Shovlin v. Klaas (In re Klaas), Case No. 09–29574–GLT

548 B.R. 414

In re: Paul E. Klaas and Beth Ann Klaas, Debtors.

Elizabeth A. Shovlin, Plaintiff,

v.Paul E. Klaas, Beth Ann Klaas, and Ronda J. Winnecour, Chapter 13 Trustee, Defendants.

Case No. 09–29574–GLT

Adv. Proc. 15–02087–GLT

United States Bankruptcy Court, W.D. Pennsylvania.

Signed March 1, 2016

Aurelius P. Robleto, Robleto Law, Pittsburgh, PA, for Plaintiff.

Phillip S. Simon, Pittsburgh, PA, for Defendants.

Related to AP Dkt. Nos. 1, 16, 20¹

MEMORANDUM OPINION

GREGORY I. TADDONIO, United States Bankruptcy Judge

Creditor Elizabeth A. Shovlin commenced this adversary proceeding to block the issuance of a discharge order in favor of the Debtors, Paul and Beth Ann Klaas in their chapter 13 bankruptcy case. Shovlin contends the Debtors are ineligible for a discharge because they failed to complete their plan payments in a timely manner and were late in submitting proof of their participation in a financial management course. The Debtors filed a Motion for Summary Judgment, seeking judgment against Shovlin on the basis that all of the requirements necessary for a discharge under section 1328(a) of the Bankruptcy Code have been satisfied. Having found no disputed material facts in this matter, the only issues before the Court are whether a material plan payment default may be cured within a reasonable time and whether the Debtors failed to timely submit certificates evidencing their completion of the financial management course. Because the Debtors provided their course certificates before the last plan payment was made, and since the Debtors cured the payment default within 46 days, the Court concludes that any such delays were neither material nor prejudicial to the Debtors' creditors. Consequently, the Court shall grant summary judgment in favor of the Debtors and shall overrule Shovlin's complaint.

I.

The Debtors filed a joint chapter 13 petition on December 31, 2009, hoping to ease the burden of $20,639.05 in prepetition arrears on their home mortgage.² Guy Petrone was one of their creditors. He filed an unsecured claim in the amount of $166,538.26 for unpaid rents and loans. Petrone subsequently transferred the claim to his daughter, Shovlin.³

The Debtors filed their first chapter 13 plan on January 22, 2010, proposing a monthly payment of $2,485 over a 60–month term. The plan allocated a payment of $1,449 per month to Chase for obligations under their home mortgage loan.⁴ This first plan was confirmed on an interim basis on March 5, 2010.⁵

On January 19, 2011, Chase filed a "notice of mortgage payment change" which increased the monthly mortgage payment to $1,922.97 per month.⁶ To accommodate the new payment, the Debtors filed an amended chapter 13 plan on January 23, 2011 which increased their monthly plan obligation to $3,017.⁷ The amended plan also projected a four percent dividend to unsecured creditors.⁸

The Court confirmed the amended plan on March 14, 2011.⁹ The confirmation order directed creditors to file their objections to plan confirmation within 28 days. It also provided that the failure to file a timely objection would be "deemed a waiver of all objections and an acceptance of the provisions of this confirmed plan."¹⁰ There were no objections to the amended plan or the confirmation order.¹¹

According to the chapter 13 trustee's records of receipts and disbursements, the Debtors made plan payments totaling $176,769 during their bankruptcy case.¹² From this amount, $174,104 was paid during the first 60 months of the case.¹³ The remaining $2,665 was paid in two installments: a payment of $1,123 on March 16, 2015, and an additional payment of $1,542 on March 23, 2015.¹⁴

On January 29, 2015, the chapter 13 trustee filed a motion to dismiss the bankruptcy case on the basis that, as of that date, 61 months had elapsed since the filing of the petition and $1,123 was still needed to complete the plan.¹⁵ Shovlin joined in the motion, arguing that the 60–month period was absolute and no further payments could be accepted after that time.¹⁶ The Debtors opposed dismissal and pledged to tender the remaining funds before the Court conducted a hearing on the motion.¹⁷

On March 24, 2015, the Debtors filed two Provider Certificates showing that each Debtor had completed a personal financial management course on February 27, 2015.¹⁸ The next day, March 25, 2015, Shovlin filed a supplement to her joinder, asserting that additional grounds existed to dismiss the case because the Debtors' completion of the course was untimely.¹⁹

The Court conducted a hearing on the motion to dismiss on March 25, 2015. At the hearing, the trustee withdrew her motion because the Debtors paid the remaining amounts necessary to complete the plan funding. Shovlin did not withdraw her joinder, however, and she renewed her request for dismissal of the case. Since the Court had not yet reviewed Shovlin's supplement, it took the matter under advisement.

Shovlin initiated this adversary proceeding by filing a complaint objecting to the Debtors' discharge on April 20, 2015. She argued that the Debtors did not fulfill the requirements of Section 1328, in that they had not completed plan payments within the 60–month plan period and had not filed their certification of completion of the debtor education course within the time limits of section 1328(g).

This Court entered its order and memorandum decision on June 4, 2015, denying the motion to dismiss.²⁰ Regarding the debtor education course, the Court found that the Debtors were not delinquent in attending the course or in filing the certificate of completion. Regarding the failure to complete plan payments, the Court determined that there were no statutory or other grounds that prohibited the Debtors from curing a plan default within a reasonable time after the 60–month plan period had expired. The Court concluded that the Debtors had completed their plan obligations and found no grounds to dismiss the case.

Shovlin timely appealed the Court's decision to the U.S. District Court for the Western District of Pennsylvania. In a memorandum order dated August 28, 2015, the District Court affirmed Winnecour in all respects.²¹ Although the District Court focused on whether the bankruptcy court erred in failing to dismiss the case, it made several rulings relevant to the issues pending in this adversary proceeding. First, it confirmed that the Debtors could make payments outside of the original 60–month plan period when caused by unforeseeable circumstances:

Although Sections 1322 and 1325 prohibit a debtor and a Bankruptcy Court from knowingly proposing and confirming a plan that extends beyond five years (i.e., sixty months), these Sections of the Bankruptcy Code do not mandate dismissal of the bankruptcy case if a debtor needs a reasonable period of time to cure an unanticipated arrearage incurred during the sixty-month plan period.... Here, there was no way the [Bankruptcy] Court could have anticipated that Debtors would need an additional two-and-a-half months to cure an arrearage incurred during the sixty-month period. It is undisputed that the arrearage totaled $1,123, and that this arrearage was promptly paid before the Bankruptcy Court held a hearing on Trustee's Motion to Dismiss.

Moreover, the legislative history, as referenced by many of the parties to this case, indicates that Section 1322(d) which governs the Plan's duration, was created to protect the debtor from becoming a ‘wage slave.’ Thus, it would be inconsistent to utilize Section 1322(d) in such a way so as to dismiss Debtors' plan for relief after they made five years' worth of payments on their plan and cured their arrearage in a reasonable period of time which did not adversely affect any creditor."²²

The District Court also determined that the Debtors were not delinquent in attending the financial management course and, even if they had failed to timely file a certificate of completion, the bankruptcy court possesses discretion to extend the deadline.²³

Although Shovlin appealed the District Court's decision,²⁴ no stay pending appeal was requested. Accordingly, the bankruptcy case continued to progress towards completion. The Debtors each filed a Certification of Discharge Eligibility, asserting that they had fulfilled all of the necessary requirements for a discharge under section 1328.²⁵ The trustee also sought approval of her final report and account wherein she certified that the bankruptcy estate was fully administered and recommended that the case be completed.²⁶ As part of her audit, the trustee determined that the plan was now overfunded and she returned $1,486.49 to the Debtors in June 2015.²⁷ With the Court's approval of the trustee's final report and account,²⁸ this adversary proceeding is the only remaining item pending before this Court in the bankruptcy case.

The Debtors now seek summary judgment in the adversary proceeding on the basis that they satisfied all payment and other requirements imposed under the Bankruptcy Code to receive a chapter 13 discharge. The Trustee concurs with the Debtors' request for summary judgment. Shovlin opposes summary judgment and repeats her argument that the Debtors remain ineligible for a discharge.

The parties consented to the Court issuing a ruling without oral argument. As a result, this matter is ripe for adjudication. The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(J). Venue is proper under 28 U.S.C. § 1409.

II.

A motion for summary judgment is governed by Bankruptcy Rule 7056, which makes Civil Rule 56 applicable in this adversary proceeding. Pursuant to Rule 56(a), the court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Bankruptcy Rule 7056, incorporating Fed.R.Civ.P. 56(a) ; Reedy v. Evanson, 615 F.3d 197, 210 (3d Cir.2010). Summary judgment is particularly appropriate where there...