IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA IN RE CHAPTER THIRTEEN RICHARD C. CELUCK BANKRUPTCY NO bk DEBTOR CHARLES VALENZA {Nature of Proceeding Objection to JULIA VALENZA Confirmation of Amended Chapter 13 OBJECTORS Plan (Doc. #44)} vs. RICHARD C. CELUCK RESPONDENT ************************************************************************ CHARLES VALENZA {Nature of Proceeding Complaint JULIA VALENZA Objecting to the Alleged Bankrupt s PLAINTIFFS Chapter 13 Filing and/or the Proposed Plan as Submitted by the Debtor Under vs. Chapter 13} RICHARD C. CELUCK DEFENDANT ADVERSARY NO ap OPINION An Objection has been filed to the Debtor s Plan by Charles and Julia Valenza, creditors who have filed a claim in the amount of $41,136. The Valenzas have also filed an adversary action seeking to have the Chapter 13 case dismissed based on the purported bad faith of the Debtor. The Valenzas question the good faith of both the Debtor s filing and his Plan. According to the Valenzas, the debt arose from the fraud of the Debtor. Their Objection sounds in bad faith, advancing that insufficient funds are being paid into the Plan and that the Plan provides an inadequate amount to allow confirmation. They further argue that false schedules and statements were filed in connection with the bankruptcy. [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd]

2 The Valenzas incorporate, by reference, the allegations in a dischargeability Complaint filed to Adversary Proceeding No ap Those allegations deal primarily with the circumstances under which $30,000 was paid to the Debtor, a homebuilding contractor, as a down payment on a residential remodeling and a subsequent default judgment in county court. The Valenzas also advance that their indebtedness was manifestly understated on the bankruptcy schedules and the Debtor s income was also understated on his Statement of Financial Affairs. An inquiry regarding good faith is fact intensive. Accordingly, a discussion of the circumstances underlying this relationship is pivotal. Richard Celuck, the Debtor herein, was a building contractor. He has a high school degree and one year of college. Deposition Transcript of August 29, 2006 at 12, introduced at trial as Movant s Exhibit A. He is married and has one child. In 2001, Celuck formed a business. Dep. Tr. at 9. The Debtor entered into a remodeling contract with Charles and Julia Valenza and, on or about June 22, 2002, received a $30,000 advance on the contract. Dep. Tr. at 48. Celuck s business was operated out of his residence. Celuck never hired employees, preferring to utilize subcontractors. Dep. Tr. at 16. The business terminated in August Dep. Tr. at 16, 55. The Debtor had a nominal amount of tools, choosing to rent items when needed. Dep. Tr. at 19. Celuck filed Chapter 7 bankruptcy on May 19, The Valenzas point to several errors in the original filings that, they say, are indicative of bad faith. Most importantly, revenue amounts in the statement of affairs are manifestly underestimated, purportedly because net figures were used rather than gross. Additionally, the obligation owing to the Valenzas was listed at $500, despite the existence of a $41,000 judgment. [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 2

3 Good Faith of Filing It is apparent that our Circuit has accepted the lack of good faith as cause for dismissal of a case. In re Tamecki, 229 F.3d 205 (3d Cir.,2000); In re SGL Carbon Corp., 200 F.3d 154 (3d Cir.,1999); In re Lilley, 91 F.3d 491 (3d Cir.,1996). While various factors have been mentioned as worthy of note, much is left to the discretion of the trial court. In re Myers, --- F.3d ---, 2007 WL , *3, C.A.3 (Pa.),2007. In Chapter 13, 1307(c) allows a case to be dismissed for cause, which has been found to include lack of good faith. In making that finding, various factors are examined, including a totality of the circumstances. Those factors include, the nature of the debt... ; the timing of the petition; how the debt arose; the debtor's motive in filing the petition; how the debtor's actions affected creditors; the debtor's treatment of creditors both before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors. In re Lilley, 91 F.3d 491, 496 (3d Cir.,1996). To these factors we can also add an intention to avoid a large single debt as a factor. In re Myers, 2007 WL , *4 (C.A.3 (Pa.),2007), citing to Tamecki, 229 F.3d at 207. Once good faith is put at issue, the burden of demonstrating good faith in the filing shifts to the debtor. In re Tamecki, 229 F.3d 205, 207(3d Cir.,2000). Tamecki cited to In re Zick, a Sixth Circuit case, for a cautionary directive that dismissals for lack of good faith should be confined carefully and [be] generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct or gross negligence. In re Zick, 931 F.2d 1124, 1129 (6th Cir.,1991). Nature of Debt The obligations of the Debtor were not specifically introduced at the time of trial. [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 3

4 A review of the schedules indicate no secured debt, nominal priority debt, and approximately $56,000 of unsecured, non-priority debt. Included in that unsecured debt was the Valenza obligation for $500 identified as business litigation. Timing of Petition The only witness testifying at the hearing was the Debtor. His deposition taken in advance of trial was, by agreement, also offered into evidence. The circumstance underlying the Valenza obligation came in by way of various documents filed in the Court of Common Pleas docket. The entry of a $41, judgment against the Debtor occurred November 29, As mentioned, the Chapter 7 was filed May 19, How Debt Arose The only indication of how the Valenza debt arose was furnished by an introduction of various documents filed in the county proceeding. On or about June 22, 2002, it appears that the Valenzas, homeowners, paid Celuck, a home remodeler, a $30,000 down payment to do certain remodeling to their home. The work was alleged to be untimely and inadequate as well as unworkmanlike. On June 5, 2003, Valenzas sued Celuck. On October 22, 2003, Celuck was sanctioned by the Lackawanna County Court for failure to appear at a pretrial conference. Celuck did not appear at trial on November 29, 2003 and judgment was entered against him. Debtor s Motive in Filing The Debtor testified that he filed bankruptcy because of a couple of bad jobs, especially the Valenza project and some medical issue that prevented him from working. The record is devoid of any other detailed explanation for the Debtor s filing. I can surmise that the obligations of the Debtor, approaching $100,000, inspired his filing. While there was no evidence of a catastrophic life event, or other specific calamity that [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 4

5 put him in desperate financial straits, neither does the record suggest that the Debtor rapidly expanded his obligations prior to bankruptcy as mentioned in Tamecki. How the Debtor s Action Affected the Creditors There is little on the record to reflect the bankruptcy impact on the creditors other than to stay collection efforts that might be advanced. Treatment of Creditors Before and After Petition Little evidence was placed on the record as to the treatment of creditors before and after the petition. There was some indication that the Debtor disposed of assets prior to judgment being rendered against him. According to Celuck s Statement of Affairs, Celuck transferred two vehicles to his father for $400 in October There is, however, no indication that this transfer was for less than fair value. The County Court documents suggest that there was certainly dissatisfaction with the Debtor s remodeling work by the Valenzas. It is also apparent that Celuck did not appear at trial when sued by the Valenzas. After the Chapter 7 was filed, on May 19, 2004, the Valenzas filed a dischargeability Complaint on August 31, 2004, seeking to except this obligation from discharge. On March 1, 2005, the Debtor moved to convert to Chapter 13. The initial Plan offered by Celuck proposed a total payment of $4.00 to Valenzas. Only after an Objection was filed by the Trustee did that figure increase to $2,225. In the Amended Plan, the Valenzas were treated as a priority claimant, and I presume that is as a consumer depositor under 11 U.S.C.A. 507(a)(7). On Debtor s Amended Schedule E, filed November 10, 2005, (Doc. #34), the Valenza claim was listed at $40,000 as a disputed priority claim and the following box was checked. [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 5

6 [x] Extensions of credit in an involuntary case Claims arising in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee or the order for relief. The record created has no support for this status. On December 7, 2005, a new Amendment was filed (Doc. #37) reducing the priority claim to $2,225, but not altering the priority designation. Has the Debtor been Forthcoming with the Court and Creditors The Valenzas have pointed out a number of shortcomings in the bankruptcy filing, including an understatement of gross income for previous years as well as an understatement of the Valenza debt. The Debtor suggests that this was no more than an oversight, and the lack of logical motivation for these misstatements appear to support that conclusion. Intention to Avoid a Large Single Debt Although the Valenza debt was the largest obligation owing by the Debtor, it was, by no means, the only large debt. According to his bankruptcy schedules, Celuck owed Fidelity Deposit and Discount Bank two debts exceeding $16,000 each and over $13,000 to Wachovia Bank. While undoubtedly the Debtor filed bankruptcy to escape from the Valenza obligation, this was not a single creditor case. The Circuit has expressly rejected the question of whether the debt would be nondischargeable in Chapter 7 as a factor. In re Lilley, 91 F.3d 491, 496 n.2 (3d Cir.,1996). The Circuit has also rejected the proposition that a Chapter 13 nominal payment plan, standing alone, violates the good faith standard of 11 U.S.C. A. 1325(a)(3). In re Hines, 723 F.2d 333 (3d Cir.,1983). [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 6

7 Lavish Lifestyle The record contains little information on the lifestyle of the Debtor. Totality of Circumstances The term, totality of the circumstances, has been in the federal lexicon for quite some time. It appears to be the antithesis of a bright-line rule since its parameters defies stringent and fixed borders. It is an outgrowth of a sort of balancing test that necessarily requires a laundry list of factors to incorporate into the balance. In the first instance, its application requires an identification of relevant factors, a fluid list determined by the individual hearing judge. Some of those factors may have been embraced by controlling authority, as is true in this case, and other factors may be added based on standards prevalent in the court s community, at least, as those standards are viewed by the court. This is not an observation to which I am the least bit critical, for it is better than the oft-referred smell test 1, that has no boundaries and defies any ascertainable description. 2 Such reference is comparable to the infamous, I know it when I see it quote in reference to pornography. Jacobellis v. State of Ohio, 378 U.S. 184, 197, 84 S.Ct. 1676, 1683, 12 L.Ed.2d 793 (1964) (concurring opinion). As an overview, there is little remarkable about the current Debtor, whose problems typify the self-employed debtor-small contractor. His education was minimal. He had little capital and was likely incapable of managing a significant remodeling contract. While the Valenza $30,000 deposit was made to Celuck s personal account, 1 In apparent reference to the thought, I can t explain why, but it s not right. 2 [T]he use of a smell test, while of some utility in the most extreme (presumably to be read most odious ) cases, would be so subject to the pitfalls of subjectivity as to have no paradigmatic value at all. Everyone s nose, after all, is different. In re Johnson, 80 B.R. 953, 962 n.9 (Bkrtcy. D.Minn.,1987). [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 7

8 rather than his business account, there was no evidence that it was misspent or otherwise not devoted to the project. His schedules and bookkeeping were abysmal, but that is not unique. I find that Celuck was the prototype of the small building contractor who has bitten off more than he could chew to the dismay of a homeowner. To deny bankruptcy relief to this small businessman is to bar the average proprietor from the recognized benefits of the fresh start available in bankruptcy. I find that the totality of the circumstances weigh in favor of denying the request to dismiss the bankruptcy. The circumstances present in this case do not rise to the degree of impropriety as I found in In re Kerschner, 246 B.R. 495 (Bankr. M.D.Pa.2000). The Valenzas also argued that the plan lacked good faith. Nevertheless, little evidence was advanced in that regard with the exception of the nominal distribution of the first plan. I have heretofore referenced authority that, standing alone, a minimal distribution does not equate with a lack of good faith. In re Hines, supra. To the extent 1325(a)(7) has been a factor, it has heretofore been discussed. Accordingly, Valenzas Objection to the Plan is overruled. My Order is attached. Date July 24, 2007 BY THE COURT, [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd] 8

9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA IN RE CHAPTER THIRTEEN RICHARD C. CELUCK BANKRUPTCY NO bk DEBTOR CHARLES VALENZA {Nature of Proceeding Objection to JULIA VALENZA Confirmation of Amended Chapter 13 OBJECTORS Plan (Doc. #44)} vs. RICHARD C. CELUCK RESPONDENT ************************************************************************ CHARLES VALENZA {Nature of Proceeding Complaint JULIA VALENZA Objecting to the Alleged Bankrupt s PLAINTIFFS Chapter 13 Filing and/or the Proposed Plan as Submitted by the Debtor Under vs. Chapter 13} RICHARD C. CELUCK DEFENDANT ADVERSARY NO ap ORDER For those reasons indicated in the Opinion filed this date, IT IS HEREBY ORDERED that the Objection of Charles and Julia Valenza to Debtor s Amended Chapter 13 Plan is overruled. IT IS FURTHER ORDERED that the request to dismiss Debtor s bankruptcy petition is denied, and the Complaint regarding dischargeability is held in suspense pending a Discharge in Chapter Thirteen or reconversion to Chapter Seven. Date July 24, 2007 BY THE COURT, [m\users\cathy\opinions\5-04-bk-52542_celuck_05-ap wpd]

IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

Main Document Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA IN RE CHAPTER THIRTEEN FRANK HARRISON BIEGE, BANKRUPTCY NO. 5-01-bk-03669 DEBRA ANN BIEGE, DEBTORS