MEMORANDUM OPINION AND ORDER
DENNIS MICHAEL LYNN, Bankruptcy Judge.
Before the court is the objection (the "Objection") of the chapter 13 standing trustee (the "Trustee") to (1) confirmation of Patricia Ann Nahat's ("Patsy") final plan ("Patsy's Plan") and (2) the modification (the "Modification") of Richard Mitri Nahat's ("Richard") (collectively, the "Nahats") confirmed plan ("Richard's Plan") filed pursuant to section 1329(a) of the Bankruptcy Code (the "Code").
This court held a hearing for such purposes on May 25, 2004, and the Nahats testified at that time. The record before the court, in addition to the Nahats' testimony and the exhibits then offered by the Trustee and the Nahats, also includes the prior proceedings on Patsy's Plan and the Modification, as well as proceedings that led to confirmation of Richard's Plan. The
This matter is subject to the court's core jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(b)(2)(L). This memorandum opinion constitutes the court's findings of fact and conclusions of law. See FED. R. BANKR.P. 7052 and 9014.
The matters presently before the court serve as a sequel to prior proceedings in Richard's case which are described in In re Nahat, 278 B.R. 108 (Bankr.N.D.Tex. 2002). In In re Nahat, this court held that in a chapter 13 case filed under Code section 301 (as opposed to a joint filing under section 302) by a married individual, the nonfiling spouse's income is not required to be considered in calculating the debtor's disposable income for purposes of plan confirmation, including the requirements of section 1325(b).
Following that ruling, more than two years after Richard's January 18, 2000, filing, Patsy commenced her own chapter 13 case on August 5, 2002. Patsy's Plan provides for payments of $57,504 over sixty months. Patsy's unsecured creditors are to receive eight percent of their claims, which claims total approximately $32,169. Patsy's testimony was that these creditors' claims arose from use of credit cards in her name only and are not liabilities of Richard. The claims registers and schedules in each of the Nahats' cases are consistent with this testimony, and there is no apparent inconsistency between Patsy's testimony and the schedules and evidence presented in support of confirmation of Richard's Plan. See In re Nahat, 278 B.R. at Ill. Patsy's Plan also proposes to cure arrearages of $34, 278.77 on the Nahats' homestead and to pay Americredit Financial Services $8,989.30 (with ten percent interest) to satisfy a lien against a 1999 Ford Taurus valued at $8,990.00.
Richard's Plan provided for no return to unsecured creditors, payment of $12,341.30 in full satisfaction of a lien securing approximately $20,000 in debt on a 1993 Infiniti, payments totaling approximately $1,500 by reason of other personal property, payment of slightly more than $4,000 in taxes, and cure of $8,866.04 in mortgage arrearages. Richard's testimony—both prior to confirmation of Richard's Plan and in support of the Modification—is that his unsecured obligations are not Habilities of Patsy.
In connection with confirmation of Richard's Plan (and, thus, prior to Patsy's filing), Patsy testified that she used her income
By the Modification, Richard proposes to reduce from fifty-three months to thirty-eight months the term of his plan. The result would be total payments under Richard's Plan of $18,145 (as opposed to the present base amount of $24,695). However, because payment of mortgage arrearages and other secured claims would not exhaust Richard's total payments on Richard's current budget (and given Patsy's filing), the Modification would increase return to his unsecured creditors from zero to 13.16%.
The Trustee's concern that the Nahats are not devoting their entire disposable income of thirty-six months, as required by Code section 1325(b)(1)(B), motivated the Trustee's objections to confirmation of Richard's Plan and now has led to the Objection. The Trustee argues that Richard, rather than satisfying mortgage arrearages as provided in his plan, allowed them to grow substantially. Moreover, the Trustee asserts that the Nahats reflected on their individual Schedules I and J some payments of common obligations, e.g., the mortgage, thus double-counting expenses and artificially reducing their joint disposable income since commencement of their cases.
The court's analysis of these matters is complicated by Richard's varied employment history. At the time of confirmation of Richard's Plan, Richard had changed jobs a number of times while in chapter 13. See In re Nahat, 278 B.R. at 110. Richard's sporadic employment pattern has apparently continued. Thus, it is difficult for the court to establish with any precision the Nahats' joint (or individual) disposable income.
The Trustee also has raised good faith issues. The Trustee notes that the effect of the separate filings by Richard and then Patsy is to provide the Nahats with chapter 13 protection for almost eight years. The Trustee expresses particular concern about the length of time the Nahats' mortgagee will be subject to the automatic stay pursuant to Code section 362(a) and about the substantial arrearages owed to the mortgagee.
First, the court must decide whether there is a bar or limit to Patsy's initiation of her chapter 13 case and the proposal of Patsy's Plan. It is the commencement of Patsy's case, after all, which has extended the Nahats' bankruptcy protection well beyond the five years contemplated by Congress. See Code § 1322(d).
Second, the court must analyze the combined effect of Patsy's Plan, Richard's Plan, and the Modification. The inquiry here will largely be directed toward whether the Nahats have acted in good faith or have abused the bankruptcy system.
Finally, the court must test Patsy's Plan and the Modification to ensure that each meets the requirements of chapter 13. See Code §§ 1322, 1325, and 1329. In considering whether Patsy's Plan and the Modification are confirmable, the court must ensure that each provides, as required by section 1325(b)(1)(B), for payment by the debtor of thirty-six months of disposable income for the benefits of creditors.
A. May Patsy File Under Chapter13 and Confirm a Plan?
It would seem clear that Patsy may not be denied the benefit of chapter 13. Whether a debtor is eligible for chapter 13 is determined solely by whether the debtor meets the eligibility requirements of Code section 109(e). In construing section 109(e), the court must adopt the plain meaning of the statute. See Lamie v. United States Trustee, 540 U.S. 526, 124 S.Ct. 1023, 1030, 157 L.Ed.2d 1024 (2004) (concluding that when the language of a statute is plain and does not lead to an absurd result, the sole function of the court is to enforce the statute according to its terms); Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991) (concluding that where resolution of a question of law turns on a statute, courts must look first to the statutory language); Union Bank v. Wolas, 502 U.S. 151, 158, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991) (finding that the fact that Congress may not have foreseen all the consequences of a statutory enactment is not sufficient reason for refusing to give effect to the statute's plain meaning); United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (finding that if a statute's language is plain, the sole function of the courts is to enforce the statute according to its terms). In fact, the Supreme Court has twice held that a person may file a petition under a chapter of the Code so long as the person meets the requirements of and is not barred by the terms of section 109. See Toibb, 501 U.S. at 160-61, 111 S.Ct. 2197; Johnson v. Home State Bank, 501 U.S. 78, 82, 111 S.Ct. 2150,115 L.Ed.2d 66 (1991).
Section 109(e) requires that a chapter 13 debtor (1) be an individual; (2) have "regular income"; and (3) owe unsecured debts below the limits set in the statute. Code § 109(e). See also Code § 104 (providing for adjustment of dollar amount limits). Under section 109(g), a debtor may not file a chapter 13 case in certain circumstances.
That the effect of Patsy's filing is to extend the Nahats' joint chapter 13 experience beyond five years does not limit Patsy's right to file her case or to propose a sixty-month plan. The limitation on the length of plans was a response by Congress to concerns that a plan of too long a duration might amount to involuntary servitude. See generally H.R.REP. NO. 95-595, at 117, 321-22 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6078 (explaining that Congress's rationale in limiting the length of a chapter 13 plan period was to avoid "becom[ing] the closest thing there is to involuntary servitude"); S.REP. No. 95-989, at 33 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787 (same); 2 COLlier ON BANKRUPTCY ¶303.02 (15th ed. rev.2004) (explaining that Congress's concern about involuntary servitude and the Thirteenth Amendment to the Constitution is revealed by the statute's prohibition of involuntary chapter 13 cases); In re Noonan, 17 B.R. 793, 799 (Bankr.S.D.N.Y. 1982) (explaining that "Congress acted to dispel even the remotest possibility of involuntary servitude by prohibiting involuntary chapter 13 cases").
Indeed, the caselaw addressing when the court may authorize a plan of more than thirty-six (but not more than sixty) months under section 1322(d) overwhelmingly suggests that the cause shown for extending the time must benefit the debtor in some way.
B. The Nahats Have Acted in Good Faith
The Trustee, however, urges that the extra years of protection gained by the
However, a standard used to determine whether a petition is filed in bad faith and subject to dismissal under Code section 1307(c) is not necessarily applicable in assessing conformance of a plan with the requirement of section 1325(a)(3) that "the plan [be] proposed in good faith and not by any means forbidden by law." Code § 1325(a)(3). In the Fifth Circuit, that "good faith" test is met if the debtor's plan is truly intended to effect rehabilitation. See Ramirez v. Bracher (In re Ramirez), 204 F.3d 595, 600-01 (5th Cir.2000) (affirming that a chapter 13 filer's good faith is viewed in light of the "totality of the circumstances" test under which the court considers factors such as the reasonableness of the proposed repayment plan and whether the plan indicates an attempt to abuse the spirit of the Code); In re Chaffin, 836 F.2d 215, 217 (5th Cir.1988) (emphasizing that the good faith inquiry under section 1325(a)(3) of the Code "requires a careful examination of the totality of the circumstances" because "without further fact-finding by the bankruptcy court we cannot `tell whether [debtor] and [debtor's] counsel are playing games or filing a bona fide plan that must be confirmed if it meets all six requirements of 11 U.S.C. § 1325'") (citation omitted).
Even if the bad faith imputed to a serial filer were a proper gauge under section 1325(a)(3), the court has not found or been cited to a case which penalizes one spouse for seeking relief during the pendency of the other spouse's case. Rather, the serial filing ban has typically been applied where successive filings follow dismissal of earlier cases. See, e.g., In re Casse, 198 F.3d at 341^2 (declining to disturb the bankruptcy court's finding that the debtor's serial filings were made in bad faith and finding that the bankruptcy court did not abuse its discretion by (1) barring the debtor's most recent filing and (2) refusing to vacate the foreclosure sale of debtor's property). The successive multiple filings by the husband and wife in In re Copeland, 268 B.R. 273 (Bankr.D.Kan.2001), were addressed in a very different context than plan confirmation and In re Smith, 200 B.R. 213 (Bankr.E.D.Mo.1996), presented a very different fact pattern from the case at bar. This court is not prepared to extend, in the context of the Objection before the court, the reasoning of bad faith filings to prevent
Nor does the Trustee's concern that the Nahats' mortgagee is prejudiced by the continuation of the automatic stay protection for the Nahats' homestead from Richard's filing until the completion of Patsy's Plan—a period of about eight years—support a finding of lack of good faith under section 1325(a)(3). The mortgagee has not objected to Patsy's Plan. Should the mortgagee feel itself aggrieved by the length of stay protection, it may seek relief under Code section 362(d). The court will not, of course, address at this juncture whether the Nahats' conduct could constitute grounds (or a factor) in finding cause for relief from the stay. See Code § 362(d)(1).
Finally, the evidence before the court does not indicate that the Nahats have acted in a wrongful fashion that would amount to bad faith. Richard's peripatetic progression of jobs appears to be the primary reason for the family's need for bankruptcy relief. Changes in a person's employment, at least absent a showing of frivolous disregard by that person of his pecuniary obligations or other peculiar facts, cannot amount to bad faith. There is no evidence that Richard's conduct justifies denial to either him or Patsy of relief under the Code.
C. Other Requirements for Confirmation and Modification Approval
The Trustee does not argue that the Modification or Patsy's Plan fails any tests other than (1) the test for good faith (already addressed); (2) the requirement that there be no unfair discrimination, see Code section 1322(b)(1), incorporated by Code section 1325(a)(1)
The court therefore concludes that Patsy's Plan is confirmable unless it discriminates unfairly or fails to meet section
1. Unfair Discrimination
The Nahats present an unusual circumstance in that each claims a separate set of unsecured creditors. Because Richard's Plan and Patsy's Plan each provide but one class for unsecured creditors, nothing internal to either plan could effect discrimination.
2. Disposable Income
The requirement for confirmation that a debtor devote thirty-six months' income to his or her plan is one of the alternative requirements for confirmation established by Code section 1325(b)(1).
a. Patsy's Plan
Patsy's Plan proposes payments of $57,504 over a sixty-month period. Patsy's Schedules I and J, as amended May 18, 2004, reflect net income of $2,078.40 and expenses of $810.00, respectively.
But Patsy's Plan assumes approval of the Modification. If the Modification is approved, Richard will contribute more funds to payment of household expenses. Richard would assume full responsibility for current payments for the family mortgage ($1,970), utilities ($600), and maintenance ($100). As Richard's ability to do so is dependent in part on his not making further payment (at $350 per month) under his plan, Patsy can rightfully claim that her disposable income should be reduced by at least the amount of Richard's payment.
b. The Modification
At the time of the confirmation of Richard's Plan, his February 2002 Schedule I reflected gross income of $5,000 and net income of $4,150. Taking into account Patsy's contribution of $1,155 to the community, the total net available to Richard to pay expenses of the community and fund his plan according to his Schedule I was $5,305. As Richard's contemporaneous Schedule J provided for expenditures of $4,985, to meet the test of Code section 1325(b)(1)(B) Richard's Plan had to provide for payments to the Trustee of at least $11,520 ($320 per month multiplied by thirty-six months). In fact, Richard's Plan provided for $24,695 in payments to the Trustee.
With the exception of one $400 payment, the Modification would eliminate the remaining payments under Richard's Plan. The total paid to the Trustee by Richard if the Modification is approved would be $18,145. At first blush, because $18,145 substantially exceeds the calculation of disposable income at the time of confirmation of Richard's Plan, it would appear that the court should approve the Modification. However, proposal under section 1329(a) of a modification to a confirmed plan results from changes in the debtor's circumstances that alter the debtor's disposable income. See 8 COLLIER ON BANKRUPTCY If 1329.02 (15th ed. rev.2004) (discussing that modifications to a plan may be made for a number of reasons, including a decrease in debtor's income); 5 NORTON BANKRUPTCY LAW AND PRACTICE 2D § 124:2, at 124-20 (2001) (explaining that courts will allow postconfirmation modifications when debtor is able to demonstrate a change in circumstances warranting modification to the plan).
The change in Richard's circumstances
The court, of course, recognizes that Patsy filed her chapter 13 case nearly thirty-one months after Richard filed his chapter 13 case. Because Richard's disposable monthly income increased only upon Patsy's filing, Richard's projected disposable income must be recalculated only from that date. However, that the overlap of Richard's first thirty-six months in chapter 13 (payment thirty-six due February 3, 2003) and Patsy's chapter 13 (filed August 5, 2002) was only six months does not limit recalculation to that overlap period. Not only must the court potentially recalculate to reflect Richard's disposable income in various employments, the court must also account for any "cushion" between Richard's payments during the first thirty-six months of his plan and income of which he might dispose.
Because Richard's employment history has been irregular, the court does not have sufficient data to calculate Richard's disposable income for thirty-six months.
The court's holding upon which this case turns is that separately filing spouses whose chapter 13 cases overlap must share the burden of their community living expenses in an equitable fashion such that the amount payable to the Trustee pursuant to section 1325(b)(1)(B) under each spouse's plan totals at least as much as it would were the spouses treated as joint debtors during the overlap period.
Because the Modification is not approved, Richard's Plan remains in effect. Because Patsy's filing has increased Richard's disposable income—and made possible a dividend to Richard's unsecured creditors—the Trustee may wish to propose a modification to Richard's Plan pursuant to Code section 1329(a) and FED. R. BANKR.P. 3015(g) in order, at least, to provide for payments to unsecured creditors.
The Trustee is directed to prepare and submit to the court orders consistent with this opinion.
Code § 1325(a)(3). Cf. FED. R. BANKR.P. 3015(f), not applicable due to the Objection.