Nancy M King

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 13
NANCY M. KING 	:
Debtor 	: 	Bankruptcy No. 06-10711bif
.................................................
MEMORANDUM
.................................................
Secured creditor Midfirst Bank has filed a motion to dismiss the above-
captioned chapter 13 bankruptcy case of Nancy M. King with prejudice, as filed in bad
faith. In support of its motion, Midfirst states that Mrs. King’s recent chapter 13 filing
was preceded by three unsuccessful chapter 13 cases filed by her husband, Mr. Spurgeon
King, and that Mr. King failed to make plan payments and postpetition mortgage
payments during those cases. Attributing those three unsuccessful filings to the debtor,
Midfirst Bank seeks dismissal with prejudice, with both the debtor and her husband
barred from refiling for a period of 180 days from the dismissal.
At the conclusion of the evidentiary hearing, the chapter 13 trustee
supported dismissal of this case as a bad faith filing. Mrs. King, however, opposes
dismissal and maintains that she was not aware of two of her husband’s prior filings, that
she and her husband are separated pending divorce, and that her present income, coupled
with alimony pendente lite payments from her husband, are more than adequate for
reorganization.
The issue is now ripe for adjudication. I conclude, although a close
question, that the present motion to dismiss should be denied.
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All references to the hearing will be to the audio recording of the hearing that1
took place on May 30, 2006, denoting the hour and minute at which the testimony took place.
Mrs. King’s Schedule I discloses that she has worked at Brookside for only nine2
months (and incorrectly states she is a receptionist). Ex. M-9. In testimony, she said she had
been with her current employer since February. Hearing at 4:13. However, the Schedule I filed
in Mr. King’s latest case in May 2005 disclosed that his wife had been working as a phlebotomist
at “Brookstone” for one month, ex. M-11, and Mrs. King later confirmed that she had worked at
Brookside at that time. Hearing at 4:28.
2
I.
At an evidentiary hearing held May 30, 2006, the following relevant facts
were adduced:
Mrs. King filed a voluntary petition under chapter 13 on February 24, 2006.
Ex. M-6. She filed to stop a sheriff’s sale of her property, which her Statement of
Financial Affairs reveals was scheduled for March 16, 2006. Hearing at 4:20; Ex. M-9.1
Mrs. King testified that she works as a phlebotomist (viz., she draws blood
from patients) for Brookside Clinical Laboratories. Hearing at 4:16. She most likely has
been employed there since April 2005. Hearing at 4:13. 2
She disclosed on her bankruptcy schedules a monthly gross wage of
$1,906.66 plus $163.38 in estimated monthly overtime, with a net monthly income of
$1,807.38 after payroll deductions. Ex. M-9 (Schedule I). She testified however that her
gross wages were actually lower—approximately $500-$715 every two weeks (up to 65
hours at $11/hour)—that her hours of employment fluctuate, and that overtime pay was
sporadic. Hearing at 4:16. However, she further testified that the income disclosure on
her bankruptcy schedules omitted inclusion of a mileage reimbursement benefit of 40¢
per mile, which would yield from $100 to as much as $500 per month. Hearing at 4:19.
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Alimony pendente lite is defined as “[a]n order for temporary support granted to3
a spouse during the pendency of a divorce or annulment proceeding.” 23 Pa. C.S.A. § 3103.
Mr. King’s Schedule J in his third case identifies his business as “King4
Enterprises.” Ex. M-11. His Schedule J in his first and second cases identify the business as
“Pest Control.” Exs. M-13, M-14. Mrs. King implied that this business may have been the
source of their financial problems, with her husband failing to pay taxes on his construction
income and developing problems with the Internal Revenue Service. She contends that those
problems do not extend to her. Hearing at 4:33.
3
Mrs. King’s disclosed monthly income also includes $1,178.47 in alimony
pendente lite payments from Mr. King. 	Ex. M-9 (Schedule I). These payments began in3
March 2006. Hearing at 4:22. Mr. King had only made one of three of these payments
required by the time of the hearing. Id. Mrs. King proposes to garnish his wages to
ensure that she receives the payments. See generally 42 Pa. C.S.A. § 8121(a). Hearing at
4:30. Mr. King works as a police officer, and also is self-employed as a contractor.
Hearing at 4:30. 4
Mrs. King pays $850 per month on her mortgage, including real estate taxes
and property insurance. Ex. M-9 (Schedule J). She testified that her electricity and
heating fuel costs probably average a “little less” than the $180 disclosed, and that her
water and sewer bill averages $72 rather than the $160 reported on her schedule. Id.;
hearing at 4:42-4:43. She confirmed that her monthly food expense is only $280 per
month for herself and her two teenaged children. Ex. M-9 (Schedule J); Hearing at 4:18.
A third child, a 20-year old daughter, is in college and lives at the home only during
school breaks. Hearing at 4:09. Mrs. King disclosed no expenses for clothing or medical.
She explained that her children receive most of their clothing from their grandparents, and
that she wears uniforms to work. Hearing at 4:43. Mr. King’s employer provides health
insurance, although Mrs. King admitted that still leaves her responsible for any co-pays.
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The chapter 13 trustee filed an objection to the debtor’s full exemption of the5
lawsuit proceeds on May 2, 2006.
4
Id. The debtor no longer makes the scheduled $493.46 monthly auto loan payments, as
she paid the car off with proceeds of a lawsuit settlement. Hearing at 4:45.
She had disclosed that lawsuit as personal property on Schedule B as having
a value of $19,000. Ex. M-9. 	Moreover, she also testified that she still has $6,000 from5
those settlement proceeds. Hearing at 4:37. She scheduled no priority debts, but
$26,962.00 in unsecured, nonpriority claims, mostly credit card debt. Id. (Schedule F).
Proofs of claim filed in the case so far reflect a total of $11,415.56 in unsecured claims.
Mr. King is listed as a co-debtor on most of the claims. Id. (Schedule H).
Mrs. King’s schedules also reveal two secured debts, one on her 2001
Mazda Millenia (as just noted, paid off postpetition) and the other on her residence at 624
Felton Avenue, Philadelphia, Pennsylvania. Ex. M-9 (Schedule D). The latter derives
from a mortgage entered into by Mr. and Mrs. King on October 28, 1986. See Ex. M-8.
Under the terms of the mortgage, the Kings received $61,500 to be repaid over 30 years at
a rate of nine and one half percent. Id. Monthly payments began at $517.13. Id. Two or
three years after entering into this obligation, the Kings transferred ownership of the
property into Mrs. King’s name only. Hearing at 4:10. On November 20, 2003, Midfirst
initiated a suit in foreclosure. Ex. M-2. The bankruptcy filings of Mr. and Mrs. King
have stayed the completion of that foreclosure litigation. See id. Midfirst’s proof of
claim filed in this case asserts a total secured claim of $56,560.84, with $44,919.36 owed
in arrears.
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Another proof of claim was filed by Citadel Federal Credit Union affirming
a secured claim of $1,573.93 for money loaned on real estate. This debt allegedly arose
on September 3, 1999. The proof of claim did not include any supporting documents.
Mrs. King did not disclose any debt owed to Citadel on her bankruptcy schedules.
As reflected on Schedule J, Mrs. King has projected monthly net income of
$567.39. Ex. M-9. She proposes to devote $567 each month for 60 months to her chapter
13 plan, intending to cure her prepetition mortgage delinquency while continuing to make
post-bankruptcy monthly mortgage payments directly to the mortgagee. Ex. M-10. See
generally 11 U.S.C. § 1322(b)(5). Mrs. King stated that she was current on both plan and
postpetition mortgage payments. Hearing at 4:31; see also Exs. M-1, M-15.
Mr. King first filed for bankruptcy in this court on February 10, 2004,
docketed at Bankr. No. 04-11916. Ex. M-3. Mrs. King was aware of this bankruptcy
filing. Hearing at 4:12. The case was dismissed on July 20, 2004, on the chapter 13
trustee’s motion for failure to make plan payments. See Ex. M-3.
Mr. King filed his next chapter 13 case on October 14, 2004, docketed at
Bankr. No. 04-33844. Ex. M-4. Mrs. King testified that she was not aware of this filing
as the couple was separating at the time and therefore not communicating—in fact, Mr.
King alternated residing between his mother’s home and the basement area of the Felton
Avenue realty. Hearing at 4:24. Midfirst Bank filed a proof of claim in that case,
asserting a total secured claim of $56,560.84 and arrears of $32,645.04. Ex. M-7. The
principal balance on the loan at that time was claimed to be $46,142.65. This case was
dismissed on March 8, 2005, on the chapter 13 trustee’s motion for failure to make plan
payments and failure to attend the section 341 meeting. See Ex. M-4.
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On April 2, 2005, Mr. King filed a third chapter 13 case, docketed at Bankr.
No. 05-14448. Ex. M-5. Again, Mrs. King states she was unaware of this filing due to
the couple’s separation. Hearing at 4:24. This case was dismissed on August 11, 2005 on
the chapter 13 trustee’s motion for failure to make plan payments. See Ex. M-5. In all of
these cases, Mr. King was represented by the same attorney, different from the one
retained by Mrs. King in the instant case. See Exs. M-3, M-4, M-5 and M-6.
In the first two cases, Mr. King proposed to pay $250 per month for 60
months into his chapter 13 plan. Exs. M-12, M-14. In the third case, he promised to
increase the monthly plan payments to $500. Ex. M-16. Mrs. King’s income was
disclosed by her husband’s bankruptcy schedules and included in his computation of
disposable income available for reorganization purposes; however, she testified that her
paycheck was actually used by her solely to pay her car payment and then for
discretionary expenses, suggesting that her husband’s income alone was responsible for
mortgage payments and his chapter 13 plan payments. Hearing at 4:48.
Mrs. King argues that though she was aware of Mr. King’s first bankruptcy
filing, she was not aware of his second and third filings, and therefore should not have
those filings imputed to her. Mr. King had taken responsibility for paying the family
expenses during their marriage, therefore she did not know how serious the mortgage
delinquency had become until just recently. Hearing at 4:11. She contends her chapter
13 plan is feasible because her employment income plus the alimony pendente lite
received from Mr. King—which can be garnished in order to guarantee its receipt—is
sufficient to pay $567 per month. In support of this contention, the debtor observes that
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The trustee has since filed his own motion to dismiss asserting lack of feasibility6
and inaccurate bankruptcy schedules. See docket entry #21.
7
since the filing of this case, she has been current on her trustee and mortgage payments
despite Mr. King missing two support payments.
Midfirst argues that because Mrs. King is obligated on the mortgage and
has owned and resided in the property, all of the prior filings benefitted her and therefore
should be imputed to her. In addition, her income was included in Mr. King’s prior
filings in an effort to render feasible his proposed reorganization plans. Furthermore, the
mortgagee observes that the arrearage to be paid through the plan should be greater than
the $32,000 owed at the time of the last filing; thus paying $567 for five years, totaling
$34,020, will be insufficient.
The creditor also notes that Mrs. King’s income fluctuates, and Mr. King
cannot be relied upon to tender his alimony pendente lite payments, considering he had
already missed two of the three owed at the time of the hearing. Thus, the mortgagee
contends that there is insufficient evidence that Mrs. King can successfully reorganize in
this chapter 13 case.
The chapter 13 trustee agrees that all three prior bankruptcy filings of Mr.
King should be imputed to Mrs. King, He is also concerned with the discrepancies
between Mrs. King’s testimony and bankruptcy schedules, which renders it difficult to
determine whether it is possible for her to reorganize under chapter 13 by curing her pre-
bankruptcy mortgage arrearage. 6
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Section 1325(a)(7), enacted by the Bankruptcy Abuse Prevention and Consumer7
Protection Act of 2005, added the plan confirmation requirement that “the action of the debtor in
filing the petition was in good faith[.]” This provision is applicable in this 2006 bankruptcy
filing. In deciding the instant contested matter, however, I do not now decide whether the good
faith analysis under section 1307(c) is identical to the standard imposed by new section
1325(a)(7). See generally In re Tomasini, 339 B.R. 773 (Bankr. D. Utah 2006) (deciding that
standards in determining good faith under different sections of the Code may differ). At least
one reported decision suggests that the standard is the same. See In re Wagner, 2006 WL
1523058, at *5 (Bankr. E.D. Tenn. May 22, 2006) (applying section 1325(a)(7) in deciding an
objection to plan confirmation by utilizing the factors applicable under section 1307(c));
One commentator has opined that the addition of section 1325(a)(7) simply
evidences congressional ratification of decisions, such as In re Lilley, imposing a good faith
filing requirement in all chapter 13 cases. Norton Bankruptcy Law and Practice 2d, § 125:5
(2006). Another interprets this statutory provision as implying that a lack of good faith filing
means “that denial of confirmation, rather than dismissal, is the appropriate way to prevent such
conduct.” 8 Collier on Bankruptcy, ¶ 1325.07A (15th ed. rev. 2006). Although not before me, I
note that if a lack of good faith in filing a chapter 13 petition mandates a denial of confirmation,
if would appear that this defect would be irremediable. If so, a chapter 13 case in which the
debtor is unable to confirm any plan warrants dismissal under section 1307(c). See generally
Carolin Corp. v. Miller, 886 F.2d 693, 700-01 (4th Cir. 1989) (reorganization futility warrants
dismissal).
8
II.
Distinct from the requirement found in section 1325(a)(3)—that a chapter
13 plan be proposed in good faith—is the requirement implicitly found in section 1307(c):
that the chapter 13 case be filed in good faith. See, e.g., Matter of Smith, 848 F.2d 813,
816 n.3 (7th Cir. 1988); In re March, 83 B.R. 270, 275 (Bankr. E.D. Pa. 1988). 	As the7
Third Circuit has instructed:
It is clear that Chapter 13 contains no explicit good faith
requirement. Section 1307(c) provides, however, that Chapter
13 petitions may be dismissed “for cause.” 11 U.S.C. §
1307(c). The Seventh, Ninth and Tenth Circuits have held
that lack of good faith in filing is sufficient cause for
dismissal under section 1307(c). . . . We agree.
As the Seventh Circuit has noted, however, “good faith is a
term incapable of precise definition.” In re Love, 957 F.2d
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[1350] at 1355 [(7th Cir. 1992)]. As a result, we believe that
“the good faith inquiry is a fact intensive determination better
left to the discretion of the bankruptcy court.” Id. We
therefore join the Seventh, Ninth and Tenth Circuits in
holding that the good faith of Chapter 13 filings must be
assessed on a case-by-case basis in light of the totality of the
circumstances. . . . Factors relevant to the totality of the
circumstances inquiry may include, among others, the
following:
the nature of the debt . . .; the timing of the
petition; how the debt arose; the debtor’s motive
in filing the petition; how the debtor’s actions
affected creditors; the debtor’s treatment of
creditors both before and after the petition was
filed; and whether the debtor has been
forthcoming with the bankruptcy court and the
creditors.
In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996) (citations and footnote omitted).
As section 1307(c) has its counterpart in chapter 11 cases in section
1112(b), decisions construing section 1112(b) are germane to an interpretation of section
1307(c). Section 1112(b) grants to a bankruptcy court the authority to dismiss a chapter
11 case, or convert a chapter 11 case to one under chapter 7, “whichever is in the best
interests of creditors and the estate, for cause . . . .” 11 U.S.C. § 1112(b). As in section
1112(b), the term “cause” found in section 1307(c) is not defined by the statute; the
examples provided by subsection (c) of section 1307 are meant to be nonexclusive. In re
Brown, 951 F.2d 564, 572 (3d Cir. 1991); see 11 U.S.C. § 102(3); Hall v. Vance, 887
F.2d 1041 (10th Cir. 1989); In re Guevara, 2004 WL 2495410, at *4 (Bankr. E.D. Pa.
2004).
Consistent with the Lilley explication of section 1307(c), in considering
whether cause has been established, a court should consider the totality of the
circumstances. See also Matter of Cohoes Indus. Terminal, Inc., 931 F.2d 222, 227 (2d
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Cir. 1991); In re Guevara, 2004 WL 2495410, at *4 . When a party seeks to dismiss a
chapter 13 case as filed in bad faith, and when the debtor has had prior unsuccessful
filings, as is asserted by the mortgagee in this instance, the issue of bad faith is often
considered in the context of the likelihood of the debtor’s ability to reorganize, and
whether the latest bankruptcy filing is simply an attempt to forestall a creditor from
proceeding in state court. Moreover, since the debtor was unable to reorganize
previously, the question of bad faith often focuses upon whether a material change in the
debtor’s financial circumstances has occurred.
In general, while the Code does not contain any express limitation, many
courts have recognized that it is inappropriate for a debtor to file another bankruptcy
reorganization case (under chapters 11, 12, or 13) after dismissal of an earlier one, unless
there has been a material change of circumstances which demonstrates that the second
attempt now has a possibility of success after the first had failed. See Matter of Elmwood
Development Co., 964 F.2d 508 (5th Cir. 1992); In re Chisum, 847 F.2d 597 (9th Cir.
1988); In re Johnson, 708 F.2d 865 (2d Cir. 1983); In re Oglesby, 158 B.R. 602 (E.D. Pa.
1993); In re LeGree, 285 B.R. 615 (Bankr. E.D. Pa. 2002); In re McKissie, 103 B.R. 189,
192 (Bankr. N.D. Ill. 1989).
When there are successive reorganization bankruptcy filings without any
material changes in circumstances, the latest filing is generally viewed as in “bad faith.”
See In re Barrett, 964 F.2d 588 (6th Cir. 1992) (change in circumstances made the
debtor’s successful reorganization extremely likely and the filing undertaken in good
faith). Since the prior filings have been unsuccessful, there is little reason for the debtor
to believe that the latest case will yield any different result. And, a bankruptcy
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reorganization filing without any legitimate prospect of reorganization serves as grounds
to dismiss the case. See, e.g., Matter of Love, 957 F.2d 1350, 1357 (7th Cir. 1992); In re
Brown, 951 F.2d at 572; Matter of Cohoes Indus. Terminal, Inc. Moreover, the debtor’s
evidentiary burden to demonstrate a material change in circumstances supporting a
reasonable possibility of reorganization increases with the number of unsuccessful prior
filings. See In re LeGree, 285 B.R. at 620.
Although no parties here dispute that this is Mrs. King’s first bankruptcy
filing, MidFirst argues that Mr. King’s prior filings should be imputed to her and
therefore she should be considered a serial filing, subject to this higher burden to establish
some prospect of reorganization. Courts have long held that the bankruptcy filings of one
family member may be attributed to others in appropriate circumstances. See, e.g., In re
Kinney, 51 B.R. 840 (Bankr. C.D. Cal. 1985):
There is no question that eight of the ten bankruptcies were
filed by the different members of the Kinney family in order
to obtain the automatic stay as to the Compton property. Their
concerted, intertwined efforts to prevent Imperial Bank from
realizing on its security can be viewed as the acts of one
entity, with many individuals carrying out these acts.
***
Here, the actions of each family member can be imputed to
the rest of the family due to the unity of interest and concert
of action. . . . In the presence of such a scheme, the
individuality of each of the debtors is blurred, revealing one
common entity with five operatives. Under such
circumstances, orders binding one family member should bind
the others as well.
Id. at 845, 846; see In re Bailey, 321 B.R. 169, 180 (Bankr. E.D. Pa. 2005) (“However, it
is the well established view of this and other courts that the actions of one family member
in filing a bankruptcy petition for the purpose of staying foreclosure of the same property
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12
may be imputed to another family member due to a unity of interest and concert of
action.”); In re Ouverson, 79 B.R. 830, 833 (Bankr. N.D. Iowa 1987).
Thus, courts have also held that a chapter 13 bankruptcy filing of one
spouse may be in bad faith if it follows multiple unsuccessful reorganization attempts by
the other spouse with whom she resides, when the purpose of the latest petition is solely
to stave off foreclosure of the family residence and there is little or no evidence of a
reasonable prospect of reorganization. See In re Felberman, 196 B.R. 678, 688 (Bankr.
S.D.N.Y. 1995).
Finally, the Third Circuit Court of Appeals has instructed, when analyzing
section 1112(b)—the chapter 11 provision substantially similar to section 1307(c)—that
the evidentiary burden to demonstrate good faith falls on the debtor:
Once at issue, the burden falls upon the bankruptcy petitioner
to establish that the petition has been filed in “good faith.”
In re SGL Carbon Corp., 200 F.3d 154, 162 n.10 (3d Cir. 1999) (citation omitted). The
court applied this same allocation of the evidentiary burden in a chapter 7 case. In re
Tamecki, 229 F.3d 205, 207 (3d Cir. 2000). Due to the similarity between sections
1112(b) and 1307(c), there is little basis to doubt that the Court of Appeals for the Third
Circuit would also place the burden of persuasion on this issue on the chapter 13 case
debtor. As the moving party, however, Midfirst Bank has an initial evidentiary burden of
production to place the debtor’s good faith in issue. See In re SGL Carbon Corp., 200
F.3d 154, 162 n.10 (3d Cir. 1999) (moving party must place the question of good faith in
issue); cf. In re Kim, 71 B.R. 1011, 1014 (Bankr. C.D. Cal. 1987) (moving party must
meet some initial burden of production before shifting the burden of persuasion). That is,
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although the ultimate burden of persuasion rests upon the debtor, the moving creditor
must make some initial showing of bad faith to put the issue in question.
III.
As mentioned above, Midfirst Bank forcefully asserts that Mr. King’s three
prior bankruptcies should be imputed to Mrs. King. Absent her husband’s previous,
unsuccessful bankruptcy cases, Midfirst Bank does not suggest any other basis to
conclude that Mrs. King commenced this case in bad faith. Were I to consider Mrs. King
a serial filer, then Midfirst Bank’s initial burden of production would be met and I would
determine whether Mrs. King has shown a material change in circumstances meriting a
new chance at chapter 13 reorganization. Were I not to attribute Mr. King’s dismissed
chapter 13 cases to Mrs. King, then it would follow that the instant bankruptcy filing was
done in good faith as there would be no evidence to the contrary.
Upon consideration of the evidence presented, while it appears that Mr.
King’s bankruptcies had the effect of precluding Midfirst Bank from foreclosing upon its
collateral, his actions should not be attributed to the instant debtor spouse.
As observed earlier, the bankruptcy filings of different individuals may be
imputed to one another and considered serial filings by the same debtor if they are a
coordinated effort by these individuals to frustrate the actions of a particular creditor and
abuse the bankruptcy system. See, e.g., In re Merchant, 256 B.R. 572 (Bankr. W.D. Pa.
2000) ; In re Graham, 1998 WL 473051, at *2 (Bankr. E.D. Pa. 1998); In re Ouverson, 79
B.R. 830. Those decisions that detect such abuse refer to a “unity of interest” and
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The debtor also testified that her attempt to gain information from Mr. King’s8
attorney about his bankruptcy filing were rebuffed by assertion of attorney-client privilege.
Hearing at 4:32.
To further corroborate her estrangement from Mr. King, Mrs. King offered in9
evidence a copy of a state court support petition. Ex. D-1.
14
“concert of action.” In re Kinney; In re Ouverson. In this contested matter, while Mrs.
King had a unity of interest with her estranged husband in staying the foreclosure of her
residence, I am not persuaded on these facts that her filing bankruptcy should be
considered concerted action with Mr. King.
I found credible Mrs. King’s testimony that she was unaware of her
husband’s actions, both in his extensive failure to pay the various household expenses and
his filing two additional bankruptcies in late 2004 and early 2005. Unless she learned that
the first bankruptcy case had been dismissed, and there was no evidence that she did, she8
could fairly believe that all bankruptcy notices and correspondence sent to her home,
which would have been addressed to Mr. King, were connected with the earliest chapter
13 filing. And while Mrs. King acknowledged her poor judgment in ceding to her
husband sole responsibility for household expenses, including paying the mortgagee, Mr.
King was gainfully employed throughout this period. Mrs. King’s lack of participation in
the family finances, Mr. King’s absence from the home, and the couple’s lack of
communication during their separation and divorce proceedings, make her ignorance of9
the mortgage delinquency and multiple bankruptcy filings plausible. (Indeed, it is
possible that Mr. King is unaware of Mrs. King’s present filing.)
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These facts contrast with serial filing abuse cases such as In re Kinney,
where ten bankruptcies were filed by members of the same family, and involved the same
attorney in all but two. See also In re Ouverson, 79 B.R. at 833:
There is considerable evidence establishing Debtor’s lack of
good faith: this is the third bankruptcy petition Debtor has
participated in since 1985; all three petitions were filed on the
eve of foreclosure; one of the petitions was voluntarily
dismissed at the request of the Debtor and her husband after
having “stayed” the scheduled Sheriff’s Sale; the Chapter 11
petition was dismissed for lack of prosecution–no disclosure
statement or plan was filed; the current Chapter 12 petition
was filed the same day Debtor’s husband’s first Chapter 12
petition was dismissed, one day prior to a scheduled Sheriff’s
Sale; and the Debtor and/or her husband engaged in concerted
action in filing seven bankruptcy petitions over a 26-month
period, which invoked the automatic stay.
That the mortgagee has suffered non-payment and has been deprived of
recourse to its collateral for a considerable period deserves serious consideration, but does
not by itself justify a determination of serial bankruptcy filings. Moreover, while the
obvious purpose of this latest chapter 13 petition was to save Mrs. King’s home from
foreclosure, filing bankruptcy to stop a sheriff sale is not presumptively bad faith. See
Cinema Service Corp. v. Edbee Corp., 774 F.2d 584, 586 (3d Cir. 1985) (“An attempt to
stop a sheriff’s sale, if undertaken pursuant to a legitimate effort at reorganization, is not
reprehensible and is in accord with the aim of the Bankruptcy Code.”); compare In re
Hamer, 2000 WL 1230496, at *8 (E.D. Pa. Aug. 18, 2000) (“[S]erial filings were not an
honest attempt to reorganize debt, but were intended solely to avoid the foreclosure sale
that Equity had been attempting since 1997.”).
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Subsequent to the hearing in this matter, on June 15, 2006, the trustee filed his10
own motion to dismiss. The grounds for dismissal did not include failure to make plan
payments.
When a debtor files a bankruptcy petition the day before a sheriff sale, it usually11
compels a postponement of the sale by making it very difficult for the mortgagee to obtain
emergency relief from the stay, even when the bankruptcy filing is in bad faith. A debtor’s filing
a chapter 13 petition three weeks prior to the sale date, however, affords the mortgagee an
opportunity for quick relief from an abusive filing.
16
Contrary to the practice of her estranged husband, Mrs. King has made all
of her trustee and mortgage payments thus far in the case. 	Compare In re Felberman,10
196 B.R. at 685 (debtor and her husband had made only one mortgage payment in almost
four and a half years); In re Jones, 41 B.R. 263, 266 (Bankr. C.D. Cal. 1984) (debtor had
only made three mortgage payments in two and a half years). That Mrs. King did not file
this petition on the eve of foreclosure, but approximately three weeks before, also implies
an intent to reorganize rather than solely to frustrate the foreclosure sale of the property. 11
In contrast to other serial filing imputation cases, Mrs. King’s chapter 13 petition does not
effect an end run around a bar order entered in Mr. King’s last case, as neither was one
entered nor even requested. See In re Felberman, 196 B.R. at 685 (wife filed bankruptcy
after prospective relief granted mortgagee in husband’s third case).
Accordingly, the evidence presented does not warrant concluding that Mrs.
King is a serial bankruptcy filer who is abusing federal law solely to thwart the legitimate
state law rights held by Midfirst Bank.
Moreover, were it necessary for Mrs. King to prove a material change in
circumstances between this case and Mr. King’s prior cases, I note that during those
earlier cases, it does not appear that Mrs. King’s income was utilized by Mr. King as part
of the reorganization effort. In this filing, Mrs. King will apply her income and compel
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Sixty-five hours every two weeks times $11/hour equals $715; annualized that12
equals $18,590; divided by 12 equals $1,549.16. This, of course, does not take into account
payroll deductions.
17
Mr. King’s contribution by wage garnishment. Plus, she has some settlement proceeds to
assist in this reorganization. These differences again support a finding of good faith.
As do both the chapter 13 trustee and Midfirst Bank, however, I have some
reservations concerning her ability to reorganize successfully.
As Midfirst Bank observed at the hearing, Mrs. King’s estimate of her
mortgage arrears may be too low. Currently, Mrs. King proposes to pay $567 per month.
This would total $34,020 over the life of the plan. While the validity of Midfirst Bank’s
asserted arrearage claim of $44,919.36 has not been determined, it is probable that the
pre-bankruptcy mortgage delinquency increased since Mr. King’s last case, when it was
approximately $32,000. In addition, Citadel Federal Credit Union has filed a secured
claim of $1,585.93. If both secured claims were allowed as filed, Mrs. King would need
to pay more than $775 per month in plan payments, exclusive of the trustee’s commission
and any other administrative claims.
Additionally, I agree with the trustee that it is difficult to compute Mrs.
King’s disposable income from the evidence presented. Her monthly gross wages may be
as much as $350 less than the $1,906 she scheduled. 	Mrs. King also admitted that her12
overtime hours were inconsistent, and thus difficult to average. These potential
deductions in income may be offset by the $100-$500 Mrs. King testified she receives in
mileage reimbursement each month.
And like the trustee, I note that it is highly unlikely that the debtor’s
expenses estimate found on Schedule J is accurate. For example, the debtor discloses no
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Indeed, he has already moved to do so, which motion is scheduled to be heard13
later this month.
18
expense for clothing or medical and dental co-pays. Mrs. King must purchase some
clothing for herself, even with wearing uniforms to work; and she and her children must
have medical and dental appointments that cost her in co-pays: indeed, she mentioned that
she had just finished paying off her son’s braces. Hearing at 4:44. Finally, though
frugality is commendable, the $280 budgeted for food for two teenagers and one adult,
plus a visiting college student, seems unreasonably low.
On the other hand, Mrs. King may have more funds to devote to her
reorganization plan, considering her testimony that her $180 electricity and heating fuel
expense was overstated by a “little,” while her $160 water and sewer expense may have
been overstated by half. Most significantly, Mrs. King no longer pays $493.46 in
scheduled monthly car payments. With the other reduced expenses, over $500 in
additional funds may be available to devote to the plan—possibly making up for any
deficiencies in her income disclosures.
Although I will deny Midfirst Bank’s motion to dismiss, the chapter 13
trustee will insist upon the debtor’ need to clarify her disposable income prior to
confirmation of any plan and to prove its feasibility. 11 U.S.C. §§ 1325(a)(6), (b). 	At13
this point, however, the totality of the circumstances support allowing this case to
continue. See In re Powers, 135 B.R. 980, 991 (Bankr. C.D. Cal. 1991) (“‘But if it is
apparent that the purpose is not to delay or defeat creditors, but rather to put an end to
long delays, administrative expenses . . . to mortgage foreclosures, and to invoke the
operation of the [bankruptcy law] . . . to attempt to effect a speedy efficient
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19
reorganization, upon a feasible basis . . . good faith cannot be denied.’”) (quoting In re
Loeb Apartments, 89 F.2d 461, 463 (7th Cir. 1937).
An order consistent with this memorandum will be issued.
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20
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 13
NANCY KING 	:
Debtor 	: 	Bankruptcy No. 06-10711bif
.................................................
ORDER
.................................................
AND NOW, this 11th day of July 2006, for the reasons stated in the
accompanying memorandum, it is hereby ordered that Midfirst Bank’s motion to dismiss
this chapter 13 under 11 U.S.C. § 1307(c) as a bad faith filing is denied.
____________________________________
BRUCE FOX
United States Bankruptcy Judge
Copies to:
Mrs. Nancy M. King
624 Felton Avenue
Sharon Hill, PA 19079
Patrick F. Lomax, Esq.
Law Offices of Patrick F. Lomax
11 South Olive St. - Suite 100
Media, PA 19063
Leslie E. Puida, Esq.
Mellon Independence Center
701 Market Street, Suite 5000
Philadelphia, PA 19106-1532
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William C. Miller, Esq.
Chapter 13 Trustee
111 S. Independence Mall, Suite 583
Philadelphia, PA 19106
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