In re White

618 B.R. 748

IN RE: John Lee WHITE and Brittany Currie White, Debtors

CASE NO. 19-05385-5-SWH

United States Bankruptcy Court, E.D. North Carolina.

Signed August 28, 2020

Joseph A. Bledsoe, III, New Bern, NC, for Trustee.

Travis Sasser, Cary, NC, for Debtor.

ORDER ALLOWING OBJECTION TO CONFIRMATION

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the chapter 13 trustee's objection to confirmation of the debtors' proposed amended chapter13 plan. On January 31, 2020, the trustee filed an objection to the amended plan on grounds that it was insufficiently funded and thus failed to comply with 11 U.S.C. § 1325(a)(1). Dkt. 22. The trustee filed an amended objection on February 5, 2020, asserting additionally that because the amended plan failed to address the secured claim of 510 Nova, LLC, the plan did not satisfy 11 U.S.C. §§ 1325(a)(1) and (5). Dkt. 23. On February 12, 2020, a hearing was held in Raleigh, North Carolina, during which the trustee advanced those objections and also argued, for the first time, that the amended plan had not been filed in good faith as required by 11 U.S.C. § 1325(a)(3). The debtors objected, on timeliness grounds, to the court's consideration of that argument.

At the conclusion of the hearing, the court took the matter under advisement and invited the parties to submit supplementary briefs, which both elected to do. The trustee filed a supplemental memorandum on March 6, 2020, and the debtor filed a responsive memorandum on March 20, 2020. Dkt. 27 ("Trustee's Mem."), Dkt. 28 ("Debtors' Mem."). For the reasons set forth below, the trustee's objection to confirmation will be allowed.

BACKGROUND AND PROCEDURAL POSTURE

The debtors filed their petition under chapter 13 of the Bankruptcy Code, together with their schedules and statements and initial proposed chapter 13 plan, on November 21, 2019. Neither the debtors' schedules (Dkt. 6) nor the plan (Dkt. 7) made any reference to a claim held by 510 Nova, LLC ("Nova"), or to the debtors' ownership of the vehicle that partially secures the claim. Nova was not included on the matrix of creditors. On November 27, 2019, Nova filed a request for notices in the case.

On January 27, 2020, the debtors filed an amended Chapter 13 plan, again including no mention of the Nova claim or the vehicle that secures it, though the amended plan did include Nova on the creditor matrix. Dkt. 21. On January 29, 2020, Nova filed a proof of claim asserting a partially secured claim in the amount of $2,807.71. This bifurcated claim for "money loaned" consists of a $1,675.00 claim secured by a 2005 Scion XA motor vehicle, and an unsecured claim for the remaining $1,132.7. Dkt. Claim 9-1. The trustee filed an objection to confirmation on January 31, 2020, requesting a hearing on grounds that the plan as proposed was not sufficiently funded to pay all claims for which it provided as well as any required distribution to allowed general unsecured claims, as mandated by 11 U.S.C. § 1325(a)(1). Dkt. 22. Five days later, the trustee amended his objection to include the following: "The plan fails to address the following secured and/or priority claim(s) as required by 11 U.S.C. § 1325(a)(1) and/or 1325(a)(5) : 510 Nova, LLC." Dkt. 23. A hearing on the objection was scheduled for February 12, 2020.

During that hearing, the trustee presented arguments on the grounds cited in his amended objection and, in addition, asserted for the first time that the debtor's failure to schedule Nova's known allowed secured claim violated the "good faith" requirement articulated in § 1325(a)(3). The debtor responded that the trustee's good faith argument was untimely, and for that reason should not be considered by the court. After hearing arguments on all of the asserted objections, the court took the matter under advisement and invited counsel to file supplemental briefs.

The trustee, in his supplemental filing, contends that "a proposed chapter 13 plan must specifically provide a treatment for each known allowed secured claim that conforms with the requirements of §§ 1322(b) and 1325(a)(5)." He argues further that the debtor's plan, because it is proposed in violation of those sections, also violates the good faith requirement of § 1325(a)(3). Dkt. 27 at 1. Responding, the debtors maintain that the court cannot even consider the trustee's good faith argument because he advanced it too late. They contend further that they have discretion to "provide for" Nova's secured claim in their plan, and were within their rights to choose to make no mention of it.

DISCUSSION

I. Timeliness of Trustee's § 1325(a)(3) Objection

The court first turns to the debtors' argument that the court should not even have undertaken consideration of that good faith argument, on grounds that the trustee's assertion of it was untimely. The trustee contends that he has both standing and a duty under 11 U.S.C. § 1302(b)(2)(B) to "appear and be heard at any hearing that concerns the confirmation of a plan." Further, he argues that "[t]he Code does not limit the trustee's right to be heard in any way, and to the extent the Rules purport to do so, they are invalid because the Rules cannot trump the Code." Trustee's Mem. at 4. In the trustee's view, Rule 3015 "may limit a creditor's right to raise an objection to confirmation within 7 days of the confirmation hearing, but it cannot so limit the right of the trustee." Id. ; see Matter of Ogden , 570 B.R. 432, 434 (Bankr. N.D. Ga. 2017) (setting out good faith analysis undertaken by court where, "[a]t the hearing , the Chapter 13 trustee raised an objection to confirmation alleging that the Debtor had failed to satisfy the good-faith requirement of § 1325(a)(3)") (emphasis added).

The debtors maintain that the trustee's good faith objection was untimely, such that the court cannot consider it. The procedural rules and requirements set out in Rule 9014 are made applicable to objections to confirmation by Rule 3015(f) and should be "strictly enforced," the debtors argue; otherwise, the last-minute assertion of objections imposes an unfair "surprise factor." The "procedural requirements for objecting to confirmation in Rule 3015(f) apply to the trustee the same as any other party in interest," the debtors contend, and "Rule 3105(f) is procedural in nature and mandates that ‘[a]n objection to confirmation of a plan shall be filed and served on the debtor ... at least seven days before the date set for the hearing on confirmation, unless the court orders otherwise.’ " Debtors' Mem. at 1. Taken to the extreme, "the view expressed in the trustee's memorandum would literally allow a trustee to waltz into court the moment of confirmation hearings and orally object to any or all plans without prior notice or warning to anyone." Debtors' Mem. at 2.

The court concludes that all dancing aside, debtors should never be surprised by having to prove that the filing of their plan was in good faith. It is a debtor's statutory burden to do so. 11 U.S.C. § 1325(a)(3). And certainly, these debtors should not be surprised¹ : First, the trustee based his "new" good faith argument upon precisely the same bases that support his arguments under §§ 1325(a)(1) and (a)(5). At issue are the exact same factual allegations (failure to provide for a known secured claim), and the exact same questions of law, namely whether the omission of a known secured claim is permitted in these circumstances. The trustee did not appear at the confirmation hearing and advance an entirely new and unexpected objection to confirmation for the first time. Instead, the objection highlights an essential element of the debtors' plan, and most importantly, an element related to which the debtor has the burden of proof. It is the debtor who must prove good faith, notwithstanding the objection or lack of objection of any party.

In addition, the debtors overlook the fact that a determination of whether a chapter 13 plan is proposed in good faith requires an assessment of the totality of the circumstances, and the duty to make that determination rests with the court regardless of whether a party objects to a plan on that basis. See United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277 n.14, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (" Section 1325(a) ... requires bankruptcy courts to address and correct a defect in a debtor's proposed plan even if no creditor raises the issue."). It is well established that "[w]hether or not a specific confirmation objection has been made, this court has the right to independently determine that a debtor's proposed chapter 13 plan meets all statutory requirements based upon the evidence presented at confirmation." In re Soppick , 516 B.R. 733, 752 (Bankr. E.D. Pa. 2014) (citing Espinosa ). The court thus "has an independent duty to ensure that a plan complies with the Bankruptcy Code, even if no objections are filed." In re Revels , 616 B.R. 675, 678 (Bankr. E.D.N.C. 2020). The debtors' assertion that the court should not consider the trustee's good faith argument purely because the trustee didn't specifically articulate it, in writing, seven or more days prior to the confirmation hearing, is without merit.

II. Whether Plan was Proposed in Good Faith under § 1325(a)(3)

To be confirmed, a chapter 13 plan "must comply with the provisions of chapter 13 and with other applicable provisions of the Bankruptcy Code, must be proposed in good faith , and must meet the plan content requirements as set forth in section 1322." In re Mank , 2020 WL 1228671 *1 (Bankr. E.D.N.C. 2020) (Case No. 19-04199-5-SWH) (emphasis added). Section 1325(a) sets out the requirements which "a debtor's proposed repayment plan must meet for a bankruptcy court to confirm the plan." Hurlburt v. Black , 925 F.3d 154, 159 (4th Cir. 2019). Section 1325(a) provides in relevant part that

(a) [e]xcept as provided in subsection (b), the court shall confirm a plan if–

(1) the plan complies with the provisions of

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