In re Huether, CASE NUMBER 17-41142-MGD

In re: JOHNNY RUSSELL HUETHER, Debtor.

CASE NUMBER 17-41142-MGD

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ROME DIVISION

January 24, 2018

IT IS ORDERED as set forth below:

CHAPTER 13

ORDER DENYING CONFIRMATION WITHOUT PREJUDICE

This matter came before the Court for an evidentiary hearing on January 16, 2018 (the "Hearing") on the issue of good faith in regards to confirmation of Johnny Russell Huether ("Debtor")'s Amended Chapter 13 Plan, filed on May 11, 2017 (the "Plan"). (Docket No. 6). Also scheduled for an evidentiary hearing was the Motion of Creditors Sondra Huether and Shirley Mallory for Allowance of Administrative Expense Claims Pursuant to 11 U.S.C. §§ 503(b), 105 and 363, filed on November 8, 2017 (the "Motion"), and on Debtor's Objection to Sondra Huether Frost Proof of Claim 6-1, filed on January 9, 2018 (the "Objection"). (Docket Nos. 28 & 31). Because the Court denies confirmation based on the current Plan, the Court did not reach the Motion or the Objection at the Hearing.

At the Hearing, Debtor and his counsel appeared in support of confirmation, creditor Sondra Huether ("Ms. Huether") and her counsel appeared in opposition to confirmation. Debtor offered the testimony of three witnesses: Debtor, Jason Free, a real estate broker, and Kevin Aires, the original listing agent of Debtor's former residence. Ms. Huether offered her own testimony. The following documents were admitted into evidence: Debtor's Exhibits D & N; Ms. Huether's Exhibits 1-8. Counsel for the chapter 13 trustee also appeared in opposition to confirmation, but did not offer or examine any evidence.

After review of the Plan and related pleadings, the Docket in this case, the arguments made at the Hearing, and the reasons stated on the record, which are incorporated herein under Federal Rule of Bankruptcy Procedure 7052, adopting Federal Rule of Civil Procedure 52, as applicable herein through Federal Rule of Bankruptcy Procedure 9014(c), and summarized below, the Court finds that Debtor's Plan was not filed in good faith and denies confirmation without prejudice, and gives leave to Debtor to either file a new plan or convert this case within ten days to a chapter 7 case. If no action is taken, the case may be dismissed without further notice and opportunity for a hearing.

In the current Plan, Debtor proposes to pay $125 per month, with an applicable commitment period of 36 months. From those payments, Debtor proposes to pay $5,500 in attorneys' fees and $1,200 on account of a domestic support obligation priority unsecured claim to Ms. Huether. Debtor proposes to surrender his interest in four parcels of jointly-owned real property and one automobile. One of the parcels of real property is Debtor's former residence,located at 626 Park Ave SE, Lindale, Georgia 30147 (the "Residence"). Debtor has also scheduled $189,865 in general unsecured claims and proposes a 0% dividend. In a supplementary provision, Debtor provides he shall arrange to sell by auction the four parcels of real property that are listed for surrender in the applicable section of the Plan. Ms. Huether holds secured, priority, and unsecured claims.

In his testimony, Debtor admitted that after he filed for bankruptcy, he undertook to auction the four real properties, but the auctioneer whom Debtor had retained to appraise and sell them informed him that the value of the Residence was far below the approximately $215,000 that Debtor was seeking. Debtor then testified that after informing Ms. Huether of the auctioneer's opinion, the parties agreed that instead of Debtor auctioning off the properties, he would surrender them to Ms. Huether, who could then market and sell them herself. This was memorialized in the Order entitled Consent Order on Interim Confirmation Hearing Modifying Automatic Stay, entered on August 30, 2017 (the "Interim Order"). (Docket No. 21). The Interim Order provided that "[t]he automatic stay is hereby modified to give [Ms. Huether and her father] possession and to allow them to exercise all state law in rem remedies." Interim Order at *3 ¶(a). It further provided that Debtor was required to vacate the properties no later than September 13, 2017, and that Ms. Huether and her father "are authorized to hire a realtor of their choice to market and sell the properties without interference from the Debtor." Interim Order at *2-3 ¶¶(a)-(b).

Ms. Huether alleged that when Debtor vacated the properties, he left them in terrible condition and several fixtures had been removed. In vacating the Residence, Debtor admitted in his testimony at the Hearing that he took with him, inter alia, a chandelier, a wrought-iron gate from the bottom of a spiral staircase, and a fireplace mantle. He argued that he had left areplacement ceiling light for the chandelier, and that he had made the wrought-iron gate and therefore was entitled to it. As to the mantle, he argued that construction of the fireplace had never been completed, and that he had purchased the mantle, and so he was also entitled to it as well. He also admitted that he removed several arches attached to columns on the porch outside the Residence, because when a tree fell on the Residence and porch, some of the arches had been damaged beyond repair, and that the arches themselves had been discontinued. Therefore, since some of the arches could not be replaced, he removed the remaining, undamaged ones for the sake of uniformity, but left them at the Residence. Finally, he admitted to removing non-structural pillars from the living room, and some appliances from the kitchen, including the refrigerator.

Jason Free was a real estate broker retained by Ms. Huether to market and sell the Residence. He testified that he listed the Residence on October 17, 2017, at $135,000, and showed the Residence on twenty separate occasions to potential buyers. Despite the twenty showings, no offers had been made. He also testified that the Residence had previously been listed for sale by Kevin Aires for $180,000 for more than 400 days. Based on the current, poor condition of the Residence, Mr. Free testified that approximately $15,000 to $25,000 would be needed for repairs and renovations. He testified that the value of one of the other properties, Debtor's iron-working shop, had a value of no more than $30,000 to $40,000, and that the other two properties were in very poor condition, and could only be sold to parties interested in investment properties, because they were not currently in livable condition.

As previously stated, Debtor also offered the testimony of Kevin Aires. Mr. Aires was the original broker who listed the Residence for sale for $180,000 for more than 400 days without any showings or purchase offers. He testified that, when originally listed, the Residence was in bettercondition than it was currently in, and the only damage at that time was to the Residence's porch from the tree falling on it, but none of the fixtures or appliances listed above had been removed yet. He also testified that Debtor had insisted on 48-hour notice prior to any showings, rather than the more standard 24-hour notice, and that this increased notice requirement made it more difficult to market the property and show it to potential buyers. When questioned by the Court, Mr. Aires testified that he had never actually been to the Residence nor inspected it; that his listing and his opinion were based purely on pictures and information provided to him by others. He also testified that he did not visit the Residence after Debtor vacated it in September, nor did he see any pictures from after Debtor vacated it.

Chapter 13 has several significant differences from chapter 7. First and foremost, chapter 7 is a liquidation chapter whereby a debtor's assets are liquidated by a chapter 7 trustee and then the funds from any equity in those assets are distributed pro rata to the debtor's creditors based on the priorities of the Bankruptcy Code. By contrast, chapter 13 allows a debtor to pay its creditors over three to five years out of the debtor's future income rather than through liquidation of assets. Although not a necessity, most chapter 13 cases attempt to preserve a debtor's ownership of assets, either real or personal, such as a residence or automobile. In return for being able to maintain ownership of such property, § 1325(a)(4) requires a debtor to pay to its creditors at least a minimum of what such creditor would receive in a chapter 7 liquidation, and to contribute all disposable income to the plan during the applicable commitment period.

The burden is on a debtor to prove his or her good faith when an objection to confirmation is raised by the trustee or a creditor. Pursuant to 11 U.S.C. §§ 1325(a)(3) and (7), both the plan and the case itself must be filed in good faith. The Bankruptcy Code does not define good faith ineither context, but the Eleventh Circuit has enumerated the following non-exclusive factors that can be relevant in a good faith inquiry:

1. the amount of the debtor's income from all sources;

2. the living expenses of the debtor and his dependents;

3. the amount of attorney's fees;

4. the probable or expected duration of the debtor's Chapter 13 plan;

5. the motivations of the debtor and his sincerity in seeking relief under the provisions of Chapter 13;

6. the debtor's degree of effort;

7. the debtor's ability to earn and the likelihood of fluctuation in his earnings;

8. special circumstances such as inordinate medical expense;

9. the frequency with which the debtor has sought relief under the Bankruptcy Reform Act and its predecessors;

10. the circumstances under which the debtor has contracted his debts and his demonstrated bona fides, or lack of same, in dealings with his creditors;

11. the burden which the plan's administration would place on the trustee;

12. the extent to which claims are modified and the extent of preferential treatment among classes of creditors;

13. substantiality of the repayment to

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