KSB

Judge Nugent

09-12725 Sheel (Doc. # 25) - Document Text

SO ORDERED.
SIGNED this 04 day of May, 2010.


________________________________________
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ON - LINE PUBLICATION
BUT NOT PRINT PUBLICATION


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


IN RE: )
)
CARL G. SHEEL, ) Case No. 09-12725
) Chapter 13
Debtor. )

________________________________________________)

MEMORANDUM OPINION

Debtor Carl G. Sheel filed a chapter 13 petition on August 25, 2009. The Trustee objects
to his proposed chapter 13 plan.1 The Court heard evidence on this issue on March 16, 2010 and is
now prepared to rule.2

1 Dkt. 15 and 4. Debtor appeared by his attorney David J. Lund and the chapter 13
trustee Laurie B. Williams appeared in person.

2 The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. Confirmation of a
chapter 13 plan is a core proceeding. 28 U.S.C. § 157 (b)(2)(L).

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The Trustee objected to confirmation and alleged that the debtor was not paying all of his
disposable income to his unsecured creditors as required by § 1325(b)(1)(B)3 and that the debtor’s
plan did not meet the liquidation test set out in § 1325(a)(4) because the debtor may have
fraudulently transferred a boat to his sister during the state law look-back period. The Court
concludes that, based on the financial information in evidence, the debtor has failed to commit all
of his disposable income to the plan and sustains that part of the Trustee’s objection.

Facts

A. Projected Disposable Income
Carl Sheel sells health insurance to the elderly. Before he filed this case, he owned his own
agency in Moline, Kansas. He sold that in 2004. He then worked as a salesman for AFLAC and
later for M&M Insurance. M&M paid him a salary and AFLAC continues to pay him residual
commissions. Sometime after 2008, he began selling for Senior Healthcare Consultants on
commission.

When Mr. Sheel filed this case, his Form B22C reflected average monthly income for the
preceding 6 months at $1,971.4 It also reported average monthly residuals from AFLAC of
approximately $129 for a total current monthly income (CMI) of $2,100. Based on this income
level, Sheel is a below-median debtor and his disposable income will be determined by referring to
his actual income and expenses as reported on Schedules I and J or based on other evidence that

3 All statutory references are to the Bankruptcy Code, 11 U.S.C. § 101, et seq. unless
otherwise provided.

4 This income is reported on Line 4a as “Rent and other Real Property Income.” As
Sheel’s Schedule A reflected that he owns no real property, this is likely in error.

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accurately reflects on or adjusts Mr. Sheel’s future income prospects.5 Those schedules support
a monthly disposable income amount of $1256 and, because Sheel’s income is below the median,
his commitment period need not exceed 36 months.7 The Trustee takes issue with the accuracy of
these amounts and the Court’s review of Mr. Sheel’s Statement of Financial Affairs (SFA) and tax
returns for the years 2007 and 2008 and 1099 income reports for 2009 corroborates her concerns.

Mr. Sheel’s SFA reported that he received wages as well as other business income in 2007
and 2008.8 For 2009, the SFA reports the receipt of wages of $11,826 for the partial year up to
August 25, 2009, the date of his petition. He also reported income from his father’s trust in 2007.
He offered his 2007 and 2008 tax returns in evidence along with two 1099 forms he received
concerning payments to him by AFLAC and his current employer in 2009. As of the hearing date,
he had not yet filed his 2009 return.

According to Mr. Sheel’s 2007 return, he received wages of $30,858 from M&M Financial
Services and business income of $2,902.9 He also received $58,452 in trust distributions from the

5 § 1325(b)(1)(B), (b)(2), and (b)(3). See Hamilton v. Lanning (In re Lanning), 545 F.3d
1269, 1282 (10th Cir. 2008), cert. granted, 2009 LEXIS 7655 (U.S., Nov. 2, 2009) (Form B22C
is the starting point for calculating disposable income; where current monthly income as reported
on Form B22C differs substantially from debtor’s actual income at confirmation, the Court may
look to Schedule I to determine the income side of disposable income looking forward.); In re
Kibbe, 361 B.R. 302, 314-15 (1st Cir. BAP 2007); In re Daniel, 359 B.R. 320, 326-27 (Bankr. D.
Kan. 2006) (A below-median income debtor’s amounts “reasonably necessary to be expended”
for the maintenance or support of debtor or debtor’s dependents are determined from expenses
shown on Schedule J.).

6 Ex. F.

7 § 1325(b)(4).

8 Ex. E.

9 Ex. 1.

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estate of his late father. That trust is now completely administered and this is the only money Sheel
received from it. Among other deductions from his wages, Sheel claimed Form 2106 unreimbursed
employee business expense of $2,346. Sheel’s actual Form 2106 reflects that all of this expense was
vehicle expense. In addition, he claimed $782 in car and truck expense (mileage) on Schedule C
(Profit or Loss from Business).

Sheel’s 2008 return reflected salary income of $22,226 and business loss of ($7,906).10 He
claimed no Form 2106 expense in 2008, but his Schedule C reflected $13,483 in car and truck
expense. No other evidence in the record explained why this was so high in comparison to the prior
year. All of Sheel’s withholding of $2,527 was refunded in 2008.

Sheel did not present his 2009 return, but did offer two 1099 forms into evidence. One is
from RJR Insurance Services and reports payments to Sheel of $27,522.11 The other is from AFLAC
and reflects commissions of $1,499.12 Without his 2009 return, the Court cannot determine how
much, if any, expenses Sheel will claim on his Schedule C or Form 1040 return. Annualizing the
amounts shown on the Form1099s, the Court concludes that Sheel’s gross business income averages
$2,418 per month, before taxes and other expenses. As noted above, Mr. Sheel’s Form B22C reports
current monthly income of $2,100. As current monthly income is the average of the debtor’s
preceding six months’ income, the Court finds that Mr. Sheel received approximately $12,600 from
February through July, 2009.13 Because his Form 1099s report income of $29,021 for calendar year

10 Ex. 2.
11 Ex. 4.
12 Ex. 3.
13 This amount slightly exceeds the partial-year “wage” figure of $11,826 reported on

Sheel’s SFA. The difference is explained by the inclusion of the AFLAC residual commission in

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2009, the Court finds that he received $16,421 for the months of January and August through
December of 2009. This suggests that Mr. Sheel’s post-filing income has increased significantly.

On Mr. Sheel’s Schedule J, he claims transportation expenses of $300. Yet on his 2007 and
2008 tax returns, he claims considerably different expenses in connection with transportation. The
Court cannot reconcile this anticipated $3,600 expenditure with the $3,128 he claimed on Form 2106
and Schedule C in 2007. Nor can the Court fathom the sudden increase in expenses in 2008 to
$13,483 or $1,124 per month. The Court has no basis on which to conclude whether these
transportation expenses increase with his income, or, if they do, in what proportion. Further, Mr.
Sheel claims tax expense on Schedule J of $30 per month for property taxes. There is no mention
of income tax, whether for the payment of estimated taxes, self-employment taxes, or withholding.

The Court does note that all of Mr. Sheels’ 2008 withholding was refunded, suggesting that Mr.
Sheel anticipates paying no tax for 2009.

The Court notes Mr. Sheel’s testimony that he currently resides with his girlfriend who owns
the home they inhabit and pays most of the household expenses including the mortgage payment,
thus freeing up more disposable income for Mr. Sheel. In addition, he scheduled no secured debt
or priority claims.

B. Pre-petition Transfers
Part of the Trustee’s objection to confirmation is grounded on her claim that the debtor made
several pre-petition transfers of property that could be recovered under state law and considered in

the CMI figure on Form B22C, but not in the “wages” figure reported on the SFA, as well as the
time period encompassed by the two figures. The SFA covers the period January-August of
2009, up to the date of the petition was filed. Form B22C covers the narrower six-month period
preceding filing of February-July, 2009.

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applying the liquidation test in § 1325(a)(4) to this plan. Her objection involves the debtor’s transfer
of a Cobalt boat that he acquired in 2004 with a $30,000 loan from Commerce Bank. Sheel was
married to Lois Sheel at that time. When they divorced in 2006 in Texas, Lois took the boat. When
she did not make the loan payments, Commerce Bank repossessed the boat. Sheel redeemed the
boat for cash and Commerce Bank released its lien. He redeemed the boat with cash he received
from the sale of his insurance firm in Moline in 2004. Sheel testified that he gave the boat to his
sister in 2006 as payment for advances he had received from his father that diminished the sister’s
share in their father’s estate. He stated that he owed her $24,000.14 He last saw the boat on a trailer
at her home in Fort Worth in 2007.

An arbitrator was appointed to apportion the marital property. Under the arbitral award,
Sheel received a fifth-wheel trailer. He sold the trailer to an individual for $28,000 and plowed that
money into living expenses. In 2007, Sheel received the $58,452 payout from his father’s trust. He
cashed the check, retained some of the cash and deposited the rest in a bank account. He bought a
truck for $20,000, a ring for his girlfriend, and took a trip to Mexico. He could not say how much
he spent on the ring or the trip. He insists that the money is gone.15

Analysis

A. Disposable Income Objection
As a below-median debtor, Mr. Sheel is only required to commit his disposable income to
14 At trial, Sheel presented no written record of these advances or the amount owing to
his sister. Neither Sheel’s sister or his ex-wife testified at the March 16 evidentiary hearing.

15 No bank records, or other documentary evidence, were introduced at trial showing any
of these transactions or expenditures.

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his plan for a period of 36 months.16 The Court measures his disposable income by comparing his
reported income to his expenses on Schedules I and J.17 The Trustee questions the accuracy of those
schedules, particularly with respect to income. As shown above, debtor’s 2009 income appears to
have increased after the petition was filed. Where he made less than $13,000 in the six months
before August, 2009, he appears to have received over $16,000 in the months that are not accounted
for on Form B22C. Mr. Sheel received about $29,091 for the year or an average of $2,418 per
month. This exceeds by $317 the monthly disposable income he reported on Schedule J.18 His
reported expenses on his tax return do not match up with those he claims on Schedule J. As the
Court is required to consider his actual income and expenses, the Court cannot agree that his
disposable income is merely $125 per month. He can certainly pay more, at least on the record
before the Court today. The debtor had the burden to prove by a preponderance of the evidence that
he had committed all of his disposable income to the plan and he did not bear that burden.19 The
plan does not comply with § 1325(b)(1)(B) and (b)(2) and cannot be confirmed.

B Transfers and Liquidation Test

The Trustee suggests that the boat could conceivably be recovered as a state law fraudulent
transfer under KAN. STAT. ANN. §§ 33-204 or 33-205. State law provides for a four-year statute

16 § 1325(b)(4).

17 See note 5, supra.

18 Debtor calculates his monthly disposable income on Schedule J as $125. See Ex. F.

But if the $2,418 income figure rather than $2,100 is used on Schedule I, debtor’s monthly
disposable income is $442 ($2,418 - $1,976 = $442).

19 Keith M. Lundin & William H. Brown, CHAPTER 13 BANKRUPTCY, 4TH EDITION, §

163.1 at ¶ 6, Sec. Rev. June 14, 2004, www.Ch13online.com.
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of limitations on such recovery actions.20 This would arguably cover the boat’s transfer in 2006.
Neither the debtor nor the Trustee has commenced an action to recover the boat, but the Trustee
asserts that the boat should be recovered and considered in the liquidation analysis. The Court is
dubious of the Trustee’s assertion.

Kansas adopted the Uniform Fraudulent Transfer Act (UFTA) in 1998.21 Under the UFTA,
certain transfers are avoidable as to present and future creditors while others are avoidable only as
to current creditors. KAN. STAT. ANN. § 33-204(a)(1) avoids transfers made with actual intent to
hinder, delay or defraud a creditor. The statute sets out 11 badges of fraud that may be used to
evaluate such a claim.22 KAN. STAT. ANN. § 33-204(a)(2) avoids a transfer that was made for less
than reasonably equivalent value where the debtor was engaged in a transaction for which the
debtor’s assets were unreasonably small or intended to incur debts beyond the debtor’s ability to
pay. Either of such transactions may be avoided by current and future creditors. KAN. STAT. ANN.
§ 33-205(a) avoids transfers made for less than reasonably equivalent value while the debtor is
insolvent. KAN. STAT. ANN. § 33-205(b) avoids transfers that are made to an insider for an
antecedent debt where the debtor is insolvent and the insider had reason to know that. The Trustee
did not specify which of these species of avoidance she would pursue.

There is no evidence of Sheel’s intention to hinder, delay or defraud anyone. It appears that
a boat that cost $30,000 in 2003 was transferred in 2006 as payment of a $24,000 debt. This strikes

20 KAN. STAT. ANN. § 33-209.
21 KAN. STAT. ANN. § 33-201 et seq. (2000). The UFTA became effective January 1,
1999. See McCain Foods USA, Inc. v. Central Processors, Inc., 275 Kan. 1, 61 P.3d 68 (2002).
22 KAN. STAT. ANN. § 33-204(b).
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the Court as reasonably equivalent value in the absence of any evidence to the contrary.23 In short,
without a more fully-developed record, the Court cannot conclude that the boat will become part of
the estate any time soon or that its value must be returned to the creditors under this plan.

The Court heard no evidence suggesting that the sale of the fifth-wheel trailer or the
expenditure of the trust proceeds constituted fraudulent transfers. While such evidence could be
ferreted out in discovery on adversary proceedings yet to be filed, nothing in today’s record would
lend support to the debtor’s sale of the trailer and expenditure of the proceeds being in the nature
of a fraudulent transfer of any variety. Likewise, the debtor’s spending his father’s legacy may have
been improvident and ill-advised, but it cannot be said to be fraudulent in the absence of evidence
of other circumstances.

C. Conclusion and Order
Because the debtor has failed in his burden to prove that he has committed all of his
disposable income to payment of his unsecured creditors under this plan as required by §
1325(b)(1)(B), confirmation must be DENIED. For the reasons set forth above, the Trustee’s
liquidation objection is OVERRULED at this time. Debtor is granted 45 days to amend his chapter
13 plan or the case will be dismissed. In so ordering, the Court intends that the debtor file his 2009

23 See In re Solomon 299 B.R. 626, 633-34 (10th Cir.B.A.P. 2003) (Courts compare the
value of the transfer the debtor made to the value the debtor received in exchange or the amount
of the antecedent debt; no per se rule for determining reasonably equivalent value under §
548(a)(1)). Morganroth & Morganroth v. DeLorean, 213 F.3d 1301 (10th Cir. 2000) (Real
property having a value of at least $1.2 million transferred for unsecured note with face amount
of $1.2 million was reasonably equivalent value); In re WCC Holding Corp., 171 B.R. 972
(Bankr. N.D. Tex. 1994) (applying the Texas UFTA, reasonably equivalent value does not
require exact mathematical equivalence). But see In re Independent Clearing House Co., 77 B.R.
843 (D. Utah 1987) (Under § 548(a)(1), transfers in excess of an undertaking are not reasonably
equivalent; debtor did not receive reasonably equivalent value to extent defendant received more
than he advanced to the debtors).

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tax return not later than April 15, 2010 so that the parties may accurately determine his actual 2009
income and expenses. A copy of that return should be provided to the Trustee upon filing.

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