IN RE:  ELISA GLENN MITCHELL CASE NO. 97-51139

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

ELISA GLENN MITCHELL CASE NO. 97-51139

DEBTOR

MEMORANDUM OPINION

This case is pending on the objection of Copy Express, Inc. to confirmation of the debtor’s chapter 13 plan and on the motion of Copy Express, Inc. for an order dismissing the debtor’s chapter 13 case or, in the alternative, converting the case to a case under chapter 7.

While employed by Copy Express the debtor embezzled from the employer in excess of $20,000 for which she was indicted by a Fayette County, Kentucky grand jury. On July 27, 1990 the debtor entered a guilty plea to Count 1 of the indictment charging her with theft by unlawful taking of over $100. On August 22, 1990, Judge Keller, presiding over the Fayette Circuit Court, Criminal Branch, First Division, entered a Final Judgment Sentence of Probation. He sentenced the defendant (the debtor herein) to a maximum term of three years, but withheld entry of the judgment imposing imprisonment. He ordered the defendant sentenced to a period of probation of five years, subject to certain conditions, one of which was that the defendant "pay Fayette Circuit Court a crime victim’s compensation fee of $10.00, a probational supervision fee of $10.00 per month, and restitution of $20,012.00 (begin paying restitution on 1/1/91)…."

The record of the Fayette Circuit Court in the criminal case indicates the debtor complied with all other provisions of probation during the 5-year probationary period, except payment of restitution in full. During the probationary period she made fairly regular payments to the office of the Clerk of the Fayette Circuit Court of $100 to $150 per month. The clerk’s office accumulated the payments and from time to time disbursed the restitution payments to the debtor’s former employer, Copy Express. The Fayette Circuit Court criminal proceeding indicates that during the last year of her probation the debtor was employed as a clerical worker earning $6.25 per hour. She had informed her probation officer that she "can pay no more."

On or about November 2, 1995, the Clerk of the Fayette Circuit Court made a request to the court to write-off restitution. The balance due on restitution at that time was $13,387.00 plus a service fee of $400.24. Judge Keller approved the request. The basis of the request was that the debtor’s probationary period had expired.

On August 6, 1996, Copy Express, Inc. filed an action in the Madison Circuit Court seeking to collect the unpaid amount of the debt, Civil Action No. 96-CI-00636.

On September 1, 1996 the debtor filed an answer in the Madison Circuit Court action asserting as one defense "that the statute of limitations may have expired."

On March 31, 1997 Copy Express filed a motion in the Madison Circuit Court action for leave to file its First Amended Complaint. The motion was sustained at a motion hour held on April 17, 1997, and the First Amended Complaint was ordered filed on April 18, 1997. The First Amended Complaint indicates the debtor is entitled to credits of $9,975.00 and that there remains past due and owing $8,625.00, plus interest at 8% from May 16, 1990, for which judgment was demanded by the First Amended Complaint.

In the First Amended Complaint Copy Express, Inc. alleges that on May 16, 1990 the debtor agreed in writing to pay Copy Express, Inc. the sum of $18,600. The writing is attached as Exhibit "A" to the complaint.

The writing appears to be a written confession signed by the debtor prior to her indictment on July 10, 1990 and entry of a guilty plea on July 27, 1990.

By her written confession the debtor admits to embezzling $18,600 from Copy Express, Inc. and explains how she did so. The last paragraph of the written confession is as follows. "I fully intend to pay Copy Express back in full until the full amount is paid."

Apparently, to overcome the defense of statute of limitations, the written confession is relied upon by Copy Express, Inc. as a "promise" or contract in writing to pay the debt.

The debtor’s chapter 13 plan filed concurrently with her petition proposes to pay to the chapter 13 trustee out of future income the sum of $189.15 per month for three years for distribution to creditors. The report of the chapter 13 trustee indicates the plan may result in a dividend of approximately 20 cents on the dollar to creditors holding unsecured claims. Although the plan has not been confirmed the debtor is current on her payments to the chapter 13 trustee as proposed by the plan.

The objection of Copy Express, Inc. to confirmation of the plan and said creditor’s motion to dismiss or convert this case to a case under chapter 7 are grounded on the following assertions:

1. At the meeting of creditors ( 341 meeting) both the debtor and her attorney stated on the record that the reason for filing bankruptcy was the unsatisfied obligation due and owing to Copy Express, Inc.

2. The debtor strategically chose to file for relief under chapter 13 rather than chapter 7 knowing the debt to Copy Express, Inc. was nondischargeable in a chapter 7 case, with the result that the debtor’s plan has not been proposed in good faith.

Both Copy Express, Inc. and the chapter 13 trustee oppose confirmation of the plan on the grounds it does not meet the disposable income test. They allege the debtor’s disposable income as revealed by the debtor’s statement of income and expenses indicates disposable income of $1,029.00 per month whereas the payment proposed by the debtor under the plan is only $189.15 per month. The underlying issue is the failure of the debtor to properly account for the income of her husband in her budget.

The Third Amended Schedule J filed September 25, 1997 indicates the debtor has relocated to Lexington and has changed jobs, but the debtor has not complied with Rule 4002(5) which requires her to file a statement of any change of address. The court agrees the amended Schedule J filed by the debtor, the latest on September 25, 1997, is uninformative and inadequate and will not be acceptable until the joint income and expenses of the debtor and her husband are revealed, along with his place of employment, take home pay, and separate debts. The husband is not a party to the debtor’s chapter 13 case but she does receive imputed income from him by reason of the fact they share monthly expenses.

CONCLUSIONS OF LAW:

The court is unable to conclude that Copy Express, Inc. is any longer a creditor of the debtor with standing to object to confirmation of the debtor’s chapter 13 plan.

In the action filed by Copy Express, Inc. against the debtor in the Madison Circuit Court the debtor pleaded the statute of limitations as a defense.

Under Kentucky law an action for the recovery of damages or the value of stolen property from a thief or any accessory must be commenced within one year after the cause of action accrued. The cause of action is deemed to accrue at the time of the discovery of the liability. KRS 413.14(1)(i) and (5). In this instance the liability was discovered earlier than or at least by May 16, 1990, when the debtor signed a written confession. The court has been cited no authority for the view that the fact the debtor was ordered to and made restitution payments tolls this statute of limitations. Thus, an action to recover the amount of money embezzled by the debtor should have been commenced no later than one year from May 16, 1990, the date of the written confession signed by the debtor.

Copy Express, Inc. is not helped by a construction of the written confession as a note payable on demand although it seems unlikely the written confession qualifies as a negotiable instrument under the Uniform Commercial Code. KRS 355.3-104, KRS 355.3-106, KRS 355.3-115. In any event, in this instance the execution of the "note" and the demand for payment were concurrent. Thus, the statute of limitations on a suit to collect the "note" ran six years from the date thereof, or on May 16, 1996. KRS 355.3-118. The action to collect the debt was not commenced until August 9, 1996, which was after the expiration of the statute of limitations.

The court does not believe the debtor’s written confession qualifies as a "contract" with respect to which the fifteen year statute of limitations applies. KRS 413.030. The written confession is witnessed by three parties, but they do not purport to be signing in behalf of Copy Express, Inc. as a contracting party.

An issue remains as to whether the debt survives as a debt for restitution because the judgment entered by the Fayette Circuit Court on August 28, 1990 sentenced the debtor to a period of probation of five years subject to the condition that she pay to the Fayette Circuit Court restitution of $20,012.00 which she was to begin paying on January 1, 1991. However, it is clear that on November 2, 1995 the sentencing judge approved the request of the clerk of the court to write off the balance due under the order of restitution. The request and approval thereof were based on the fact the five-year probationary period had expired. After November 2, 1995 the debtor was no longer obligated to continue making restitution payments to the Fayette Circuit Court or to Copy Express, Inc.

The debt no longer survives as a debt for restitution. It does not survive as a debt for embezzlement because suit to recover damages for the embezzlement was not filed before expiration of the statute of limitations. Nor does the debt survive as an obligation evidenced by a demand note because the debtor’s written confession indicates her intention to repay the debt but is not an express promise to repay. In any event, if the written confession might be construed as a demand note, suit was not commenced within six years of the demand for payment. The court construes the option facing the debtor of imprisonment or repaying the debt as a demand for payment.

The court concludes that Copy Express, Inc. is no longer a creditor of the debtor. Accordingly, the objection of Copy Express, Inc. to confirmation of the debtor’s chapter 13 plan is overruled, as are the alternative motions of Copy Express, Inc. to convert or dismiss the debtor’s chapter 13 case.

However, because the schedules I and J to the debtor’s petition are not sufficiently revealing to permit the court to make a determination as to whether all of the debtor’s disposable income is committed to plan payments, the court declines to confirm

the plan until these schedules are properly amended, after which the court will set a further hearing on confirmation of the plan.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

William LaBach, Esq.

Michael Troutman, Esq.

Sidney N. White, Esq.

U.S. Trustee

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

ELISA GLENN MITCHELL CASE NO. 97-51139

DEBTOR

 

 

ORDER

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the objection of Copy Express, Inc. to confirmation of the debtor’s chapter 13 plan is overruled.

IT IS FURTHER ORDERED that the motion of Copy Express, Inc. to convert this case to a case under chapter 7 or to dismiss the debtor’s chapter 13 case is denied.

The court declines to confirm the debtor’s chapter 13 plan until Schedules I and J to the debtor’s petition are properly amended, after which the court will schedule further hearing on confirmation of the plan.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

William LaBach, Esq.

Michael Troutman, Esq.

Sidney N. White, Esq.

U.S. Trustee