IN RE: LINDA JOYE EVANS CASE NO. 96-51605

The debtors filed a joint petition for relief under chapter 7 of the Bankruptcy Code on August 6, 1996.

Schedules I and J to the joint petition indicated the debtors had a total combined monthly income of $1,740.00, all from social security, and monthly expenses of $1,931.47. The expenses include only the debtors' first mortgage payment of $258.00 per month to Kentucky Housing Corporation on the debtors' residence. The expenses do not include a second mortgage payment to Access Mortgage of $164.17 per month. When this is included the debtors' expenses exceed their income by $355.64 per month.

In the schedules to their petition the debtors listed as zero the amount of cash they had on hand or in checking accounts. Schedule B 1 & 2 to the petition.

Upon examination of the debtors and their bank account records at the meeting of creditors on September 26, 1996, the chapter 7 trustee discovered the debtors had on deposit in their bank account at Fifth Third Bank the sum of $3,593.09 on August 6, 1996, the date of commencement of this case. On September 30, 1996, the trustee moved the court for an order withholding the discharge of the debtors until they accounted to the trustee for this sum less the debtors' allowable exemption in this and other property. It should be noted the debtors did not list the monies in the bank account as an asset or claim an exemption therein.

On October 3, 1996 the debtors, by counsel, filed a notice of conversion of their case to a case under chapter 13 of the Bankruptcy Code. They did not file a converter petition or a plan or amended Schedules I or J indicating they could fund a chapter 13 plan. It will be recalled that their expenses exceed their income by at least $355.64 per month.

On December 4, 1996, the court on its own motion ordered the debtors to show cause why their case should not be dismissed for failure to file a converter petition or plan. The show cause was set for hearing on January 6, 1997.

Prior to the hearing the court granted Lexington Finance Company relief from stay with respect to two motor vehicles and other personal property. Neither the debtors nor their attorney responded or appeared in opposition to the motion for relief from stay.

On January 6, 1997 the debtors, by counsel, filed a renewed motion to convert their case to a case under chapter 13. With the motion they filed a response to the show cause order explaining that due to the illness of relatives during the months of November and December the debtors had been unable to "set down" (sic) with their attorney to go over information relative to the filing of a converter petition. The response does not explain why the debtors were unable to meet with their attorney during the month of October or their failure to commence plan payments. With the response the debtors filed a converter petition. Schedule I to the converter petition shows the debtors' combined income as $1,740.00 per month, the same as the income shown in Schedule I to the original chapter 7 petition. Schedule J to the converter petition shows the debtors' expenses as $1,160.00. They propose to pay the difference $1,740.00 - $1,160.00 = $580.00 to the chapter 13 trustee for the benefit of creditors. The $580.00 surplus is achieved by eliminating the two home mortgage payments totaling $422.00 from their budget and by reducing certain other expenses. The debtors do not include in their budget payments of $50.00 per month to Fidelity Credit Corporation or $136.00 per month to Lexington Finance company and $54.00 per month to Kentucky Finance Company on debts they reaffirmed while still in chapter 7. The home mortgage payments and the other payments the debtors are committed to make to secured creditors to retain collateral exceed the $580.00 per month the debtors propose to make to the trustee. The plan makes no provision for payment of creditors holding unsecured claims. The plan proposes to pay such claims to the greatest extent possible during the life of the plan, which in this instance would be a zero amount. The budget appears to be unrealistic as does the debtors' belatedly filed plan.

According to counsel the $3,593.09 which the debtors had in their bank account when they filed for relief under chapter 7 of the Bankruptcy Code represents a deposit of monies they had received from Access Mortgage and Financial Services, Inc. to pay for the installation of a swimming pool and for remodeling of the kitchen and a bedroom at their residence. This cannot be verified because Access Mortgage has not yet filed a proof of claim.

A proof of claim filed by Lexington Finance Company indicates that on August 2, 1996, three days before they signed their chapter 7 petition on August 5, 1996, the debtors borrowed $3,531.80 from that finance company. This also could be the source of most of the $3,593.09 in the debtors' bank account when bankruptcy intervened.

The debtors filed a notice of conversion of their chapter 7 case to a case under chapter 13 on October 3, 1996. This was one month prior to the occurrence of illness of relatives set out in the debtors' response to the court's show cause order. The debtors were permitted to convert the case to a case under chapter 13 as a matter of right. 11 U.S.C. § 706(a). No court order permitting the conversion was necessary.

However, within 15 days after the conversion to chapter 13 the debtors were required to file a plan, Rule 3015, Federal Rules of Bankruptcy Procedure, and to commence payments to the chapter 13 trustee within 30 days thereafter. 11 U.S.C. § 1326(a). The debtors did not timely file a plan or timely commence payments to the chapter 13 trustee. The response filed by the debtors does not attempt to explain their failure to file a plan during the month of October 1996, or their failure to commence payments to the chapter 13 trustee.

Under the facts presented the options of the court are to dismiss this case or to order it reconverted to a case under chapter 7. 11 U.S.C. § 1307(c)(1),(3),(4) and (5).

Any disbursements made by the debtors from their bank account after the commencement of this case may be recovered by the trustee not only from the debtors but also from the recipients of payments. 11 U.S.C. §§ 549, 550.

The court does not believe the debtors can fund a feasible chapter 13 plan.

Accordingly, the court finds this case should be ordered reconverted to a case under chapter 7.

Dated:

By the court -

____________________________

JOE LEE, CHIEF JUDGE

Copies to:

Debtors

Richard J. Getty, Esq.

Stephen Palmer, Esq.

Sidney N. White, Chapter 13 Trustee

U.S. Trustee

Notice to all creditors and parties in interest

In accordance with the memorandum opinion of the court this day entered, IT IS ORDERED that this case be reconverted from a case under chapter 13 to a case under chapter 7. The court does not believe the debtors can fund a feasible chapter 13 plan.

Dated:

By the court -

___________________________

JOE LEE, CHIEF JUDGE

Copies to:

Debtors

Richard J. Getty, Esq.

Stephen Palmer, Esq.

Sidney N. White, Chapter 13 Trustee

U.S. Trustee

Notice to all creditors and parties in interest