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In re Vega-Lara

United States District Court, W.D. Texas, San Antonio Division

September 19, 2019

IN RE CARLOS VEGA-LARA AND AURA CECILIA VEGA, DEBTORS
v.
MARY K. VIEGELAHN APPELLEE CARLOS VEGA-LARA AND AURA CECILIA VEGA, APPELLANTS IN RE ANNETTE MARIE DIAZ DEBTOR ANNETTE MARIE DIAZ APPELLANT
v.
MARY K. VIEGELAHN APPELLEE

          MEMORANDUM OPINION

          ROYCE C. LAMBERTH, UNITED STATES DISTRICT COURT JUDGE

         This case raises the question of how tax refunds should be treated when calculating disposable monthly income under a Chapter 13 bankruptcy plan. The appeal stems from two consolidated cases involving the same trustee, Mary K. Viegelahn ("Trustee"). In both cases, the Bankruptcy Court agreed with Trustee that under Section 4.1 of the District Plan adopted by the Western District of Texas, the debtors were permitted to retain only the first $2, 000 of their tax refunds and were required to turn over any excess to the Trustee as disposable income. Carlos Vega-Lara, Aura Cecilia Vega, and Annette Marie Diaz ("Debtors") claim that this is improper for two primary reasons. Debtors' first main argument is that Section 4.1 of the District Plan expressly contravenes provisions of the Bankruptcy Code, the Local Rules, and the Official Forms and thus should be stricken from Debtors' plans. Debtors' second main argument is that Section 4.1 of the District Plan impermissibly circumvents the motion, notice, and hearing requirements established in the Bankruptcy Code and Bankruptcy Rules. For the reasons set forth below, this Court affirms the ruling of the Bankruptcy Court and finds that Debtors must relinquish any tax refunds in excess of $2, 000 to the Trustee in accordance with Section 4.1 of the District Plan.

         JURISDICTION

         This court has jurisdiction over appeals "from final judgments, orders, and decrees ... of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges." 28 U.S.C. § 158(a). As explained in the separate order denying Appellee's Motion to Dismiss Appeal of Order Granting Trustee's Motion to Strike, appellate jurisdiction over all issues raised on appeal is proper. [Vega-Lara District Court ECF #17].[1]

         STANDARD OF REVIEW

         Whether the District Plan expressly contravenes the Bankruptcy Code, Local Rules, or Official Forms and whether the District Plan impermissibly circumvents the motion, notice, and hearing requirements of the Bankruptcy Code and Bankruptcy Rules are both issues of law and thus are reviewed de novo. See Drive Fin. Services, LP v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008); In re Bass, 171 F.3d 1016, 1021 (5th Cir. 1999). It is important to bear in mind, however, that this Court owes considerable deference to the Bankruptcy Court's interpretation and application of its "own local rules adopted to promote efficiency." Matter of Adams, 734 F.2d 1094, 1102 (5th Cir. 1984).

         BACKGROUND

         I. Carlos Vega-Lara & Aura Cecilia Vega

         The first of the two consolidated cases began on November 3, 2017 when Carlos Vega-Lara and Aura Cecilia Vega filed a Voluntary Joint Petition for relief under Chapter 13 of the Bankruptcy Code and filed their initial Chapter 13 Plan. [Vega-Lara Bankruptcy ECF #1 and #2]. On February 10, 2018 they filed their Schedule I (Official Form 1061) and Schedule J (Official Form 106J). [Vega-Lara Bankruptcy ECF #14, #15, #16, and #17]. Their Schedule I indicated that they expected to receive $6, 034 in monthly net income, including $428 from "other monthly income." Id. This "other monthly income" was calculated by dividing their projected annual tax refund ($5, 136) by twelve months. Brief of Appellants at 3 [Vega-Lara District Court ECF #13]. Their Schedule J indicated that they expected their monthly living expenses to be $5, 109. [Vega-Lara Bankruptcy ECF #14, #15, #16, and #17]. Subtracting the monthly expenses on Schedule J from the monthly income on Schedule I, Debtors projected their monthly disposable income to be $925 for the applicable commitment period of three years. Brief of Appellants at 3-4 [Vega-Lara District Court ECF #13].

         The Trustee, however, objected to this plan, so Debtors filed their First Amended Chapter 13 Plan providing for approximately a 24% dividend payable to general unsecured creditors. [Vega-Lara Bankruptcy ECF #17]. After the Bankruptcy Court held a hearing on the plan and the Trustee again objected to confirmation, Debtors filed their Second Amended Chapter 13 Plan. [Vega-Lara Bankruptcy ECF #21]. On April 4, 2018, The Trustee filed an objection to this plan as well. [Vega-Lara Bankruptcy ECF #24]. On May 4, 2018, the Bankruptcy Court issued a Memorandum Opinion and Order Granting Chapter 13 Trustee's Objection to Confirmation of First Amended Chapter 13 Plan. [Vega-Lara Bankruptcy ECF #28]. Debtors filed another Chapter 13 Plan on May 30, 2018, and the Bankruptcy Court confirmed it on May 18, 2018. [Vega-Lara Bankruptcy ECF #37 and #41]. This confirmation is the final order from which Debtors appeal.

         II. Annette Marie Diaz

         The second of the two consolidated cases began on December 1, 2017 when Annette Marie Diaz filed a Voluntary Petition for relief under Chapter 13 of the Bankruptcy Code and filed her initial Chapter 13 Plan. [Diaz Bankruptcy ECF #1 and #2]. On February 13, 2018, she filed her Amended Schedule I (Official Form 1061) and Amended Schedule J (Official Form 106J). [Diaz Bankruptcy ECF #14, #15 and #16]. Her Schedule I indicated that she expected to receive $3, 201 in monthly net income, including $792 from "other monthly income." Id. This "other monthly income" was calculated by dividing her projected annual tax refund ($9, 504) by twelve months. Brief of Appellant at 3 [Diaz District Court ECF #12]. Debtor's Schedule J indicated that she expected her monthly living expenses to be $1, 696. [Diaz Bankruptcy ECF #14]. Subtracting the monthly expenses on Schedule J from the monthly income on Schedule I, Debtor projected her monthly disposable income to be $1, 505 for the applicable commitment period of three years. [Diaz Bankruptcy ECF #14 and #16].

         Also on February 13, 2018, Debtor filed her First Amended Chapter 13 Plan providing for approximately a 12% dividend payable to general unsecured creditors. [Diaz Bankruptcy ECF #16]. The Bankruptcy Court then held a hearing regarding the plan, and the Trustee filed an objection. Memorandum Opinion Denying Confirmation of Debtor's First Amended Plan [Diaz Bankruptcy ECF #33]. On March 7, 2018, Debtor filed her Second Amended Chapter 13 Plan; she also filed amended Schedules I and J indicating that she actually expected to receive $2, 681 in monthly net income, including $272 from "other monthly income" based on a projected annual tax refund of $3, 264 divided by twelve months. [Diaz Bankruptcy ECF #35 and #37]. Her projected monthly disposable income remained unchanged. Id. The Trustee filed an objection to this amended plan, which the Bankruptcy Court granted, prompting Debtor to file a new Chapter 13 Plan on May 30, 2018. [Diaz Bankruptcy ECF #40]. The Bankruptcy Court confirmed this new Plan on July 18, 2018. [Diaz Bankruptcy ECF #43]. This confirmation is the final order from which Debtor appeals.

         III. Chapter 13 of ...


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