Court: United States Bankruptcy Court, E.D. Pennsylvania; December 2, 1997; Us Bankruptcy; United States Bankruptcy Court
In the Chapter 13 bankruptcy case of Michelle E. Sweeney (now Michelle Sweeney Pennington), two key issues are presented: (1) a motion from her landlords, John T. and Alsenia Fields, seeking relief from the automatic stay to evict her for non-payment of rent, and (2) Sweeney's adversary proceeding against the Housing Authority of the County of Chester (HACC) regarding the termination of her Section 8 housing subsidy. After a de novo hearing on the termination, the court found insufficient evidence to justify the denial of assistance based on alleged inaccuracies in her family composition reporting and deemed her failure to report temporary employment as not materially significant. Consequently, the court ordered the reinstatement of Sweeney’s Section 8 certificate and denied the landlords' motion for eviction, contingent upon her resuming the lease and confirming a repayment plan for any improperly received financial assistance due to the employment income omission.
Sweeney filed for bankruptcy on October 3, 1997, with no scheduled meetings of creditors or confirmation hearings. Shortly after the bankruptcy initiation, on October 14, 1997, the landlords filed their eviction motion, citing non-payment of rent since Sweeney moved into the rented premises on April 23, 1997. Sweeney's counsel explained that her Section 8 assistance had been terminated prior to her move due to a fire in her previous unit, and she was appealing this termination in the Court of Common Pleas after an unsuccessful administrative appeal. The landlords, while expressing dissatisfaction with Sweeney as a tenant, argued against delaying eviction efforts while awaiting resolution of her subsidy status.
The Debtor was advised to remove the CCP action to the court, with an expedited hearing scheduled for November 25, 1997. This arrangement was formalized in an order from November 13, 1997, which indicated that the Debtor would be deemed to admit the factual allegations in the Motion. The court suggested it would likely grant the Motion if the Debtor did not promptly restore her Section 8 certificate. The Debtor's removal was in response to an adverse administrative decision from June 26, 1997, which cited three reasons for terminating her Section 8 certificate: (1) inaccurate reporting of her income and household composition, (2) failure to disclose her husband's residence, and (3) violation of the “One Strike and You’re Out” policy due to alleged drug-related activities by her husband.
At the November 25 hearing, HACC consented to the removal and was prepared to discuss the merits. HACC indicated it could no longer rely on the “One Strike” policy due to the timing of the evidence against the Debtor, which did not meet the one-year requirement. The court needed to determine the appropriate procedural standard for reviewing the case, with HACC suggesting 2 Pa.C.S. 704, relevant to Commonwealth agencies. However, the court believed 2 Pa.C.S. 754 was applicable, allowing for a de novo hearing since there was no complete record of the prior proceedings. Citing McLaughlin v. Centre County Housing Authority, the court clarified that housing authorities are classified as local agencies under Pennsylvania law, thus making 2 Pa.C.S. 704 inapplicable. Consequently, the absence of a full record justified a de novo hearing under 754(a).
The Debtor's case primarily relied on her testimony, with additional brief support from Pennington and her daughter, Turquoise Trowery. The Debtor reported that her only income until late October 1996 was welfare benefits, after which she began working as a school bus driver. She informed Marissa Norman at the HACC office about her new job and increased income in November 1996, leading to an increase in her rent from $27 to $60, effective February 1997. The Debtor claimed she had always reported income changes to HACC by phone without issue.
A key issue arose regarding the residency of Pennington and her two oldest children, Turquoise and Jeremy Trowery. Although married to Pennington since November 3, 1995, the Debtor asserted they never lived together due to Section 8 restrictions, stating he lived nearby with family and visited her frequently but did not stay overnight. HACC challenged this by noting Pennington had used her address for official purposes. The Debtor admitted this but maintained it was merely for mailing.
Regarding her children's residency, HACC case manager Robert J. Caldwell alleged the Debtor misrepresented their living situation, claiming they lived with her more than half the time. The Debtor clarified that her two oldest children had a shared custody arrangement with their father, alternating homes about every week or two. When asked about their residency duration, the Debtor responded affirmatively without clarity, leading HACC to assume all four children lived with her more than half the time, thus qualifying her for a four-bedroom unit. Testimonies from Pennington and Turquoise aligned with the Debtor's account, with Pennington citing religious reasons for their marriage and intentions to live together in the future, while Turquoise noted a belief that they spent more time with their father.
Caldwell, the sole witness for HACC, contradicted the Debtor's assertion that her rent increase was due to her reporting a rise in income from employment. Instead, he testified that the rent adjustment stemmed from information HACC received from the Department of Welfare regarding the Debtor's income from public assistance and child support. Caldwell also refuted the claim that HACC accepted income updates from Section 8 participants verbally over the phone, clarifying that changes must be submitted in writing or, alternatively, presented in person at HACC's office. He noted that the Debtor had not mentioned any phone calls during the hearing but had claimed ignorance of the requirement to report income changes.
Caldwell stated that HACC does not always terminate tenants solely for failing to report income changes in writing, but argued that the current case was influenced by the Debtor's problematic history with HACC, evidenced by a file review documenting various incidents since 1988. In rebuttal, the Debtor denied Caldwell's assertion that her support payments increased her income, stating she was responsible for child support payments instead. She also claimed she forgot to mention the phone call during the administrative hearing.
Regarding the legal framework, the grounds for denial or termination of Section 8 assistance are outlined in 24 C.F.R. 982.552(b)(c), which includes violations of family obligations, evictions, criminal activities, fraud, unpaid rent, and other breaches of agreements with the housing authority. The housing authority retains discretion to consider individual circumstances, including the severity of the case and the impact of any action on uninvolved family members when deciding on denial or termination of assistance.
Subsection (1) regarding family obligations is the most relevant in this context, while subsection (5) concerning fraud may also apply. Subsection (4), related to drug and violent criminal activity, was withdrawn by HACC during the trial on November 25, 1997. According to 24 C.F.R. 982.551, participant families must provide essential information to the housing authority for program administration, including updates on income and family composition. HACC's forms require the head of household to affirm the accuracy of the information provided and to report any income or household changes immediately in writing. The Debtor completed these forms in August 1996 and April 1997 but allegedly failed to report her income from October 1996 and misrepresented her husband’s residence status and the non-residence of her two oldest children. HACC argues these violations justify terminating the Debtor’s Section 8 certificate.
The analysis acknowledges the challenges low-income individuals face in securing adequate housing and emphasizes that loss of a Section 8 certificate is significant, affecting the tenant's entire economic status. Such a right should not be forfeited without substantial reasons. Additionally, there are concerns regarding whether housing authorities can expand the grounds for termination beyond those specified in the regulations. Case law highlights that violations must be material to justify termination. While it's plausible that the Debtor may have violated HACC regulations, the severity of the violations does not warrant the extreme action of terminating her from the Section 8 program.
Housing authorities have discretion under 24 C.F.R. 982.552(h) to consider various factors, including the head of household's culpability and the potential impact of benefit termination on family members. In this case, the Debtor’s role as the custodial parent of young children and a low level of culpability argue against terminating her Section 8 benefits. Although the Debtor may have failed to report her income or the residency status of her husband and children, these failures were not proven to be culpable or fraudulent, as the Debtor disclosed her employment voluntarily. HACC failed to present evidence demonstrating the extent of any benefit gained by the Debtor from not reporting income, nor did it establish that her actions constituted intentional falsification. The Debtor's testimony indicated she communicated her employment to HACC by phone, and there was no evidence to disprove this claim. Terminating her benefits based solely on her failure to provide written notice, rather than a substantive violation, would prioritize form over substance and not meet the threshold for a material breach of rules. The potential residency of a household member was also deemed insignificant without evidence of income. Therefore, the Debtor's lack of immediate written notice should not result in the loss of her Section 8 certificate.
In Zajac v. Altoona Housing Authority, the court addressed the case of a Section 8 recipient whose household composition was questioned. The court noted that while there was an implication that Pennington, an individual not disclosed as a resident, earned over $25,000 annually, there was insufficient evidence to support claims that the Debtor misreported her household status to conceal income. HACC failed to provide concrete evidence of Pennington’s residency or of any significant violation by the Debtor concerning her custody arrangement with her children. The Debtor’s misunderstanding of a question about her children’s residency was deemed inconsequential, as her eligibility for a four-bedroom unit would remain unchanged regardless of the frequency of her children's stay. The court found that the Debtor’s record over the past nine years, including missed reexaminations and minor infractions, did not warrant termination of her Section 8 benefits. Critically, the hearing officer's reliance on hearsay evidence and failure to allow the Debtor to confront witnesses undermined the validity of the findings. Ultimately, the court reversed HACC's decision to terminate the Debtor’s Section 8 certificate, highlighting procedural inadequacies and lack of material violations.
The Debtor is required to fully compensate the Landlords and HACC for damages due to her failure to report her income and family composition correctly. She must undergo a reexamination to accurately disclose her income to HACC, enabling proper retroactive rent calculations since October 1996. Any resulting payments to HACC will be classified as nondischargeable administrative expenses, necessary for maintaining her Section 8 certificate. The Debtor must also promptly assume her lease and repay any past due amounts to the Landlords, as identified in the reexamination.
The court orders that, contingent upon the Debtor's cooperation with HACC, her Section 8 housing certificate termination is vacated, restoring her eligibility as of April 23, 1997. HACC is directed to remit all due Section 8 subsidies to the Landlords. The automatic stay remains effective for the Landlords regarding the premises and for HACC concerning the Debtor’s restored Section 8 status, provided the Debtor complies with the outlined conditions, which include filing a motion to assume her lease by December 15, 1997, and confirming a Chapter 13 reorganization plan that compensates HACC for recalculated obligations under the Section 8 program.
Landlords or HACC may notify the Debtor in writing if they believe she has not met the conditions of the Order. If the Debtor fails to meet the conditions to the satisfaction of Landlords or HACC and does not file an expedited Motion for relief within seven days, they can certify the issue to the court. Upon court order, they may pursue state remedies to gain possession of the premises or terminate the Debtor's Section 8 certificate. A judgment for possession does not terminate the lease under Pennsylvania law, as the tenant retains the right to cure rental deficiencies before actual eviction.
Section 8 refers to the housing assistance program established under the United States Housing Act of 1937, allowing low-income tenants to pay only 30% of their adjusted income towards rent, with the remainder subsidized by the federal government. The case differs from In re Perry, as it involves a de novo hearing, allowing federal jurisdiction. Federal courts can assume jurisdiction in original proceedings rather than reviewing administrative appeals. The current matter involves federal law entitlement for the Debtor, necessitating federal bankruptcy courts to respect state law on state issues. The Debtor is also required to reimburse HACC for any financial discrepancies due to under-reported income affecting rental payments.
