In re Vantiger-Witte, Bankruptcy No. 12-00239

557 B.R. 151

In re: Mary L. Vantiger-Witte, Debtor.

Bankruptcy No. 12-00239

United States Bankruptcy Court, N.D. Iowa.

Signed September 12, 2016

Derek N.W. Hong, Cedar Rapids, IA, for Debtor.

RULING ON CONFIRMATION

THAD J. COLLINS, CHIEF BANKRUPTCY JUDGE

This contested Chapter 13 confirmation came before the Court for an evidentiary hearing. Derek Hong appeared for Debtor Mary Vantiger-Witte (“Debtor”). Marty McLaughlin appeared for Creditor United States of America on behalf of Farm Service Agency (“FSA”). The Court took the matter under advisement. The parties filed briefs. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L).

STATEMENT OF THE CASE

Debtor previously filed a Chapter 12 bankruptcy petition and later converted that case to Chapter 13. She sought confirmation of a Chapter 13 plan primarily to deal with her debt to FSA. In 2008, the Court found that Debtor had not filed her plan in good faith, denied confirmation, and dismissed the case.

Debtor filed this case in 2012. She originally filed it as a Chapter 7 and later voluntarily converted it to Chapter 13. Debtor now seeks confirmation of her Chapter 13 plan. FSA again objects to confirmation.

FSA argues that Debtor has not filed her petition or plan in good faith and argues that the Court has already addressed the issue in denying confirmation in Debtor's previous case. FSA argues that nothing has changed since 2008 to warrant a different result.

Debtor argues that this case is different because it was originally filed as a Chapter 7, not a Chapter 12. Debtor argues that the 2008 order found bad faith because she had filed a Chapter 12—which is for farmers who want to reorganize—even though she did not want to reorganize her farm. Debtor also argued and presented evidence that any impropriety that occurred on the FSA loan and collateral resulted from the actions of a third-party con-man, not Debtor. She argues that these differences warrant a different result in this case.

The Court finds that Debtor filed her petition and Chapter 13 plan in good faith, overrules FSA's objection, and will confirm the plan.

BACKGROUND AND FINDINGS OF FACT

This is Debtor's second attempt to confirm a Chapter 13 plan. Her first Chapter 13 was dismissed in 2008 after this Court found that Debtor had not filed her plan in good faith, which is a requirement for confirmation under § 1325(a)(3). In re Vantiger – Witte, Bankr. No. 05–02931, 2008 WL 4493426 (Bankr.N.D.Iowa Sept. 29, 2008) (finding that Debtor did not show good faith because she did not explain the depletion of collateral during her Chapter 12 case). Debtor now seeks confirmation of a Chapter 13 plan in this new case.

The same time period and general outline of events that were at issue in the 2008 order are at issue here: Debtor's FSA loan application in 2004, the failure of her farm operation, and the dissipation of FSA's collateral before and during Debtor's bankruptcy in 2005. Vantiger – Witte, 2008 WL 4493426, at *2–3 (setting out the Court's findings of fact). The Court will rely on the facts set out in that order but will also consider the new and additional evidence presented by Debtor in the current case.

Debtor's obligations to FSA arose out of a relationship with a man named Steve Heitshusen (“Heitshusen”). Heitshusen is a con man. Debtor was one of his victims. FSA should probably be considered his victim as well.

In 1999, Debtor met Heitshusen when she worked with him on his farm near Wayland, Iowa. Vantiger – Witte, 2008 WL 4493426, at *2. At some point their relationship became romantic. Heitshusen requested that Debtor get loans from FSA. Heitshusen told Debtor that he wanted her to get the loans so he could purchase back cows that had been repossessed. Heitshusen told Debtor that FSA would only give loans—or would be more likely to give loans—to her because she was a woman.

Debtor applied for supervised credit FSA loans. Under the supervised credit program, FSA carefully walks the borrower through the proper way to do business and how to service debt. Because FSA primarily provides loans to those who are unable to get traditional financing, supervised credit is meant to help borrowers succeed in new farming operations. Most of FSA's borrowers in that program would not qualify for conventional credit because of business and agricultural inexperience. In order to qualify, Debtor needed letters from three financial institutions denying financing. Heitshusen accompanied Debtor to all three financial institutions to get the denial letters.

In May 2004, Debtor became engaged to marry Heitshusen. The next month, Heitshusen accompanied Debtor to the FSA office to apply for farm loans. In fact, he coached her through the whole FSA loan process. FSA denied Debtor a loan because she had no knowledge, ability or experience related to running a farm. The loan officer noted that Debtor's lack of familiarity with farm terminology and total lack of experience or knowledge of farming undermined her application. Debtor did not tell FSA that Heitshusen would be helping on the farm. Debtor revised her application to downsize her request, but was denied again.

Debtor then appealed her denial and wrote letters to congressional representatives in an effort to secure financing from FSA. In September 2004, FSA decided in favor of Debtor on the appeal and provided financing. As a part of the financing agreement, Debtor put up her house as security. Debtor also indicated that she owned cows and pledged those cows as security. In fact, however, Debtor only owned one bull. She did not own cows. The cows were actually Heitshusen's and had been repossessed.

Notably, Debtor was not the first woman that Heitshusen accompanied to an FSA office to try and get a farm loan. Dawn Stewart, the FSA loan officer that Debtor worked with, had dealt with Heitshusen when he had brought in other women to get loans. Those situations were similar. The women he brought in had little to no experience farming. They all owned homes. Heitshusen convinced them to mortgage their homes to get FSA financing.

Like in the other situations, once Debtor secured financing, Heitshusen worked and managed the farm. Debtor continued to work as a medical assistant during the day. She worked on the farm at night and on the weekends. Debtor did some farmhand work and entered financial information into the farm's accounting software. Debtor testified that she wasn't really involved in the day to day operations of the farm.

Debtor truly believed that she was starting a life with Heitshusen. Even though the loan was in her name only, and she signed the paperwork, she trusted Heitshusen to control and manage the farm. He had coached her through it all and assured her it would all work out.

From the beginning, the farm operation had trouble. Ms. Stewart testified that, just a month into the farming operation, FSA had concerns about repayment.

When Debtor borrowed the money from FSA she believed the farm would be profitable and that she could repay the loan. Heitshusen had assured her he knew what he was doing. But the farm was never profitable. When Debtor realized that the farm was losing money, she thought about liquidating the operation like FSA suggested. Debtor did not liquidate, however, because Heitshusen told her not to.

Heitshusen, in fact, convinced Debtor to put more money into the farm. Debtor took money out of her retirement fund. Debtor also borrowed money from her parents. Debtor used this money to fund the farming operation. Despite this cash injection, the farm continued to fail.

As a part of the supervised credit program, Ms. Stewart visited Debtor's farm. During one of these visits, Ms. Stewart noticed that there was a sign on Debtor's truck (purchased with FSA money and subject to FSA's security interest) that said “Heitshusen Cattle Company.” Ms. Stewart realized that Heitshusen was using the truck to conduct his own business. FSA had not loaned money to Heitshusen or Heithussen Cattle Company. In fact, he was ineligible for FSA loans. Ms. Stewart did not, however, take any action on that concern.

Ms. Stewart also testified that, during one of these visits she noticed that livestock was missing. Debtor had told Ms. Stewart that she was the person running the farm. Ms. Stewart did not believe Debtor. She knew Heitshusen was exerting influence over her. Ms. Stewart never described any action she took to address Heitshusen's role or her concerns related to him.

At some point after securing the loan, Debtor and Heitshusen's relationship broke down. Debtor testified that Heitshusen was controlling and manipulative. He often became angry and she eventually became afraid of him.

Debtor met with Ms. Stewart in October 2004. They discussed Heitshusen's anger, Debtor's other concerns, and her readiness to liquidate the farm. After this meeting, however, Heitshusen convinced Debtor to see how things would play out and Debtor did not liquidate the farm.

In November 2004, Heitshusen broke off their engagement. They continued to talk about the farm, however, because she was stuck with the farm financing.

In June 2005, Debtor filed a Chapter 12 bankruptcy petition. Debtor's Chapter 12 plan was to sell her house and then make regular payments on the debts—which were mostly to FSA. The plan was held up, however, because of a dispute about the priority of liens on the house. FSA believed it had the first lien on Debtor's home. That was contested, however, and after years of litigation, the Court ruled that the mortgage company had the first lien. During that litigation, Heitshusen continued to operate the farm. Given that their relationship had deteriorated, Debtor was rarely on site. She did not live on the farm. She visited less and less as time went on. Heitshusen was the one doing almost all the work on the farm and controlled the farm.

The farm continued to lose money during the bankruptcy. Debtor and Heitshusen started selling animals to pay bills. Heitshusen was...