UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
EARL BRUCE SMITH
TAMARA ANN SMITH CASE NO. 89-30043
This matter is before the Court upon the Motion to Dismiss filed herein by the United States on behalf of the Farmers Home Administration. This Plan was confirmed by Order of this Court dated May 26, 1988, and provided that the effective date of the Plan was the confirmation date. After various amendments to the Plan and an Agreed Order Modifying the Plan, which do not appear to be germane to the argument before the Court, and after a prior Motion to Dismiss, Farmers Home Administration filed the present Motion to Dismiss the case on January 13, 1993.
A hearing was held on March 12, 1993, at which time the Court gave the parties additional time to brief the matter and those briefs and replies were filed.
Farmers Home stands in this matter as both a secured and unsecured creditor. While there is a dispute concerning a credit by Farm Credit Services for stock surrendered by the Debtors, it is undisputed that the Debtors have not paid the amounts required by the Plan sufficient to provide for the distributions which the Plan provides to unsecured creditors. Farmers Home contends that the debtors should have paid the sum of $117,041.68 into the plan as of March 31, 1993. The Court's own calculation shows a higher sum but for purposes of this motion the Court will use the lower figure reached by Farmers Home. The Trustee indicates in his report that $105,425.93 has been received as of March 31, 1993.
Subparagraph 3 of paragraph III entitled Classification and Treatment of Plan deals with allowed unsecured claims and provides for payment on unsecured claims of $488.33 in year one, $976.66 in year two, $1,464.99 in year three, $1,953.32 in year four, and $2,441.65 in year five.
In accordance with the Order Confirming the Plan and the Plan's provision as to the effective date, each Plan year begins on May 26 and ends on May 25 of the succeeding year. Accordingly, May 26, 1992 marked the end of year four of the Plan and May 26, 1993 will mark the end of year five of the Plan. The Trustee has reported to the Court, in his Report filed April 2, 1993, the amounts received and disbursed in accordance with the terms of the Plan. That Report indicates that the sum of $105,425.93 had been received as of March 31, 1993, and all but $14.96 of that sum had been disbursed.
In accordance with the terms of the Plan, sufficient funds should have been paid in to have disbursed at least the sums due the unsecured creditors through year four, which ended May 25, 1992. Those sums total $4,883.30. Arguably, of course, distributions to the unsecured creditors could have been made since that date from the payments, had they been sufficient, during year five as a portion of year five's total unsecured claims payment in the amount of $2,441.65. The Trustee's Report indicates that, in fact, sufficient funds have been paid into the Plan to pay unsecured creditors a total of $1,995.99 through March 31, 1993. The distribution on unsecured claims was made in 1993. This leaves a deficiency to unsecured creditors in the amount of $2,887.31 through year four alone (disregarding sums which arguably should have been distributed to those unsecured creditors during the ten months of year five which had elapsed as of the date of the Trustee's report).
The Debtors argue that the sums here involved are insignificant. That may be true when compared with the sums the Debtors have paid on the secured debt herein, but when the deficient sums are compared with the amount required to be paid to the unsecured creditors under the terms of the Plan, the deficiency is much more significant. It is also clear that the deficiency in payments exceeds the total sum to be paid to unsecured creditors so the failure to pay the sums required by the plan has resulted in deficient payments to administrative debts and secured debt.
The Debtors attempt to argue that the Trustee should have informed them of the amounts necessary to make such payments. On the contrary, the Debtors framed the Plan, sought and secured its adoption, and may not lay at the feet of the Trustee their deficiency in complying with the terms of their own confirmed Plan. The Trustee is not charged with the role of financial policeman of the debtors as regards solicitation of payments called for by the Plan.
The Court must decide if the deficiency in payment to unsecured creditors, under these circumstances is a "material default by the Debtor with respect to a term of a confirmed Plan" as set forth in 11 U.S.C. '1208(c)(6). The Court concludes that the deficiency here involved, calculated by the attorney for Farmers Home to be $11,615.75 (and believed by the Court to actually exceed this amount), is a material default under the terms of the Plan confirmed by this Court.
Accordingly, a separate order dismissing this Chapter 12 proceeding will be entered.
Dated this _______ day of May, 1993.
By the Court,
David Middleton, Esq.
Joseph Yates, Esq.
James Barton, Trustee
United States Trustee