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).
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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
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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
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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
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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.
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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.
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