In re Parquet

657 B.R. 829

IN RE: Karen Edwards PARQUET and Tremayne Anthony Parquet, Debtors.

Case No. 23-11323-BFK

United States Bankruptcy Court, E.D. Virginia, Alexandria Division

Signed February 2, 2024

Karen Edwards Parquet, 8410 Huerta Court, Apt. 166, Alexandria, VA 22309, for Debtor.

Tremayne Anthony Parquet, 8410 Huerta Court, Apt. 166, Alexandria, VA 22309, for Joint Debtor.

Robert Sergio Brandt, 600 Cameron Street, Alexandria, VA 22314, Counsel for Debtors.

Thomas P. Gorman, 300 N. Washington St., Ste. 400, Alexandria, VA 22314, for Chapter 13 Trustee.

Gerard R. Vetter, 1725 Duke Street, Suite 650, Alexandria, VA 22314, for U.S. Trustee.

MEMORANDUM OPINION AND ORDER OVERRULING IN PART AND SUSTAINING IN PART TRUSTEE'S OBJECTIONS TO DEBTORS' AMENDED CHAPTER 13 PLAN, AND CONTINUING TRUSTEE'S MOTION TO DISMISS

Brian F. Kenney, United States Bankruptcy Judge

This matter comes before the Court on the Chapter 13 Trustee's Objections to the Debtors' Amended Chapter 13 Plan, and Motion to Dismiss Case. Docket Nos. 23 (Amended Plan), 30 (Trustee's Objections), and 29 (Trustee's Motion to Dismiss). The Debtors filed a Response to the Trustee's Motion to Dismiss and Objections to their plan. Docket Nos. 31, 32. The Court heard the evidence and the parties' arguments on December 21, 2023. For the reasons stated below, the Court will overrule the Trustee's Objections on the disposable income ground. The Court will sustain the Trustee's Objections on the good faith ground, and the Debtors will be granted leave to amend their Plan and their Means Test within 21 days. The Court will also continue the hearing on the Trustee's Motion to Dismiss Case.

Findings of Fact

The Court, having heard the evidence, makes the following findings of fact.¹

1. The Debtors, Karen Edwards Parquet and Tremayne Anthony Parquet, are individuals residing in Alexandria, Virginia. They filed a joint Voluntary Petition under Chapter 13 with this Court on August 19, 2023. Docket No. 1. The six-month look back period for the Means Test started on February 1, 2023, and ended on July 31, 2023.

2. The Debtors are "above median" debtors. Docket No. 1, p. 53 (Means Test). This means that: (a) where there is an objection to confirmation, as here, the Debtors' deductions for purposes of their Plan are determined by the Means Test, and not by reference to Schedule J (11 U.S.C. §§ 1325(b)(3), 707(b)(2)); and (b) their applicable commitment period (that is, the length of time that they will be required to pay under their Plan) will be 60 months, as opposed to 36 months for below-median debtors. 11 U.S.C. § 1325(b)(4)(A)(ii).

3. Ms. Parquet is self-employed. She has a pet-sitting service, in which she employs one other person. She receives 30% of the income and the other individual receives 70% of the income.

4. Mr. Parquet is employed by a non-profit fundraising organization.

5. Mr. Parquet contributed $79.15 per pay period (approximately $160.00 per month) to his employer's 401k plan from February 1, 2023, through the end of May 2023. Beginning in June 2023, he increased his contributions to $300.00 per pay period, or approximately $650.00 per month. DR Ex. 1.

6. His employer matches his contributions up to the amount of $158.31 per month.

A. The Debtors' First Plan.

7. The Debtors filed a Means Test ("the Original Means Test") with the Petition. Docket No. 1. This Means Test stated that the Debtors had negative monthly disposable income of ($410.83), after taking a deduction in the amount of $650.00 for voluntary retirement deductions. Id. at p. 63, Lines 41, 45.

8. The Debtors' first Plan called for them to pay $400.00 per month for 60 months, for a distribution to the unsecured creditors of 18% of their claims. Docket No. 2, ¶¶ 2, 5(A).

9. On October 9, 2023, the Debtors filed an Amended Means Test. Docket No. 14 ("the Amended Means Test"). In their Amended Means Test, the Debtors stated that they had positive net monthly disposable income of $136.34, after again taking a deduction in the amount of $650.00 for voluntary retirement contributions. Id. at Lines 41, 45.

10. Mr. Parquet testified that the Amended Means Test was an updated version of his and Ms. Parquet's financial condition, as of the filing of the case. For example, whereas the Original Means Test reflected $106,000.00 in gross income, the Amended Means Test stated that the Debtors had combined annual income of $112,000.00. TR. Ex. 3, Line 15b; TR. Ex. 4, Line 15b. The Debtors' income taxes appear to have decreased ($1,666.00 in the Original Means Test, versus $1,516.00 in the Amended Means Test), but their health insurance costs increased ($836.00 in the Original Means Test, versus $905.00 in the Amended Means Test). TR. Ex. 3, Lines 16, 25; TR. Ex. 4, Lines 16, 25.

11. Finally, the Debtors acknowledged that Mr. Parquet's parents paid $210.00 per month toward his student loans during the six-month look back period.

12. After a hearing, the Court sustained the Chapter 13 Trustee's Objections to the Debtors' Plan, with leave to amend. Docket No. 17 ("Parquet I").

B. The Debtors' Second Amended Means Test and Amended Plan.

13. On November 14, 2023, the Debtors filed a second Amended Means Test and an Amended Plan. Docket Nos. 22, 23.

14. The Debtors' second Amended Means Test made the following changes to their income and expenses: (a) the Amended Means Test added increased income of $250.00 per month to Mr. Parquet's income; (b) it deleted the parental support payments for the student loans in the amount of $210.00; and (c) it increased Mr. Parquet's contributions to his retirement account by $369.00.² Docket No. 22, Line 46.

15. The net effect of these three changes in income and expenses was a decrease in the amount of $329.00, thereby decreasing the prior monthly disposable income from $476.58 to $147.58. Id.

16. The Debtors' Amended Plan requires them to pay $400.00 per month for the first three months, and then $250.00 per month for the next 57 months, for a total of $15,450.00, and a distribution to the unsecured creditors of 10%. Docket No. 23, ¶¶ 2, 5.

17. The Chapter 13 Trustee objected to the Amended Plan on the ground that it did not devote the Debtors' full disposable income in violation of Bankruptcy Code Section 1325(b)(1)(B), and on the ground that it violated the good faith requirement of Code Section 1325(a)(3). Docket No. 30.

18. The Court heard the Debtors' evidence in support of confirmation of their Amended Plan. Mr. Parquet forthrightly acknowledged that he increased his voluntary retirement contributions from $79 per pay period to $300.00 after meeting with his bankruptcy counsel.

19. Mr. Parquet also acknowledged that he and his wife asked his parents to stop paying the student loans, and they have done so.

20. Schedules I and J attached to the Debtor's Amended Plan state that their monthly net income is $1,085.66. Docket No. 23, Schedule J, Line 23c.

Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the District Court for this District on August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L) (confirmations of plans).

I. Disposable Income (11 U.S.C. § 1325(b)(1)(B)).

Section 1325(b)(1)(B) requires that, when a creditor or the Trustee objects to the confirmation of their plan, debtors must either devote their full disposable income to their plan, or must pay their creditors in full. For above-median debtors in Chapter 13, disposable income is determined by reference to the Means Test. The Means Test was adopted in 2005 as a part of the BAPCPA Amendments to the Bankruptcy Code. It was enacted "to help ensure that debtors who can pay creditors do pay them." Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 64, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011) (quoting Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 231-232, 130 S.Ct. 1324, 176 L.Ed.2d 79 (2010)) (emphasis in original).

Part 1 of the Means Test requires debtors to state their average monthly income "from all sources" for the six months preceding the bankruptcy case. 28 U.S.C. § 101(10A). The second part of the form (Official Form 122C-2) involves the calculation of debtors' disposable income. Part I, Lines 6-38, uses certain national standards (for food, clothing, and other items), and local standards (primarily for housing).³ Part 2 allows for qualified retirement deductions (Line 41) and further allows for "special circumstances" for which the debtors "have no reasonable alternative" (Line 43).⁴

Finally, Part 3 provides for changes to the debtors' income and expenses where circumstances "have changed or are virtually certain to change" after the date of the petition. Line 46. Line 46 is designed to reflect the Supreme Court's ruling in Hamilton v. Lanning, 560 U.S. 505, 517, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), which the Court noted in Parquet I is intended to apply "only in unusual cases;" in most cases, nothing more than the application of the Means Test is required. Docket No. 17, p. 4. It is on this line that the battle is drawn in this case.

The Trustee argues that the Court should not allow Debtors' Line 46 adjustments because they all came about as the result of the Debtors' voluntary actions. Mr. Parquet acknowledged that he requested his parents to stop the payments on his student loans. He further acknowledged that he increased his voluntary contributions after he consulted with bankruptcy counsel. There is some support for the Trustee's position. In In re Ponce, 406 B.R. 490 (Bankr. M.D. Pa. 2009), the bankruptcy court held that it would consider a non-exclusive list of factors for Lanning adjustments, including whether the changes in circumstances were the results of the debtor's voluntary actions. Id. at 498. The court stated that its list of factors was similar to some of the pre-BAPCPA good faith factors. Id. The Ponce case highlights the problem of determining just how "unusual" changes in...