Memorandum of Decision Re: Chapter 13 Good Faith

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re KOZINA and ANDREAS SOTIRAS,                                                 No. 94-11237        Debtors. ___________________________/
Memorandum
     Debtors Kozina and Andreas Sotiras originally filed a Chapter 7 bankruptcy petition in which they made no mention of owning an interest in real property in Greece. A few days before the 341 hearing, they amended their schedules to disclose an interest in the property. The trustee arranged to sell the debtors' interest in the property for $10,000.00. The debtors then converted the case to Chapter 13 and propose in their plan to pay $10,000.00 to creditors over 60 months. Creditor Pauline Tasiopolos has objected.      Most of Tasiopolos' arguments have no basis in the law or are easily dealt with by simply amending the plan to be a pro tanto plan rather than a fixed-dividend plan. The only real issue the court can see in the case is whether the debtors have conducted themselves in good faith.      It is not bad faith for the debtors to use Chapter 13 to avoid liquidation of their assets. That is a fundamental purpose of Chapter 13. So long as the debtors pay to the Chapter 13 trustee the same $10,000.00 the Chapter 7 trustee would have realized for the estate, and they propose to pay all their disposable income for three years, their plan should be confirmed. Contrary to the arguments of Tasiopulos, there is no present-value discount involved for unsecured claims.      The true bad faith issue arises from the initial schedules, which failed to mention the property in Greece. If the mistake was innocent and corrected by amendment before anyone else discovered the omission, then there may have been no bad faith. On the other hand, if the debtors amended the schedules only after they became aware that the trustee had been told about the property, then there may well have been bad faith. The fact that the debtors used some "paralegal" rather than attorney may give them a claim against the paralegal, but is not likely to excuse their conduct.      If the court finds the debtors perjured themselves when they filed their original papers, then their belated amendment to exempt a portion of the property will not be allowed. Matter of Doan, 672 F2d. 831, 833 (11th Cir.1982). If the exemption is not allowed, the Tasiopulos judgment lien on the property in Greece cannot be avoided. If it cannot be avoided, then the plan cannot be confirmed because it is predicated on avoidance of the lien. Pursuant to section 1325(a)(5)(B)(ii) of the Bankruptcy Code, the claim would be entitled to interest which the debtors cannot afford.      The court will hold a further hearing on October 23, 1995, at 9:00 A.M. Direct testimony shall be in the form of declarations filed and served at least 10 days before the hearing, with declarants available in court unless the right to cross-examine is waived. If the court finds that the debtors intentionally omitted the real property from their original schedules and filed the amendment only after realizing that the trustee had learned about the property, the plan will not be confirmed. If the court finds that the omission was innocent, it will consider such other objections as Tasiopulos can clearly present to the court.      Tasiopulos is cautioned that at the further hearing the court will entertain no objection which does not specify which subsection of section 1325 is the basis for the objection and does not cite all relevant cases.
Dated: September 18, 1995                                                                                                  _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy