Consuela A Marquez

1A pending Motion for Relief from Automatic Stay filed by American Heritage Bank
(“AHB”) was also set for final hearing on that day. However, none of the parties at the final
hearing directly addressed the Motion for Relief from Automatic Stay. The Court will, therefore,
confine its ruling to confirmation. Counsel for AHB may request a further hearing on the
Motion for Relief from Automatic Stay if necessary.
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	CONSUELA A. MARQUEZ, 	No. 13-06-11476 MR
Debtor.
ORDER DENYING CONFIRMATION OF AMENDED CHAPTER 13 PLAN
THIS MATTER is before the Court on confirmation of Debtor’s Amended Chapter 13
Plan. The Court held a final hearing on confirmation on January 16, 2007 and took the matter
under advisement.1 Upon review of the Amended Chapter 13 Plan and after consideration of
the Debtor’s testimony at the final hearing, the Court finds that confirmation must be denied.
DISCUSSION
A. Feasibility
Confirmation of a chapter 13 plan of reorganization is governed by 11 U.S.C. § 1325.
The Debtor bears the burden of proving that a plan meets all requirements for confirmation under
11 U.S.C. § 1325(a). In re Ford, 345 B.R. 713, 716 (Bankr.D.Colo. 2006) (“The Debtor has the
burden of proof concerning the elements of § 1325(a)”)(citation omitted); In re Hutchinson, __
B.R. __, 2006 WL 2848654 at * 5 (Bankr.D.Kan. 2006) (“Debtors bear the burden of proving
that they have met all the requirements of § 1325")(citing In re Barnes, 32 F.3d 405 (9th Cir.
1994). Among the requirements for confirmation is the requirement that the plan be feasible. See
11 U.S.C. § 1325(a)(6) (“the debtor will be able to make all payments under the plan and to
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comply with the plan.”); In re Tucker, 34 B.R. 257, 262 (Bankr.Okla. 1983) (noting that §
1325(a)(6) “is commonly referred to as the ‘feasibility requirement’ in a Chapter 13 case.”).
When a plan proposes payments insufficient to pay the claims provided for under the plan, the
plan is not feasible and cannot be confirmed. See 11 U.S.C. § 1325(a)(6) (“the debtor will be
able to . . . comply with the plan.”).
In this case, Debtor’s Amended Chapter 13 Plan proposes to make payments of
$1,309.52 per month for a period of thirty-six months. 	Debtor’s Schedule I reflects monthly
income of $1,712.46, and Schedule J shows net monthly income of $112.56. This figure is net of
the $740.00 mortgage payment to AHB. However, even if $740.00 is added to the net monthly
income figure, Debtor’s reported monthly income on Schedule I is less than her proposed
monthly plan payment of $1,309.52. “[W]hen a debtor’s budget shows a clear inability to make
the proposed plan payments, the plan is not entitled to confirmation.” 8 Collier on Bankruptcy ¶
1325.07[1] (Alan N. Resnick and Henry J. Sommer, eds., 15th ed. rev. 2006). Moreover,
Schedule J does not reflect a payment for the mortgage to Western Mortgage, which Debtor
identifies in her Amended Plan as having a monthly payment of $275.00.
At the final hearing, Debtor testified that she receives monthly rental income from three
properties: 	$450.00 from the property located at 417 Calhoun; $375.00 from the property
located at 2316A South Prince; and $375.00 from the property located at 2316B South Prince.
Debtor’s Schedule I reports monthly rental income of $450.00, presumably from the property
located at 417 Calhoun. 	Debtor’s schedules regarding income and expenses are inaccurate in as
much as they are inconsistent with her testimony. Based on her testimony, the combined rental
income in the amount of $750.00 from the properties located at 2316A and 2316B South Prince
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2The regular monthly mortgage payments due AHB and Western Mortgage as identified
in the plan total $36,540.00. The plan base ($1309.52 x 36 mos.) is $47,142.72. The Chapter 13
Trustee’s commission is 10%. The Amended Plan also proposes to cure the arrears to AHB in
the amount of $5,920.00, plus interest at the rate of 5%, and the arrears due Western Mortgage in
the amount of $3,300.00, plus interest at the rate of 5%, and to pay the claim of Panhandle Plains
in the amount of $3,628.00 and the claim of Loan Ranger in the amount of $1,000.00. 	Given
these figures, and assuming the Debtor intends to make the regular mortgage payments inside the
plan, the Court estimates that the plan must contemplate payments totaling at least $55,102.00,
excluding interest on the arrears payments.
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should be added to Debtor’s income. 	However, even if the Court were to assume that the
Debtor is able to make the monthly plan payment proposed under her Amended Plan, the plan as
proposed appears infeasible.
It is not clear from the Amended Plan whether the Debtor intends to pay the regular
monthly payments due under her mortgage with AHB and her mortgage with Western Mortgage
directly, or as part of her plan payment. See Amended Plan, ¶ 3 (Identifying the debts to AHB
and Western Bank as “Secured Debts Which will Extend Beyond the Length of the Plan”). At
the final hearing, Debtor indicated that she believed her monthly plan payment included the
regular monthly mortgage payments to AHB and Western Bank as well as the arrears to those
creditors as identified in paragraph 5. of the Amended Plan. 	If the monthly plan payment of
$1,309.52 is intended to service the regular monthly mortgage payments in addition to the
arrears, the plan as proposed does not appear feasible.2 In sum, because the Debtor’s Statements
and Schedules conflict with her testimony at the final hearing on confirmation, and because it
does not appear that the plan is feasible, the Amended Plan is not confirmable. Moreover, it is
apparent to this Court that Debtor’s counsel has made little effort thus far to clarify the terms of
the Debtor’s proposed plan of reorganization or to properly advise his client in completing her
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3Those sections provide, in relevant part:
©) The signature of an attorney on a petition, pleading, or written motion shall
constitute a certification that the attorney has –
(I) performed a reasonable investigation into the circumstances that gave
rise to the petition, pleading, or written motion; and
(ii) determined that the petition, pleading, or written motion--
(I) is well grounded in fact; and
(II) is warranted by existing law . . .
(D) The signature of an attorney on the petition shall constitute a certification that
the attorney has no knowledge after an inquiry that the information in the schedules filed with
such petition is incorrect.
11 U.S.C. § 707(b)(4)(C) and (D)
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statements and schedules. See 11 U.S.C. § 707(b)(4)(C) and (D).3 Rule 9011, Fed.R.Bankr.P.
B. Best Interests of Creditors
The confirmation hearing raised unresolved issues concerning the ownership and
valuation of certain real properties. 	Debtor was divorced in 2005, prior to the filing of her
bankruptcy petition on August 25, 2006, yet Schedule A identifies several parcels of real
property located at 417 Calhoun, 2320 South Prince Street, 2316A and 2316B South Prince
Street and 416 Calhoun (together, “Property”) as community property. (See Debtor’s Exhibit 1 -
Petition for Divorce and Final Decree of Dissolution of Marriage). At trial, Debtor introduced a
notarized letter from her former spouse dated October 5, 2005 which purports to “return and
renounce all interest and hold over to Consuela Marquez” the Property as well as several items
of personal property. (See Debtor’s Exhibit 2). In addition, there are unrecorded Quitclaim
Deeds for the Property dated December 11, 2006. (See Trustee’s Exhibit 3).
Debtor’s former spouse, Juan Marquez, also filed a voluntary petition under Chapter 13
of the bankruptcy code on August 25, 2006, as Case No. 13-06-11477 MS. That case has since
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4At the close of the hearing on confirmation, the Court directed the Debtor to file a
motion to employ realtor with the Court by the close of the following business day. Debtor filed
a Motion to Employ Realtor (Docket # 55) the day following the confirmation hearing.
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been converted to Chapter 7. (See Case No. 7-06-11477 MS, Docket # 13). 	Schedule A filed in
Juan Marquez’s bankruptcy proceeding also identifies the Property as community property. 	At
the final hearing on confirmation, Debtor testified that she spoke with a realtor and believes the
total value of the Property is $150,000.00, though she has listed for sale the properties located on
South Prince Street for $159,000.00.4 No other evidence of value was presented to the Court.
The best interest of creditors test is embodied in 11 U.S.C. § 1325(a)(4), which provides:
the value, as of the effective date of the plan, of property to be distributed under the plan
on account of each allowed unsecured claim is not less than the amount that would be
paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title
on such date.
11 U.S.C. § 1325(a)(4).
The Debtor bears the burden of proving that the plan meets the best interest of creditors test.
Hutchinson, 2006 WL 2848654 at *5. 	In applying the best interest of creditors test, the Court
must first consider the value, as of the effective date of the plan, of the property to be distributed
to each unsecured creditor under the plan, taking into account the Chapter 13 administrative
expenses, and then compare that figure to the amount that would be paid to each unsecured
creditor if the debtor’s estate were liquidated in a hypothetical chapter 7 proceeding, taking into
account the chapter 7 administrative expenses. In re Dewey, 237 B.R. 783, 788 (10th Cir. BAP
1999) citing In re Gatton, 197 B.R. 331, 332 (Bankr.D.Colo. 1996) (remaining citations
omitted). 	Only if the amount to be distributed to unsecured creditors under the proposed chapter
13 plan is not less than the amount that would be distributed to unsecured creditors in a
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hypothetical chapter 7 liquidation will the plan satisfy the best interest of creditors test under 11
U.S.C. § 1325(a)(4). Id. at 788.
In this case, until the issues regarding the value of the Property and the extent of the
Debtor’s interest in the Property are resolved, it is difficult, if not impossible for the Court to
make a determination that the Debtor’s plan satisfies the best interest of creditor’s test contained
in 11 U.S.C. § 1325(a)(4). 	Based on the evidence now before the Court, and in light of the
pending bankruptcy proceeding of the Debtor’s spouse, and because the Amended Plan is
otherwise unconfirmable, the Court will not now attempt to make a determination as to whether
the Amended Plan complies with 11 U.S.C. § 1325(a)(4).
C. Other impediments to confirmation.
AHB alleged that under the terms of its note and mortgage, the Debtor is required to
maintain property insurance for the structures located on the real property. Debtor admitted at
the final hearing that she has failed to maintain property insurance for the properties. 	The Court
cannot find that the Debtor has demonstrated feasibility if, immediately upon confirmation the
Debtor will be in default under her obligations to AHB. Moreover, failure to maintain proper
insurance when obligated to do so under the applicable loan documents likely constitutes
sufficient cause to lift the automatic stay. See 11 U.S.C. § 362(d) (relief from the stay may be
granted “for cause, including the lack of adequate protection. . .”); Cf. In re Jones, 189 B.R. 13,
14 (Bankr.E.D.Okla. 1995) (finding that secured creditor lacked adequate protection where
debtor had allowed the insurance on the property to lapse).
The Amended Plan identifies the claim of Panhandle Plains as a priority claim in the
amount of $3,628.00. The Chapter 13 Trustee objected to the Debtor paying a student loan as a
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5That section provides, in relevant part:
[T]he court shall confirm a plan if --
(9) the debtor has filed all applicable Federal, State, and local tax returns
as required by section 1308.
11 U.S.C. § 1325(a)(9).
Section 1308 requires the debtor to file “all tax returns for all taxable periods ending
during the 4-year period ending on the date of the filing of the petition.” 11 U.S.C. § 1308(a).
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priority claim. (See Chapter 13 Trustee’s Objection to Confirmation of Debtor’s Amended Plan,
¶ 14). It is not clear from either the claims filed in this case or the Debtor’s Amended Plan that
the claim of Panhandle Plains is a student loan debt. 	However, no evidence was presented at the
final hearing to show that the claim of Panhandle Plains is entitled to priority treatment, or that
the discriminatory treatment of Panhandle Plains as compared to other unsecured creditors is
justified. Cf., See, e.g., In re Willis, 197 B.R. 912 (N.D.Okla. 1996) (holding that plan which
provided for 100% payment of non-dischargeable student loan debt and only 10% to other
unsecured creditors could not be confirmed, absent justification for the discriminatory treatment
of unsecured claims other than the fact that the unsecured student loans are non-dischargeable);
In re Mason, 300 B.R. 379 (Bankr.D.Kan. 2003) (plan which proposed to make payments on
non-dischargeable student loan debt while making no distributions to other unsecured debts was
unfairly discriminatory and could not be confirmed).
Debtor has failed to file her tax return for the 2005 tax year as required under 11 U.S.C. §
1325(a)(9).5 Debtor testified that she has not yet filed her tax return for the 2005 tax year, and
that any extension she may have obtained has expired. 	The filing of the Debtor’s 2005 tax
return is, therefore, a condition for confirmation which the Debtor has failed to fulfill. 11 U.S.C.
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6The Court notes that Debtor’s initial plan called for no monthly payments despite the inclusion in the plan
of a priority claim. In addition, the Debtor did not commence making payments within the time proscribed by 11
U.S.C. § 1326(a)(1). (“[T]he debtor shall commence making payments not later than 30 days after the date of the
filing of the plan or the order for relief . . .”).
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§ 1325(a)(9).
As of the date of the final hearing on confirmation, Debtor was one payment behind on
plan payments due under her proposed Amended Plan. 6 The Court will not enter an order
confirming a plan under which the Debtor is not current as of the date of the confirmation order.
WHEREFORE, IT IS HEREBY ORDERED that confirmation of Debtor’s Amended
Plan is DENIED. Debtor must amend her statements and schedules to properly reflect her assets
and liabilities and file an amended plan consistent with said schedules and statements within
fifteen days of the entry of this Order or the Court will dismiss this bankruptcy proceeding
without further notice or a hearing.
__________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
COPY TO:
Eric D Dixon 	Annette DeBois
Attorney for Debtor 	Attorney for Chapter 13 Trustee
301 S Avenue A 	625 Silver Avenue SW, Suite 350
Portales, NM 88130-6288 	Albuquerque, NM 87102
Wesley O. Pool
Attorney for American Heritage Bank
400 Pile Street, Suite 100
Clovis, NM 88101
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