In re Akers

594 B.R. 362

IN RE: Dale Edward AKERS, Debtor.

CASE NO. 17-70584

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

Signed January 3, 2019

Robert Tayloe Copeland, Copeland Law Firm, P.C., Abingdon, VA, for Debtor.

Christopher T. Micale, Jason Brill Shorter, Office of the Chapter 13 Trustee, Roanoke, VA, for Trustee.

MEMORANDUM OPINION

Paul M. Black, UNITED STATES BANKRUPTCY JUDGE

This matter comes before the Court on confirmation of the Fourth Amended Chapter 12 Plan (the "Fourth Amended Plan") (ECF No. 172) filed by the Debtor, Dale E. Akers (the "Debtor"), and the objections thereto filed by Farm Credit of the Virginias, A.C.A. ("Farm Credit") (ECF Nos. 40, 55, 86, 158, 177), Skyline National Bank ("Skyline") (ECF Nos. 41, 54, 178), and the Chapter 12 Trustee (the "Trustee") (ECF No. 38). The Court held a hearing on these matters on October 17, 2018, and has reviewed supplemental memoranda filed by the Debtor (ECF No. 199), the Trustee (ECF No. 198), and Farm Credit (ECF No. 202).¹

FINDINGS OF FACT

At issue in this case are two farming operations in which the Debtor actively participates: a produce farm operated by the Debtor, and a general partnership through which the Debtor and his son Ryan Akers raise, buy and sell cattle. The Debtor has financed his farming operations in part through loans from Farm Service Agency ("FSA"), Skyline, and Farm Credit. Those creditors have filed secured claims in this case in the amounts of $97,572.61, $27,872.33, and $227,658.36, respectively. (Ct.'s Claims Reg., Proofs of Claim 2, 3, 5, 6, 7.) Although the record does not provide an exhaustive background of facts leading to the Debtor's bankruptcy filing, prior testimony from the Section 341 meetings indicates that his financial difficulties stem, in part, from the payment of a son's substantial medical bills. (Supp. to Trustee's Report, ECF No. 38-1, at 1.) The Debtor ultimately sought the protection of the Bankruptcy Code and filed his Chapter 12 petition in this Court on May 3, 2017.

The Debtor filed his first Chapter 12 Plan on July 31, 2017 (ECF No. 24), to which Farm Credit, Skyline, and the Trustee all objected. (ECF Nos. 38, 40, 41.) Each objected on multiple grounds, including that the Debtor's financial records and projections did not support the plan's feasibility. In fact, by the September 20, 2017 hearing on plan confirmation, the Debtor still had not filed any monthly operating reports. By Order dated September 28, 2017, the Court denied confirmation of the plan and provided fourteen days to file an amended plan, provide tax returns to the objecting creditors, and file monthly operating reports. (ECF No. 46.) Since September 2017, the Debtor has filed five subsequent plans, none of which have yet been confirmed. He filed his Fifth Amended Plan shortly after the confirmation hearing on the Fourth Amended Plan at issue here.

The Debtor has had numerous difficulties in putting forth a confirmable plan, most of his own making. A description of the Debtor's prior confirmation hearings is necessary to set the background for evaluation of the Debtor's current plan.

I. The May 16, 2018 Confirmation Hearing

On May 16, 2018, the Court held a hearing on the Debtor's Second Amended Chapter 12 Plan.² A new objection to the Plan was filed by Farm Credit, and both Skyline's and the Chapter 12 Trustee's objections were carried over from the prior plan. The objections focused primarily on feasibility. At the hearing it became readily apparent that the Debtor believed he owed approximately $40,000.00 in delinquent real estate taxes to Carroll County, Virginia. The Debtor knew long before the confirmation hearing that he owed the taxes, and indicated his counsel knew it as well. However, Carroll County was neither disclosed as a creditor nor listed on the mailing matrix as a creditor in the case. Carroll County filed no proof of claim in the case, and the Debtor's Chapter 12 plan made no provision for payment of the tax claim. Despite having no opportunity to be heard, when it became apparent the Chapter 12 Trustee and the Court were concerned about the lack of disclosure and the failure to address the delinquent real estate taxes, Debtor's counsel indicated the Debtor would simply agree to add language to the confirmation Order requiring the Debtor to pay Carroll County in full within three years of confirmation. The Court was not persuaded that the Debtor could make the plan payments as proposed in the plan, much less the plan payments plus the additional sum necessary to make the tax payments to Carroll County. In no event was the Court going to allow the Debtor to attempt to bind Carroll County to the terms of a plan about which it had no notice or opportunity to be heard.

Part of what concerned the Court is that the Debtor has a cattle business with his son, Ryan. Ryan pays all the bills in the cattle operation, and gives half the profit to the Debtor. However, the Debtor was projecting $5,430.00 per month in revenue for January 2018 through May 2018 from cattle sales as part of his budget in support of confirmation. (ECF No. 123, Ex. 3). However, the Debtor's monthly operating reports for January and February, the only ones filed prior to May 2018, showed no income of any type for those months. (ECF No. 123, Ex. 2). The Debtor later testified that he has been paid about $14,000 year to date in cattle sales through March and April, 2018. The actual number was $17,874.49 in monthly operating reports filed after the hearing. (ECF Nos. 135, 136). When asked by the Court how many cattle the Debtor owned with his son, the Debtor did not know but estimated the number at about 100. Again, a post-hearing exhibit reflected the actual number to be 76 head of cattle. (ECF No. 137). The Debtor had also borrowed and paid back money from his son post-petition to fund farm operations, and the Debtor testified that he was putting money into his son's checking account—and in at least one instance having a check written to Farm Credit off that account—to pay operations of the Debtor's farm. Given the Court's lack of confidence in the Debtor's financial reporting, the lack of knowledge of the Debtor as to the cattle operation, the blurred lines between the finances of the Debtor's son and those of his own, and the omission of the Carroll County tax debt from the schedules and the Chapter 12 plan, the Court denied confirmation and gave the Debtor thirty days to file a modified plan to come forth with better documented financial projections, with amended schedules to address the Carroll County tax debt. Given the Debtor's borrowings from his son, the Debtor was also ordered not to incur any additional debt without prior Court approval.³

II. The July 25, 2018 Confirmation Hearing

A Third Amended Plan was filed June 15, 2018 and set for hearing on July 25, 2018. Farm Credit again objected to the Plan, and both Skyline's and the Chapter 12 Trustee's prior objections were carried over as well. The Debtor and his counsel met after the May 16, 2018 confirmation hearing and prepared new projections. Unfortunately, the projections filed with the Court in preparation for the July 25, 2018 confirmation hearing were the wrong set of projections. This became apparent when the Debtor was on the stand and revealed to counsel and the Court that the projections he was asked to testify about were not the correct ones. In particular, the projected expenses for fertilizer, lime, seeds and plants were all wrong by a wide margin. The Debtor projected $48,000 in such expenses through July 2018, and through the hearing date, the Debtor had incurred nothing on those items. In addition, the projected expenses for January through June 2018 in other areas did not match the Debtor's actual expenses for those months as reflected in monthly operating reports filed with the Court. The Debtor's actual expenses were in some instances substantially less than his projections, which would in theory work to his benefit in determining net income if his revenue numbers were accurate. However, given the Court's prior, express admonition that the Debtor needed to come with credible figures to support confirmation, the Debtor's inability to come up with even a "ballpark" accurate expense and revenue projection left the Court with little confidence in the credibility of estimates as to either revenues or expenses going forward.⁴ That the Debtor and his counsel only learned that the wrong projections were filed with the Court once the Debtor was on the stand did not help the situation, leaving the Court also to have serious concerns whether appropriate preparations were made for the confirmation hearing. In addition, the Debtor was also uncertain at the confirmation hearing how much he owed in past due real estate taxes, which gave the Court further concern about his ability to curtail those arrearages under the terms of his Third Amended Plan. Confirmation of the Third Amended Plan was denied.

The Court put the Debtor on terms, giving him one last chance to come up with a confirmable plan. In addition, the Debtor had to make timely payments to the Chapter 12 Trustee and to Skyline Bank in the interim, which he did.⁵ He was also required to timely file his July, August and September Monthly Operating Reports in advance of the next confirmation hearing, which were filed by the deadlines set by the Court. The Debtor was further ordered to revise his 2018 projections to reflect actual income and expenses. A Fourth Amended Plan was filed on August 14, 2018, and set for hearing on October 17, 2018. The Chapter 12 Trustee's objections were again carried over, Farm Credit again objected to the plan due to lack of feasibility and Skyline filed a limited objection to the plan.

III. The October 17, 2018 Confirmation Hearing

The Debtor filed revised projections for 2018 using actual numbers off his Monthly Operating Reports filed with the Court. However, it became apparent from even a...