In re Waring

555 B.R. 754

In re: Carol T. Waring and Paul R. Waring, Debtors.

Bankruptcy Case No. 16-12624 TBM

United States Bankruptcy Court, D. Colorado.

Signed August 22, 2016

Stephen H. Swift, Colorado Springs, CO, for Debtors.

ORDER DENYING CONFIRMATION OF PLAN AND DISMISSING PAUL R. WARING FROM CASE

Thomas B. McNamara, United States Bankruptcy Judge

The foundation of American bankruptcy law is the promise of a “fresh start.” The Bankruptcy Code¹ provides “a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”² Animated by these laudable goals, bankruptcy protects the “honest but unfortunate debtor”³ while at the same time serving as a safety valve ensuring the future vitality of our economy. But against these lofty notions, this case presents a more down to earth and practical question: Can a deceased debtor get a “fresh start”?

Paul R. Waring (“Mr. Waring”) filed a petition under Chapter 13 of the Bankruptcy Code. Unfortunately, he died just 26 days later. His death made it impossible for him to attend the required meeting of creditors. And, he died before being able to confirm a Chapter 13 debt adjustment plan. Nevertheless, his wife and co-debtor, Carol T. Waring (“Mrs. Waring”), wants to carry on in bankruptcy with him. Acting for herself and ostensibly for her deceased husband, she has proposed a five-year Chapter 13 plan to pay the couple's creditors.

The Court appreciates Mrs. Waring's intentions and acknowledges her great loss but concludes that because Mr. Waring died so quickly after filing the petition for bankruptcy relief, “further administration” is not possible. The reality is that Mr. Waring, whose life already has ended, cannot obtain a “fresh start” through the Chapter 13 bankruptcy process. So, with regret, the Court denies confirmation of the Chapter 13 plan proposed by Mrs. Waring after Mr. Waring's death and dismisses Mr. Waring as a bankruptcy debtor. However, should she wish, Mrs. Waring may amend her bankruptcy petition, statements, and schedules in order to continue by herself with her own bankruptcy case.

I. Jurisdiction and Venue .

This Court has jurisdiction to enter final judgment on the issues presented in this case pursuant to 28 U.S.C. § 1334. The matters are core proceedings under 28 U.S.C. § 157(b)(2)(A) (matters concerning administration of the estate), (b)(2)(L) (confirmation of plans), and (b)(2)(O) (other proceedings affecting the liquidation of the assets of the estate). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

II. Factual and Procedural Background .

Paul R. Waring and his wife, Carol T. Waring (together, the “Debtors”), jointly filed for protection under Chapter 13 of the Bankruptcy Code on March 23, 2016. (Docket No. 1.) Prior to their bankruptcy, the Debtors lived primarily on income from their separate social security benefits and Mr. Waring's Teamsters annuity, supplemented by rent collected on a small real estate investment property. (Docket No. 1 at 11 and 39.) They lived quite modestly with their income consumed almost entirely by their expenses. (Docket No. 1 at 38-41.) Aside from mortgage debt, most of their creditors were credit card companies and providers of medical services. (Docket No. 1 at 26-35.) The Debtors fell below the “median family income”⁴ threshold for the State of Colorado.

The same day that they filed for bankruptcy protection, the Debtors jointly proposed a Chapter 13 Plan. (Docket No. 2, the “Original Chapter 13 Plan.”) The heart of the Original Chapter 13 Plan was a commitment to pay $543 per month to the Chapter 13 Trustee for five years (to be distributed for payment of administrative expenses and unsecured debt) while maintaining their mortgage payments. The Debtors arrived at the proposed payment amount using Schedules I and J. Specifically, in Schedule I, the Debtors added together Mr. and Mrs. Waring's separate monthly social security benefits ($1,590 and $813, respectively), Mr. Waring's monthly annuity ($1,722), and the monthly rental income ($700) received from their investment property. In Schedule J, they totaled their combined monthly expenses. Then, the Debtors subtracted their Schedule J expenses from their Schedule I income, arriving at the $543 “monthly net income figure.” After the Original Chapter 13 Plan was filed, and as is routine in these type of proceedings, the Chapter 13 Trustee set a meeting of creditors under Section 341.⁵ The Court scheduled a prompt Section 1324 confirmation hearing. (Docket No. 11.)

But the routine nature of this bankruptcy case ended abruptly on April 18, 2016—Mr. Waring died. (Docket No. 21.) He died only 26 days after the Debtors filed their joint bankruptcy petition. Having passed away, Mr. Waring was not able to face his creditors and the Chapter 13 Trustee at the Section 341 meeting. Unaware of his death, the Chapter 13 Trustee and a creditor objected to the Original Chapter 13 Plan. (Docket Nos. 18 and 19.) And, based on the filed objections, the Debtors' Original Chapter 13 Plan was not confirmed. Instead, at the scheduled confirmation hearing, the Court provided its condolences but also sua sponte raised the issue of whether it had to dismiss Mr. Waring as a Chapter 13 debtor because of his death so early in the bankruptcy process. (Docket No. 23.) The Chapter 13 trustee took no position; but the Debtors' counsel submitted a detailed legal brief ending with a request: “Mrs. Waring asks that her case not be dismissed, her plan confirmed, and the case allowed to proceed.” (Docket No. 25 at 2.) Mrs. Waring proposed to act “on behalf of both of [the Debtors].” (Id. at 4.) The Debtors did not request an evidentiary hearing on the dismissal issue.

Subsequently, Mrs. Waring submitted a “First Amended Chapter 13 Plan.” (Docket No. 28, the “Amended Chapter 13 Plan.”)⁶ No creditors objected. The Amended Chapter 13 Plan is virtually identical to the Original Chapter 13 Plan except that the Debtors (acting through Mrs. Waring) slightly increased the value for their real estate investment property and added an additional “one time payment” of $12,420 to the Chapter 13 Trustee which apparently represents an anticipated recovery on Mr. Waring's life insurance policy. The Debtors did not file updated Schedules I (Income) or J (Expenses) after Mr. Waring's death. And, the proposed Amended Chapter 13 Plan continues to include the deceased Mr. Waring as a co-debtor. The Debtors still propose the same $543 monthly payment to the Chapter 13 Trustee, even though Mr. Waring's death surely must have resulted in at least some change to the Debtors' combined income, expenses, and “net monthly income.”

So, along with the issue of the impact of Mr. Waring's death on the bankruptcy case, the Amended Chapter 13 Plan also is ripe for consideration. Having received legal briefing from the Debtors and having reviewed the Amended Chapter 13 Plan, the Court is prepared to rule on the issues. No further legal briefing would assist the Court in making its determinations.

III. Legal Discussion .

A. The Court Has an Independent Duty to Ensure Satisfaction of Confirmation Requirements and May Dismiss Sua Sponte After Notice .

In this case, there is no intimation whatsoever of bad faith or abuse of process. To the contrary, Mrs. Waring has proposed an Amended Chapter 13 Plan that may be quite beneficial to creditors. Neither the Chapter 13 Trustee nor any creditors has objected. So, Mrs. Waring might wonder: what business is it of the Court to interject itself in this bankruptcy case and raise issues that others have not?

The answer is that the Court has an independent duty to determine whether a Chapter 13 plan meets the statutory requirements for confirmation under the Bankruptcy Code. The United States Supreme Court recently confirmed this duty:

In other contexts, we have held that courts have the discretion, but not the obligation, to raise on their own initiative certain nonjurisdictional barriers to suit. Section 1325(a) does more than codify this principle; it requires bankruptcy courts to address and correct a defect in a debtor's proposed plan even if no creditor raises the issue.

United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277 n. 14, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). Thus, the Court can, and should, evaluate the Amended Chapter 13 Plan despite the lack of objections.

After providing sufficient notice and an opportunity to be heard, the Court also may proceed sua sponte to dismiss a pending case if warranted under the circumstances. More specifically, the Court may consider dismissal on its own initiative under Fed. R. Bankr. P. 1016, Section 1307(c), and Section 105(a), as well as the inherent power of the Court. As set forth in more detail below, Fed. R. Bankr. P. 1016 provides that upon the death of the debtor, the case “may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed....” In Chapter 13 cases, “the likelihood is that the case will be dismissed.” Fed. R. Bankr. P. 1016 Advisory Committee Note (1983). The Court also may act sua sponte to dismiss under Section 1307(c), which generally governs dismissal of Chapter 13 cases, and Section 105, a statute of broader application.⁷ Tennant v. Rojas (In re Tennant) , 318 B.R. 860, 868–69 (9th Cir. BAP 2004) (“Section 105(a) makes ‘crystal clear’ the court's power to act sua sponte where no party in interest or the United States trustee has filed a motion to dismiss a bankruptcy case.”); In re Brown , 399 B.R. 162, 165 (Bankr.W.D.Va.2009) (“A bankruptcy court may dismiss a chapter 13 case sua sponte ... pursuant to sections 105(a) and 1307(c) of the Bankruptcy Code.”).

Other bankruptcy courts have dismissed Chapter 13 cases on their own initiative under similar circumstances. For...