KING. Bankruptcy Judge
The fact that the debtors had transferred property within one year of filing a Chapter 13 petition, and that the debtors had been held in contempt for failing to obey an order of a state court in a separate proceeding in which the creditor attempted to obtain security against a possible judgment in his favor was not sufficient to show that the debtors' plan was not propsed in good faith. Prior misconduct of a debtor amy nto be the basis for a finding that the plan was proposed in bad faith unless a presen intention to misuse Chapter 13 is shown. See Sec. 1325(a)(3) at ¶ 13,214.
Bankruptcy Reform Act — Individual Repayment Plan — Confirmation — Good Faith — Discharge of Nondischargeable Debt
A Chapter 13 plan may be proposed in good faith even though the debtors may be allowed to discharge debts which would not be dischargeable in a Chapter 7 proceeding. See Sec. 1325(a)(3) at ¶ 13,214 ad Sec. 1328(a) ¶ 13,224.
[Digest of Opinion]
Under their Chapter 13 plan, the debtors agreed to submit their future income to the trustee from which $300 per month would be paid to the trustee for 24 months and $100 would be paid to the trustee for 12 additional months thereafter. The debtors proposed to pay a secured claim in monthly installments up to the value of the security; a priority tax claim in monthly installments until paid in full; and costs of administration. The debtors proposed that unsecured claimants receive nothing.
The trustee found that all property owned by the debtors was claimed exempt and that unsecured creditors would receive nothing in a Chapter 7 proceeding.
The objecting creditor argued that the plan was not prposed in good faith because the debtors had transferred property to a sister of one of them within one year of filing their petition; that the debtors were in contempt of state court for disregarding restrictions on the sale of a liquor license upon which the instant creditor had attempted to obtain security against a possible judgment in his favor in state proceedings; and because the debtors were indebted to the creditor under circumstances giving rise to a cause of action for fraud and deceit.
The court found that the debtor was repaying her sister for a loan advanced for the purpose of investing in a business enterprise of which the debtor was halfowner. The business was unsuccessful due to a series of robberies and the debtor was repaying her sister at the rate of $100.00 per month. Further, it was found that while the debtors did not fully perform in accordance with a state court order regarding restrictions on the sale of a liquor license, one of the debtors testified that she was not aware of the terms of the order. Eventually, some of the proceeds of the sale of the license were preserved and held in escrow.
The debtor's plan was found to satisfy the criteria of Section 1325 of the Bankruptcy Code. No evidence was presented that the plan was not proposed in good faith. "Evidence of prior misconduct of a debtor is not the basis for a finding that the plan was proposed in bad faith unless that evidence reveals a present intention to improperly use Chapter 13, such as by concealing or otherwise avoiding the turnover of assets that ordinarily would be available to pay unsecured claims."
In addition, the fact that a debt which would be nondischargeable in Chapter 7 may be discharged in Chapter 13 is not a reason to deny confirmation of the plan. "Congress allowed a broader discharge under Chapter 13 than under Chapter 7. To deny confirmation because a debtor potentially is able to obtain advantage from the difference in discharge provisions would be a judicial circumvention of the will of Congress as clearly expressed in 11 U.S.C. § 1328(a)."
Accordingly, the debtors' Chapter 13 plan was confirmed.
The objection of Frederick J. Eisenman to confirmation of the debtor's proposed plan under Chapter 13, Title 11, United States Code, came on before the undersigned for hearing on March 20, 1980. John T. Hansen, Esq., appeared for the debtors and David A. Harbert, Esq., appeared for the objecting creditor. The court heard testimony from Vilma G. Peoro and Socorro Gaduang, received documentary exhibits, and heard arguments of counsel. Wherefore, the matter having been submitted, the Court makes the following
FINDINGS OF FACT
1. Victorino Peoro and his wife, Vilma Guinto Peoro, filed a voluntary joint petition for relief under Chapter 13, Title 11, United States Code on December 26, 1979.
2. Debtors proposed a plan under Chapter 13 as follows:
a. Debtors agreed to submit their future income to supervision and control of the trustee from which the sum of $300.00 per month is to be paid to the trustee for 24 months and $100.00 paid to the trustee for 12 additional months thereafter.
b. As part of the plan, debtors proposed to pay 1) a secured claim in monthly installments up to the value of the security, or $3,600.00, 2) a priority tax claim of $2,500.00 in monthly installments until paid in full, and 3) costs of administration, which are estimated to be about $2,000.00.
c. Debtors proposed that holders of unsecured claims receive nothing.
3. Duncan H. Kester was appointed trustee and he reviewed the petition schedules and plan and examined the debtors at a meeting held under 11 U.S.C. § 341. The trustee found that the entire real and personal property owned by the debtors was claimed exempt under 11 U.S.C. § 522(b), that unsecured creditors would receive nothing in a Chapter 7 proceeding, and that the debtors would be able to make the payments and comply with the plan. The trustee accordingly recommended confirmation of the plan.
4. The objecting creditor contended that the plan was not proposed in good faith, because inter alia: the debtors transferred property to a sister of Vilma Peoro, to wit: Socorro Gaduang, within one year of filing the petition herein; that debtors failed or refused to obey orders of the Superior Court of California and failed to keep promises made to avoid being held in contempt of said court; and that debtors are indebted to Frederick Eisenman under circumstances giving rise to a cause of action for fraud and deceit.
5. Socorro Gaduang loaned Vilma Peoro, her sister, $10,000.00 in a series of payments between May and July 1979 for the purpose of investing in a boutique of which Vilma Peoro was half-owner. On or about the time the last installment in the loan was paid to Mrs. Peoro, Mr. and Mrs. Peoro executed a note and deed of trust on their personal residence in favor of Socorro Gaduang.
6. Vilma Peoro was unable to repay the note when the boutique was financially unsuccessful due to a series of robberies. Mrs. Peoro is repaying her sister at the rate of $100.00 per month.
7. During the course of litigation in the California Superior Court by Frederick Eisenman against the debtors, Mr. Eisenman attempted to obtain security against a possible judgment in his favor in said proceedings. An order and a stipulation were entered regarding restrictions on the sale of a liquor license owned or controlled by the debtors and/or the deposit in trust of proceeds of the sale of said license.
8. Debtors did not fully perform in accordance with said order and stipulation, although Vilma Peoro testified she was not aware of the terms of said order. Eventually, the sum of about $7,000 from proceeds of the sale of the license was preserved and held in escrow by third persons on the date the petition was filed herein. Vilma Peoro has claimed said sum exempt under 11 U.S.C. § 522(d)(5).
9. Victorino Peoro is a retired employee of the City and County of San Francisco. Vilma Peoro is not presently employed, although she occasionally promotes Phillippine motion pictures and theatrical events. She has not recently received any compensation for her activities and would be entitled to compensation only if the events she promotes are financially successful. Her recent experience has not been favorable in that regard.
10. The Debtors' only regular source of income at present is Mr. Peoro's pension and social security benefits and social security benefits received on behalf of the Peoros' minor child, which benefits will cease when he reaches his majority.
11. The debtor's plan satisfied the conditions of 11 U.S.C. § 1325.
a. The plan complies with Chapter 13 and other applicable provisions of Title 11.
b. The fees required to be paid prior to confirmation have been paid.
c. The plan was proposed in good faith and not by any means forbidden by law.
d. The plan provides that unsecured claims will be paid not less than the amount they would receive in a Chapter 7 proceeding.
e. The Holder of the secured claim provided for shall retain its lien and shall receive property equal in value to the allowed amount of such secured claim.
f. The debtors will be able to make all payments under the plan and to comply with the plan.
CONCLUSIONS OF LAW
1. The hearing required under 11 U.S.C. § 1324 has been held on notice to all parties in interest.
2. The debtors' plan satisfies the criteria of 11 U.S.C. § 1325 and has been proposed and drafted within the framework of Chapter 13.
3. No evidence has been presented that the plan was not proposed in good faith. Evidennce of prior misconduct of a debtor is not the basis for a finding that the plan was proposed in bad faith, unless that evidence reveals a present intention inproperly to use otherwise avoiding the turnover of assets that ordinarily would be avilable to pay unsecured claims.
4. The fact that debtors may be allowed to discharge debts which would not be dischargeable in a Chapter 7 proceeding is no basis for denying confirmation of a plan. Congress allowed a broader discharge under Chapter 13 than under Chapter 7. To deny confirmation because a debtor potentially is able to obtain advantage from the difference in discharge provisions would be a judicial circumvention of the will of Congress as clearly expressed in 11 U.S.C. § 1328(a).
5. The debtors' plan herein shall be confirmed, and the debtors shall submit an appropriate order of confirmation.