Menu    1 ABR 359 

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA



In re:)
)
KATHLEEN M. KOWALCZUK, ) Case No. A90-00715
a/k/a Kathleen M. Rowand,) Chapter 13
)
Debtor.                )
_____________________________________)


MEMORANDUM REGARDING PLAN CONFIRMATION

    I.    Introduction

            This case is before the court for confirmation of the debtor's chapter 13 plan. Kathleen Kowalczuk, the debtor, filed a previous chapter 7 petition on April 27, 1989. Included among her liabilities was a two bedroom condominium unit located in the Woodside East Condominium project in Anchorage. The condominium had two encumbrances. The first has held by National Bank of Alaska (NBA) for approximately $93,000 on the date of filing. A second was held by Alaska Trust Deeds (ATD) for $26,800. The fair market value of the property was approximately $87,500. The debtor did not make monthly payments to ATD after February of 1989. She failed to pay NBA from March 1, 1989 to August of 1990.

            NBA obtained relief from stay on August 2, 1989. The debtor received her discharge on October 10, 1989. She discharged $14,436.62 in unsecured obligations and about $70,500 in undersecured obligations.

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            Following her chapter 7 discharge the debtor attempted to negotiate a settlement with ATD. The negotiations were fruitless. NBA then attempted to foreclose. The debtor filed a chapter 13 petition on July 16, 1990, 2 days prior to NBA's foreclosure sale. She resumed payments upon the obligation to NBA in August of 1990. On July 16, 1990 the debtor owed NBA $104,817.01. The fair market value of the condominium was $102,500 on that date. Based upon the rationale set forth in this memorandum, I will confirm the plan.

    II.    Objections to Confirmation

            The objections to confirmation are on grounds of bad faith pursuant to 11 U.S.C. § 1325(a) (3) for three reasons: (1) The debtor failed to make payments from March 1989 to August of 1990 to NBA and has made no payments to ATD since February of 1989, while living in the premises; (2) The debtor failed to collect rent from her roommate and apply it to the first deed of trust; and (3) the debtor, a single woman with no dependents, does not need a $100,000 condominium and can make do with less expensive accommodations.

            Based upon the expert testimony offered, I find the value of the condominium to be $102,500 as of July 16, 1990, the date of the chapter 13 filing. I find the value of the condominium to be $87,500 on April 27, 1989, the date of the chapter 7 filing. Transactional costs of 7% are appropriate for July 1990 and 10% for   TOP      1 ABR 361  April 1989 due to changes in market conditions. Judge Ross has allowed transactional costs to be deducted when determining secured claims. In re Jewell, 1 A.B.R. 103, 108 (Bankr. Alaska 1990). Under this rationale, NBA's secured claim has increased from $78,750 to $95,325, an increase of $16,575 over 14.5 months or $1,143.10 monthly. NBA's unsecured claim has shrunk from $14,315.31 to $9,492.01. NBA's position has actually improved somewhat by the lapse of time, despite its failure to receive payments from the debtor. Had there been a material injury to NBA caused by depreciation of the unit, NBA's good faith objections would be well taken.

            ATD's good faith complaints are similarly baseless. ATD has not been injured by the delay. It was totally unsecured on April 27, 1989 as well as July 16, 1990. Even if rent was received, it would simply reduce NBA's deficiency claim. The rent arguments do not make much sense under the unique facts of this case. The debtor will pay an additional $16,575 for the condominium as a result of her sixteen month "free rent" policy. Even if the debtor had collected rent and applied it to the first deed of trust, ATD remains unsecured. ATD's arguments only make sense in a static or depreciating market.

            While neither NBA or ATD have unsecured claims in this chapter 13 as a result of the debtor's prior chapter 7, the loss of such claims is immaterial. It does not constitute bad faith on   TOP      1 ABR 362  behalf of the debtor. Had the debtor initially filed a chapter 13, they would have received little or nothing on the unsecured portion of their claims due to the debtor's meager earnings. The combination of filings has not injured the debtor's two major creditors in a substantial manner.

            The final issue presented by this case is whether the debtor's retention of the condominium meets the disposable income test of 11 U.S.C. § 1325(b)(2). The debtor contends that no one can raise the issue, as ATD's unsecured claim was discharged in the previous chapter 7. I disagree. The disposable income test would be rendered completely meaningless if all debtors filed chapter 7s followed by chapter 13s. Moreover, the court retains an independent duty to review the debtor's income and expenses along with all the other circumstances of the case to determine if the plan is filed in good faith. In re Stein, 91 B.R. 796 (Bankr. S.D. Ohio 1988).

            Having reviewed the evidence in this cause, I determine that the debtor's retention of the condominium is reasonable. The debtor's actual housing expense is only one-half of the monthly payment of $1,118.19 due to her receipt of one-half of the payment from her roommate. Secondly, the interest portion of the payment will substantially reduce the debtor's tax liability. If she were to rent a less expensive unit, the difference could be consumed by income tax. Finally, an 1,'800 square foot two bedroom condominium   TOP      1 ABR 363  in relatively poor condition does not appear to be a luxury item to the court, given Alaska's unique, highly expensive standards. This court recognizes that some types of housing may be viewed as unnecessarily expensive. In re Kitson, 65 B.R. 615, 621 (Bankr. E.D.N.C. 1986). ($1,667 house payment a month for family of 4 or $1,000 rental excessive); In re Jones, 55 B.R. 462, 467 (1985 Bankr. D. Minn. 1985) (house payment $989.00 for family of four excessive). While this case explores the upper reaches of "reasonably necessary", it does not cross the line.

    III.    Conclusion

            This chapter twenty proceeding approaches the limits of confirmability. Utilizing the criteria set forth in Matter of Metz, 820 F.2d 1495 (9th Cir. 1987) and In re Warren, 89 B.R. 87 (9th Cir. BAP 1988), I do not find the filing to be in bad faith. While the debtor had a sixteen month reprieve from house payments, she will pay for the delay. Had she filed a chapter 13 in 1989, her creditors would have fared about the same or worse. In re Johnson, 904 F.2d 563 (10th Cir. 1990) does not allow the strip-down of a non-recourse obligation. Johnson is now on appeal to the Supreme Court. While I prefer Johnson, I will follow Metz and confirm the debtor's plan, with some modifications as set forth in the accompanying order.

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           DATED:    February 6, 1991.


                  DONALD MacDONALD IV
                  United States Bankruptcy Judge


    Serve: D. Rankine, Esq.
    R. Ullstrom, Esq.
    S. Dodge, Esq.
    B. Furman, Trustee
    U.S. Trustee