 3 2 5 ( b ) i s s a t i s f i e d , t h e d e b t o r m u s t a l s o c o m p l y w i t h
t h e g o o d f a i t h r e q u i r e m e n t in Sec. 1325(a)(3). Good faith has no

role in a s s e s s i n g w h e t h e r the a m o u n t of i n c o m e p a i d i n t o the p l a n
is s u f f i c i e n t , b u t g o o d f a i t h a n d the r e m a i n i n g K i t c h e n s f a c t o r s r e m a i n r e l e v a n t to t h e c o n f i r m a b i l i t y of t h e p l a n . "
Shelton, 3 7 0 B.R. 861 ( B k r t c y . N . D . Ga. 2 0 0 7 ) .

In re

A f t e r c o n s i d e r a t i o n , the Court a f f i r m s the f a c t u a l f i n d i n g
of the B a n k r u p t c y C o u r t t h a t A p p e l l a n t s ' p l a n w a s n o t p r o p o s e d in g o o d faith. Appellants' proposed plan was technically correct

but it w a s not accurate.

B e c a u s e A p p e l l a n t s ' r e a s o n a b l e and
l e s s t h a n a l l of A p p e l l a n t s '
The Court affirms

necessary expenses were overstated,

d i s p o s a b l e i n c o m e w a s a v a i l a b l e to c r e d i t o r s .

the d e c i s i o n of the B a n k r u p t c y Court to d e n y c o n f i r m a t i o n b a s e d
o n t h e B a n k r u p t c y C o u r t ' s a p p l i c a t i o n of 11 U . S . C .
the words "to be" in 11 U.S.C. Sec. 1325(b)(2)

1325(a)(3)

to

in a case where

the D e b t o r s e x p r e s s l y h a d no i n t e n t i o n to p a y the e x p e n s e for

Case

No.

8:09-CV-1555-T-17

surrendered collateral.

The Bankruptcy Court indicated that

i n c l u d i n g a n a m o u n t f o r s u r r e n d e r e d c o l l a t e r a l in A p p e l l a n t s '

c a l c u l a t i o n of " a m o u n t s r e a s o n a b l y n e c e s s a r y to be e x p e n d e d " w i t h o u t the p r e s e n t i n t e n t i o n to p a y that e x p e n s e a m o u n t e d to fraud. The B a n k r u p t c y C o u r t d i d not err in d e n y i n g p l a n

confirmation, or in d i s m i s s i n g the case w h e r e an a m e n d e d p l a n was
not filed. Accordingly, it is

O R D E R E D t h a t t h e d e c i s i o n of t h e B a n k r u p t c y C o u r t is
affirmed.

DONE

D O N E a n d O R D E R E D in C h a m b e r s ,
of September, 2010

in Tampa,

Florida on this

10