Howard v. Lexington Investments, Inc.

United States Court of Appeals
For the First Circuit

No. 01-2558

PEGGY A. HOWARD,

Debtor, Appellant,

v.

LEXINGTON INVESTMENTS, INC.

Appellee,

DOREEN B. SOLOMON,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nancy Gertner, U.S. District Judge]

Before
Lynch, Circuit Judge,

Campbell and Bownes, Senior Circuit Judges.

David G. Baker for appellant.
Doreen B. Solomon for appellee, Chapter 13 Trustee.
Michael J. Markoff for appellee, Lexington Investments, Inc.

April 2, 2002
 CAMPBELL, Senior Circuit Judge. Peggy Howard ("Howard")

appeals from the district court’s affirmance of the order of the

bankruptcy court dismissing her Chapter 13 petition and overruling

her objection to the proof of claim of Lexington Investments, Inc.

("Lexington"). We affirm, holding that Howard’s non-compliance

with the bankruptcy court’s order to file state tax returns by a

specified date provided an adequate ground for the court to dismiss

her Chapter 13 petition and renders moot the issue of whether

Lexington’s proof of claim was valid in the Chapter 13 proceeding.

I. Background

Howard filed her first petition under Chapter 13 of the
Bankruptcy Code1 in 1992; that was dismissed, before confirmation
of a plan, upon a motion of the Chapter 13 Trustee. Her second

Chapter 13 petition, filed in 1994, was likewise dismissed on
motion of the Chapter 13 Trustee, although after a plan had been
confirmed.

1
11 U.S.C. § 109(e) (1994) provides for the qualifications a
debtor must meet to file a petition under Chapter 13 of the
Bankruptcy Code. A petition under Chapter 13 offers several
advantages not available to debtors filing pursuant to Chapter 7.
Chapter 13 debtors keep all their property in return for an
agreement to pay the trustee all their income above a court-
approved budget. 11 U.S.C. § 1306(b). The trustee distributes the
money pro rata to creditors, and at the end of three to five years
the remaining debts are discharged. 11 U.S.C. § 1328(a). The
regular discharge in a Chapter 13, the so-called "super discharge,"
is much broader than the discharge available in a Chapter 7. Id.
To obtain these benefits, Chapter 13 debtors are required to act
swiftly. They must file a plan within 15 days of the petition,
Bankruptcy Rule 3015, and must commence payments under the plan
within 30 days, 11 U.S.C. § 1326. Failure to act in a timely
manner is grounds for dismissal. 11 U.S.C. § 1307(c).

-2-
 Howard filed her third and present voluntary petition

under Chapter 13 of the Bankruptcy Code on July 26, 2000. On

August 29, 2000, she submitted a plan of reorganization. On
December 14, 2000, Howard submitted a First Amended Plan in which

she denied the validity of a mortgage held by Lexington and made no

provision for its payment. Lexington’s claim of $72,509.67 was
predicated on a promissory note Howard had executed in 1986. In

refusing to pay any part of Lexington’s claim, Howard asserted that

the mortgage violated the Massachusetts Consumer Cost Credit

Disclosure Act. Because the amended plan did not provide for

payment of its mortgage, Lexington objected to it.

Lexington was not the only creditor dissatisfied with

Howard’s amended plan. Both the Internal Revenue Service ("IRS")
and the Massachusetts Department of Revenue ("MDOR") had filed

proofs of claim for unpaid tax obligations. During the past

decade, Howard had failed to file returns and had not paid her
federal and state income taxes. Absent data which the returns

would provide, the IRS and the MDOR were both forced to estimate

their claims against Howard. Because of the lack of accurate data

from which to determine Howard’s state tax obligation, the MDOR

objected to the amended plan.

On February 12, 2001, at a non-evidentiary hearing, the

bankruptcy court sustained the MDOR’s objection to the amended

plan. The court issued orally an order to show cause why the

petition should not be dismissed, and directed Howard to file all

her remaining unfiled income tax returns by March 12, 2001. On

-3-
March 13, 2001, Howard requested additional time to file her tax

returns. Based on the returns that were completed, the MDOR and

the IRS amended their proofs of claim. On March 23, 2001, Howard
filed a Second Amended Plan that supposedly took into account the

IRS’s and the MDOR’s amended claims but still omitted Lexington’s

claim.
On March 26, 2001, the bankruptcy court held another non-

evidentiary hearing in which it overruled Howard’s objection to

Lexington’s proof of claim and denied her motion for an extension

of time within which to file her tax returns. In addition, the

court addressed whether the first or second amended plan could be

confirmed. The MDOR stated that it would object to any plan

proposed by Howard until she had filed all her state tax returns so
that it could accurately assess her liability. By the time of the

March 26 hearing, Howard had yet to file state income tax returns

for 1990, 1991, 1992 and 1993. Lexington also objected to the plan
because of its omission of any provision for Lexington’s proof of

claim. The Chapter 13 Trustee advised the court that both the

first and second amended plans were not feasible and argued that

dismissal was in the best interest of the creditors. Moreover,

according to the Trustee, any further delay in creating a feasible

plan would prejudice the creditors. While Howard conceded that the

plan before the court was not feasible she argued that, given

additional time, she could complete her tax returns and address the

disputed Lexington proof of claim. The bankruptcy court dismissed

Howard’s petition because she had failed to file her tax returns as

-4-
directed and had also failed to propose a confirmable plan. The

bankruptcy court’s decision was affirmed on appeal by the district

court.

I. Discussion

We review the bankruptcy court’s decision to dismiss

Howard’s Chapter 13 petition for abuse of discretion. See In re

Chicco, 23 B.R. 292, 293 (1st Cir. BAP 1982); In re Ortiz, 200 B.R.

485, 489 (D.P.R. 1996). To dispose of this appeal, it is

sufficient to address the narrow issue of whether the bankruptcy

court abused its discretion when it dismissed Howard’s petition
for, among other reasons, her failure to comply with the court’s

order to file her state income tax returns by March 12, 2001. A
bankruptcy court abuses its discretion if it ignores "a material
factor deserving of significant weight," relies upon "an improper

factor" or makes " a serious mistake in weighing proper factors."
Indep. Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg.

Co., 864 F.2d 927, 937 (1st Cir. 1988). Such is not the case here.

Pursuant to Massachusetts Local Bankruptcy Rule 13-9(c),
a debtor is required to "file any due but unfiled tax returns no
later than the deadline for filing claims, unless the time to do so

is extended by the Court." In this case, the deadline for filing
claims had been January 22, 2001. However, the bankruptcy court
initially extended the time for Howard to complete her tax returns

to April 22, 2001. During the February 12, 2001, hearing the
court, sua sponte, cut back that date, ordering Howard to file her

tax returns by March 12, 2001. The reduced extension of time

-5-
allowed Howard an additional six weeks beyond the deadline

established by Local Rule 13-9(c) to file her returns.

It was entirely appropriate for the bankruptcy court to
have set and enforced a deadline in which Howard must file her tax

returns. 11 U.S.C. § 105(a) of the Bankruptcy Code states that a

court "may issue any order, process or judgment that is necessary
or appropriate to carry out the provisions of this title." The

powers bestowed upon the court in § 105(a) include the equitable

and discretionary power to dismiss a case under § 1307(c).2 By the

time of the March 26 hearing, Howard still had not filed all her

state tax returns. Absent an accurate accounting of Howard’s tax

obligation, the MDOR would not agree to any plan. Further, Howard

was already in arrears under the plan.3 Thus, a further delay
would only prejudice creditors and made the feasibility of any plan

2
11U.S.C. § 1307(c) provides, in pertinent part:
[O]n request of a party in interest or the United States
trustee and after notice and a hearing, the court may .
. . dismiss a case under this chapter, whatever is in the
best interest of the estate, for cause, including -
(1) unreasonable delay by the debtor that is prejudicial
to the creditors;
* * *
(4) failure to commence making timely payments under
section 1326 of this title;
(5) denial of confirmation of a plan under section 1325
of this title and denial of a request made for additional
time for filing another plan or a modification of a plan:
. . . .

3
11 U.S.C. § 1326(a)(1) requires a debtor to commence making
payments under a proposed plan within 30 days after the plan is
filed. Howard’s first payment was due to the Chapter 13 Trustee on
approximately September 30, 2000. The trustee holds all payments
until the plan is confirmed or dismissed. At that point the money
is either disbursed to the creditors or returned to the debtor.

-6-
unlikely. See In re Gonzalez, 99 B.R. 188, 191 (Bankr. D.P.R. 1989)

(dismissing case for failure to comply with court order that

resulted in delay to creditors).
The unfiled state tax returns created a major impediment

to the creation of a confirmable plan. The passage of further time

awaiting their filing would prejudice creditors. Under the
circumstances, given that Howard did not file her tax returns

within the time allotted by the court, it was not an abuse of

discretion for the bankruptcy court to dismiss the Chapter 13

petition. See In re Crayton, 169 B.R. 243, 245 (Bankr. S.D.Ga.

1994) (dismissing for failure to file federal tax returns within

six months after filing petition). Appellee also argues, with some

force, that the bankruptcy court did not err in determining that
the plan was not feasible. We need not consider this issue,

however, since the court was well within its authority to dismiss

the petition in view of the overdue state tax filings. And since
the court properly dismissed the Chapter 13 proceeding, the

question of whether or not Howard’s objection to Lexington’s claim

was barred on res judicata grounds is moot. See In re Stardust

Inn, Inc., 70 B.R. 888, 889 (Bankr. E.D.Pa. 1987) (and cases cited

therein). Affirmed.

-7-