In Re: Sloane A. Worth

Background

Sloane A. Worth appealed an order from the United States Bankruptcy Court for the Southern District of New York dismissing her Chapter 13 bankruptcy case for cause under 11 U.S.C. § 1307(c). Worth filed for bankruptcy in 2017 while facing foreclosure on her home. Her confirmed plan required monthly payments of $300 for 60 months, full payment of allowed secured and priority claims, and an approximately 5% distribution to timely filed general unsecured claims. She completed the plan in July 2022 and paid the trustee $28,452.50.

The Chapter 13 trustee moved to modify the plan or dismiss the case. The motion relied primarily on a substantial increase shown on Worth and her husband’s joint 2021 tax return. Worth’s husband was not a debtor in the case. Worth argued that most of the increase resulted from her husband’s share of proceeds from the sale of property held by a trust, and that the one-time gain did not represent increased regular household income. She also argued that charitable contributions listed on the tax return did not show bad faith; the trustee later told the bankruptcy court that issue had been cleared up.

The bankruptcy court concluded that Worth had to account for her husband’s income and gave her the choice of proposing a plan paying 100% of the debt or facing dismissal. Worth declined to propose a 100% plan. The bankruptcy court then dismissed the case for cause under § 1307(c). The opinion states that the bankruptcy court relied on 11 U.S.C. § 1325(b)(4)(A)(ii), which concerns the applicable plan commitment period and combined current monthly income of a debtor and spouse.

Issues and Positions

Worth argued that the bankruptcy court erred by dismissing the case merely because she declined to propose a 100% plan. She maintained that “current monthly income” includes amounts regularly paid for household expenses, not every amount received by a non-filing spouse. She also argued that the tax-return comparison overstated any actual increase because 2020 income had been unusually low and because the 2021 amount included a one-time capital gain.

The trustee argued that the changed household circumstances justified increased plan payments. The trustee emphasized that Worth’s plan depended on her husband’s income and argued that it was unfair for Worth to use that income in establishing the plan while treating an unexpected increase as unavailable to creditors.

Court’s Analysis

The district court explained that § 1329(a)(1) permits a confirmed Chapter 13 plan to be modified before payments are complete to increase or reduce payments on claims. It also explained that post-confirmation modification should be used sparingly, particularly when the debtor has complied with the confirmed plan. Bad faith or abuse of Chapter 13 can constitute cause for dismissal under § 1307(c), even though bad faith is not expressly listed in that statute.

The court held that the one-time funds Worth’s husband received from selling inherited property could not be treated as monthly income because they were not received regularly for household expenses. The court further stated that a non-filing spouse’s income may be considered in calculating a debtor’s disposable income when it is regularly paid for household expenses, but that this calculation does not require the non-filing spouse to contribute his property to the plan.

The court found that Worth had completed the confirmed plan and that the trustee did not contend she had failed to comply with it. The record also did not show that the bankruptcy court calculated whether the husband’s changed income actually increased amounts regularly paid for Worth’s household expenses. The district court concluded that requiring a 100% plan solely because of the non-filing spouse’s income misapplied the Bankruptcy Code. It further concluded that Worth’s position—that her husband was not required to contribute his property to the plan—was supported by case law and therefore did not amount to bad faith or abuse of Chapter 13.

Disposition

Judge Cathy Seibel vacated the Bankruptcy Court’s dismissal order and remanded the case to the Bankruptcy Court for further proceedings consistent with the district court’s decision. The Clerk of Court was directed to close the district-court case. The opinion stated that the Bankruptcy Court could consider on remand whether plan amendment was feasible and appropriate at that stage.