Case No. 99-16228-SSM Chapter 13United States Bankruptcy Court, E.D. Virginia, Alexandria Division
July 10, 2000.
Karen A. Blatter, West Warwick, RI, Debtor, pro se.
Gerald M. O’Donnell, Esquire, Alexandria, Virginia, Chapter 13 Trustee.
MEMORANDUM OPINION AND ORDER
MITCHELL, Judge
This matter is before the court on (a) the trustee’s objection to confirmation of the debtor’s modified plan and (b) the trustee’s motion to dismiss the debtor’s case with prejudice. A hearing was initially held on May 23, 2000, and was continued to June 27, 2000, to enable the debtor to provide documentation to the trustee regarding her income. The debtor appeared by telephone and the chapter 13 trustee was present in person. The court then took the matter under advisement to review the modified plan and the exhibits submitted by the trustee.
The trustee’s objection centers on the plan’s failure to satisfy the feasibility requirement of § 1325(a)(6), Bankruptcy Code. The trustee argues that the plan fails to pay the filed proofs of claim and that the debtor’s budget makes performance of the plan impossible. Furthermore, the trustee objects on the ground that the plan does not provide the required information to creditors so that they could evaluate the modified plan. Finally, the trustee asks the court to dismiss the case under § 1307(c)(1), Bankruptcy Code, because of the debtor’s failure to propose a confirmable plan in light of her history of previous bankruptcy filings. For the reasons stated, the objection to confirmation will be overruled and the motion to dismiss will be denied.
Facts
The debtor, Karen A. Blatter, filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code in this court on December 21, 1999. The debtor is no stranger to the bankruptcy process in this district. She was once a practicing attorney in this district,[1]
and has filed four prior bankruptcy petitions on her own behalf. Three of these were chapter 13 cases, all of which were dismissed without completion of a plan. Those multiple filings were the basis of a motion to dismiss brought by the trustee at the inception of this case. The court declined to dismiss the case at that time, but entered an order on February 10, 2000, that any dismissal of the case, voluntary or involuntary, within two years of the filing of the petition, would be with prejudice to refiling for a period of 180 days.
The debtor’s first proposed plan in this case was denied confirmation on March 28, 2000. At issue is the debtor’s modified plan filed on March 28, 2000, which provides for the payment to the trustee of $229.41 per month for 36 months. The plan proposes to pay a dividend of 10% to unsecured creditors.[2] The debtor has no secured creditors. According to the debtor’s Schedules I and J, her projected net monthly income is $2,150 and her monthly expenses are $2,455.
Conclusions of Law and Discussion I. A.
Confirmation of an individual debtor’s chapter 13 plan of repayment is governed by § 1325, Bankruptcy Code, which requires that the court “shall” confirm a plan if certain enumerated requirements are met. Unlike the typical chapter 13 case which is filed to save the debtor’s residence from foreclosure or car from repossession, the filing of this case appears to have been motivated primarily to provide a vehicle for addressing the debtor’s student loan obligations.[3] As noted, one of the trustee’s grounds of objection is that the modified plan is not feasible under § 1325(a)(6) because it fails to pay the filed claims in the case. As of the date of this opinion, the filed proofs of claim amount to $135,586.55 in unsecured debt. Of that amount, $80,705.58 is comprised of student loan debts owed to Illinois Student Assistance Commission, and $47,831.17 is owed to Bell Atlantic for telephone service. After subtracting the trustee’s commission and the required payments to pay the allowed priority claims in full,[4] unsecured creditors would receive a total distribution of $4,732.90 under the plan. Assuming the allowance of the student loan debt,[5] the proposed distribution to unsecured creditors would be closer to 3 or 4 cents on the dollar than to 10 cents on the dollar, thus fueling the trustee’s argument. At the same time, the debtor’s modified plan — which conforms to the standard form of plan required in this District by Local Bankruptcy Rule 3015-2(A)(1) — is a pot plan rather than a percentage plan,[6]
meaning that there is no guarantee that unsecured creditors will receive a payment of a specific percentage of their claims. Accordingly, the modified plan does not, in literal terms, fail to provide for filed claims, since it provides that they will share pro rata in whatever funds remain after the payment of allowed priority claims. Of course, where there is a large disparity between the percentage payment estimated by the plan and the actual payout, obvious questions arise as to whether creditors were misled into not objecting to confirmation based on the debtor’s faulty estimates of the amount that would be paid on claims.[7]
B.
The primary focus of the feasibility inquiry under § 1325(a)(6) is the debtor’s financial ability to make the proposed plan payments. Given that one of the debtor’s prior chapter 13 cases was dismissed for failure to timely commence plan payments and another for failure to make required plan payments after confirmation, the trustee has good reason to be concerned.[8] With respect to the present case, the debtor has made the required payments to date, albeit not always timely. According to her Schedules I and J, however, performance of the plan would be impossible since her monthly expenses exceed her monthly income by $305.00.[9] Her most recent tax return (for 1999)[10] reflected adjustable gross income for the entire year of only $1,992.74. The debtor represents, however, that her employment situation has stabilized since she moved from Virginia to Rhode Island, and she refers to a “Customer Balance Detail” prepared by the law firm in Providence, Rhode Island, for which she works as supporting the $3,000 per month gross income figure shown on her Schedule I. The debtor explains that she works for the firm as a subcontractor, and that, under her arrangement with the firm, she pays the firm $500 per week and splits her client receipts on a 50-50 basis. Referring to the client balance detail — which shows gross receipts of $30,328 for the period January 1 through April 30, 2000 — the debtor calculates her net income for that period (after payment of the $500 per week and the 50-50 split) at $11,164. From that, she projects income for the year of $36,000. No information is provided as to what business expenses, if any, must be paid from that amount, or whether her $500.00 per week payment to the law firm covers all her overhead.
Based on the debtor’s budget, 1999 income, and 2000 year-to-date actual income, her ability to make the required plan payments is at least questionable. Traditionally, however, this court has been inclined in close cases to give the debtor an opportunity to demonstrate, by performance, that the plan is feasible. Little harm can result from erring on the side of confirmation, since the debtor will receive a discharge only if the plan is successfully completed. Additionally, if the debtor fails to make the required payments, dismissal of the case provides a ready remedy. As noted, this court has previously entered an order than any such dismissal within two years of the filing of the petition will be with prejudice to refiling for a period of 180 days.
Finally, given that the debtor`s income, because she is self-employed, fluctuates, and because her scheduled debts include unpaid income taxes, it seems appropriate to require, as a condition of confirmation, that she provide the chapter 13 trustee, during the term of the plan, with complete, signed copies of her Federal and state income tax returns, including all supporting schedules. To date, she has not provided a complete copy of her Federal income tax return for 1999, which would show what amount of taxes, if any, were still owed, or, alternatively, if the debtor is entitled to a refund. Accordingly, the court will direct that complete copies of the debtor’s 1999 Federal and state income tax returns be provided to the trustee within 20 days, and that, until the plan is completed or the case dismissed, she provide the trustee with a complete copy of future Federal and state income tax returns within ten days of the due date of the return, or the date the return is actually filed, whichever is earlier. If the debtor requests an extension of the date for filing any such return, a copy of the request for extension must be provided to the trustee within ten days of the date it is mailed to the appropriate taxing authority. Failure to comply will constitute grounds for dismissal of this case. With that condition, however, the plan will be confirmed.
II.
The final matter to be addressed by the court is the trustee’s motion to dismiss the case. The Bankruptcy Code provides that the court may convert or dismiss a case “for cause-including unreasonable delay by the debtor that is prejudicial to creditors[.]” § 1307(c)(1). It is the trustee’s position that the debtor has no excuse for failing to present a confirmable plan given her history of multiple filings and her professional experience in the bankruptcy process.
It is certainly true this debtor has had a long and tortured history before this court. This case has proceeded under chapter 13 without a confirmed plan for well over 6 months. Given the three prior chapter 13 filings and the debtor’s professional status as a bankruptcy attorney, there is little excuse for her inability to propose a confirmable plan in the present case on the first try or for her general inattention to detail, such a failing to provide a complete mailing address for the Internal Revenue Service[11] and failing to prosecute her student dischargeability action,[12] and, in general, for consistently being late and only partially responsive to the trustee’s requests for information in order to evaluate the plan. The court can well appreciate the chapter 13 trustee’s obvious and appropriate frustration. However, since the court has determined to confirm the modified chapter 13 plan, dismissal is not appropriate at the present time.
Nevertheless, the terms of this court’s prior order of February 10, 2000, remain in effect, and any failure by the debtor to make timely plan payments or to provide complete copies of tax returns to the trustee during the term of the plan will result in dismissal with prejudice to refiling for 180 days.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The objection to confirmation is overruled. A separate order will be entered confirming the debtor’s plan.
2. The motion to dismiss with prejudice is denied; however the provisions of this court’s prior order of February 10, 2000, remain in full force and effect.
(Bankr.E.D.Va. 2000). The schedules list the debtor’s student loans as a priority claim, apparently on the erroneous belief that a nondischargeable debt is entitled to priority. Although many priority claims are also nondischargeable, e.g., alimony and child support, as well as certain taxes, the converse is not necessarily true. Put another way, unless an nondischargeable obligation falls within one of the specific categories set forth in § 507, Bankruptcy Code, it remains a general unsecured debt.
(4th Cir 1982). However, the trustee has not objected to confirmation on the basis of lack of good faith.
The debtor points out that the listed expenses include $500 per month in payments on her student loans, which she says she will not be making if the student loan obligation is discharged. As noted, she has filed an adversary proceeding to determine the dischargeability of those loans. Eliminating the student loan payment would bring her monthly living expenses down to $1,955, which would leave $195 per month for plan payments. However, the plan, as noted, requires payments of $229.41 per month.