The opinion
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
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MARK W. SWIMELAR,
Chapter 13 Trustee,
Appellant,
-v- 3:22-CV-715
DANIEL MCGUIRE and
RITA MCGUIRE,
Appellees.
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APPEARANCES: OF COUNSEL:
MARK W. SWIMELAR, EDWARD J. FINTEL, ESQ.
CHAPTER 12 & 13 TRUSTEE
Attorneys for Appellant
250 South Clinton Street, Suite 203
Syracuse, NY 13202
ORVILLE & MCDONALD LAW, P.C. ZACHARY D. MCDONALD, ESQ.
Attorneys for Appellees
30 Riverside Drive
Binghamton, NY 13905
DAVID N. HURD
United States District Judge
DECISION and ORDER
I. INTRODUCTION
Appellant Mark W. Swimelar (“appellant” or the “trustee”), one of the two
standing chapter 13 trustees covering the Northern District of New York, has
filed this appeal from a Memorandum-Decision & Order issued by Chief
United States Bankruptcy Judge Diane Davis that confirmed a chapter 13
plan proposed by debtor-appellees (and husband and wife) Daniel and Rita
McGuire (collectively “debtors” or “appellees”).
In November of 2020, these debtors filed a joint voluntary petition under
chapter 13 of the Bankruptcy Code. A petition under chapter 13 involves a
whole bunch of disclosures, including a set of “Schedules” in which the debtor
must disclose their assets, liabilities, income, and expenses. On a form called
“Schedule C,” debtors also identified assets they believed to be “exempt”; i.e.,
protected from the bankruptcy trustee. This list of exempt assets included a
“[p]otential inheritance from [debtor wife’s] late brother” worth $10,000.00.
The trustee objected to this claimed exemption. In his view, the possible
$10,000 inheritance was property of the bankruptcy estate that constituted
disposable income for purposes of confirmation: the kind of thing that must
be funded into debtors’ confirmation plan for the benefit of creditors. Because
debtors’ proposed plan did not do so, the trustee argued that confirmation of
their chapter 13 plan should be denied. In opposition, debtors acknowledged
that the inheritance is ordinarily property of the estate and agreed to fund
any amount in excess of $10,000 into the plan as non-exempt proceeds. But
debtors insisted that they had properly claimed the anticipated sum as an
exemption that should not be included in their plan. In fact, according to
debtors, they now believed Ms. McGuire would only receive $6,000 from the
inheritance, rather than the $10,000 they disclosed on their Schedule C.
On June 24, 2022, Chief Judge Davis sided with debtors and overruled the
trustee’s objection to confirmation of the plan. Dkt. No. 2 at 7–30.1 Chief
Judge Davis held that debtors had properly claimed the inheritance as an
exempt pre-petition asset. Id. at 30. Judge Davis further held that the
inheritance was immunized from pre-petition debts and creditors’ claims up
to the value authorized under 11 U.S.C. § 522(d)(5), and that the inheritance
did not constitute disposal income under § 1325(b). Id. However, Judge
Davis ordered debtors to remit any inheritance funds they might receive in
excess of the amounts permitted under §§ 522(d)(5) and 522(l). Id. at 14.
The trustee appealed.
II. LEGAL STANDARD
A federal district court enjoys jurisdiction to entertain appeals from “final
judgments, orders, and decrees” issued by a bankruptcy court sitting in the
1 Pagination corresponds to CM/ECF.
same judicial district. 28 U.S.C. § 158(a). “Generally in bankruptcy appeals,
the district court reviews the bankruptcy court’s factual findings for clear
error and its conclusions of law de novo.” In re Charter Commc’n, Inc., 691
F.3d 476, 482–83 (2d Cir. 2012).
III. DISCUSSION
Appellant argues that Chief Judge Davis erred in overruling his objection
to debtors’ confirmation plan because the anticipated inheritance should have
been accounted for as projected disposable income. Dkt. No. 6 at 7–8. As
appellant explains, most courts hold that exempt property is not excluded
from the disposable income analysis. Id. at 9–13. In the trustee’s view, the
cases on which Chief Judge Davis relied are either readily distinguishable or
based on their own legal error. Id. at 13–19. According to the trustee, the
bankruptcy court’s rationale would lead to absurd results. Id. at 25.
Upon de novo review, the June 24 MDO will be affirmed. An independent
look at the relevant case law seems to confirm what is already set forth in
Chief Judge Davis’s thoughtful written opinion: there is an ongoing split of
authority in this area of the bankruptcy law, with a majority line of cases
that favor the trustee and a minority line of cases that favor the debtors.
The trustee’s brief on appeal acknowledges the existence of this same basic
split of authority. The trustee urges this Court to reverse the June 24 MDO
on the basis that Chief Judge Davis sided with the minority view of this
particular issue. In the trustee’s telling, the minority line of cases (and now
the June 24 MDO) misinterpret the interplay between § 522(c) and § 1325.
The trustee has since submitted supplemental briefing in which he indicates
that other bankruptcy courts have continued to side with the majority view.
But what is missing from the trustee’s argument on appeal is any kind of
clear articulation that either governing Supreme Court precedent or Second
Circuit authority compel the result he seeks to reach. After all, there is no
question that the bankruptcy court applied its own subject matter expertise
to the facts of this case and determined that the minority line of cases on this
question were a better fit under the circumstances.
De novo review is for correcting legal error, not legal disagreement. In
short, the trustee has not “clearly identified the kind of controlling authority
from our own Circuit that might confirm the bankruptcy court committed
legal error, and an independent review of the matter reveals no reason why
this Court should begin second-guessing it.” CFCU Community Credit Union
v. Harrington, 584 B.R. 9, 14 (N.D.N.Y. 2018). Accordingly, the June 24
MDO will be affirmed.
IV. CONCLUSION
As the trustee’s supplemental filings show, the bankruptcy court’s holding
in this case appears to have been appropriately confined to the unusual facts
presented by debtors’ petition. Indeed, the June 24 MDO has yet to lead to
the “absurd” results threatened in his brief on appeal. To the contrary, other
bankruptcy courts in this District have applied the relevant provisions of the
Bankruptcy Code to reach results favored by the trustee. While those cases
sided with the majority view of this issue, the appellant has not established
that the minority view is equivalent to legal error. Accordingly, the June 24
MDO will be affirmed.
Therefore, it is
ORDERED that
1. The June 24, 2022 MDO is AFFIRMED; and
2. Swimelar’s appeal is DISMISSED.
The Clerk of the Court is directed to close the file.
IT IS SO ORDERED.
Dated: August 1, 2023 Os De wt Judge
Utica, New York. |
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