Rickabaugh v. Rickabaugh (In re Rickabaugh)

IN RE: Daniel E. Rickabaugh Debtor

Rebecca F. Rickabaugh Movant v. Daniel E. Rickabaugh Respondent

No. 1:20-bk-3505-HWV

United States Bankruptcy Court, M.D. Pennsylvania

August 10, 2021

Chapter 13

Motion to Dismiss Case with Prejudice (#40); Objection to Confirmation of Plan (#38)

OPINION

Henry W.Van Eck, Chief Bankruptcy Judge

On April 27, 2021, Rebecca F. Rickabaugh ("Movant") filed an Objection to Confirmation of the Second Amended Chapter 13 Plan of Daniel E. Rickabaugh ("Debtor") asserting that it was not filed in good faith. ECF No. 38. The next day, on April 28, 2021, Movant filed a Motion for an Order Dismissing Debtor's Chapter 13 Case with Prejudice for lack of good faith under 11 U.S.C. § 1307(c)^[1] (the "Motion to Dismiss" or "MTD"). A hearing on the Motion to Dismiss and the Objection to Second Amended Plan was held on May 26, 2021 where testimony was taken, and evidence was admitted into the record. Following the Hearing, the Court took both matters under advisement. The matters are now ripe for decision.

I. Jurisdiction

The Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(a). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and 157(b)(2)(A). This Opinion constitutes findings of fact and conclusions of law made pursuant to Federal Rule of Bankruptcy Procedure 7052 made applicable to contested matters by Federal Rule of Bankruptcy Procedure 9014.

II. Facts and Procedural History

Prior to initiating this bankruptcy case, Movant filed a Petition for Counsel Fees Pursuant to 53 Pa. Cons. Stat. § 5339 (2019) (the "Fees Petition") against the Debtor in connection with a custody action (the "Custody Proceeding") in the Court of Common Pleas for Dauphin County (the "State Court"). MTD Ex. E, ECF No. 40-5. Shortly thereafter the State Court entered an order granting the Fees Petition and directing the Debtor to pay $4, 179.00 to Movant (the "Attorney Fees") in monthly installments of $250.00 "plus 6% monthly interest until paid in full" (the "Fees Order"). MTD Ex. E, at 2, ECF No. 40-5. Approximately five-and-one-half years later, the State Court scheduled a contempt hearing to address the Debtor's non-payment of the Attorney Fees as required by the Fees Order (the "Contempt Hearing"). MTD Ex. F, ECF No. 40-6. On December 9, 2020, eight days before the Contempt Hearing, the Debtor filed this voluntary Chapter 13 Bankruptcy Petition under section 301 of the Code (the "Petition"). The Debtor also filed his schedules, statements, and other documents as required by § 521 of the Code (the "Schedules") and a Chapter 13 Plan as required by § 1321 (the "Plan"). Because the filing of a bankruptcy petition generally operates as a stay of the continuation of most judicial proceedings against a debtor, the Contempt Hearing was stayed pending resolution of this case. 11 U.S.C. § 362(a).

The Debtor filed an Amended Plan on December 17, 2020 (the "Amended Plan"). ECF No. 15. On January 21, 2021, the Debtor appeared at a meeting of creditors as required by § 341(a) of the Code (the "Meeting of Creditors"). Movant, through her counsel, also appeared at the Meeting of Creditors and questioned the Debtor regarding the truthfulness of the information contained in his Petition and Bankruptcy Schedules. MTD at ¶ 5, ECF No. 40. Also on January 21, 2021, the Movant filed Proof of Claim No. 4 and Proof of Claim No. 5 (collectively, the "Claims"). Proof of Claim No. 4 asserted a priority unsecured claim under § 507(a)(1) in the amount of $13, 825.31 for past due child support. Proof of Claim ("POC") No. 4. Proof of Claim No. 5 asserted a second priority unsecured claim in the amount of $20, 727.84 for the Attorney Fees due pursuant to the Fees Order. POC No. 5.

On January 26, 2021, Movant filed an Objection to Confirmation of the Debtor's Amended Plan (the "Objection to Amended Plan") asserting that the Amended Plan had not been proposed in good faith for several reasons, including the failure to disclose: (1) the "active" sole proprietorships known as "Rickabaugh's Electric" and "DJ Penn State Dan;" (2) the ownership and transfer of business electronics, machinery, equipment and tools in connection with those businesses; (3) income derived from those business from 2018 through the date of filing; (4) the ownership of household goods and furnishings; and (5) the pending state court litigation and certain charitable donations. Objection to Amended Plan ("OBJ.") at ¶ 10, ECF No. 22. Objection to Amended Plan ("OBJ.") at ¶ 10, ECF No. 22.

The Debtor filed a Second Amended Plan pursuant to § 1323(a) on March 31, 2021 (the "Second Amended Plan"). ECF No. 28. The Debtor also filed objections to Proof of Claim No. 4 ("Objection to POC 4" or "OBJ to POC 4") and Proof of Claim No. 5 ("Objection to POC 5" or ("OBJ to POC 5"). ECF Nos. 29, 30. Next, and to address some of the concerns raised by Movant in her Objection to Amended Plan, the Debtor filed an Amended Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period on April 1, 2021.^[2] ECF No. 31. The Debtor also filed an Amended Statement of Financial Affairs on April 2, 2021^[3] and a second Amended Statement of Financial Affairs on May 27, 2021.^[4] ECF 33, ECF No. 50. On April 8, 2021 the Debtor filed Amendments to his Schedules A/B - Property and Schedule C -Property You Claim as Exempt.^[5] ECF No. 36.

On April 27, 2021 the Movant filed an answer to the Objection to POC 5.^[6] The Movant also filed her Objection to Confirmation of the Debtor's Second Amended Chapter 13 Plan (the "Objection to Second Amended Plan") articulating the same grounds asserted in the Objection to Amended Plan. 2OBJ., ECF No. 38. On April 28, 2021, Movant filed her Motion for an Order Dismissing Debtor's Chapter 13 Case with Prejudice again asserting the same grounds as in her Objection to Amended Plan and the Objection to Second Amended Plan. MTD, ECF No. 40. On April 30, 2021, the Debtor responded to the Motion to Dismiss by filing an Objection thereto along with a Request for Court Intervention (the "Objection to Motion to Dismiss").^[7] OBJ MTD, ECF No. 41. A hearing on the Objection to POC 5, the Motion to Dismiss, Confirmation of the Second Amended Plan, and the responses filed to each was held on June 3, 2021. Following oral argument on the Objection to POC 5, the Court entered an order disallowing the claim as a priority claim and reclassifying it as a general unsecured claim. ECF No. 52. A hearing on the remaining pleadings then took place where testimony was taken and evidence was placed into the record. Following the hearing, this Court took the Motion to Dismiss and the Objection to Second Amended Plan under advisement and continued the hearing on confirmation of the Debtor's Second Amended Plan to a later date.

III. Discussion

Movant generally argues that the Debtor's voluntary chapter 13 petition was not filed in good faith and must therefore be dismissed for cause pursuant to § 1307(c), MTD, ECF No. 40, and that the Debtor's Second Amended Plan was not filed in good faith and should therefore be denied pursuant to § 1325(a)(3). 2OBJ, ECF No. 38. Movant's primary argument in both pleadings is that Debtor knowingly and fraudulently concealed property, made false oaths or statements, made false declarations under penalty of perjury, and engaged in behavior indicative of a bankruptcy fraud scheme. MTD at ¶ 16, ECF No. 40. For the reasons that follow, the Court will overrule the Objection to Second Amended Plan and deny the Motion to Dismiss.

When determining whether a Chapter 13 plan was proposed in good faith, bankruptcy courts in this Circuit apply the same analysis used for determining whether a Chapter 13 bankruptcy petition was filed in good faith. Hackerman v. Demeza, 576 B.R. 472, 479 (M.D. Pa. 2017) (citing e.g., In re McKinney, 507 B.R. 534, 551-52 (Bankr. W.D. Pa. 2014); In re Konowicz, 470 B.R. 725, 730 (Bankr. D.N.J. 2012); In re Parke, 369 B.R. 205, 207 (Bankr. M.D. Pa. 2007); In re Jensen, 369 B.R. 210, 232-33 (Bankr. E.D. Pa. 2007). A bankruptcy filing made in bad faith may be dismissed "for cause" under § 1307(c). In re Myers, 491 F.3d 120, 125 (3d Cir. 2007) (citing In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996)). To determine if a bankruptcy filing has been made in bad faith, a bankruptcy court must look to the "totality of the circumstances" and may consider a wide range of factors including: (1) the nature of the debt; (2) the timing of the petition; (3) how the debt arose; (4) the debtor's motive in filing the petition; (5) how the debtor's actions affected creditors; (6) the debtor's treatment of creditors both before and after the petition was filed; and (7) whether the debtor has been forthcoming with the bankruptcy court and the creditors. Hackerman v. Demeza, 576 B.R. 472, 479 (M.D. Pa. 2017) (citing In re Myers, 491 F.3d at 125; In re Lilley, 91 F.3d at 496) (additional citations omitted)).

A dismissal based upon lack of good faith "should be confined carefully and is generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct or gross negligence." In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000) (citing In re Zick, 931 F.2d 1124, 1129 (6^th Cir. 1991)). Egregious conduct is conduct that is "extremely or remarkably bad." Egregious Merriam-Webster's Collegiate Dictionary (11th ed. 2003); Egregious, Black's Law Dictionary (8^th ed. 1999). The word "egregious" is most synonymous with the word "flagrant," which is defined as conduct "so obviously inconsistent with what is right or proper as to appear to be a flouting of law or morality."...