IN RE MORRISON

TOM CORNISH, Bankruptcy Judge

On November 4, 2010, there came on for evidentiary hearing Trustee's Motion to Convert to Chapter 7 (Docket Entry 98), and Debtor's Objection (Docket Entry 107). Appearing before this Court were Richard W. Walden for Standing Chapter 13 Trustee William Mark Bonney, Jimmy Veith for Debtors, and William Mark Bonney, Standing Chapter 13 Trustee. At the conclusion of the hearing, the Court took this matter under advisement. The Court herein enters its findings of fact and conclusions of law in conformity with Fed.R.Bankr.P. 7052. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and this matter is a core proceeding pursuant to 28 U.S.C. § 157(b). It is this Court's determination that the Motion to Convert to Chapter 7 should be denied at this time, and Debtors shall be directed to pay the balance due on post-petition taxes on or before January 15, 2011. If Debtors fail to comply with the terms of this Order as directed, the Court shall dismiss or convert this case to Chapter 7 without further notice or hearing.

FINDINGS OF FACT

Debtors filed this bankruptcy on September 9, 2008. They own and operate a liquor store in Ardmore, Oklahoma. Mr. Morrison also works full-time for the Plainview School District as bus driver and custodian. Their Chapter 13 Plan was confirmed by this Court on January 20, 2009. This plan included payments for sales taxes to the Oklahoma Tax Commission ("OTC") totaling $42,379.81. On June 18, 2009, the Trustee filed a Motion to Dismiss for failure to provide requested documents, including sales and payroll tax returns for 2008, and monthly operating reports. The OTC supported the Motion to Dismiss, citing sales taxes and interest due as of October 31, 2009, of $30,280.26. The parties agreed to settle the dismissal issue by Debtors filing a modified plan with increased payments sufficient to pay for an accounting service to prepare operating reports and tax returns, and to allow Debtors to pay all post-petition tax liabilities, plus interest, to the OTC within twelve months (Docket Entry 80). Failure to abide by the terms of the settlement would entitle the Trustee to submit an ex parte order dismissing Debtors' bankruptcy. The confirmed modified plan does not provide for payment on any unsecured debt of approximately $130,000.

The Trustee filed a second Motion to Dismiss on April 9, 2010, (Docket Entry 88), for Debtors' failure to amend their 2006 tax return. Debtors did amend so the Trustee's Motion was withdrawn (Docket Entries 91 and 92).

The Motion to Convert to Chapter 7 was filed September 22, 2010, alleging that Debtors had failed to properly manage their business post-petition, and had not paid all sales taxes due. During the evidentiary hearing, the Trustee stated that bankruptcy was caused by Mrs. Morrison's ill health, which resulted in her being away from liquor store and entrusting its operation to employees. Debtors believe that approximately $60,000 in sales was not accounted for during Mrs. Morrison's absence. The Trustee testified that Debtors owed approximately $100,000 in taxes at the petition date. This amount was reduced by approximately $18,000 after Debtors amended their 2006 return. Based upon information supplied to the Trustee by the OTC, the Trustee testified that Debtors have not paid post-petition taxes as required pursuant to the Agreed Order Denying the Motion to Dismiss, and have incurred additional sales tax obligations. Although Debtors are current with their plan payments, he stated that the OTC is owed post-petition sales taxes of approximately $41,000, including interest and penalties, that OTC supports the Motion to Convert, and that Debtors have only paid approximately $9,000 towards the post-petition taxes.

The Trustee cited other reasons supporting his motion to convert. Debtors have incurred charges to their bank account for insufficient funds. Trustee also believes they have poor inventory tracking procedures, problems with cash flow, poor record-keeping, including lack of detail to explain the numerous cash withdrawals. Debtors are also making purchases through Pay-Pal, which are undocumented. The Trustee stated that if converted, the Chapter 7 Trustee could operate the store through the end of the year, then liquidate the remaining inventory. He estimated that the inventory could be liquidated at 80 to 90¢ on the dollar of the wholesale value of the store's inventory. In a Chapter 7 liquidation, the Trustee believed that administrative expenses from the Chapter 13 would be paid first, including post-petition tax claims, before any pre-petition obligations. However, if converted, Debtors would discharge the pre-petition tax debt. If Debtors are allowed to operate the liquor store through the end of the year, he fears that they will not use cash proceeds to pay their sales tax. He cited their assurances in November and December of 2009 that they would pay post-petition sales taxes in full with proceeds from holiday sales. This was not done. Although Debtors are making their Chapter 13 plan payments and paying pre-petition taxes, they are doing so at the expense of post-petition taxes. Thus, in the Trustee's opinion, they are making no progress in their Chapter 13 case.

Mrs. Morrison testified that she and her husband have been in the liquor store business for 29 years. She has lupus, but is able to work at the store. Otherwise, she is unemployable, and depends upon the liquor store to provide another income. If the store was closed, she would be forced to apply for social security disability. She and her husband are current with their plan payments, as well as their mortgage, which is being paid outside the plan. If the case is converted, she would lose the income from the store, making it likely that they would lose their home since her husband's income is insufficient to support them.

The liquor store business is seasonal, with the majority of sales occurring in November and December. She estimated that gross sales for their store in November and December would be $200,000. If the case remains in Chapter 13 and they are allowed to continue to operate the store, she believes there is sufficient inventory to last through the holidays and generate sales to allow them to pay all post-petition sales taxes by January 15, 2011, as well as stay current with plan payments. Due to problems caused by her absence from the store while she was ill, suppliers now require payment for inventory in cash upon delivery. She stated that all of the cash withdrawals from their bank account are going to pay for inventory, and that she has receipts for inventory purchased with the cash. She admitted that she and her husband agreed to pay post-petition taxes with proceeds from November and December of 2009 sales in order to avoid dismissal of their case, but that they had not fulfilled that promise. Instead, they have only partially fulfilled their responsibility to pay post-petition taxes, and have used proceeds to increase the store's inventory from $21,000 at the beginning of their bankruptcy to a current value of $56,000. She stated that this was necessary to make the store a viable business. The store is well-located, and she believes that sales should be good this holiday season. She testified that she has paid $17,000 in post-petition taxes, and $40,000 in pre-petition taxes since the case was filed. She was ill in August of 2010 and was unaware of unpaid sales taxes for that month.

After the evidentiary hearing, Debtors filed a motion to modify their plan and a proposed modified plan, which includes promises to make installment payments to the OTC for post-petition taxes and to pay all post-petition taxes by January 15, 2011 (Docket Entries 115 and 116). The Trustee has filed his Objection to Confirmation (Docket Entry 123). The confirmation hearing is set for December 9, 2010.

CONCLUSIONS OF LAW

A decision to convert a case pursuant to 11 U.S.C. § 1307(c) is a matter of discretion for the bankruptcy court. The decision should be made for cause, considering what is in the best interests of creditors and the estate. In re Lundahl, 307 B.R. 233 (Bankr. D. Utah 2003). In this case, Trustee suggests that Debtor has materially defaulted with respect to a term of a confirmed plan, which constitutes cause for conversion under § 1307(c)(6).

At this time, the Court cannot agree that Debtors are in material default or that it is in the best interest of creditors or the estate to convert this case to Chapter 7. The Debtors are current with plan payments and have made substantial progress in paying pre-petition taxes. Debtors are twenty-five months into their sixty-month plan. Although they have not lived up to the Agreed Order to pay all post-petition taxes, they have made an attempt to catch up. Debtors are entering the busiest time of the year for their business, and factors such as the store's good location, lack of competition, and sufficient inventory level indicate that the store is poised to record sizeable profits by year's end. The Court also believes that the Debtors' experience in this business makes it likely that they will generate more sales and profits than if a Chapter 7 trustee steps in to operate the store or liquidate the inventory. Thus, the Court finds that it is in the best interest of creditors to allow these Debtors to remain in Chapter 13 at this time to maximize the potential that exists in November and December to generate enough income to become current on post-petition taxes, while remaining current with plan payments and their mortgage payment.

However, the Court recognizes that Debtors have been down this road before, without success. This is the third motion to dismiss or convert filed in this case. The Court is skeptical regarding Mrs. Morrison's explanation of where all the income from the liquor store is being spent, and agrees with the Trustee that store receipts would indicate that Debtors should be paying more towards post-petition taxes. The Court also agrees with the Trustee that Debtors' record keeping is less than satisfactory; thus, it is difficult to accurately monitor Debtors' finances regarding the liquor store. For these reasons, the Court finds that conditions must be attached to this decision to ensure that Debtors fulfill their obligations under the terms of the plan and this Order. Therefore, this Court directs that Debtors shall become current on all post-petition tax obligations by January 15, 2011. If Debtors fail to comply, the Trustee shall notify this Court and submit to the Court either an order of conversion to Chapter 7 or an order of dismissal. The Court shall then enter the requested order without further notice or hearing. Debtors shall remain current on all post-petition tax obligations or be subject to conversion or dismissal without further notice upon submission of an order from the Chapter 13 Trustee.

IT IS THEREFORE ORDERED that Trustee's Motion to Convert to Chapter 7 (Docket Entry 98) is denied.

IT IS FURTHER ORDERED that Debtors shall pay all post-petition tax liabilities, including interest, on or before January 15, 2011. Thereafter, Debtors shall timely pay and remain current on all post-petition tax obligations, and shall timely file all required post-petition tax returns during the pendency of their Chapter 13 bankruptcy case. Payment of said taxes with interest shall be made directly to the taxing authority.

IT IS FURTHER ORDERED that Debtors shall provide proof of payment of post-petition taxes to the Chapter 13 Trustee and to this Court as those payments are made.

IT IS FURTHER ORDERED that should Debtors fail to comply with the terms of this Order, the Chapter 13 Trustee shall submit a proposed order of conversion to Chapter 7 or a proposed order of dismissal, whichever is preferred by the Chapter 13 Trustee.

IT IS FURTHER ORDERED that failure to comply with the terms of this Order shall result in the entry of an order of conversion to Chapter 7 or an order of dismissal without further notice or hearing.

Dated: November 30, 2010

The following is ORDERED:

Notice Recipients

District/Off: 1086-7 User: susan Date Created: 11/30/2010 Case: 08-81186 Form ID: pdfmtrx Total: 94 Recipients submitted to the BNC (Bankruptcy Noticing Center) without an address: acc Chamber, Jackson and Fox, PC TOTAL: 1 Recipients of Notice of Electronic Filing: ust Office of the US Trustee USTPRegion20.TU.ECF@usdoj.gov tr William Mark Bonney ecf@edok13.com aty Alane A Becket notices@becket-lee.com aty Jimmy L. Veith veithlaw@swbell.net aty Leisa Gebetsberger lg.okeb@oktax.state.ok.us TOTAL: 5 Recipients — SUBMITTED — to the BNC (Bankruptcy Noticing Center) for mailing: db Miquel Thomas Morrison 1700 6th Avenue, SW Ardmore, OK 73401 jdb Hollye Jan Morrison 1700 6th Avenue, SW Ardmore, OK 73401 cr Recovery Management Systems Corporation 25 S.E. 2nd Avenue, Suite 1120 Miami, Fl 33131 cr Oklahoma Tax Commission 440 S. Houston #501-B Tulsa, OK 74127-8917 cr LVNV Funding LLC its successors and assigns as assignee of American Express Bank FSB c/o Resurgent Capital Services P.O. Box 10587 GREENVILLE, SC 29603-0587 cr eCAST Settlement Corporation P.O. Box 35480 Newark, NJ 07193-5480 cr CR Evergreen, LLC MS 550 PO Box 91121 Seattle, WA 98111-9221 cr PRA Receivables Management LLC. PO Box 41067 Norfolk, VA 23541 1298910 3. OK Ambulance Service c/o Credit Collections, Inc. P.O. Box 60607 Oklahoma City, OK 73146-0607 1298911 30. OK Maxilloficial Surgery Assoc. P.O. Box 108816 Ardmore, OK 73401 1298882 American Express P.O. Box 981535 El Paso, TX 79998-1531 1305849 American Express Bank FSB c/o Becket and Lee LLP POB 3001 Malvern PA 19355-0701 1298883 Ardmore Anesthesia P.O. Box 1983 Ardmore, OR 73402 1298884 Avenue WFNNB Bankruptcy Department P.O. Box 182125 Columbus, OH 43218 1298885 Bank of America P.O. Box 15026 Wilmington, DE 19850 1298886 Beneficial 1210 Merrick Drive Ardmore, OR 73401 1298888 Bird Finance 5 N. Washington Ardmore, OR 73401 1393997 CR Evergreen, LLC MS 550 PO Box 91121 Seattle, WA 98111-9221 1298889 Capital One P.O. Box 30285 Salt Lake City, UT 84130-0285 1298890 Catherines P.O. Box 699 Milford, OH 45150-0699 1315202 Cato Credit P.O. Box 34216 Charlotte, NC 28234 1381495 Chambers, Jackson and Fox PC P.O. Box 1171 Ardmore, OK 73402 1298891 Credit Collections, Inc. P.O. Box 60607 Oklahoma City, OR 73146 1298892 Dell Financial Services P.O. Box 99200 Chicago, IL 60693 1298893 Dillards GE Money Hank Attn: Bankruptcy Department P.O. Box 103104 Roswell, GA 30076 1303535 Discover Bank/DFS Services LLC PO Box 3025 New Albany, OH 43054-3025 1298894 Discover Card P.O. Box 30943 Salt Lake City, UT 84139 1298895 Excel Therapy Specialists LLC P.O. Box 25887 Oklahoma City, OK 73125 1298896 FIA Card Services P.O. Box 22021 Greensboro, NC 27420-2021 1315195 FIA Card Services aka Bank of America by eCAST Settlement Corporation as its agent POB 35480 Newark NJ 07193-5480 1300858 First Data Global Leasing P.O. Box 173845 Denver, CO 80217 1315203 First Data Global Leasing P.O. Box 173845 Denver, Co 80217 1300859 First National Bank Trust Co. P.O. Box 69 Ardmore, OK 73402 1315204 First National Bank Trust Co. P.O. Box 69 Ardmore, OK 73402 1298897 First/Source/Argent Healthcare 7650 Magna Drive Helleville, IL 62223 1308643 GE Money Bank dba MOHAWK/GEMB Care of GE Consumer Finance PO Box 960061 Orlando FL 32896-0661 1314552 GE Money Bank dba QCARD Care of Recovery Management Systems Corp 25 SE 2nd Ave Ste 1120 Miami FL 33131 1300860 GE Money/Shop NBC P.O. Box 981064 El Paso, TX 79998-1064 1315205 GE Money/Shop NBC c/o Recovery Management Systems Corp 25 SE 2nd Ave., Suite 1120 Miami, FL 33131-1605 1315964 HSBC CONSUMER LENDING USA INC by eCAST Settlement Corporation as its agent POB 35480 Newark NJ 07193-5480 1315206 HealthChoice P.O. Box 24110 Oklahoma City, OK 73124 1298887 Heneficial P.O. Box 5233 Carol Stream, IL 60197 1300861 Holt Allied Services Co. 710 W. Bradway Ardmore, OK 73401 1315207 Holt Allied Services Co. 710 W. Broadway Ardmore, OK 73401 1298898 Hoyle Holt Allied Services 710 W. Broadway Ardmore, OR 73401 1298899 IRS Special Procedures 55 N Robinson, Stop 5024 Oklahoma City, OR 73102-9806 1304472 Internal Revenue Service P.O. Box 21125 Philadelphia, PA 19114 1304473 Internal Revenue Service P.O. Box 21126 Philadelphia, PA 19114 1298900 J. Keith Troop, MD 2002 Twelfth Ave., NW, St H Ardmore, OR 73401 1298901 JC Penney/G8 Money Hank Attn: Bankruptcy Department P.O. Box 103104 Roawell, GA 30076 1315208 Kinex Medical Co. 1801 Airport Rd., Ste B Waukesha, WI 53188 1300862 Kinex Medical Co. 1801 Airport Road, Ste B Waukesha, WI 53188 1340561 LVNV Funding LLC its successors/assigns as assignee of American Express Bank FSB c/o Resurgent Capital Services P.O. Box 10587 Greenville, SC 29603-0587 1298902 Lease Finance Group LLC P.O. Box 1027 Sioux Falls, SD 57101-1027 1310821 Lease Finance Group, LLC 132 West 31st Street 14th floor New York, NY 10001 1298903 MHNS Hospitalist P.O. Box 504406 St. Louis, MO 63150 1315209 Macy's P.O. Box 8066 Mason, OH 45040 1300863 Medical Center Pharmacy 1026 Radio Road Durant, OK 74701 1315210 Medical Center Pharmacy 1026 Radio Road Durant, OK 74701 1298904 Memorial Medical Clinic P.O. Box 504406 St. Louis, MO 63150 1300432 Mercy Memorial Health MSCB, Inc. PO Box 1567 1410 Industrial Park Rd Paris, TN 38242 1300864 Mercy Memorial Health c/o MSCB, Inc. P.O. Box 1657 Paris, TN 38242 1315211 Mercy Memorial Health c/o MSCB, Inc. P.O. Box 1657 Paris, TN 38242 1298905 Mercy Memorial Hospital 1001 14th Ave., NW Ardmore, OK 73401 1298906 Mercy Memorial Hospital c/o Accounts Receivable Management 1410 Industrial Park Rd Paris, TN 38242 1298907 Mohawk GEMH P.O. Box 981127 E1 Paso, TX 79998-1127 1298908 Money Services Inc. 6 B 3t. N.W. Ardmore, OK 73401 1315212 New York Life Insurance 51 Madison Ave New York, NY 10010 1300865 New York Life Insurance 51 Madison Ave. New York, NY 10010 1298909 Okla. Tax Commission Legal Div.-Bankruptcy Section 120 N. Robinson, Suite 2000W Oklahoma City, OK 73102-7801 1299773 Oklahoma Tax Commission Bankruptcy Section General Counsel's Office 120 North Robinson, Suite 2000 Oklahoma City, OK 73102-7471 1443360 PRA Receivables Management, LLC, agent of Portfolio Recovery Associates, LLC POB 41067 Norfolk, VA 23541 1300866 Q Card P.O. Box 981462 El Paso, TX 79998-1462 1315213 Q Card P.O. Box 981462 El Paso, TX 79998-1462 1300049 Recovery Management Systems Corporation 25 S.E. 2nd Avenue, Suite 1120 Miami, FL 33131-1605 1318074 Roundup Funding, LLC MS 550 PO Box 91121 Seattle, WA 98111-9221 1299236 SPIRIT OF AMERICA NATIONAL BANK/CATHERINES FIRST EXPRESS PO BOX 856044 LOUISVILLE, KY 40285-6044 1298912 Stage/WFNNB Bankruptcy Department P.O. Box 182125 Columbus, OH 43218-2125 1298913 The Wellness Center P.O. Box 504409 3t. Louis, MO 63150 1298914 Toyota Financial Services P.O. Box 650686 Dallas, TX 75265 1298915 Toyota Financial Services P.O. Box 8026 Cedar Rapids, IA 52408-8026 1303729 Toyota Motor Credit Corporation Toyota Financial Svcs/Lexus 5005 North River Blvd., N.E. Cedar Rapids, IA 52411-6634 1298916 Valero P.O. Box 631 Amarillo, TX 79105 1298917 Wal-Mart GE Money Hank Attn: Bankruptcy Deptartment P.O. Box 103104 Roswell, GA 30076 1319638 Yellow Book USA c/o RMS Bankruptcy Recovery Services P.O. Box 5126 Timonium, MD 21094 1315214 Yellowbook P.O. Box 3162 Cedar Rapids, IA 52406-3162 1311509 eCAST Settlement Corporation assignee of Capital One Bank POB 35480 Newark NJ 07193-5480 1354233 eCast Settlement Corporation PO Box 35480 Newark, NJ 01793-5480 TOTAL: 88