In re Broadbent

Citations: 531 B.R. 840; 2015 Bankr. LEXIS 1879; 2015 WL 3566986Docket: Bankruptcy Case No. 14-41269-JDP

Court: United States Bankruptcy Court, D. Idaho; June 8, 2015; Us Bankruptcy; United States Bankruptcy Court

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The Court, led by Honorable Jim D. Pappas, is evaluating the confirmation of Christopher Joseph Broadbent’s chapter 13 plan, which has been opposed by trustee Kathleen A. McCallister. An evidentiary hearing occurred on April 7, 2015, followed by additional briefings from both parties. Broadbent, who fell behind on mortgage payments while studying, filed for chapter 13 on November 11, 2014, to manage his mortgage arrears. His original financial disclosures omitted his girlfriend Cassandra’s income and inaccurately reported zero year-to-date income. He proposed a payment plan of 36 monthly payments of $300 to address mortgage arrears and attorney fees, along with retaining $1,621 of annual tax refunds.

The trustee recommended against confirmation, citing Broadbent's recent income increase, inaccuracies in his financial disclosures, and the exclusion of Cassandra’s income. Broadbent amended his plan to increase monthly payments to $370, resolve the attorney fee issue, and provide a ten percent dividend to unsecured creditors while including $1,346.67 from Cassandra as monthly income. Despite this inclusion, his overall household income remained below Idaho's median. Additional amendments altered his expense classification, increasing food expenses and removing the property tax payment from his budget.

During the confirmation hearing, the primary issues discussed included the good faith of Broadbent's amended plan, the consideration of Cassandra’s financial contributions, and the necessity for retaining portions of tax refunds without demonstrated need for daily expenses. After the hearing, the Court considered the presented evidence and arguments before rendering a decision.

Section 1325(a) of the Bankruptcy Code outlines the criteria for confirming chapter 13 plans, emphasizing that such plans must be proposed in good faith. The Trustee argues that the Debtor's amended plan fails this requirement for three primary reasons: 

1. The Debtor increased expenses on Schedule J, offsetting the $200 income from Cassandra reported on Schedule I, effectively negating the benefit of the additional income.
2. The plan aims primarily to address mortgage arrears while providing minimal payments to unsecured creditors.
3. The Debtor's retention of $1,621 in annual tax refunds is contested, as the Trustee claims the Debtor has not demonstrated that these funds are necessary for daily expenses.

In response, the Debtor asserts compliance with all confirmation requirements, including good faith. The determination of good faith involves analyzing the totality of circumstances, as established in case law (e.g., Leavitt v. Soto, Drummond v. Cavanagh). The burden of proving good faith rests on the Debtor despite the Trustee's objections. Relevant factors for consideration include misrepresentation of facts, manipulation of the Bankruptcy Code, the Debtor's history of filings, intent to evade state court actions, and any instances of egregious behavior.

The Ninth Circuit Bankruptcy Appellate Panel has outlined various non-exclusive factors for bankruptcy courts to assess the good faith of a debtor's proposed plan, including: the proposed payment amounts and debtor's surplus; employment history and potential for future income increases; the plan's duration; accuracy of debt and expense statements; preferential treatment of creditors; modifications of secured claims; nature of dischargeable debt; special circumstances like medical expenses; frequency of prior bankruptcy relief; the debtor's motivation and sincerity; and the administrative burden on the trustee.

In applying these factors to the current case, the court found no evidence of prior bankruptcy filings or related litigation by the debtor, nor any egregious behavior. The debtor's proposed monthly payment of $370 reflects his modest income, with future increases potentially addressed through plan modification. The plan's 36-month term complies with legal requirements, and this is the debtor's first bankruptcy filing.

The debtor's motivation for seeking Chapter 13 relief is deemed sincere, stemming from challenges in maintaining mortgage payments while completing vocational training. The plan aims to address mortgage arrears to retain the home, which is a legitimate purpose for filing. The court noted no inaccuracies in the debtor's financial disclosures, except for a minor mistake regarding year-to-date income, which was clarified as unintentional. Overall, the court finds the debtor's actions consistent with good faith under applicable legal standards.

The Court evaluates whether the Debtor misrepresented facts or manipulated the Bankruptcy Code in his Chapter 13 plan, particularly in light of the Leavitt factors. The Trustee argues that the Debtor's failure to include his partner Cassandra's total income and the choice to pay unsecured creditors minimally while settling mortgage arrears indicates bad faith. However, the Court finds that retaining up to $1,621 of annual tax refunds is not indicative of bad faith, as the Debtor accounts for one-twelfth of the refund as monthly income and must remit any excess to the Trustee. This approach is deemed rational and does not constitute a windfall for the Debtor.

The Court acknowledges that while unsecured creditors may not significantly benefit from the plan due to the focus on mortgage arrears, this does not inherently reflect bad faith. The amount paid to unsecured creditors alone is not determinative of good faith, as established in related case law. Furthermore, the Trustee's claim that excluding Cassandra's income from the plan indicates bad faith is rejected by the Court. The Bankruptcy Code does not mandate that a live-in partner's income be included in a Chapter 13 plan, distinguishing Cassandra’s situation from that of a non-filing spouse. The Trustee fails to prove that Cassandra has a legal obligation to contribute financially or that any assets involved are community property. Additionally, case law typically addresses the income of significant others in the context of eligibility under 109(e), suggesting that without a formal agreement, such income should not be factored into the Debtor’s financials for plan payments. Thus, the Court concludes that the Debtor's treatment of income and expenses aligns with good faith principles.

A live-in significant other's income is not automatically required to be included in a debtor's plan payments, and excluding it does not inherently constitute bad faith. In this case, Debtor's exclusion of Cassandra's income was not evidence of bad faith. Cassandra contributes $200 monthly for household groceries, but the majority of household expenses are incurred by Debtor, who does not pay any of Cassandra's personal debts. Debtor indicated that requesting cash contributions from Cassandra for plan payments could lead to her leaving. The Court finds that Debtor's amended plan meets confirmation requirements and is proposed in good faith, taking into account the Leavitt and Warren factors. The Trustee has not identified any barriers to confirmation, and an order for confirmation will be submitted. The Court acknowledges the importance of considering the totality of circumstances rather than relying on a single factor. Although there is a risk that Debtor's monthly income may be insufficient without expected tax refunds, the Trustee did not contest the plan's feasibility. The Court also notes that no evidence was presented regarding Cassandra's expenses, which would affect any calculations of her contribution to Debtor's plan payments.