In re Vega-Lara

IN RE: CARLOS VEGA-LARA AND AURA CECILIA VEGA, Debtors.

CASE NO. 17-52553-CAG

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

May 4, 2018

IT IS HEREBY ADJUDGED and DECREED that the below described is SO ORDERED.

CHAPTER 13

MEMORANDUM OPINION AND ORDER GRANTING CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION OF FIRST AMENDED CHAPTER 13 PLAN (ECF NO. 12)

Came on to be considered the above-numbered bankruptcy case, and, in particular, the Chapter 13 Trustee's Objection to Confirmation of Debtors' First Amended Chapter 13 Plan ("Objection") (ECF No. 12).¹ The Court has subject matter jurisdiction over this proceeding under 28 U.S.C. §§ 157 and 1334. Venue is proper under 28 U.S.C. § 1408(1). This matter is referred to this Court under the District's Standing Order of Reference. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(L)(confirmation of plans) in which the Court may enter a final order. The Court notes that, under the Supreme Court's decisionin Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015), this Court has the authority to hear and enter orders regarding a debtor's chapter 13 plan; but that an order denying confirmation of a chapter 13 plan is not a final order unless the bankruptcy case is also dismissed. The Court finds that this is a contested matter as defined under Fed. R. Bankr. P. 9014. As such, the Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. The Court took this matter under advisement and finds that the Chapter 13 Trustee's (the "Trustee") Objection should be GRANTED and confirmation of Debtors' First Amended Plan is DENIED.

BACKGROUND

Debtors filed a chapter 13 petition for relief on November 3, 2017 (ECF No. 1). See 11 U.S.C. § 101 et seq. On the same day, Debtors filed their Schedules, Statement of Financial Affairs ("SOFA"), and Chapter 13 Plan (ECF Nos. 1 and 2). Debtors filed their Amended Schedules, SOFA, and First Amended Chapter 13 plan on February 10, 2018. (ECF Nos. 14-17). The Court considered confirmation of the Debtors' First Amended Chapter 13 Plan ("Plan") on February 15, 2018.² Pursuant to the District Form Chapter 13 Plan ("District Plan") used in the Western District of Texas, Debtors propose to pay 100% of all of their allowed administrative, secured, and priority claims; and propose to pay 24% of their nonpriority unsecured claims (ECF No. 17, p. 1-2). The proposed Plan payment is $850.00 per month for months 1-4 of the Plan and $925.00 per month for months 5-60 of the Plan. (Id. at p. 1).

Trustee filed her Objection on January 5, 2018, in response to the Debtors' Chapter 13 Plan filed on November 3, 2017. Debtors' filed their First Amended Plan on February10, 2018, five days before the confirmation hearing. The Court considered the First Amended Plan at the February 15, 2018 confirmation hearing wherein the Trustee made oral objections to the Plan.³

The Trustee objected to the Plan because Debtors' counsel struck through Section 4.1 of the District Plan regarding the treatment of tax refunds. (ECF No. 17, p. 2). The Trustee argued that Debtors could not strike through any of the provisions contained in the District Plan. The District Plan contains a non-standard provision that allows a debtor to add additional terms to the District Plan if the non-standard provision is contained in Section 8. In this case, Debtors' provision in Section 8 of the District Plan states that Section 4.1 is stricken and that Debtors' will amortize any annual tax refunds as income in Debtors' Schedule "I". The Trustee objected to the non-standard provision as contrary to what the District Plan requires and contends that Debtors may not pro-rate their tax refunds. The Trustee also objects on the basis that Debtors' Plan is infeasible.

FINDINGS OF FACT

Ms. Aura Cecilia Vega testified at the confirmation hearing. The Court admitted a number of exhibits, but Ms. Vega's testimony focused on her tax returns and refunds.⁴ Debtor stated that from 2016 through present, she works nine months per year as a teacher's assistant. Debtors' First Amended Chapter 13 Plan pro-rates their refund for 2017 of $5,068.00 in the monthly amount of $423.00 and is indicated on their Schedule I (Statementof Income). Debtor expressed confusion as to how her tax refund is pro-rated and allocated on her Schedule I.

Debtor, did, however, explain that she uses her tax refund to pay for expenses associated with her children's private school, spending the refund on clothing and shoes. Debtor testified that notwithstanding her use of the annual tax refund for her children's clothing needs, that she is delinquent on her utility bills (water and electric) and private school tuition for two of her children, and is making additional payments to bring the utility bills and tuition current. Debtor further explained that the tax refund is also used to cure the private tuition delinquency.

DISTRICT FORM CHAPTER 13 PLAN

Bankruptcy courts have the statutory and rule making authority to propose and use local bankruptcy rules. The United States Supreme Court has "the power to prescribe by general rules the forms of process, writs, pleadings, and motions, and the practice and procedure in cases under title 11. Such rules shall not abridge, enlarge, or modify any substantive right." 28 U.S.C.A § 2075 (2018).

Pursuant to Fed. R. Bank. P. 9029, Bankruptcy courts may mandate local rules :

(a) Local bankruptcy rules

(1) Each district court acting by a majority of its district judges may make and amend rules governing practice and procedure in all cases and proceedings within the district court's bankruptcy jurisdiction which are consistent with--but not duplicative of--Acts of Congress and these rules and which do not prohibit or limit the use of the Official Forms. Rule 83 F.R.Civ.P. governs the procedure for making local rules. A district court may authorize the bankruptcy judges of the district, subject to any limitation or condition it may prescribe and the requirements of 83 F.R.Civ.P., to make and amend rules of practice and procedure which are consistent with--but not duplicative of--Acts of Congress and these rules and which do not prohibit or limit the use of the Official Forms. Local rules shall conform to any uniform numbering system prescribed by the Judicial Conference of the United States.

(2) A local rule imposing a requirement of form shall not be enforced in a manner that causes a party to lose rights because of a nonwillful failure to comply with the requirement.

(b) Procedure when there is no controlling law. A judge may regulate practice in any manner consistent with federal law, these rules, Official Forms, and local rules of the district. No sanction or other disadvantage may be imposed for noncompliance with any requirement not in federal law, federal rules, Official Forms, or the local rules of the district unless the alleged violator has been furnished in the particular case with actual notice of the requirement.

Under Fed. R. Bankr. P. 9029(a), bankruptcy courts may require local rules of bankruptcy procedure. Prior to this Court's implementation of the District Plan, the Bankruptcy Rules Committee allowed bankruptcy courts to either use a national form chapter 13 plan, or to adopt a form plan that must be used in all divisions within a judicial district.⁵ Further, should a bankruptcy court adopt a form chapter 13 plan, it must be formatted in accordance with Fed. R. Bankr. P. 3015.1 and include certain provisions contained in Rule 3015.1:

Notwithstanding Rule 9029(a)(1), a district may require that a Local Form for a plan filed in a chapter 13 case be used instead of an Official Form adopted for that purpose if the following conditions are satisfied:

(a) a single Local Form is adopted for the district after public notice and an opportunity for public comment;

(b) each paragraph is numbered and labeled in boldface type with a heading stating the general subject matter of the paragraph;

(c) the Local Form includes an initial paragraph for the debtor to indicate that the plan does or does not:

(1) contain any nonstandard provision;

(2) limit the amount of a secured claim based on a valuation of the collateral for the claim; or

(3) avoid a security interest or lien;

(d) the Local Form contains separate paragraphs for:

(1) curing any default and maintaining payments on a claim secured by the debtor's principal residence;

(2) paying a domestic-support obligation;(3) paying a claim described in the final paragraph of § 1325(a) of the Bankruptcy Code; and

(4) surrendering property that secures a claim with a request that the stay under §§ 362(a) and 1301(a) be terminated as to the surrendered collateral; and

(e) the Local Form contains a final paragraph for:

(1) the placement of nonstandard provisions, as defined in Rule 3015(c), along with a statement that any nonstandard provision placed elsewhere in the plan is void; and

(2) certification by the debtor's attorney or by an unrepresented debtor that the plan contains no nonstandard provision other than those set out in the final paragraph.

Pursuant to Rule 3015.1, this District issued its Consolidated Standing Order for the Adoption of a District Form Chapter 13 Plan on October 16, 2017, adopting a form chapter 13 plan to be used throughout the Western District of Texas. (Order #17-02). The District Form Chapter 13 Plan is attached to the Court's Standing Order and went into effect on November 1, 2017.

Two provisions of the District Plan are at issue in this case, Sections 4.1 and 8:

4. Tax Refunds and Annual Tax Returns

4.1 Tax Refunds.

All tax refunds received by Debtor (or either Debtor if a joint case) while the chapter 13 case is pending shall be allocated as set forth below:

1) The total amount of the aggregate tax refund(s) received for any tax period that exceeds $2,000.00 shall, upon receipt, be paid and turned over to the Trustee as additional disposable income and such amount shall

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