IN RE: DONALD L. HOLLIS CASE NO. 88-50645

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

DONALD L. HOLLIS CASE NO. 88-50645

DEBTOR

MEMORANDUM OPINION

This case came on before the court on March 20, 1995 for a continued hearing on the motion of the trustee for an order requiring the debtor to resume making payments under the plan.

On July 2, 1993 the trustee applied to the court for an order terminating plan payments stating the trustee had received sufficient payments from the debtor to pay all claims and allowances to the extent required by the confirmed plan. On July 9, 1993 the court entered an order terminating plan payments.

The representation and finding that the plan payments should be terminated was apparently based on a misunderstanding of the trustee concerning the ruling of the court with respect to the allowance of the claim of ITT Financial Services.

On February 12, 1993 the trustee filed and noticed for hearing on March 15, 1993 an objection to the claim of ITT in the amount of $3,446.95 on the grounds the claim included precomputed interest not rebated to the date of the commencement of this case. The debtor and his attorney received notice of this hearing but did not attend. There was no response from ITT. The court ruled that the claim of ITT should be allowed in the amount of $2,195.60. The trustee did not submit an order memorializing this ruling. The trustee made no distribution on the claim of ITT. This discrepancy was not discovered until the trustee's report and final accounting was audited by the court. Thereafter, an order was entered on July 1, 1994 allowing the claim of ITT in the amount of $2,195.60.

The trustee moved the court for an order requiring the debtor to resume payments under the plan. The rather vehement opposition of the debtor to this motion of the trustee has resulted in a series of hearings commencing on October 31, 1994 and continuing on January 18, 1995, January 30, 1995, and finally on March 20, 1995.

Other facts are necessary to an understanding of the various contentions of the debtor.

The debtor, a self-employed real estate broker, filed a petition for relief under chapter 13 of the Bankruptcy Code on May 10, 1988. Prior thereto he and his former wife had entered into a property settlement agreement which had been incorporated into the decree of the Fayette Circuit Court dissolving their marriage. Under the agreement the debtor's former wife was awarded ownership of their residence at 3629 Bold Bidder Drive, Lexington, Kentucky. She agreed to pay the first mortgage on the property; he agreed to pay the second mortgage and to repay a loan they had obtained from the wife's mother to purchase the property.

In the property settlement agreement the debtor and his spouse agreed to file joint tax returns for 1984 and 1985. The debtor agreed to hold his former spouse harmless for any taxes owed by the parties for those years. In 1987 the IRS assessed taxes against the debtor for the years 1984, 1985, and for 1986 and filed tax lien notices which operated as liens on the residence of the debtor's former spouse.

On March 29, 1988 and April 13, 1988 the IRS served a levy and notice of seizure against any property of the debtor and his former spouse, Lynnette Kay Hollis, for recovery of $20,673.86.

The debtor filed a petition for relief under chapter 13 of the Bankruptcy Code in this court on May 10, 1988, which stayed the sale of any of his interest in property. The debtor's former spouse filed a motion to stay the sale of her property by the IRS. This motion was denied. Thereafter, on July 22, 1988, the debtor's former spouse filed a petition for relief under chapter 13 of the Bankruptcy Code to prevent the threatened sale of her residence by the IRS. The record in her case indicates the amount required to satisfy the IRS liens on her residence was $27,173.98. Case No. 88-51038.

The debtor's original plan filed with his petition proposed a payment of $900 per quarter to the chapter 13 trustee for creditors, a palpably insufficient amount in view of the fact the summary of debts accompanying the plan indicated the debtor owed priority claims of $40,000, secured claims of $10,325, and unsecured claims of $16,105, two of which, one to Jessamine Federal Savings in the amount of $3,150 and another to Kentucky National Bank in the amount of $1,575, the debtor proposed to pay in full as co-signed debts. Other unsecured debts were to be paid to the extent of .10 on the dollar. The amount of debts to be paid under the plan approximated $56,188, exclusive of interest and administrative expense charges.

The proposed duration of the plan was 57 months. The amount to be paid to the chapter 13 trustee for creditors ($300 per month for 57 months equals $17,100) was less than the amount necessary for the plan to be feasible.

On June 2, 1988 the debtor amended the plan to specify that the payment to the trustee would be $2,700 per quarter commencing July 1, 1988.

The initial hearing on confirmation of the plan was held on August 22, 1988 and was continued because the chapter 13 trustee recommended against confirmation of the plan. The confirmation hearing was continued until October 17, 1988, to January 25, 1989, to April 26, 1989, to June 23, 1989, to September 27, 1989, to January 10, 1990, to April 23, 1990, and finally to July 3, 1990, on which date the plan was confirmed.

During the 26-month period between the date of commencement of his case on May 10, 1988 and the confirmation of the plan on July 3, 1990 the debtor made sporadic payments to the trustee, as follows:

August 6, 1988 $ 900.00

October 19, 1988 900.00

January 27, 1989 2,700.00

April 19, 1989 7,400.00

$11,900.00

 

During this period the debtor should have paid to the trustee $21,600, so the debtor was approximately $9,700 delinquent in payments under the plan when the plan was confirmed.

During the interim between the commencement of the debtor's case and the confirmation of the plan the chapter 13 trustee was authorized to disburse $3,441.79 to Union Bank and Trust Company toward curing the delinquency in payments on the debtor's 1986 Oldsmobile to enable the debtor to retain possession of the vehicle. Ultimately, however, in January 1990, Union Bank was granted relief from stay and was permitted to repossess and sell the automobile. The accounting filed by Union Bank on April 6, 1990 indicates it sold the automobile for $7,035.08 representing the balance due on its claim after credit of the payments received from the chapter 13 trustee. The debtor objected to the accounting of the bank and the bank responded to the objection. Following a hearing held May 31, 1990 the court entered an order on July 5, 1990 overruling the debtor's objection to the accounting.

During the period between the commencement of the debtor's case and the confirmation of the plan the chapter 13 trustee also was authorized to make a disbursement to First Security National Bank & Trust Company in the amount of $377.71 representing half of the amount required to pay off the balance due on the second mortgage on the residence awarded to the debtor's spouse in the marriage dissolution proceedings. The debtor agreed to pay the other one-half of the balance due to the bank in settlement of the bank's motion to dismiss his chapter 13 case. See bank's motion filed March 7, 1989 and agreed order entered April 26, 1989.

At the time of confirmation of the plan on July 3, 1990 the debtor was holding a certificate of deposit in the amount of $31,000 which he had purchased on April 10, 1990 with the proceeds of a commission he had received on a real estate sale. At the time the debtor purchased the CD he was seriously delinquent (about $17,100) in payments to the chapter 13 trustee. A few days later, on April 19, 1990 the debtor paid $7,400 to the trustee, apparently from the proceeds of the same real estate commission. The motive of the debtor in purchasing a CD rather than catching up on his payments to the trustee remains unexplained. Whether the $31,000 CD and the $7,400 payment represents the entire commission received by the debtor on a real estate sales traction remains unexplained.

The court confirmed the plan on July 3, 1990 on the condition that the $31,000 CD be turned over to the trustee. By letter dated July 10, 1993 to his attorney, the debtor indicated he would not sign the CD "until a better plan has been presented to the judge and I am protected until the suits have been filed by the other attorney." The debtor asked his attorney to "prepare a motion for a special hearing on this matter as soon as possible." Apparently, the debtor executed a document dated July 13, 1990 assigning the CD to the chapter 13 trustee, but did not actually sign the CD.

On July 26, 1990 counsel for the debtor moved the court for an order requiring the chapter 13 trustee to restore to the debtor $4,500 (for living expenses for three months at $1,500 per month) from the proceeds of the CD. This motion was noticed for hearing on September 27, 1990.

Meanwhile, the CD matured on August 8, 1990 and was automatically renewed by the bank. This occurred while the chapter 13 trustee was on vacation. In conjunction with the renewal of the CD the bank deposited accrued interest in the amount of $374.55 in the debtor's bank account. The trustee cashed the CD on August 30, 1990. The bank assessed a penalty for early withdrawal of $237.22. The debtor has complained vociferously about the loss of the $237.22 resulting from the delay in cashing the CD. According to the debtor he used the $374.55 in interest he received to pay his August rent.

On August 31, 1990, immediately after negotiating the CD, the chapter 13 trustee made disbursements to taxing entities on priority claims as follows:

Allowed Amount

of Claim With-

out Penalty Payment

 

Comm. of KY 3,303.68 2,919.61

IRS 35,965.56 31,786.15

Lex. Fayette Urban

County Government 831.39 735.03

35,440.79

 

The trustee also disbursed $1,000 to the attorney for the debtor in payment of attorney fees.

The amount disbursed exceeded the amount of the CD the debtor surrendered to the trustee, and represented most of the funds held by the chapter 13 trustee on deposit in the debtor's account.

At the hearing on September 27, 1990 on the debtor's motion for return to him of $4,500 for living expenses the court also heard the motion of the debtor's former spouse, by counsel, for an order requiring the trustee to pay the debtor's 1984 and 1985 tax liabilities as agreed in their marriage dissolution proceedings.

The debtor had not made any additional payments to the trustee. The debtor took the position that because he had paid the trustee a total of $42,662.78 he had prepaid his plan through August of 1992. In any event, because of the foregoing disbursements of $36,440.79 and prior disbursements to secured claim amounts of $3,819.50, and after allowances for administrative expenses of the chapter 13 trustee, there were insufficient funds in the estate to make further disbursements to the debtor or tax claimants.

By order entered on November 30, 1990 the court overruled the motion of the debtor for a refund of $4,500. The court entered an order on that date requiring the IRS and the Commonwealth of Kentucky Revenue Department to apply the distributions they had received to the debtor's income tax liabilities for the years 1984 and 1985. This resulted in satisfaction of the tax liens on the residence of the debtor's former spouse and in the dismissal of her chapter 13 case on December 27, 1990.

On February 19, 1991 the chapter 13 trustee served notice of a hearing on March 5, 1991 of a motion to dismiss the debtor's case for noncompliance with the plan. At the hearing the trustee withdrew the motion.

Meanwhile, on February 25, 1991 the debtor filed a pro se motion for a show cause order and for other relief against the chapter 13 trustee. This motion was heard by Judge Clive W. Bare on April 19, 1991. Judge Bare overruled this motion without prejudice to the right of the debtor to seek the relief requested by complaint in accordance with the Federal Rules of Bankruptcy Procedure.

Approximately one year later the trustee renewed his motion to dismiss this case and noticed the motion for hearing on March 3, 1992. This motion was withdrawn on representation of the debtor that he was to receive a commission of approximately $96,000 on a contract to sell property at New Circle and Bryan Station Roads, but that litigation was necessary to recover the commission. Correspondence in the record indicates that the firm of Trimble and Bowling had been employed by the debtor to file suit in his behalf to recover various fees allegedly owed to the debtor from other real estate transactions.

A year later, on February 8, 1993, the debtor paid the trustee $9,034.00, which the trustee or his office had apparently calculated to be a sum sufficient to pay all claims in full, including the .10 on the dollar which the plan provided was to be paid to creditors holding unsecured claims. Thereafter, the trustee requested and received from the debtor an additional payment on May 26, 1993 of $148.37.

The motion of the trustee filed September 9, 1994 for an order requiring the debtor to resume payments under the plan requests that the debtor be required to remit a sum sufficient to pay a 10% dividend on the unsecured claim of ITT which has been allowed in the amount of 42,195.60. The additional amount requested by the trustee is approximately $248.00. Because the debtor has resisted paying this nominal additional sum hearings have been held in respect to this matter on October 31, 1994, January 18, 1995, January 30, 1995, and March 20, 1995. At these hearings the debtor represented himself because his attorney asked and was permitted to withdraw from the case.

In response to the trustee's motion the debtor cites checks he made to the trustee on February 8, 1993 and May 26, 1993 marked "paid in full" and "final payment." No one disputes that the parties understood these payments were sufficient to pay out the plan. However, an audit of the trustee's accounts indicates otherwise. Due to inadvertence the trustee had not taken into account the 10% dividend payable on the allowed amount of the unsecured claim of ITT. Frankly, the court cannot comprehend the motives of the debtor in contesting the nominal payment required to complete the plan.

The debtor alleges the court instructed the trustee to withhold the sum of $5,000 to retain counsel to help the debtor collect commissions due the debtor in relation to the sale of shopping center land. The debtor contends that the failure of the trustee to comply with the instructions of the court in this respect caused the debtor to lose commissions in the amount of $55,000, plus interest for 6 years amounting to $94,600.

In the schedules to his original petition the debtor makes no mention of being owed commissions. There was never any request by the debtor or the trustee for an order authorizing employment of an attorney to represent the debtor or the trustee in such matter. There are no minutes or orders in the record indicating the court ever instructed the trustee to reserve funds for payment of the fees of any attorneys representing the debtor in the collection of real estate commissions which the debtor claimed were owed to him.

Apparently, in 1993, after this chapter 13 case had been in progress approximately five years, the debtor, acting pro se, filed two civil actions in the Fayette Circuit Court, one against Greenspire Equity Investors, 93-CI-0218, and another against Windcrest Company, et al., 93-CI-1265, to recover real estate commissions allegedly due the debtor. Insofar as the court can determine, this is no indication the debtor has been unsuccessful in this litigation.

The debtor alleges the trustee failed to adhere to an instruction of the court to pay postpetition income taxes owed by the debtor on real estate commissions earned by the debtor subsequent to the commencement of his chapter 13 case. The debtor alleges he is again in financial straits with the IRS which he owes $14,000 plus interest and penalties in postpetition taxes. The IRS did not file a claim for postpetition taxes as permitted by 11 U.S.C. 1305(a)(1). There are no pleadings in the record and no minutes indicating this matter was ever brought to the attention of the court prior to the debtor's response of September 14, 1994 to the trustee's motion for an order requiring the debtor to resume payments under the plan. The debtor insists the IRS owes him a small refund which the trustee should recover and apply to the amount the debtor owes to complete the plan. This seems nonsensical in view of the amount the debtor admits he owes the IRS. He will undoubtedly receive the benefit of the amount the IRS owes him by way of offset.

At the hearing on the motion the debtor again raised orally his contention that Union Bank and Trust Company should be required to repay to the trustee $2,138.48 of the $7,035.08 the bank received from the sale of the 1986 Oldsmobile it was permitted to repossess from the debtor. As previously indicated this issue was resolved by an order of the court entered July 5, 1990.

All parties concerned, and the court, have shown a remarkable tolerance for this debtor's recalcitrance and uncooperative attitude. It seems incredible that this case should be dismissed and the debtor's obligation to pay the balance due on all unsecured debts totaling approximately $16,000 for want of a minimum payment of approximately $248.00 which the debtor owes to complete the plan that proposed a payment of .10 on the dollar on unsecured claims. But that seems to be the result dictated by the debtor's conduct.

Accordingly, the court finds this case, which should have been dismissed perhaps as long as two years ago, is hereby dismissed.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Sidney N. White, Esq.

Donald K. Hollis

Notice of dismissal to all creditors

 

 

 

c:\opinions\hollis

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

 

IN RE:

 

DONALD L. HOLLIS CASE NO. 88-50645

 

DEBTOR

 

 

 

 

ORDER OF DISMISSAL

 

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that this case be and the same is hereby DISMISSED.

Dated:

By the court -

 

______________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Sidney N. White, Esq.

Donald K. Hollis

Notice to all creditors