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In re Johnson


May 19, 1983


Appeal from order of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, affirming Bankruptcy Court's dismissal of debtor's second Chapter 13 filing for lack of good faith. Reversed and remanded for findings of fact.


OAKES, PIERCE, and PECK,*fn* Circuit Judges.

Per Curiam:

This appeal involves successive Chapter 13 bankruptcy petitions, the filing of which raises an issue of the debtor's "good faith." On March 21, 1983, this court stayed the scheduled sale of Mary Johnson's Massapequa, New York, residence pending appeal from an order of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, affirming Bankruptcy Judge Parente's dismissal with prejudice of Johnson's second Chapter 13 bankruptcy petition on the ground that it was not filed in good faith. We expedited the appeal and conditioned the stay on Johnson's paying district court, and remand with instructions to the bankruptcy court to make further findings in accordance with our opinion below. We continue the condition: understanding that the April payment has been made, we order that Johnson shall pay Vanguard the monthly sum of $647 on or before the fifteenth day of each month pending final resolution of this matter, in the absence of which her petition should be dismissed with prejudice.

Vanguard Holding Corp. holds a security interest in Mary Johnson's home by virtue of a 1979 purchase money mortgage.*fn1 On May 1, 1981, Johnson defaulted. Collection efforts were unsuccessful. On December 7, 1981, Johnson filed a Chapter 13 plan, which called for cure of the default in thirty-six monthly installments of $188.89, including 12% interest.*fn2 Bankruptcy Judge Hall confirmed Johnson's first plan on February 3, 1982, but the debtor failed to make any payments under it. Vanguard therefore applied for dismissal of the plan, and properly notified Johnson, who, though represented by counsel, did not respond in any fashion to the motion, which was granted on March 1, 1982. After Vanguard accelerated the mortgage and scheduled foreclosure proceedings in state court, Johnson, through the attorney who represented her in the first proceeding, filed a second Chapter 13 plan on May 5, 1982.*fn3 Vanguard moved to deny confirmation and to dismiss the plan or convert it to a Chapter 7 case, pursuant to 11 U.S.C. § 1307(c).*fn4 At the hearing on this motion, Bankruptcy Judge Parente did not receive preferred testimony from Mary Johnson, who was present, as to a change in circumstances going to the issue of her good faith in filing a second bankruptcy plan. Although counsel made no formal offer of proof for the record, he states that Mrs. Johnson was available to testify that she was unable to comply with the February, 1982, confirmed plan because she had lost her job and because she was caring for her ill mother. Judge Parente, not concerned with the alleged change of circumstances, commented that when a debtor makes no attempt to pay under a confirmed plan, a second filing is an abuse of the bankruptcy system. He therefore granted Vanguard's motion, stating: "This is not a good faith filing. The arrears are in excess of eight thousand dollars. . . . To extend the payment for thirty-six months is not appropriate, nor equitable."

A bankruptcy court must confirm a debtor's filed Chapter 13 plan if the statutory six factors exist,*fn5 including a finding that "the plan has been proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1325(a)(3). Judge Parente appears to have concluded that a second filing of a plan under Chapter 13, is a per se violation of the good faith requirement. We note however, that nothing in the statutory language of the Bankruptcy Act of 1978 precludes repetitive filings. We agree with other circuit courts of appeals that where the statute is silent, courts should not read into the Act any per so limitations or requirements in respect to "good faith" that Congress did not enact. See, e.g., Deans v. O'Donnell, 692 F.2d 968, 969-72 (4th Cir. 1982); Barnes v. Whelan, 223 U.S. App. D.C. 10, 689 F.2d 193, 198-200 (D.C. Cir. 1982); In re Rimgale, 669 F.2d 426, 431-33 (7th Cir. 1982).*fn5

"Good faith," while not defined by statute or legislative history, see 5 Collier on Bankruptcy P1325.01[2][C] (15th ed. 1982), certainly does, however, require "honesty of intention," Barnes v. Whelan, 689 F.2d at 200, in the sense of focusing on the debtor's conduct in the submission, approval, and implementation of a Chapter 13 bankruptcy plan. Id. at 197-200; see also In re Goeb, 675 F.2d 1386, 1389-91 (9th Cir. 1982). The Goeb court held that a good faith determination requires a bankruptcy court to "inquire whether the debtor has misrepresented facts in his plan, unfairly manipulated the Bankruptcy Code, or otherwise proposed his Chapter 13 plan in an inequitable manner. 675 F.2d at 1390. It is an absence of these determinations that requires us to remand this case for findings of fact. The Bankruptcy Judge should determine whether Johnson had a bona fide change in circumstances that justified both her default on her first plan and her second filing. The judge is of course not precluded from considering all events that have occurred during the pendency of this litigation.

Lest this decision be interpreted as a judicial endorsement of successive filings, however, we point out that Congress did provide a statutory mechanism for modifying a confirmed Chapter 13 bankruptcy plan in just such circumstances as Johnson allegedly suffered. Section 1329 of Title 11 U.S.C. permits reducing the amount of payments, extending the time for payments, or even changing the amount due a particular creditor on proper petition and showing. As the legislative history makes clear, if problems such as a long-term layoff or family illness and medical bills made execution of a confirmed plan impracticable, the Act even permits a temporary moratorium on payments. H.R. Rep. No. 595, 95th Cong., 2d Sess. 125, reprinted in 1978 U.S. Code Cong. & Ad. News 5963, 6086. There is no doubt that Johnson's counsel ignored this statutory modification process; instead, after default on the first repayment plan, he did no oppose its dismissal, and then refiled close on the heels of the foreclosure proceeding. We do not read § 1329, however, as necessarily foreclosing second filings, although in a change of circumstances such as alleged here it is obviously the more appropriate procedure. Further, we are unwilling that Johnson be penalized for any neglect of counsel in failing to appear in opposition to Vanguard's motion to dismiss the first plan, and to argue for modification of that plan under the § 1329 provisions. Since the Act is new, our view is more flexible than it might be in future cases.

In re Bystrek, 17 Bankr. 894 (Bankr. E.D. Pa. 1982), relied on by the district court in affirming Judge Parente's dismissal of Johnson's second Chapter 13 plan, is authority for the general proposition that a debtor may not file a second plan in order to defraud a creditor mortgagee or to manipulate judicial process. With that proposition we surely agree, but without findings of fact, this court cannot tell whether Johnson and her counsel are playing games or filing a bona fide plan that must be confirmed if it meets all six requirements of 11 U.S.C. § 1325. Accordingly, we remand for expeditious hearing by the Bankruptcy Judge.

Reversed and remanded; mandate to issue forthwith; no costs to either party.

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