Meyer v. Lepe (In re Lepe)

Summarized by Maeghan McLoughlin , Kelley Drye & Warren LLP
13 years 9 months ago

Citation:

Meyer v. Lepe (In re Lepe), Case No. 10-60264 (B.A.P. 9th Cir 2012)

Tag(s):

Ruling:

In the Ninth Circuit, a bankruptcy court must examine the totality of the circumstances in determining whether a debtor proposed a plan in good faith under section 1325(a)(3). Contrary to the Trustee's assertions, it is never appropriate to view one factor in isolation, even if that factor is indicative of bad faith. Therefore, the fact that the debtor stripped a second mortgage while holding small amounts of unsecured debt and could debatably pay his monthly expenses is just one factor in the totality of circumstances and alone is not determinative of bad faith.

Procedural context:

Chapter 13 Trustee (the "Trustee") appeals the order of the bankruptcy court affirming the amended plan of debtor Angel Lepe. Despite the Trustee's detailed opposition the bankruptcy court found that Lepe had acted in good faith in preparing his petitions and proposing his plan. The Bankruptcy Appellate Panel of the Ninth Circuit affirmed and found that the bankruptcy court did not abuse its discretion in confirming the plan.

Facts:

Appellee Angel Lepe (the "Debtor" or "Lepe") filed a petition for Chapter 13 bankruptcy relief on September 2, 2010. He listed assets valued at $393,900, liabilities of $581,380 (including $549 of unsecured debt), monthly income of $2,631, and expenses of $2,481. In Lepe's first plan he intended to "strip" the second mortgage on his house and to treat it as unsecured. Under this plan Lepe's payments to the Trustee would provide a 17.5% dividend to unsecured creditors. None of Lepe's creditors objected to confirmation of the plan. The Trustee, however, objected to confirmation and asserted that Lepe's plan and petition had both been filed in bad faith in violation of sections 1325(a)(3) and (a)(7). Specifically, the Trustee alleged that Lepe had filed for Chapter 13 protection solely to strip the second mortgage on his house and noted that Lepe total unsecured debt at the time he filed was only $549. Lepe then filed a First Amended Plan on February 24, 2011, which increased plan payments to the Trustee from $150 to $275, thereby increasing payback to unsecured creditors. Unsatisfied, the Trustee submitted a detailed opposition to the amended plan reiterating the bad faith allegations and further alleging that a separate Chapter 13 filed by Lepe's girlfriend was purposefully timed with Lepe's. At the confirmation hearing on both Lepe and his girlfriend's plans, the Court found that, while it was a "very close call" both plans should be confirmed. In particular the Court found that any inaccuracies in the petitions were a result of inadvertence, that payments to unsecured creditors were "not insignificant," that the low amount of unsecured debt does not equate to ineligibility for Chapter 13, that Chapter 13 can be used to deal with secured claims as well as unsecured, and that the second lien holder had not opposed confirmation.

Judge(s):

Judge Papas, Judge Dunne, and Judge Markell

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