In re Henry

In re: Eric Ray Henry, Debtor.

Case No. 19-40852-13

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS

June 5, 2020

Memorandum Opinion and Order Granting in Part Debtor's Motion for Summary Judgment and Denying in Part Chapter 13 Trustee's Objection to Confirmation and Motion to Dismiss

Debtor Eric Ray Henry proposes a Chapter 13 repayment plan that would pay a secured claim of approximately $63,000 for a 2018 Dodge Ram worth significantly less than that (by at least $20,000). The Chapter 13 Trustee objects to confirmation of that plan and moves to dismiss Debtor's case, arguing that under 11 U.S.C. § 1325(b)(3)¹ retention of the 2018 DodgeRam is not reasonably necessary, and that Debtor's petition and plan were not filed in good faith under § 1325(a)(3) and (a)(7). Debtor filed a motion for summary judgment arguing that the plan complies with the provisions of Chapter 13 and can be confirmed as filed.

The Court bifurcated the consideration of these issues into two parts. In this Order, the Court addresses the "reasonably necessary to be expended" language of § 1325(b)(3). The Court concludes that the amount "reasonably necessary to be expended" is defined further by § 707(b)(2), in particular in this case, by subsection (b)(2)(A)(iii)(I), and does not permit the Trustee's subjective judgment about Debtor's secured debt payments. That does not mean, however, that Debtor does not still have the burden to show under § 1325(a)(3) and (a)(7) that his petition and plan were "proposed in good faith."

As a result, the Court grants in part and denies in part Debtor's motion for summary judgment,² and denies in part the Chapter 13 Trustee's objection to confirmation and motion to dismiss.³ The Court sets for trial the remaining issue of the good faith of Debtor's petition and plan as required by subsections (a)(3) and (a)(7) of § 1325.

I. Findings of Fact

Debtor and his wife divorced in March 2019. The next month, on April 22, 2019, Debtor financed the purchase of the 2018 Dodge Ram at issue with Envista Credit Union ("Envista"). Debtor financed $63,466.81, with interest at 4.44% annually, a monthly payment of $939.93, and a term of seventy-eight months. The sales contract shows that the finance charge over the course of the loan is $9847.73, for a total to be paid of $73,314.54. Debtor's first payment was due June 6, 2019.

Debtor traded in his prior vehicle to support the purchase of the 2018 Dodge Ram, and the parties dispute whether there was negative equity added to the amount financed from the payoff of the previous vehicle. The sales contract shows a cash price of $59,472.08 (which included sales tax). Toward that $59,472.08, Debtor was given a $28,983.80 trade-in allowance, less a payoff of $43,143.53 made by the seller, for a net trade in of negative $14,159.73. Debtor paid cash of $3768 and received a $9300 rebate. To the $59,472.08 total, Debtor also added fees and warranties of $3994.73, yielding the total amount financed of $63,446.81.

Debtor filed his Chapter 13 bankruptcy petition on July 10, 2019. That petition listed three secured claims: his home, valued at $150,000, with a claim of $135,000; the 2018 Dodge Ram, valued at $37,000, with a claim of $63,440; and household goods from Nebraska Furniture Mart, valued at$5000, with a claim of $2000. Debtor also listed a total of $35,384 in unsecured debt.⁴ Debtor stated his net income as $4898.83 per month and monthly expenses of $4575, leaving a monthly net of $324.83. Those monthly expenses include a $1120 home mortgage payment and the $940 car payment. Debtor's only vehicle is the 2018 Dodge Ram.

Debtor's proposed plan indicates he is above median income, and Debtor's applicable commitment period is five years. Debtor proposes a $250 monthly plan payment for the first eighteen months of his plan, and then $300 per month until the end of his plan. These funds paid to the Chapter 13 Trustee will pay the filing fee, attorney fees, trustee fees, and then the remainder will be distributed to unsecured creditors. Debtor proposes that the secured debt on the 2018 Dodge Ram be treated as a "910 car loan," with Envista to be paid the total amount of the debt owed. Debtor will pay his home mortgage, the debt on the 2018 Dodge Ram, and the debt on the household goods directly to each creditor. Debtor was current on those secured debts on the date of filing. Envista filed a proof of claim in Debtor's case for $63,134.91, reflecting the balance due on Debtor's account as of the petition date.

The Chapter 13 Trustee objected to confirmation of Debtor's proposed plan and moved to dismiss the petition, alleging the plan did not meet the requirements of § 1322 and was unconfirmable under § 1325 because the 2018 Dodge Ram was not reasonably necessary and decreased the pool of funds to be distributed to unsecured creditors.

Debtor then filed an amended Schedule B, changing the value of the 2018 Dodge Ram from $37,000 to $42,000, based on the Kelley Blue Book valuation guide for the vehicle, at private party sale value. Debtor also responded to the Chapter 13 Trustee's objection to confirmation and motion to dismiss, and then filed a support brief.⁵ Per the parties' agreed stipulation, the Court is treating these documents as Debtor's motion for summary judgment. The Chapter 13 Trustee also amended his objection to confirmation and motion to dismiss to specifically add a good faith challenge under § 1325(a)(3) and/or (a)(7).

On January 10, 2020,⁶ the parties obtained an appraisal of the 2018 Dodge Ram for use in this dispute. Per that appraisal, as of the date of petition in July 2019, the vehicle's replacement value was $36,000; as of January 2020, the replacement value was $35,000. The appraisal alsoindicated a trade in value for the 2018 Dodge Ram of $32,000, both on the petition date and in January 2020.

Additional alleged "facts" about Debtor's use of the 2018 Dodge Ram, the filed claims, and the impact on those claims if a new vehicle was purchased are alleged in Debtor's brief, but they are not supported by any record citations. Regardless, the Court finds they are not necessary to consideration of the legal issues herein.

II. Conclusions of Law

Contested matters concerning "confirmation of plans" are core matters under 28 U.S.C. § 157(b)(2)(L) over which this Court may exercise subject matter jurisdiction.⁷

A. Summary Judgment Standards and Burden of Proof

Federal Rule of Civil Procedure 56 requires a court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."⁸ When analyzing a summary judgment motion, the Court draws allreasonable inferences in favor of the non-moving party.⁹ An issue is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way."¹⁰ "Material facts" are those that are "essential to the proper disposition of [a] claim" under applicable law.¹¹

The moving party bears the initial burden of demonstrating—by reference to pleadings, depositions, answers to interrogatories, admissions, or affidavits—the absence of genuine issues of material fact.¹² "When the moving party does not have the ultimate burden of persuasion at trial, . . . the moving party may carry its initial burden either by producing affirmative evidence negating an essential element of the non-moving party's claim, or by showing that the non-moving party does not have enough evidence to carry its burden of persuasion at trial."¹³

If the moving party meets its initial burden, the nonmoving party cannot prevail by relying solely on its pleadings.¹⁴ "Rather, the nonmoving party must come forward with specific facts showing the presence of a genuine issue of material fact for trial and significant probative evidencesupporting the allegation."¹⁵ Under this Court's Local Bankruptcy Rules, "[t]he court will deem admitted . . . all material facts contained in the statement of the movant unless the statement of the opposing party specifically controverts those facts."¹⁶

The burden of proof to obtain confirmation of a proposed Chapter 13 plan is on the plan proponent, by a preponderance of the evidence.¹⁷

B. The "Reasonably Necessary" Standard of § 1325(b)(3).

The parties dispute boils down to whether an objecting Chapter 13 Trustee can force a debtor to surrender collateral to a secured creditor in order to free up room in that debtor's budget to pay more to unsecured creditors. Other than the amount established by the best interest of creditors test in § 1325(a)(4), there is no minimum level of payments to unsecured creditors required in Chapter 13 repayment plans.¹⁸

Rather, the amount required to be paid in a Chapter 13 plan is governed by § 1325(b) of the Code. Specifically, § 1325(b)(1) states:

(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan--

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

Section 1325(b)(1) "provides generally that, if the trustee or the holder of an allowed unsecured claim objects to confirmation of the plan, the plan may not be confirmed unless the debtor proposes to pay into the plan all of the debtor's "disposable income" for a specified period or until all allowed unsecured claims are paid in full, whichever is earlier."¹⁹ This section was substantially amended to its current state by BAPCPA in 2005, specifically as a way to create a bright line test for contributions by a debtor to the plan, and to remove...