A rather interesting decision has come out of the Bankruptcy Court for the Northern District of Texas at Dallas. The decision is only 4 pages, but in addition to quoting Janis Joplin, it speaks to something that debtors need to hear, that people thinking about bankruptcy need to hear, and that attorneys practicing in bankruptcy court sometimes need to be reminded of.
While the decision follows this blog, I’ve filled in the lines a bit by looking at the public records and bringing in some additional facts.
The joint chapter 13 case was filed on April 6, 2009. The debtor’s plan was confirmed in September 2009 and provided that the debtors’ claim to DaimlerChrysler Financial Services Americas LLC, which held a secured claim on the debtors’ 2005 Mercedes E32DW was to be paid directly to the creditor, outside the plan. The plan itself called for 60 monthly payments of $870 for the first 6 months, and then $1,000 for the remaining 44 months). The plan provided for payment of about $19,000 in mortgage arrears on the debtor’s residence, priority claims of about $21,000 to the IRS, and unsecured creditors were not guaranteed a divided (and based on the claims, likely would get nothing).
Like many chapter 13 debtors, this couple hit some bumps in the road, and in July of this year, DCFS LLC filed a Motion for Relief from Stay. The debtors’ attorney and the creditor’s attorney hammered out an agreement which would allow the debtors to make 6 monthly payments of $892, and then resuming their normal contractual payments of $535 after that. This is actually pretty common: debtors attorneys and creditor’s attorneys will – when circumstances warrant and are favorable – an agreement that will allow the debtor to bring their account current (There is no bright line rule. It’s on a case-by-case basis). The Bankruptcy Court also made the following observations from the record:
One of the debtors is disabled and the sole source of that debtors income is $687 per month in government assistance;
The other debtor got a new job with a new income of about $5,200 per month;
There are two people in the debtors’ household, but there are four cars on the schedules: (a) the 2005 Mercedes; (b) a 2004 Infiniti G35 (although being used and paid for by a non-dependant son); (c) a 1994 Ford F-150 (and I’m not sure how well it runs – there’s nothing in the record about that, although value was estimated at just a shade over $2,000); and (d) a 1982 Chevy Corvette (valued at $3,500).
The Court also noted the amount of the claims: about $29,000 was scheduled as being owed to the IRS and there was $108,504 owing in unsecured claims. Plus, the debtor’s home – valued at $225,000 had zero equity and they were paying about $2,600 per month in a house payment (which included both the first and second mortgage).
Here’s Where It Gets Interesting…
Rather than describe the Court’s order, I’ll quote it:
The Agreed Order recites….that the Order “is in the best interest of the Debtors, the estate and all interested parties.” Really? The Court is expected to make this finding?
…[T]he court does not mean to make light of this case or the parties. Bankruptcy is serious business. It is no laughing matter at all. One of the serious aspects of bankruptcy is that sometimes the judge-in some respects-must be the lifestyle police. While this court usually defers to agreements of debtors and car lenders with regard to automobiles that the Debtor may reasonably need to rehabilitate, the proposed Agreed Order with regard to a luxury vehicle defies logic, common sense, and the court will not sign it without a prove up as to why it could possibly be in the best interests of the Debtors or is otherwise going to be consistent with good faith attempts to rehabilitee in this case. Presumably, it is not in anyone’s best interest for these Debtors to fail in their efforts to rehabilitate. Yet, this Agreed Order would appear, based on the record, to be a recipe for failure. And this is without even taking into account the public’s confidence in the integrity and fairness of the bankruptcy system that is shaken when their neighbors keep luxury vehicles while, at the same time, seeking a discharge of thousands of dollars [of] debt.
Why Did This Happen?
The Court did not have any facts – admissible facts – that could support the Court’s finding that the agreement to keep and pay the luxury vehicle is in the best interests of the Debtors, the debtors’ estate and all interested parties. And let’s step back for a minute and look at the facts: is this really the wrong result here? But it’s not the end of the road.
The Bankruptcy Court has set a preliminary hearing for September 27, 2010 in Dallas, and by order, has directed the parties to serve supporting affidavits, and responding attorneys must service their affidavits within 48 hours of the hearing.
This might be the end of the road for the Mercedes, but either way, attorneys need to remember that court’s aren’t in the business of rubber stamping agreements, and debtors in bankruptcy – and those contemplating bankruptcy – would be wise to think about this judge’s observations and statements before thinking about what they think they are entitled to as they head into the bankruptcy process.
Stay tuned.
In re Shaw, US Bankruptcy Court, N.D.Texas, Dallas Division, 09-32136
Related posts:
- Poster Children for Bankruptcy Reform
- Did Congress Pop the Balloon?
- Equal and Monthly Payments: The Voyage of the Balloon
- Storm Preparation: Chapter 13 and DSOs
- Cutting Corners in Chapter 13
Tags: Automatic Stay, Automobiles, Chapter 13, Cure and Maintain Agreements