In re Devaughan

1

In re RICHARD DEVAUGHAN, Debtor.

No. 23-10150-BPC

United States Bankruptcy Court, M.D. Alabama

July 5, 2023

MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTION TO CONFIRMATION AND DISMISSING CASE

Bess M. Parrish Creswell, United States Bankruptcy Judge.

The above-referenced case came before the Court for plan confirmation. An evidentiary hearing was held on June 7 2023. Bonita Dennard ("Creditor"), the only objecting creditor, appeared pro se. Attorney for the Chapter 13 Trustee appeared but did not advance an objection. For the reasons set forth below, the Court finds Debtor lacked good faith in filing his petition and plan as required under 11 U.S.C. §§ 1325(a)(3) and (7), confirmation is due to be denied, and the case is due to be dismissed.

I. JURISDICTION

This Court has jurisdiction to hear these matters pursuant to 28 U.S.C. § 1334(b). These are core proceedings within the meaning of 28 U.S.C. § 157(b)(2)(L). This is a final order.

II. UNDISPUTED FACTS

Creditor obtained a state court judgment against Debtor on December 9, 2022. (Claim 11). The parties do not dispute it is a valid judgment debt. There was no evidence of any payments made on the judgment debt prior to the bankruptcy filing; however, Counsel for Debtor stated in court that a garnishment was in process prepetition. No evidence was admitted as to where in the process this garnishment advanced, if at all, prior to the bankruptcy filing.

Debtor filed his Chapter 13 petition, including the schedules and Chapter 13 plan, on February 9, 2023. (Docs. 1, 2). This case was filed two months after the judgment and exactly four years after filing a Chapter 7 case (Case No. 19-10239) in which he received a discharge. ("Notice of Prior Filing"; February 10, 2023). None of the initial filings in this case listed or included Creditor. (Docs. 1, 2). On March 28, 2023, at 4:19 p.m. Debtor amended his Schedules E/F to add Creditor. (Doc. 12). The § 341 Meeting of Creditors was also held on March 28, 2023, at 11:00 a.m. (Doc. 6). Creditor had no prior notice of this meeting, and the meeting was not continued.

After receiving notice of the bankruptcy, Creditor filed a Proof of Claim on April 14, 2023. (Claim 11). Debtor filed an Amended Plan on May 9, 2023. (Doc. 20). Debtor is not proposing to pay any secured or priority debts through the plan. Instead, the sole secured debt (Debtor's vehicle) is being paid directly. The remaining claims, of which Creditor's is the largest, are all unsecured. Debtor's plan proposes to pay $4,500 through the plan for his attorney's fees and then pay unsecured creditors a POT of $4,500. Id. Debtor's initial plan proposed monthly payments in the amount of $173 for a period of 58 months. (Doc. 2). The Amended Plan proposes monthly payments in the amount of $257 for a period of 40 months. (Doc. 20).

Creditor alleges Debtor exhibited bad faith. (Doc. 19). More specifically, Creditor argues that Debtor delayed the prior state court proceedings and the subsequent garnishment. Creditor also alleges Debtor lives a lavish lifestyle and failed to accurately disclose income and expenses. Creditor's primary contention is that Debtor initially failed to list Creditor and did not amend to include her until the day of the § 341 Meeting of Creditors to prevent her attendance due to lack of notice. Id.

In advance of the evidentiary hearing, Debtor and Creditor electronically submitted exhibits in accordance with the Procedures Order; however, neither party requested that any exhibits be admitted during the hearing. Moreover, while he was present at the hearing, Debtor did not testify during the hearing. Thus, the Court is left with what has been filed of record and the parties' statements and stipulations in court.

III. LEGAL ANALYSIS AND CONCLUSIONS OF LAW

A bankruptcy court "shall confirm a plan if" it is "proposed in good faith" and if "the action of the debtor in filing the petition was in good faith." See 11 U.S.C. §§ 1325(a)(3) and (7). Here, Creditor's objection to confirmation includes allegations related to bad faith in filing the petition and in filing the plan. As a preliminary distinction, finding bad faith is not necessary to determine that a debtor lacked good faith in filing the plan or petition. In re Beasley, No. 11-40642-JJR13, 2011 WL 4498942, at *2 (Bankr. N.D. Ala. Sept. 27, 2011) ("This Court agrees with those courts finding that a case not filed 'in good faith' is different from finding the case was filed 'in bad faith.'").

With or without an objection, as plan proponent, Debtor has the burden of proof to satisfy each element necessary for confirmation, which includes Debtor's good faith in filing the plan and petition. In re Beasley, 2011 WL 4498942, at *2 and *17; In re White, 618 B.R. 748, 751 (Bankr. E.D. N.C. 2020) ("It is the debtor who must prove good faith, notwithstanding the objection or lack of objection of any party."). A debtor must prove good faith by a preponderance of the evidence. Matter of Ogden, 570 B.R. 432, 435 (Bankr. N.D.Ga. 2017), amended, No. 16-12280-WHD, 2017 WL 2124413 (Bankr. N.D.Ga. May 15, 2017).

Using the Kitchens^[1] factors as a guide, a debtor's good faith in filing a petition and plan is determined by the bankruptcy court on a case-by-case basis, and a court must consider the totality of the circumstances in making its determination. In re Brown, 742 F.3d 1309, 1317 (11th Cir. 2014); In re Wade, 598 B.R. 34, 44 (Bankr. N.D.Ga. 2019) ("Kitchens clearly encourages courts to engage in a totality of the circumstances analysis to determine a debtor's good faith."). Looking at the Kitchens factors, and viewing the totality of the circumstances, Debtor's motivations and sincerity, bona fides, and degree of effort are at issue. No single factor is dispositive, but the totality of the circumstances here reveals a lack of good faith.

At the forefront, accurate disclosures are a foundational expectation of those seeking bankruptcy relief. See Fed. R. Bankr. P. 1008 (requiring verification or unsworn declaration for "[a]ll petitions, lists, schedules, statements and amendments thereto"); In re Shelton, 370 B.R. 861, 868 (Bankr. N.D.Ga. 2007) ("The easiest way to violate § 1325(a)(3) is to misrepresent, lie, or otherwise mislead the court."); see also In re Russell, No. 12-80537-WRS, 2012 WL 5934648, at *9 (Bankr. M.D. Ala. Nov. 27, 2012) (dismissing with prejudice and barring discharge of all future debts due to, among other reasons, a number of errors and omissions on Schedules and Statements leading to "questionable accuracy" of filings). A fresh start is only afforded to the honest, but unfortunate debtor. Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 367 (2007). To obtain the benefits of bankruptcy and achieve a fresh start, debtors are tasked with an unavoidable duty and expectation of forthright disclosures. See 11 U.S.C. § 521; In re White, 618 B.R. 748, 754 (Bankr. E.D. N.C. 2020) ("[A] debtor must approach the bankruptcy process prepared to forthrightly abide by the Code's requirements, without purpose of evasion or in hopes of omitting required disclosures."). Section 521 lists Debtor's required disclosures, including creditors, assets, and liabilities. Failure to comply with § 521 can preclude confirmation. In re Green, 141 B.R. 440, 442 (Bankr. M.D. Fla. 1992); In re Lindsey, 122 B.R. 157, 160 (Bankr. M.D. Fla. 1991) ("[T]he court and the creditors are entitled to full and accurate disclosure of the debtors' financial status."). While Debtor's initial Schedules and Statement of Financial Affairs were filed timely, the record reveals the documents were not accurate at the outset.

Creditor's bad faith allegations focus on multiple alleged inaccuracies. The Court has no evidence that Debtor's Amended Schedules are inaccurate, but it is undisputed that there were inaccuracies and omissions in the initial filings. In re Kinsale, 617 B.R. 58, 68 (Bankr. D.S.C. 2020) ("While Debtor may believe these inconsistencies are not prejudicial to her creditors, the bankruptcy process is dependent upon full and complete disclosure of a debtor. The failure to provide consistent, full[,] and complete disclosure casts serious doubt about the accuracy of the petition, schedules[,] and statements that were sworn and submitted under penalty of perjury."). Specifically, Debtor did not list Creditor nor reference the prior state court proceeding in the initial filings.^[2] Debtor's filings were inaccurate because Creditor obtained a judgment in the amount of $6,000 plus costs on December 9, 2022. (Claim 11). The order attached to Creditor's proof of claim states Debtor and Creditor appeared in that proceeding and a trial occurred. Id. At the evidentiary hearing, the Court asked whether any payments were made towards the judgment debt prior to filing, and Debtor's Counsel responded that a garnishment had been in process. The Court questions how the Debtor could have inadvertently failed to disclose the judgment because the garnishment at least served as a reminder of the judgment, if not a motivating factor in filing the petition. While filing a bankruptcy petition to avoid a judgment debt or stop a garnishment is not per se bad faith, the Court is most concerned with Debtor's failure to disclose these events or to offer an explanation for his failure to disclose.

The two-month period between judgment and petition filing does not support that Debtor's omissions could have been innocent or unintentional, especially when a garnishment was initiated during that time. The parties are not mere business acquaintances. They had a relationship for many years prior to the state court proceedings and this bankruptcy case. Despite this history, Debtor inexplicably excluded Creditor from the initial...