In re: Josue Hernandez Figueroa

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: March 26, 2012
• Docket: 07-00964
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 IN RE: : CASE NO. 07-00964 (ESL) 3 : JOSUE HERNANDEZ FIGUEROA : CHAPTER 13 4 ____________________________________: 5 OPINION AND ORDER 6 Before this court is the Motion to Dismiss (the “Motion to Dismiss”, Docket No. 42) filed by 7 the Chapter 13 Trustee (the “Trustee”) claiming that Debtor is in material default with respect to the 8 terms of the confirmed plan. Debtor filed his Answer to Trustee’s Motion to Dismiss (Docket No. 9 43) alleging that he became unemployed and his ability to fund the confirmed plan has been 10 hampered. For the reasons stated below, the Trustee’s Motion to Dismiss is hereby granted. 11 Procedural Background 12 Debtor filed a Voluntary Chapter 13 Petition with its schedules, statements of financial affairs 13 and documents of current monthly and disposable income on February 27, 2007 (Docket No. 1). On 14 that same date, Debtor also filed a proposed Chapter 13 Payment Plan (Docket No. 4) which 15 provided for 60 monthly payments of $380.00 to the Trustee and adequate protection payments to 16 Reliable Financial Services (“Reliable”) in the amount of $75.00 for months 3 through 11 and 17 $118.05 for month 12. The meeting of creditors was held and closed on March 2, 2007. 18 The Trustee subsequently objected the confirmation of the plan because it failed to provide 19 adequate protection to secured creditors (Docket No. 12). On March 26, 2007, Debtor filed an 20 Amended Chapter 13 Plan (Docket No. 13), which the Trustee recommended on March 27, 2007 21 (Docket No. 14). On May 2, 2007, the Court entered the Order Confirming Plan (Docket No. 16). 22 On April 26, 2007, Debtor field an a request for post-confirmation modification that included 23 an Amended Plan (Docket No. 13) to include certain payments to Reliable. The Trustee favorably 24 recommended the same on April 27, 2007 (Docket No. 14) and on May 2, 2007 the request was 25 granted (Docket No. 16). 26 On August 21, 2007, the Trustee filed a Motion to Dismiss (Docket No. 18) under 11 U.S.C. 27 § 1307(c) asserting that Debtor had failed to make payments on the confirmed plan and for 28 unreasonable delay prejudicial to creditors. On September 5, 2007, Debtor filed an Answer to the Trustee’s Motion to Dismiss (Docket No. 20) acknowledging that he had been unable to make the 1 timely payments because of unforseen medical expenditures. In order to remedy the defaulted 2 payments, Debtor submitted a post-confirmation modified plan that rearranged the payment schedule 3 (Docket No. 19). No objections to that proposed Amended Plan were filed and on September 19, 4 2007, the court entered an Order confirming it (Docket No. 22). 5 On May 25, 2010, the Trustee filed a second Motion to Dismiss (Docket No. 25) under 11 6 U.S.C. § 1307(c) claiming once again that Debtor had failed to make the payments of the latest 7 confirmed plan and for unreasonable delay prejudicial to creditors. On June 23, 2010, Debtor filed 8 his Answer to that Motion to Dismiss (Docket No. 29) recognizing that he had been unable to make 9 the timely payments because he had become temporarily unemployed, but also alleging that the 10 situation had been surmounted. To remedy the defaulted payments, Debtor submitted another post- 11 confirmation modified plan on June 18, 2010 that readjusted the payments schedules (Docket No. 12 27). Meanwhile, on June 30, 2010, Reliable filed a Motion Requesting Dismissal (Docket No. 30) 13 claiming that Debtor was in default on his direct payments for his motor vehicle, to which Debtor 14 replied on July 23, 2010 (Docket No. 31) repeating the same arguments included in his Answer to the 15 Trustee’s Motion to Dismiss. On July 27, 2010, the court issued an Order & Notice (Docket No. 32) 16 scheduling a hearing for September 8, 2010 to consider the Post Confirmation Modification of Plan 17 (Docket No. 27), the Trustee’s Motion to Dismiss (Docket No. 29), Reliable’s Motion Requesting 18 Dismissal (Docket No. 30) and Debtor’s Reply thereto (Docket No. 31). On July 28, 2010, the 19 Trustee filed an Unfavorable Report on Proposed Post Confirmation Plan Modification (Docket No. 20 33) claiming that the latest proposed amended plan was insufficiently funded and unfeasible and that 21 Debtor was had again defaulted payments to the Trustee. On September 6, 2011, Debtor filed an 22 Amended Schedule I & J to reflect his current income and expenditures (Docket No. 35). On 23 September 8, 2010, the hearing was held, oral amendments to latest the proposed plan were informed 24 by Debtor and consequently, the Trustee and Reliable withdrew their respective motions to dismiss. 25 See Docket No. 36 (Minute Entry). The request for a post confirmation modification of the plan 26 dated June 6, 2010 (Docket No. 27), as orally amended, was granted. The modified plan provided 27 for no payments during six (6) months. 28 On December 28, 2010, Reliable filed another Motion Requesting Dismissal (Docket No. 38) 2 1 alleging that Debtor defaulted his payments on his motor vehicle. On January 31, 2011 Debtor filed 2 his Reply thereto (Docket No. 39) contesting the alleged default and affirming that contrary to 3 Reliable’s allegations, he was in substantial compliance with payments. On February 1, 2011, the 4 court granted Debtor’s Reply (Docket No. 40). 5 On July 12, 2011, the Trustee filed his third Motion to Dismiss (Docket No. 42) under 11 6 U.S.C. § 1307(c) alleging that Debtor had again defaulted payments of the confirmed plan and for 7 unreasonable delay prejudicial to creditors. On August 15, 2011, Debtor filed his Answer thereto 8 (Docket No. 43) claiming that he had become unemployed on May 29, 2011, which curtailed his 9 ability to fund a Chapter 13 plan. He also informed that he had been offered employment with 10 Caribbean Temporary Services and consequently he requested a 30 day extension to propose another 11 post confirmation modification to the plan, cure the defaulted amounts with family help or request 12 conversion to Chapter 7. On August 16, 2011, the court granted Debtor a final extension of 30 days 13 to answer the Trustee’s Motion to Dismiss (Docket No. 44). On August 18, 2011, the Trustee filed 14 a Report Regarding the Status of Chapter 13 Plan Payments (Docket No. 45) informing that Debtor 15 was in default in the amount of $1,199.72. On September 15, 2011, Debtor filed a Motion in 16 Compliance with Order (Docket No. 48)1 and a Motion to Submit Post-Confirmation Modification 17 to Ch. 13 Plan (Docket No. 47) to cure the defaulted payments by rearranging the payment schedule 18 in response to the Trustee’s latest Motion to Dismiss (Docket No. 42). He averred that he had been 19 unable to fund the plan because he was temporarily unemployed but sustained that said situation had 20 been surmounted and that he was current in his payments to the Trustee. On September 22, 2011, 21 the Trustee filed an Unfavorable Report on Proposed Post Confirmation Plan Modification (Docket 22 No. 49) indicating that the latest proposed amended plan could not be confirmed because it is 23 insufficiently funded inasmuch as it fails to pay the General Unsecured Pool determined by the means 24 test provided in Section 1325(b)(1)(B) of the Bankruptcy Code, 11 U.S.C. § 1325(b)(1)(B), and hence 25 26 1 In ¶ 1 of his Motion in Compliance with Order (Docket No. 48), Debtor mistakenly states that “the court ... granted [him] 30 days to cure all arrears with payments to the Chapter 13 Trustee by order entered on August 16, 27 2011” citing Docket No. 44. Notwithstanding, the court notes that the referenced Order dated August 16, 2011 (Docket No. 44) merely granted Debtor a “final extension of thirty (30) days to answer [the] Trustee’s motion to 28 dismiss”. 3 1 objected to the confirmation of the same. On October 24, 2011, Debtor filed his Reply to [the] 2 Trustee’s Unfavorable Report on Confirmation (Docket No. 50) contending that the provisions of 3 Section 1325(b) do not constitute a requirement for confirmation and that the latest proposed 4 amended plan represents Debtor’s best efforts to pay creditors according to his immediate means and 5 under his present circumstances. On November 8, 2011, the court granted the Trustee 21 days to file 6 an opposition to Debtor’s Reply to the unfavorable report (Docket No. 51). The Trustee requested 7 7 additional days to do so (Docket No. 53), which the court granted (Docket No. 54). On December 8 5, 2011, the Trustee filed a Report Regarding the Status of Chapter 13 Plan Payments (Docket No. 9 56) informing that Debtor was in default in the amount of $2,399.72. Also on December 5, 2011, the 10 Trustee filed an Opposition to Debtor’s Reply to Trustee’s Unfavorable Report on Confirmation 11 (Docket No. 57) arguing that Debtor had presented no evidence of his unemployment, which 12 constitutes failure to demonstrate that he is committing all his projected disposable income to the 13 repayment of his creditors, and that he is unable to repay the general unsecured pool. He also averred 14 that Section 1325(b) applies to post confirmation plan modifications citing Hamilton v. Lanning, 130 15 S. Ct. 2464, 177, L. Ed. 2d. 23, Bankr. L. Rep. (CCH) P 81780 (2010), where the Supreme Court 16 adopted a “forward looking” approach to the projected disposable income test that permits the court 17 to take into account a debtor’s changed financial circumstances. He further suggests that, if the 18 projected disposable income test applies at the time of a proposed post confirmation modification, 19 the court may take into account the Debtor’s current financial circumstances when applying it. Based 20 on the foregoing, the Trustee concludes that since Debtor had not submitted any evidence of his 21 alleged period of unemployment nor had he been making payments to the Trustee under the proposed 22 post confirmation amended plan, he has failed to put this court in a position to consider the changes 23 of his financial circumstances which are necessary to determine if the proposed post confirmation 24 modification plan actually constitutes Debtor’s “best efforts”. No further reply was filed by Debtor. 25 Applicable Law & Analysis 26 Section 1307(c) of the Bankruptcy Code provides that “on request of a party in interest or the 27 United States Trustee and after notice and a hearing, the court may convert … or may dismiss a case 28 under Chapter [13], whichever is in the best interests of the creditors and the estate, for cause …” 4 1 11 U.S.C. § 1307(c). For Chapter 13 cases, Section 1307(c) specifically enumerates ten non- 2 |lexhaustive circumstances in which a court may dismiss a case of convert it to Chapter 7. See Ekeke 3 |v. United States, 133 B.R. 450, 452 (S.D. Il. 1991) (“The listed ‘causes’ are not exhaustive, nor is the 4 limited to the listed ‘causes’”.) The language in Section 1307(c) parallels the language 5 |Icontained in Section 1112(b), which governs dismissal and conversion in Chapter 11 cases. See In 6 Ferri, 2010 Bankr. LEXIS 1178 at *9, 2010 WL 141817 at * 3 (Bankr. D.N.M. 2010). Like 7 Section 1112(b)(1), Section 1307(c) also requires “notice and a hearing” prior to dismissal or 8 |iconversion. The phrase “notice and a hearing” is defined as “after such notice 1s appropriate in the 9 |particular circumstances, and such opportunity for a hearing is appropriate in the particular 10 |lcircumstances” (emphasis added). 11 U.S.C. § 102(A). But a hearing is not necessarily mandatory 11 |fwhen the essential facts are admitted or acknowledged. See Yehyd-Monosson USA, Inc. v. Fokkena 12 re Yehyd-Monosson USA, Inc.), 458 B.R. 750, 756 (8" Cir. 2011) (no evidentiary hearing was 13 required under 11 U.S.C. § 1112 when the Court’s decision is supported in a Debtor’s admission of 14 fact); In re De Jounghe, 334 B.R. 760, 766 (B.A.P. 1* Cir. 2005) (‘‘a full evidentiary [hearing] is 15 |Inot required, so long as the parties had a fair opportunity to offer relevant facts and arguments to the 16 and to confront their adversaries’ submissions”); In re C-TC 9" Ave. Partnership, 113 F. 3d 17 1304, 1312 (2"' Cir. 1997) (an evidentiary hearing was not necessary when “the record is sufficiently 18 developed to allow the bankruptcy court to draw the necessary inferences to dismiss a Chapter 19 case for cause ...”); In re Portela, 2011 Bankr. LEXIS 4103 at *17, 2011 WL 5041505 at *6 20 |\(Bankr. D.P.R. 2011) (“[d]Jue to Debtor’s own admission, no evidentiary hearing is necessary...”). 21 Both 11 U.S.C. § 1307(c) and 11 U.S.C. § 1112(b) establish a two-step process for 22 |considering the question of conversion or dismissal. See In re Nelson, 343 B.R. 671, 674 (B.A.P. 9" 23 2006) (Sections 1307(c) and 1112(b) “establish a two-step analysis for dealing with questions 24 conversion and dismissal”: (a) cause must be established, and (b) “a choice must be made between 25 ||conversion and dismissal based on the ‘best interest of creditors and the estate.’”). The choice of one 26 |lremedy over the other is to be made upon consideration of the best interests of creditors and the 27 |lestate. See 11 U.S.C. § 1307(c) and In re Jensen, 425 B.R. 105, 109-111 (Bankr. S.D.N.Y. 2010). 28 |The interests of the debtor are not paramount. Generally, a case should be converted rather than

1 |]dismissed when there are assets available for distribution to creditors.” William L. Norton, Jr. & 2 |fWilliam L. Norton III, Norton Bankruptcy Law and Practice, 3 Ed. § 148:1 (2012). 3 Among the enumerated causes for dismissal or conversion provided in Section 1307(c) are 4 }“unreasonable delay by the debtor that is prejudicial to creditors” and “material default by the debtor 5 |jwith respect to a term of a confirmed plan.” 11 U.S.C. § 1307(c)(1) & (6). Delinquency in plan 6 ||payments constitutes cause for dismissal. In re Wilson, 117 B.R. 714 (Bankr. M.D.Fla.1990) (where 7 \ja debtor is delinquent on making payments to the plan and the plan cannot be confirmed, dismissal 8 appropriate). “To hold otherwise would be to impose delay on creditors contrary to § 1307(c)(1)”. 9 In re Schafer, 2009 WL 2913439 at *2 (E.D.Pa. 2009). A bankruptcy court has considerable 10 |Idiscretion in determining whether “cause” exists and whether dismissal is the appropriate remedy. 11 at *2; In re Orawsky, 387 B.R. 128, 137 (Bankr.E.D.Pa. 2008); In re Henry, 368 B.R. 696, 699 12 }(N.D.I1.2007). 13 Debtor in the instant case does not dispute that he was in default and rather acknowledged his 14 to make the payments to the Trustee. See Docket Nos. 43 1-2], 45 [§1], 56. In doing so, 15 he offered unsubstantiated explanations as to why he was unable to meet the obligations of his 16 Chapter 13 plan. See Docket No. 43, {{] 1-2 (“Debtor became unemployed ... and his ability to fund 17 Chapter 13 plan has been inevitably curtailed”). Such explanations, however, are devoid of any 18 |lsupporting evidence whatsoever. Thus, because there is no dispute --or even an attempt to dispute-- 19 |Ithat Debtor was deficient with respect to his monthly payments, no evidentiary hearing is warranted 20 this case. 21 Only individuals with sufficiently stable regular income can be debtors under Chapter 13. 22 See 11 U.S.C. §§ 101(30) & 109(e). “By its terms Section 101(30) requires that an individual have 23 |la sufficiently stable income such that they are able to ‘make payments’ under the Chapter 13 plan in 24 to qualify as a debtor.” Inre Lindholm, 2005 U.S. Dist. LEXIS 46488 at *4, 2005 WL 2218990 25 jlat * 1 (W.D.Mi. 2005), as cited in In re Ellis, 388 B.R. 456, 460 (D.Ma. 2008). “Section 101(30) thus 26 |lcontemplates that Chapter 13 debtors will have disposable income from which to make plan 27 |lpayments.” Pellegrino v. Boyajian (In re Pellegrino), 423 B.R. 586, 586 (B.A.P. 1* Cir. 2010). 28 |/Section 1307(c)(6) preserves the statutory limitations on those who may be debtors under Chapter

1 13 by providing a mechanism for the involuntary dismissal of Chapter 13 cases when the debtor 2 |lcannot satisfy the obligations of the confirmed Chapter 13 plan. “A debtor cannot simply stop 3 making plan payments and continue in a Chapter 13 case” because “failure to make plan payments 4 liconstitutes a material default within the meaning of 11 U.S.C. § 1307(c)(6)”. In re Harris, 2006 WL 5 572001 at *3 (E.D. Tenn. 2006) citing In re Sandro 30 B.R. 474 (E.D.Pa. 1983). 6 Undoubtedly, the travel of this case shows that Debtor has recursively defaulted his payments 7 \jand has been afforded several opportunities to cure his defaults to no avail. While the Court is 8 |lsympathetic to Debtor’s difficulty in securing regular employment, assuming in arguendo its veracity 9 ||--since no evidence to that effect was proffered or filed-- the hardship does not alter the undisputed 10 that he has been and still is in material default, which is cause for dismissal. Moreover, in 11 |lregards to Debtor’s proposition to cure the defaults with family help, the income requirement cannot 12 satisfied “by mere allegations that there is an income potential which is contingent upon 13 |ldevelopments that appear unlikely”. In re Jones, 174 B.R. 8, 13 (Bankr. D.N.H. 1994). Since there 14 }lare no assets available for distribution to creditors, the court finds that it is in their best interest to 15 |Idismiss the instant case rather than convert it. See William L. Norton, Jr. & William L. Norton III, 16 Norton Bankruptcy Law and Practice, 3" Ed. § 148:1 (2012). 17 Conclusion 18 In view of the foregoing, the court finds that there is sufficient cause to dismiss this case 19 pursuant to 11 U.S.C. §1307(c)(1) and (6), and there being no unusual circumstances, the Trustee’s 20 |\Motion to Dismiss is hereby granted and the case is hereby dismissed. 21 Judgment shall be entered accordingly. 22 SO ORDERED. 23 In San Juan, Puerto Rico, this 26" day of March, 2012. 24 25

rique S. Lamoutte 27 United States Bankruptcy Judge 28