Mark D. Montgomery

1 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(I) and (J); and these
are findings of fact and conclusions of law as required by Rule
7052 F.R.B.P. 	The underlying chapter 13 case was filed prior to
the effective date of the analogous provisions of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No.
109-08, 119 Stat. 23, and therefore the changes enacted by that
legislation are not applicable to this case.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
Mark D. Montgomery,
Debtor. 	No. 13 - 05-10930 - SL
MEMORANDUM OPINION IN SUPPORT OF
ORDER CONFIRMING CHAPTER 13 PLAN
The chapter 13 plan (“Plan”) (doc 32) has come before the
Court for confirmation. 	Having considered the evidence and the
file, the Court finds good cause to confirm the Plan. 1
Background
On September 15, 2000, Mark Montgomery (“Debtor”) filed a
chapter 13 case (No. 13-00-14950 ML, District of New Mexico).
Debtor confirmed a plan and an amended plan in that case and made
total payments of $6,569.93, of which $5,369.44 was paid to
Vanessa and Ronald Henderson (“Hendersons”) (doc 128; Henderson
exhibit 8). 	However, due to lack of work and injury, Debtor was
unable to continue making the payments, and so the case was
dismissed on November 19, 2004 (doc 125).
On February 10, 2005, Debtor filed this chapter 7 bankruptcy
case. 	Hendersons filed a motion to dismiss the case (doc 7),
which was denied (doc 22), and then a non-dischargeability
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2 By the time the deadline for objecting to the Plan
arrived, the Hendersons had filed their own chapter 7 case (No.
7-05-21369 ML, District of New Mexico). 	They nevertheless filed
the objection, stating explicitly that they were doing so to
preserve their chapter 7 trustee’s rights. 	Their chapter 7
trustee never adopted the objection; however, the Court has
treated the Hendersons objections as if their chapter 7 trustee
had adopted the objections and then abandoned them, as he did for
the proof of claim they filed.
3 Debtor filed a post-trial motion requesting the Court to
take judicial notice of Schedule A from the Hendersons’ own
bankruptcy case (No. 7-05-21369 ML) (doc 75), which motion the
Hendersons opposed (doc 77) and concerning which the Court
conducted a preliminary hearing (minutes – doc 80). 	Because the
Court can and does decide the confirmation issues without
reference to the information from the Henderson case, the Court
denies the motion without prejudice.
Page 2 of 	16
adversary proceeding (No. 05-1094). 	Debtor converted the case to
one under chapter 13 (motion doc 27, order doc 30), and then the
Plan, which includes motions to avoid the Hendersons’ lien (doc
34) and to assume the contract to purchase a 2003 Peterbilt
tractor which the Debtor uses to earn his living (doc 35). 	Both
the Hendersons and the Trustee filed objections to the Plan. 2
(Docs 40 and 45 respectively.) 	The Hendersons also filed a
motion to dismiss the case for failure to file a plan timely (doc
41), which the Court granted (doc 58). 	Debtor then filed a
motion to reconsider the dismissal (doc 60), which the Court
granted (docs 64 and 65). 	Subsequently the Court conducted the
final hearing on the confirmation of the plan on August 23, 2006
(minutes – doc 74). 3
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4 The judgment included an award of $5,907.72 for attorney
fees to the Hendersons (in addition to a separate figure for
costs), even though the judgment recites that both sides
“appeared pro se”. 	Henderson exhibit 8.
5 No party opposes the assumption of the lease/contract, and
so that motion is approved.
6 The Hendersons timely filed a proof of claim when the case
first began. 	After they filed their own chapter 7 case, their
case trustee entered his appearance in this case and asserted
ownership of the claim. 	Docs 49 and 50. 	Subsequently he
abandoned the claim. 	Doc 66. 	The claim has therefore reverted
to the Hendersons, and they continue to have standing to pursue
(continued...)
Page 3 of 	16
The dispute which led to the filing of both cases had its
origin in some construction work that Debtor did (and did not do)
for the Hendersons on their house. 	He was not licensed by the
State of New Mexico as a contractor, and ultimately pled guilty
to a criminal charge for that and paid a fine. 	On February 28,
2000, the Hendersons obtained a judgment against Debtor from the
12 th Judicial District Court for a total of $17,290.05. 4
Throughout these two cases Debtor has sought to escape the full
effects of that judgment, and the Hendersons have just as
doggedly pursued him.
Analysis
The Plan provides for 36 monthly payments of $100 each. 	The
incorporated motions also seek to assume the lease/contract with
Wild West Express, Inc. for the 2003 Peterbilt tractor 5 and to
void the Henderson’s judicial lien as impairing Debtor’s
exemptions. 	The only proof of claim on file is the Hendersons’ 6
,
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6(...continued)
their objections to confirmation.
7 Amended Schedule F (doc 38) shows only three creditors:
$13,000 owed to the Hendersons, $4,000 to Wild West #27, LLC, and
$1,100 owed to Alamogordo Otho [sic] and Sports Medicine,
presumably for the back injury that Debtor has suffered. 	Doc 39.
8Section 1325 provides, in part:
(a) Except as provided in subsection (b), the court
shall confirm a plan if--
(1) the plan complies with the provisions of this
(continued...)
Page 4 of 	16
in the amount of $24,495.84 as of March 22, 2005, the date the
Hendersons filed the claim. 7
Debtor’s amended schedule A lists the home valued at $19,000
and an unattached lot worth $200. 	The Court accepts the value of
$19,000 as the value of the house. 	Schedule B shows $5,500 of
personal property. 	Schedule C, using the federal exemptions,
claims exempt $18,450 of the home and virtually all the personal
property. 	Doc. 37. 	Schedule D shows that the home is owned free
and clear (doc 38) but an earlier Schedule D showed a mortgage
debt of $1,100 (doc 16) as of the petition date. 	Henderson
exhibits 12 and 13 shows the mortgage debt was paid off on or
before August 12, 2005. 	Debtor’s amended Schedule I (doc 18)
shows income of $3,200 and amended Schedule J (doc 37) shows
expenses of $3,098, for a surplus of $102. 	Debtor’s plan
proposes paying $100 per month.
Confirmation of a Chapter 13 plan is governed by Section
1325 8. 	Subsection (a) mandates plan confirmation if six
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8(...continued)
chapter and with the other applicable provisions of
this title;
(2) any fee, charge, or amount required under chapter
123 of title 28, or by the plan, to be paid before
confirmation, has been paid;
(3) the plan has been proposed in good faith and not by
any means forbidden by law;
(4) 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;
(5) with respect to each allowed secured claim provided
for by the plan--
(A) the holder of such claim has accepted the
plan;
(B)(i) the plan provides that the holder of such
claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the
plan, of property to be distributed under the plan
on account of such claim is not less than the
allowed amount of such claim; or
(C) the debtor surrenders the property securing
such claim to such holder; and
(6) the debtor will be able to make all payments under
the plan and to comply with the plan.
(b)(1) If the trustee or the holder of an allowed
unsecured claim objects to the confirmation of the
plan, then the court may not approve the plan unless,
as of the effective date of the plan--
(A) the value of the property to be distributed
under the plan on account of such claim is not
less than the amount of such claim; or
(B) the plan provides that all of the debtor's
projected disposable income to be received in the
three-year period beginning on the date that the
first payment is due under the plan will be
applied to make payments under the plan.
(2) For purposes of this subsection, "disposable
income" means income which is received by the debtor
and which is not reasonably necessary to be expended--
(A) for the maintenance or support of the debtor
(continued...)
Page 5 of 	16
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8(...continued)
or a dependent of the debtor, including charitable
contributions (that meet the definition of
"charitable contribution" under section 548(d)(3))
to a qualified religious or charitable entity or
organization (as that term is defined in section
548(d)(4)) in an amount not to exceed 15 percent
of the gross income of the debtor for the year in
which the contributions are made; and
(B) if the debtor is engaged in business, for the
payment of expenditures necessary for the
continuation, preservation, and operation of such
business.
Page 6 of 	16
specified requirements are met. 	Petro v. Mishler (In re Petro),
276 F.3d 375, 378 (7 th Cir. 2002). 	Subsection (b) comes into
play when a trustee or holder of an allowed unsecured claim
objects to confirmation. 	At issue in this case are disposable
income (§ 1325(b)), the best interest of creditors test (§
1325(a)(4)), feasibility (§ 1325(a)(6)), and good faith (§
1325(a)(3)).
A. 	Disposable income
Both the Trustee and Hendersons objected to confirmation,
triggering the disposable income requirements of § 1325(b). 	The
Plan does not propose to pay 100% of the claims. 	See §
1325(b)(1)(A). 	Therefore the Court cannot confirm unless the
Plan provides that all of the Debtors’ projected disposable
income to be received in the three-year period beginning on the
date of the first plan payment will be applied to make payments
under the Plan. 	§ 1325(b)(1)(B). 	The Court has reviewed the
Debtors’ budget and finds it reasonable. 	Because Debtor’s
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9 The parties did not address what was the “effective date
of the plan”, a term undefined by the Code. 	See Forbes v. Forbes
(In re Forbes), 215 B.R. 183, 189 (8 th Cir. BAP 1997). 	Compare
Keith M. Lundin, Chapter 13 Bankruptcy, 3 d Ed. § 160.1 (2000 &
Supp. 2004)(hereafter Lundin)(“Without directly deciding the
question, most best-interests-of-creditors test cases perform the
hypothetical liquidation as of the date of the Chapter 13
petition.”) with, e.g., Education Assistance Corp. V. Zellner (In
re Zellner), 827 F.2d 1222, 1225 (8 th Cir.. 1987)(“Of course, the
effective date of the plan cannot be antecedent to the
confirmation hearing at which the issues raised by section
1325(a)(4) are to be heard by the court.”)(Citation omitted.); In
(continued...)
Page 7 of 	16
monthly surplus is $102, practically speaking Debtor has met the
disposable income test of § 1325(b)(1)(B).
B. 	Best interest of creditors test
Section 1325(a)(4), referred to as the “best interest of
creditors test” assures that creditors will be paid, at a
minimum, the amount which they would be paid if the case were a
chapter 7 liquidation case.
In order to determine compliance with the best interest
of creditors test:
a hypothetical liquidation of the debtor's estate
under Chapter 7 on the “effective date of the
plan” must be compared to the value on “the
effective date of the plan” of what the debtor
proposes to distribute to the holders of allowed
unsecured claims. 	A mathematical calculation must
be made of the value of what would be available
for distribution to unsecured claim holders in a
Chapter 7 case. 	The debtor's proposed
distributions to unsecured claim holders must be
“present valued” (discounted) as of the effective
date of the Chapter 13 plan.
Keith M. Lundin, Chapter 13 Bankruptcy § 5.25 (1990).
In re Coonrod, 135 B.R. 375, 377 (Bankr. D. Neb. 1991). 9
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9(...continued)
re Musil, 99 B.R. 448, 451 (Bankr. D. Kan. 1988)(“[T]he effective
date can be no earlier than the date the first confirmable plan
is heard.”). 	Instead the parties implicitly treated the date of
the filing of the petition as the effective date of the Plan.
For that reason the Court will do the same. 	However, as
explained below, even if the effective date is the date of
confirmation of the plan, Debtor has still met the best interests
of creditors test.
10 The upshot of this ruling is that the Debtor is not
required to do anything with the lot. 	And the Hendersons in turn
will be entitled to enforce their transcript of judgment. 	(The
Court notes that ¶11 of the Plan revests the property in the
Debtor upon confirmation.) 	This addresses the objection that the
Plan does not address secured claims.
Page 8 of 	16
Virtually all the property in this small estate is exempt.
The exception is the nonresidential lot. 	But because it is
encumbered by the Hendersons’ transcript of judgment (Henderson
exhibit 8, page 3), the value of that lot, whatever it is, does
not figure into the best interests of creditors test. 10 	The
value of whatever little equity there may be in the estate must
be discounted to take into account hypothetical chapter 7
administrative fees. 	See Jensen v. Dunivent (In re Dewey), 237
B.R. 783, 788 (10 th Cir. BAP 1999) (calculation of chapter 7
liquidation value of debtor’s estate must take into account
chapter 7 administrative expenses); In re Delbrugge, 347 B.R.
536, 539 (B.N.D.W.Va 2006) (chapter 7 administrative costs
include chapter 7 trustee fees, costs of sale, exemptions and
capital gains taxes); In re Gatton, 197 B.R. 331, 332 (B.D. Colo.
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Page 9 of 	16
1996) (same). 	Unquestionably the Plan meets the best interest of
creditors test.
C. 	Feasibility
The Court reviewed the budget in this case and finds that it
is reasonable. 	Debtor had been as of the confirmation hearing
constantly working for 2 1/2 years as a driver for the limited
liability company in which he is attempting to obtain an
ownership interest (Wild West #27, LLC, hereinafter “LLC”). 	He
appears to be in good enough health to continue that work through
the conclusion of the Plan. 	There is no reason to assume that he
will not be able to continue to make plan payments of $100, and
the Trustee’s Interim Report, filed in November 2006 (doc 81),
which showed that Debtor was current on his payments, confirms
this.
D. 	Good Faith
As a general matter, a determination of good faith must
be made on a case by case basis, looking at the
totality of the circumstances. 	See Pioneer Bank v.
Rasmussen (In re Rasmussen), 888 F.2d 703, 704 (10th
Cir. 1989). 	“In evaluating whether a debtor has filed
in good faith, courts should be guided by the eleven
factors set forth in Flygare v. Boulden, 709 F.2d 1344,
1347-48 (10th Cir.1983), as well as any other relevant
circumstances.” 	Robinson v. Tenantry (In re Robinson),
987 F.2d 665, 668 (10th Cir. 1993) (footnote omitted).
The eleven Flygare factors are:
(1) the amount of proposed payments and the
amount of the debtor's surplus; 	(2) the
debtor's employment history, ability to earn
and likelihood of future increases in income;
(3) the probable or expected duration of the
plan; 	(4) the accuracy of the plan's
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Page 10 of 	16
statements of the debts, expenses and
percentage repayment of unsecured debt and
whether any inaccuracies are an attempt to
mislead the court; 	(5) the extent of
preferential treatment between classes of
creditors; 	(6) the extent to which secured
claims are modified; 	(7) the type of debt
sought to be discharged and whether any such
debt is non-dischargeable in Chapter 7; 	(8)
the existence of special circumstances such
as inordinate medical expenses; 	(9) the
frequency with which the debtor has sought
relief under the Bankruptcy Reform Act; 	(10)
the motivation and sincerity of the debtor in
seeking Chapter 13 relief; 	and (11) the
burden which the plan's administration would
place upon the trustee.
Flygare, 709 F.2d at 1347-48 (quoting In re Estus, 695
F.2d 311, 317 (8th Cir. 1982)). 	But “the weight given
each factor will necessarily vary with the facts and
circumstances of each case.” 	Id. at 1348.
Mason v. Young (In re Young), 237 F.3d 1168, 1174-75 (10 th Cir.
2001). 	And, “a Chapter 13 plan may be confirmed despite even the
most egregious pre-filing conduct where other factors suggest
that the plan nevertheless represents a good faith effort by the
debtor to satisfy his creditors’ claims.” 	Id. at 1177 (quoting
Neufeld v. Freeman, 794 F.2d 149, 153 (4 th Cir. 1986)).
The genesis of the conflict between the two sides was a
series of repair/remodel jobs that Debtor did for the Hendersons
on their home. 	See Henderson exhibit 15 (“Work for Hire
Agreement”). 	Although clearly Debtor did not have a contractor’s
license, it is also clear that Debtor had no intention of
cheating the Hendersons. 	In fact, the testimony of the parties
leads the Court to conclude that Debtor sought to do only one
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11 Ms. Henderson also testified that Debtor had made racist
statements in the course of an argument between the parties.
Debtor denied the allegation. 	The Court need not decide that
issue since that was not a basis for objecting to the Plan.
Page 11 of 	16
project initially out of the several jobs the parties negotiated,
to ensure that the work went well enough before embarking on each
next project. 	Mr. Henderson, apparently sensing that Debtor had
considerably underpriced his estimates for all the jobs,
persuaded Debtor to agree to do all the jobs, likely with the
idea of locking in the low prices for the work. 	The Court does
not find that Debtor engaged in any egregious behavior in
connection with the repair/remodel work. 11
The Court will now analyze each Flygare factor:
1) 	Debtor is paying $100 per month, which is almost exactly the
amount of the Debtor’s surplus.
2) 	Debtor has a stable enough employment history. 	Debtor
testified he might receive a raise of an additional penny
per mile from the LLC.
3) 	The Plan duration is three years, which is one form of the
disposable income/best efforts test specified by §
1325(b)(1)(B).
4) 	The Plan’s statements were accurate; there was no attempt to
mislead the Court.
5) 	There is no preferential treatment of any class of creditors
except as authorized by the Code (e.g., attorney fees).
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Page 12 of 	16
6) 	Secured claims are not modified. 	In fact, the Plan has no
provision for payment of secured claims. 	However, the
Hendersons’ judicial lien is avoided, but only on the
homestead (see below).
7)The unsecured debt is minimal. 	Aside from the executory
contract debt which the Debtor is assuming for the Peterbilt
($80,000) and the 41.100 bill to Alamogordo Ortho and Sports
Clinic, the Hendersons’ judgment is the total debt. 	The debt to
the Hendersons might will be nondischargeable in a chapter 7
case, but since chapter 13 was written to permit the discharge of
otherwise nondischargeable debt, it is not bad faith per se to
use the Bankruptcy Code to do so. 	In re Schaitz, 913 F.2d 452,
454 (7 th Cir. 1990); In re Wilcox, 251 B.R. 59, 67 (Bankr. E.D.
Ark. 2000).
8) 	There are no exigent circumstances.
9) 	Debtor has filed one other bankruptcy. 	This was discussed
above.
10) 	The Court finds that the Debtors’ motivation in filing this
case was to deal with the Hendersons’ collection efforts,
which is one of the purposes of filing a bankruptcy
petition.
11) 	There would be and apparently has been no burden on the
Trustee to administer this case beyond the resources
required to administer any other case.
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Page 13 of 	16
None of the foregoing factors indicate bad faith on the part of
the Debtor; in the balancing process between good and bad faith,
the factors all are either neutral or indicate good faith. 	In
sum, the Court finds that overall the Plan was proposed in good
faith.
E. 	Other Issues and Further Discussion
The Court finds that Debtor’s employment and “ownership”
arrangement with Wild West Express, Inc. (“Express”), manifested
in the LLC operating agreement (Henderson exhibit 2), provides
Debtor with all the detriments and virtually none of the benefits
of an independent contractor status. 	Express completely controls
the LLC. 	Essentially Debtor pays for all the costs of the
operation and realizes little or no gain. 	And his chances of
ever actually accumulating any significant value in the Peterbilt
or the LLC, even spending almost every day of the month on the
road, appear to be minimal. 	Debtor’s interest in the LLC is
practically speaking nominal, so that any payments he makes to
the LLC essentially benefit Express, in which he has no ownership
interest.
The Court also finds that the home had on the petition date
a gross value of, at most, $19,000, encumbered by a mortgage
securing a debt of $1,100 owed to New Tex (amended Schedule A -
doc 18; amended Schedule D - doc 16). 	The Debtor’s equity was
completely exempted. 	Even taking into account the payoff of the
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12 Debtor completed his payments on the mortgage note during
the case and New Tex released the mortgage lien.
13 The state court ruling, that Debtor had forfeited the
right to claim the New Mexico homestead exemption, was cited by
Judge McFeeley in ruling in the Debtor’s first case that Debtor
was not entitled to claim the New Mexico homestead exemption (No.
13-00-14950, doc 48). 	Subsequently in that first case Debtor
amended to claim the federal exemption, and that exemption was
permitted and the Hendersons’ judicial lien set aside as part of
confirmation. 	Memorandum Opinion and Order confirming Debtor’s
amended chapter 13 plan (docs 85, 90 and 91). 	Debtor has
continued to claim the federal exemptions in the instant case.
The Court finds that the exemptions as claimed by the Debtor in
his amended Schedule C (doc 37) are all allowable.
14 This ruling does not apply to the Hendersons’
Lienholders’ Statement of Priority Claim (Henderson exhibit 10),
apparently recorded with the office of the Otero county clerk on
November 3, 2000. 	While it appears that the document was
recorded while Debtor was in his first chapter 13 case and
therefore is likely void, Debtor has not specifically moved to
avoid this lien and so the Court does not rule on it.
Page 14 of 	16
mortgage during the case (and prior to the confirmation
hearing) 12 , if the transaction cost of liquidating the home is
taken into account (approximately 8%), the value of the home is
less than the claimed exemption.
Since any equity that the Debtor has in the homestead is
exempt 13 , the Hendersons’ judicial lien on the homestead property
must be avoided. 14 	§ 522(f). 	On the other hand, the lot,
whatever its value, is no longer claimed as exempt, and the
Hendersons’ judicial lien cannot be avoided on that property. 	A
consequence of this ruling is that the value of the lot, which
the Hendersons have valued at no more than $7,500 to $11,000
gross (Henderson exhibit 6) and Debtor at $200 (Debtor exhibit A
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15 Counsel’s fees for representing Debtor throughout the
plan confirmation process almost certainly would have consumed
the entirety of whatever payments did not go to the Trustee for
her commissions. 	In consequence counsel’s giving up the
additional fees is the factor that permits the Plan to more than
meet the best interests of creditors test. 	The Court notes,
however, that debtor’s counsel are ordinarily entitled to full
payment of the fees they have earned, even if that means little
or no payment to unsecured creditors. 	And this is the case even
if the fees are incurred in a hotly contested confirmation or
other type of hearing. 	Thus the Trustee’s comment that
confirmation of the Plan would result in payment only to the
Trustee and counsel does not by itself state a valid objection to
confirmation.
16 Counsel’s reduction of his fees means Debtor meets the
best interests of creditors test even with the $1,100 mortgage
debt paid off and if the effective date of the plan is at
confirmation.
Page 15 of 	16
and amended Schedule A – doc 18) is removed from the calculation
of property available for distribution to unsecured creditors.
During the hearing Debtor’s counsel announced that, in aid
of confirmation, counsel would not charge more than $1,500 for
his services. 	Since the amended 2016 statement shows that he had
already received $1,000, he needs to be paid only an additional
$500, plus costs and applicable New Mexico gross receipts tax on
the entire amount. 15 	With the trustee’s commission of $360
deducted, the Hendersons should receive about $2,700, more than
the value of the nonexempt chapter 7 estate property were it
liquidated and the proceeds distributed on the effective date of
the Plan. 16
Debtor is not a serial bankruptcy filer. 	The reason for the
failure of the first chapter 13 case, which failure triggered the
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Page 16 of 	16
need for the second filing, was lack of funds to make the
payments. 	Debtor made his best effort but failed through no
fault of his own. 	There was no bad faith in that failure.
Conclusion
The Court finds that the Plan has been filed in good faith
and is confirmable. 	The Court will therefore enter an order
confirming the Plan and denying the objections, granting and
denying Debtor’s motion to void the Hendersons’ judicial lien in
that the lien is voided as to the homestead but not as to the
empty lot, and granting the motion to assume the contract to
purchase the Peterbilt. 	Orders consistent with this memorandum
opinion will enter.
James S. Starzynski
United States Bankruptcy Judge
Copy to:
Ronald E Holmes
112 Edith Blvd NE
Albuquerque, NM 87102-3524
R Trey Arvizu, III
PO Box 1479
Las Cruces, NM 88004-1479
Kieran F. Ryan
PO Box 26
Las Cruces, NM 88004
Kelley L. Skehen
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102-3111
United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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