UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LARRY RAY CASE NO. 98-70392
MEMORANDUM OPINION AND ORDER
This matter is before the Court after a hearing regarding confirmation of the chapter 13 plan filed in this proceeding by the debtor and the objection thereto filed by his former wife, Nora Lee Ray (ANora@), who also filed a motion to dismiss this proceeding as not having been filed in good faith. The court may dismiss a proceeding Afor cause@. 11 U.S.C. '1307(c).
The case revolves around a protracted divorce which began with separation of the parties in 1991 and ended with entry of a decree of dissolution of marriage on May 23, 1997. The parties have three minor children from the marriage. At the time of separation, the debtor had a retirement 401(k) account. The Martin Circuit Court ordered that the proceeds from this account and the proceeds from the sale of another parcel of property located in Martin County, Kentucky be applied in reduction of the mortgage on the residence which was awarded to Nora and then to the children when all reached majority. Apparently this Order was entered in the Martin Circuit Court on November 22, 1992. At that time, approximately $60,000 was owing on the home mortgage.
The records before the Court disclose that in 1993, the debtor liquidated the 401(k) account in the gross amount of $45,342.73 and there was withheld therefrom the sum of $9,068.55 for federal income tax liability yielding a net sum of $36,274.18. Instead of paying this lump sum on the mortgage on the marital home as ordered, the debtor made various installment payments from this sum on the home and used a small portion of the money for other purposes. Additionally, testimony given in the Martin Circuit Court indicates that the debtor has received substantial proceeds in the amount of $12,600 plus installments of $400 per month for a period of 18 months from the other property which was to be sold and the proceeds also applied in reduction of the home mortgage. Instead of complying with the Order of the Martin Circuit Court, the debtor made periodic payments on the mortgage reducing the principal amount of the mortgage by approximately $20,000.
This case is complicated by the fact that, during the divorce proceedings, the debtor was diagnosed as having a brain tumor and has had two operations and is presently disabled and receiving Social Security in the amount of $1,367 per month which is his sole source of income. The Social Security Administration also pays child support to the former wife of the debtor for the minor children. The debtor excuses his conduct in failing to comply with the Order of the Martin Circuit Court by reasoning that, knowing that his health was failing, if he had applied the lump sum amounts to the mortgage as ordered, he would have had no ability to make future mortgage payments on the much smaller remaining balance on the marital residence which he had been ordered to pay.
The matter came before the Martin Circuit Court on March 26, 1998, and after hearing the evidence, the Circuit Judge found the debtor in contempt for willfully disobeying the Order to apply the funds as per the 1992 order. A hearing was scheduled for April 23, 1998 to determine what action should be taken against the debtor because of the contempt and the Court solicited from the parties a plan to solve this dilemma and mitigate the consequences of the debtor=s disobedience of the Court=s Order. On April 22, 1998, one day before the hearing scheduled on the contempt order, the debtor filed this proceeding under Chapter 13 of the Bankruptcy Code.
The debts listed by the debtor are the debt on the marital residence, which appears to be fully secured, in the amount of $46,000, the sum of $5,400 owing to his former wife as an arrearage in child support, and a deficiency balance owing to Toyota Credit Company in the amount of $6,348. Five other creditors are named listing zero balance due. One of those creditors is a debt which the debtor has co-signed but apparently is not in default and is being paid by the co-obligor. The other debts relate to attorney=s fees owing on his own behalf or on his wife=s behalf and a claim for medical services which apparently is to be paid by insurance.
The debtor filed a Chapter 13 plan indicating that his wife was an unsecured creditor with respect to the balance due on the mortgage on the marital home and providing that the interest the debtor owned in the marital home would be deeded to his former wife and that any other amounts owed to her should be discharged or, alternatively, paid to her as an unsecured general creditor from the Apool@ plan. The trustee=s analysis of the proposed plan indicates that the only debt to be paid under the plan is the $5,640 owing to Nora for child support arrearage (the only other claims filed were the home mortgage claim which was fully secured and the claim which is being paid by a co-obligor) and that the plan would pay 74% of that debt over its 60 months duration. Nora then objected to the confirmation of the plan and moved to dismiss the proceeding as having been filed in bad faith.
Bank One, Kentucky, N.A. which holds the mortgage on the marital residence, has moved for and obtained relief from the stay to pursue a foreclosure proceeding on the marital residence. Nora filed a claim in the amount of $76,492.90 on July 27, 1998 and the trustee has objected on the ground that the claim did not include a statement of account validating the amount of the claim. That objection was filed on a Anotice and opportunity@ basis, and when no objection was timely filed to the objection to claim, that objection was sustained and the claim was disallowed by order dated September 18, 1998.
The parties appeared before the Court on October 13, 1998 at the confirmation hearing and have filed memoranda in support of their positions.
The Court finds that the bankruptcy proceeding in this matter was filed with the sole purpose to avoid the consequences of the debtor=s failure to obey the orders of the Martin Circuit Court in the divorce proceeding. While the debtor has debts other than the sums owing to or for the benefit of his former wife, one of those debts is fully secured (the marital residence), and the other creditor has taken no active part in this proceeding. Because of the debtor=s disability and the source of his income, it is likely that he is shielded from the consequences of creditors other than his wife.
Good faith is a requirement in the filing of a chapter 13 proceeding. In re Okoreeh-Baah, 836 F.2d 1030 (6th Cir. 1988; Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir. 1990); In re Barrett, 964 F.2d 588 (6th Cir. 1992). In accordance with Okoreeh-Baah and Caldwell the court must look at the totality of the circumstances. In so doing in this case, there are several factors that favor the debtor. Those include the fact that his income is limited and is not likely to increase substantially, the unfortunate circumstances of his health, and the fact that no previous proceeding in bankruptcy has been cited.
However, the fact that his sole problem revolves around his obligations to his former wife (and his children since they reside in the marital residence too) and his deliberate failure to comply with the orders of the Martin Circuit Court and the resulting consequences militate strongly against the debtor. Suits which are, in substance, domestic relations actions will not be entertained by the federal courts. In re Griffith, 203 B.R. 422 (Bankrtcy.N.D.Ohio 1996); Carver v. Carver, (In re Carver), 954 F.2d 1573 (11 Cir. 1992), cert. denied, 506 U.S. 986, 113 S.Ct. 496, 121 L.Ed.2d 434 (1992). This proceeding is substantially a continuation of the divorce proceeding. That proceeding should be addressed by the Court in which it is pending and not by this Court.
For the foregoing reasons, the Court finds that the debtor, in filing the within proceeding, has failed to prove that he has the good faith requisite in filing such a proceeding and hereby orders that the within matter be, and it hereby is, DISMISSED.
Dated this _____ day of October, 1998.
BY THE COURT
Charles K. Belhasen, Esq.
Paul D. Deaton, Esq.
Sidney N. White, Esq.