When performing the lien avoidance calculation under § 522(f)(2), the Debtor may use the amount the Debtor could have claimed on Schedule C but did not, i.e., the statutory maximum under the exemption scheme chosen by the Debtor:
In re: Scannell, 2011 BNH 9; 2011 Bankr. LEXIS 2827 (Bankr. D.N.H. 7/27/11)(J. Michael Deasy,
Bankruptcy Judge).
Overview: The Court held a non-evidentiary hearing on a motion filed by the Debtor pursuant to 11 U.S.C. § 522(f)(2) seeking to avoid a judicial lien obtained prepetition by the Debtor's brother. The brother objected to the motion on various grounds. At the conclusion of the hearing, the Court ordered the parties to file memoranda of law on the issue of whether, when performing the lien avoidance calculation under § 522(f)(2), the Debtor must use the amount of the exemption the Debtor actually claimed in Schedule C or whether the Debtor may use the amount the Debtor could have claimed on Schedule C but did not, i.e., the statutory maximum under the exemption scheme chosen by the Debtor.
OUTCOME: Debtor will use the amount of the exemption he could have claimed, whether or not he actually so claimed under Schedule C, for purposes of § 522(f)(2) lien avoidance.
Discussion: The Debtor filed a chapter 7 bankruptcy petition on March 3, 2011. On Schedule A, he listed his homestead property in Chelmsford, Massachusetts, as being worth $510,000.00 and subject to secured claims totaling $730,292.72. On Schedule C, the Debtor indicated he was claiming exemptions pursuant to 11 U.S.C. § 522(b)(3) and claimed a homestead exemption under state law, Mass. Gen. Laws c. 188 § 1, in the amount of $100,000.00. Pursuant to that state statute, the Debtor would be entitled to an exemption in the maximum amount of $500,000.00.
The Debtor filed a motion seeking to avoid a judicial lien obtained by his brother in the amount of $200,000.00. The motion lists various liens on the property, including a mortgage totaling $464,411.19 and five other judicial liens totaling $65,483.06, which liens were subsequently avoided by the Court pursuant to § 522(f).
OUTCOME: Debtor will use the amount of the exemption he could have claimed, whether or not he actually so claimed under Schedule C, for purposes of § 522(f)(2) lien avoidance.
Discussion: The Debtor filed a chapter 7 bankruptcy petition on March 3, 2011. On Schedule A, he listed his homestead property in Chelmsford, Massachusetts, as being worth $510,000.00 and subject to secured claims totaling $730,292.72. On Schedule C, the Debtor indicated he was claiming exemptions pursuant to 11 U.S.C. § 522(b)(3) and claimed a homestead exemption under state law, Mass. Gen. Laws c. 188 § 1, in the amount of $100,000.00. Pursuant to that state statute, the Debtor would be entitled to an exemption in the maximum amount of $500,000.00.
The Debtor filed a motion seeking to avoid a judicial lien obtained by his brother in the amount of $200,000.00. The motion lists various liens on the property, including a mortgage totaling $464,411.19 and five other judicial liens totaling $65,483.06, which liens were subsequently avoided by the Court pursuant to § 522(f).
In the Debtor's view, the calculation under § 522(f)(2) is as follows:
1. Add the lien being tested for avoidance, i.e., brother’s lien in the amount of $200,000.00, with all other liens, i.e., the mortgage in the amount of $464,411.19 plus a statutory lien of the Town of Chelmsford in the amount of $398.40 for a total of $464,809.59, and the maximum exemption allowable in the absence of liens, i.e., the $500,000.00 available under state law, to get a sum of $1,164,809.59;
2. From that sum, i.e., $1,164,809.59, subtract the value of the property in the absence of liens, i.e., $510,000.00, in order to determine that the extent of the impairment is $654,809.59.
3. Since the extent of the impairment of the exemption, i.e., $654,809.59, exceeds the entire value of Paul Scannell's lien, i.e., $200,000.00, Paul Scannell's entire lien is avoidable.
2. From that sum, i.e., $1,164,809.59, subtract the value of the property in the absence of liens, i.e., $510,000.00, in order to determine that the extent of the impairment is $654,809.59.
3. Since the extent of the impairment of the exemption, i.e., $654,809.59, exceeds the entire value of Paul Scannell's lien, i.e., $200,000.00, Paul Scannell's entire lien is avoidable.
In Paul Scannell's view, the Debtor has undervalued his residence.
In addition to a debtor's right to exempt property from the bankruptcy estate, a debtor may also file a motion under § 522(f) to avoid or "wipe out" a valid perfected lien or interest that a creditor has in particular property.
District Court affirms the Bankruptcy Court’s order’s converting case,
Affirms the ability of the trustee to set aside a fraudulent transfer or challenge the debtor’s discharge,
Affirms sale of the property recovered as part of the fraudulent transfer litigation settlement,
Denies setting aside a settlement,
and Dismisses an appeal where debtors did not file a brief:
(In re REYNOLDS) REYNOLDS v. BANK OF CANTON and JUDGE FRANK BAILEY,REYNOLDS v. MADOFF, Trustee, 2011 U.S. Dist. LEXIS 84523 (D. Mass. 8/2/11)(F. Dennis Saylor IV, District Judge).
OVERVIEW: This opinion considers four related appeals from orders of the United States Bankruptcy Court for the District of Massachusetts. Debtors Barry and Diane Reynolds, proceeding pro se, raise challenges to (1) the denial of their motion for relief from an order converting their case to a proceeding under Chapter 7, and (2) the dismissal of adversary proceedings against the Bank of Canton, the principal creditor; and David Madoff, the Chapter 7 Trustee.
OUTCOME: Orders of the Bankruptcy Court will be affirmed.
Discussion: Debtor-appellants Diane and Barry Reynolds filed a voluntary Chapter 13 bankruptcy petition and plan, and after several objections from the trustee, filed an amended plan. The IRS objected to confirmation of the amended plan, citing its failure to provide for its secured and unsecured claims for unpaid federal taxes in excess of $30,000. Also, the debtors initially agreed as to the authenticity of their mortgage and note, then later disputed them.
The bank moved to convert the case to Chapter 7, arguing as a party in interest under 11 U.S.C. § 1307(c), that (1) the debtors' failure to filed a revised plan was unreasonable and prejudicial to creditors; (2) the original and amended plans were submitted in bad faith and were not confirmable; and (3) the debtors failed to disclose that, less than three months before filing their Chapter 13 petition, they had conveyed to a third-party their property at Alberta Lane for no monetary consideration. The bankruptcy court sustained the objection to confirmation of the plan that had been filed by the IRS. The court's order observed that the debtors had not objected to the IRS's secured claim, and its omission from the plan precluded confirmation. As of that date, no amended plan had been filed in nearly a year. The court ordered the debtors to show cause why the case should not be converted to a Chapter 7 proceeding for failure to submit a confirmable plan within 90 days of the court's order.
A hearing on the order to show cause and the bank's motion to convert was held and the court concluded that the unreasonable delay in filing an amended and plausibly-confirmable plan was prejudicial to the bank and other creditors, ruling that the case would be converted to Chapter 7. The judge instructed the debtors that, under § 1307, they had the option of dismissing the case in lieu of conversion to Chapter 7, and gave them ten days within which to do so. After more than ten days had elapsed and the debtors had not filed a motion to dismiss, the court entered an order converting the case to Chapter 7.
OUTCOME: Orders of the Bankruptcy Court will be affirmed.
Discussion: Debtor-appellants Diane and Barry Reynolds filed a voluntary Chapter 13 bankruptcy petition and plan, and after several objections from the trustee, filed an amended plan. The IRS objected to confirmation of the amended plan, citing its failure to provide for its secured and unsecured claims for unpaid federal taxes in excess of $30,000. Also, the debtors initially agreed as to the authenticity of their mortgage and note, then later disputed them.
The bank moved to convert the case to Chapter 7, arguing as a party in interest under 11 U.S.C. § 1307(c), that (1) the debtors' failure to filed a revised plan was unreasonable and prejudicial to creditors; (2) the original and amended plans were submitted in bad faith and were not confirmable; and (3) the debtors failed to disclose that, less than three months before filing their Chapter 13 petition, they had conveyed to a third-party their property at Alberta Lane for no monetary consideration. The bankruptcy court sustained the objection to confirmation of the plan that had been filed by the IRS. The court's order observed that the debtors had not objected to the IRS's secured claim, and its omission from the plan precluded confirmation. As of that date, no amended plan had been filed in nearly a year. The court ordered the debtors to show cause why the case should not be converted to a Chapter 7 proceeding for failure to submit a confirmable plan within 90 days of the court's order.
A hearing on the order to show cause and the bank's motion to convert was held and the court concluded that the unreasonable delay in filing an amended and plausibly-confirmable plan was prejudicial to the bank and other creditors, ruling that the case would be converted to Chapter 7. The judge instructed the debtors that, under § 1307, they had the option of dismissing the case in lieu of conversion to Chapter 7, and gave them ten days within which to do so. After more than ten days had elapsed and the debtors had not filed a motion to dismiss, the court entered an order converting the case to Chapter 7.
In Chapter 7, the Trustee invoked 11 U.S.C. § 548 and Mass. Gen. Laws ch. 109A, § 6(a), filing an adversary proceeding that alleged that the transfer and the failure to refer to the transfer on the debtors' plan were fraudulent actions, made with the intent to defraud creditors. The trustee sought avoidance of the transfer under § 548 and § 544, as well as damages from DuBois individually for his alleged role in conspiring with the debtors. In August, the trustee filed a second adversary proceeding, this time against the debtors only. It contained substantially the same allegations as the first adversary proceeding.
The trustee and the debtors, now represented by counsel, engaged in settlement negotiations through the end of 2009 and early 2010. In February 2010, the trustee notified the bankruptcy court that the parties had reached a settlement. The settlement stipulation, which was to become binding as a final order upon approval by the court, resolved the adversary proceedings and purported to resolve the dispute over the bank's secured claim. The trustee also reached a settlement with the bank to govern distribution of the proceeds from the sale of the property. It structured the payments owed to the bank and allocated $35,000 as payment to the trustee and an accountant involved in the case. That settlement was not objected to and also was approved by the court.
On March 31, 2010, the bankruptcy court granted the debtors a discharge from the case. The same day, the debtors filed an emergency motion in the District Court seeking to enjoin the sale of the Alberta Lane property. The District Court granted an emergency hearing and denied the motion for want of jurisdiction.
In mid-April, the debtors filed a motion to vacate the settlement agreement, arguing that the trustee and their attorney coerced them into signing the agreement, and that they did so under duress. The court denied the debtors' motion to vacate. Its memorandum of decision explained that there was no evidence that the trustee ever threatened the debtors during the negotiations, or that they did not fully understand the terms of the agreement. It described the debtors' feeling that they were signing the agreement under duress, but nevertheless decided to sign it and did not object to court approval. Applying Massachusetts law to determine whether a settlement agreement has been procured by economic duress, the court concluded that the debtors had failed to meet the high bar necessary to show duress and render an agreement invalid.
As to the fourth appeal, neither the debtors nor the appellees have filed briefs in the matter. The failure to file briefs is a violation of Fed. R. Bankr. P. 8009, which instructs the appellant to "serve and file a brief within 14 days after entry of the appeal on the docket." Fed. R. Bankr. P. 8009(a)(1). Although the First Circuit has not directly considered whether a district court may dismiss an appeal for failure to comply with Rule 8009, other courts in this district have held that the decision lies within the court's discretion. See Hermosilla v. Hermosilla, 447 B.R. 661, 667 (D. Mass. 2011) (collecting cases). This Court agrees. As these related appeals are plainly without merit, and the debtors have failed to file briefs or otherwise prosecute the appeal, the appeal will be dismissed with prejudice. The debtors have flooded the bankruptcy court with frivolous adversary proceedings and attempts to relitigate matters that have been repeatedly adjudicated and reconsidered. Likewise, these appeals were, at best, without merit.
District Court denies Trustee’s permissive intervention and finds the Chapter 7 Trustee presented no grounds to withdraw the case from the District Court to the Bankruptcy Court:
Old Republic National Title Insurance Co. v. Boender, et al., 2011 DNH 120; 2011 U.S. Dist. LEXIS 83904 (D.N.H. 7/28/11)(unpub.)(Joseph A. Diclerico, Jr., District Judge).
OVERVIEW: Old Republic sued John A. Boender and others, seeking a declaratory judgment that Old Republic has no liability to the defendants for alleged damages or loss in connection with five title insurance claims. Financial Resources Mortgage, Inc. (“FRM”), and C L and M, Inc. (“CLM”), which brokered and serviced the mortgages, respectively, were placed in involuntary Chapter 7. The Trustee for FRM and CLM moves to intervene in order to stay this case. In the alternative, the Trustee seeks to withdraw this case to the bankruptcy court. Old Republic opposed the motion.
The district court must accept as true all non-conclusory allegations made in support of an intervention motion. Therefore, the court derives the relevant facts for the purpose of deciding this motion from the allegations and evidence submitted by the Trustee in support of his motion and from uncontroverted facts established elsewhere in the record. The Trustee moves to intervene pursuant to Federal Rule of Procedure 24, or, alternatively, to withdraw the present case to bankruptcy court. In his supplemental brief, the Trustee asserts that he seeks to intervene permissively under Rule 24(b) and not as a matter of right under Rule 24(a).
In its response, Old Republic argues that the Trustee does not have standing to intervene because the Settlement Agreement divested the Trustee of any direct interest in the five title insurance claims at issue in this case. Old Republic also contends that the Trustee does not meet Rule 24(b)'s standard for permissive intervention. Mangual v. Rotger-Sabat, 317 F.3d 45, 61 (1st Cir. 2003)(observing that a circuit split exists as to whether standing is required to intervene where the original parties are still pursuing the case, and declining to decide the question). The court did not delve into this thorny question, however, because the Trustee did not meet Rule 24(b)'s standard for permissive intervention. Therefore, regardless of the standing issue, the Trustee cannot intervene in this case.
The court may grant permissive intervention under Rule 24(b)(1), "when an applicant's claim or defense and the main action have a question of law or fact in common." Once the court has determined that the would-be intervenor has satisfied this threshold requirement, it "can consider almost any factor rationally relevant but enjoys very broad discretion in granting or denying the motion." "[A] court need only accept as true 'the non-conclusory allegations made in support of an intervention motion.'" Because the Trustee has failed to show that the bankruptcy estates' interests share a common question of law or fact with the present action, the court denies his request for permissive intervention.
In the alternative, the Trustee seeks to "withdraw" the present case "pursuant to 28 U.S.C. § 158(d)." Section 158 provides for appeals in bankruptcy court cases. The Trustee likely intended to refer to 28 U.S.C. § 157(d), which authorizes the district court to "withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." However, withdrawal refers to bringing an action back to the District court, not sending it there.
The district court must accept as true all non-conclusory allegations made in support of an intervention motion. Therefore, the court derives the relevant facts for the purpose of deciding this motion from the allegations and evidence submitted by the Trustee in support of his motion and from uncontroverted facts established elsewhere in the record. The Trustee moves to intervene pursuant to Federal Rule of Procedure 24, or, alternatively, to withdraw the present case to bankruptcy court. In his supplemental brief, the Trustee asserts that he seeks to intervene permissively under Rule 24(b) and not as a matter of right under Rule 24(a).
In its response, Old Republic argues that the Trustee does not have standing to intervene because the Settlement Agreement divested the Trustee of any direct interest in the five title insurance claims at issue in this case. Old Republic also contends that the Trustee does not meet Rule 24(b)'s standard for permissive intervention. Mangual v. Rotger-Sabat, 317 F.3d 45, 61 (1st Cir. 2003)(observing that a circuit split exists as to whether standing is required to intervene where the original parties are still pursuing the case, and declining to decide the question). The court did not delve into this thorny question, however, because the Trustee did not meet Rule 24(b)'s standard for permissive intervention. Therefore, regardless of the standing issue, the Trustee cannot intervene in this case.
The court may grant permissive intervention under Rule 24(b)(1), "when an applicant's claim or defense and the main action have a question of law or fact in common." Once the court has determined that the would-be intervenor has satisfied this threshold requirement, it "can consider almost any factor rationally relevant but enjoys very broad discretion in granting or denying the motion." "[A] court need only accept as true 'the non-conclusory allegations made in support of an intervention motion.'" Because the Trustee has failed to show that the bankruptcy estates' interests share a common question of law or fact with the present action, the court denies his request for permissive intervention.
In the alternative, the Trustee seeks to "withdraw" the present case "pursuant to 28 U.S.C. § 158(d)." Section 158 provides for appeals in bankruptcy court cases. The Trustee likely intended to refer to 28 U.S.C. § 157(d), which authorizes the district court to "withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." However, withdrawal refers to bringing an action back to the District court, not sending it there.
Confirmed Chapter 13 plan that provided for treatment of mortgagee as a secured creditor to be paid in full cannot then be changed post-confirmation, due to judicial estoppel, where the post-confirmation change was to attack the secured status of the claim:
(In re MBAZIRA) MBAZIRA v. LITTON LOAN SERVICING, LLP, 2011 U.S. Dist. LEXIS 85271 (D. Mass. 7/27/11)(F. Dennis Saylor IV, District Judge).
OVERVIEW: This is an appeal from an order of dismissal of the United States Bankruptcy Court. After confirmation of her Chapter 13 plan, debtor Safina N. Mbazira sought to challenge the validity of the mortgage on her home by instituting an adversary proceeding. The bankruptcy judge dismissed the proceeding on the basis of judicial estoppel.
OUTCOME: For the reasons set forth below, the order of the Bankruptcy Court will be affirmed.
Discussion: Mbazira filed a voluntary Chapter 13 bankruptcy petition on July 17, 2007. Her first plan scheduled Litton as a secured creditor holding claims in the amount of $656,131. Litton filed proofs of claim for the mortgage liens. Mbazira submitted three additional modified plans to the Bankruptcy Court. Each plan represented that the mortgages serviced by Litton were secured debt, entitled to payment in full. The Bankruptcy Court confirmed the plan. Litton's claims as mortgagee were allowed as secured claims. Mbazira quickly fell behind on her mortgage payments under the confirmed plan, and the Trustee filed a motion to dismiss the case under 11 U.S.C. § 1307(c)(4) for failure to make timely payments.
To resuscitate the plan, Mbazira and the Trustee entered into an "agreed order," which provided that the case would be dismissed unless the debtor filed an amended Chapter 13 plan by March 26. The proposed plan, for the first time, attempted to reclassify the first mortgage as an unsecured claim. Citing a May 2009 decision of the Bankruptcy Court for the District of Massachusetts [Agin v. MERS (In re Geroux) 2009 WL 1458173, at *1 (Bankr. D. Mass 5/21/09), aff’d 2009 WL 3834002, at *1 (D. Mass. 11/17/09)], in an unrelated case, Mbazira contended that the first mortgage—valued at $581,811.46—was recorded with a defective certificate of acknowledgment and therefore constituted an unsecured lien on the property. Litton objected to the reclassification of its claim under the new plan. It also contended that because Mbazira sought to contest the validity of a lien on real property, the challenge must be brought as an adversary proceeding. See Fed. R. Bankr. P. 7001(2).
Bankruptcy Court dismissed the debtor’s claims against the mortgagee under the application of judicial estoppel. The First Circuit has not determined the standard of review for a Bankruptcy Court's application of judicial estoppel. Other circuits, however, review a decision about whether to invoke the doctrine for abuse of discretion. Judicial estoppel is an equitable doctrine that serves to protect the integrity of the judicial process. It operates by preventing a party who successfully adopts one position in a legal proceeding from urging the contrary position in a subsequent proceeding after its interests or circumstances have changed.
OUTCOME: For the reasons set forth below, the order of the Bankruptcy Court will be affirmed.
Discussion: Mbazira filed a voluntary Chapter 13 bankruptcy petition on July 17, 2007. Her first plan scheduled Litton as a secured creditor holding claims in the amount of $656,131. Litton filed proofs of claim for the mortgage liens. Mbazira submitted three additional modified plans to the Bankruptcy Court. Each plan represented that the mortgages serviced by Litton were secured debt, entitled to payment in full. The Bankruptcy Court confirmed the plan. Litton's claims as mortgagee were allowed as secured claims. Mbazira quickly fell behind on her mortgage payments under the confirmed plan, and the Trustee filed a motion to dismiss the case under 11 U.S.C. § 1307(c)(4) for failure to make timely payments.
To resuscitate the plan, Mbazira and the Trustee entered into an "agreed order," which provided that the case would be dismissed unless the debtor filed an amended Chapter 13 plan by March 26. The proposed plan, for the first time, attempted to reclassify the first mortgage as an unsecured claim. Citing a May 2009 decision of the Bankruptcy Court for the District of Massachusetts [Agin v. MERS (In re Geroux) 2009 WL 1458173, at *1 (Bankr. D. Mass 5/21/09), aff’d 2009 WL 3834002, at *1 (D. Mass. 11/17/09)], in an unrelated case, Mbazira contended that the first mortgage—valued at $581,811.46—was recorded with a defective certificate of acknowledgment and therefore constituted an unsecured lien on the property. Litton objected to the reclassification of its claim under the new plan. It also contended that because Mbazira sought to contest the validity of a lien on real property, the challenge must be brought as an adversary proceeding. See Fed. R. Bankr. P. 7001(2).
Bankruptcy Court dismissed the debtor’s claims against the mortgagee under the application of judicial estoppel. The First Circuit has not determined the standard of review for a Bankruptcy Court's application of judicial estoppel. Other circuits, however, review a decision about whether to invoke the doctrine for abuse of discretion. Judicial estoppel is an equitable doctrine that serves to protect the integrity of the judicial process. It operates by preventing a party who successfully adopts one position in a legal proceeding from urging the contrary position in a subsequent proceeding after its interests or circumstances have changed.
While the contours of judicial estoppel are imprecise, three conditions typically inform a court's application of the doctrine. First, a party's earlier and later positions must be inconsistent. Second, the party must have prevailed in convincing the court to adopt its earlier position. Third, the party urging the contrary position must stand to derive an unfair advantage from its about-face or impose and unfair detriment on the opposing party if the court accepts the new position. Other courts that have considered post-confirmation attacks on the validity of secured claims have likewise rejected these efforts.
In a Chapter 13 case, "[t]he provisions of a confirmed plan bind the debtor and each creditor, . . whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). This Bankruptcy Code provision safeguards the finality that Congress intended to achieve in confirmed plans. Accordingly, if a debtor has notice of a creditor's proof of claim and has the opportunity to contest it prior to confirmation, the claim is not thereafter subject to collateral attack. Although the matter is typically viewed as a question of res judicata rather than judicial estoppel, several courts of appeals have held debtors estopped from challenging the status of secured claims after confirmation.
Stay relief appropriate where the bankruptcy filings were intended to hinder, delay or defraud the affected secured creditor; also, the property had no equity and was not needed for an effective reorganization:
(In re MONIZ; CAMARA), Debtor, 2011 Bankr. LEXIS 2913 (Bankr. D. Mass. 7/27/11)(Frank J. Bailey, Bankruptcy Judge)
OVERVIEW: Bank moved for stay relief, which was granted.Discussion: Debtors were two sisters under separate chapter 13 cases and their parents had their own Chapter 11 reorganization case. In each instance, the property at issue was first acquired by one or both of the parents in their own names, without either daughter, as investment property. At all times at least through the commencement of the present cases, the parents and daughters have treated the properties as belonging to the parents alone. The parents alone managed the properties, paid the mortgages and associated expenses (to the extent these were paid at all), collected the rents, reported the rents as their income on their tax returns, and sought to reorganize the debt on the properties in their own bankruptcy case. The parents gave the daughters interests in the properties only when it became necessary to refinance existing mortgages on the properties and the parents could not themselves qualify for the financing.
In 2008, the SACU loans went into default. SACU notified the daughters of these defaults and initiated foreclosure proceedings and suits against the daughters and their parents. On June 10, 2009, the parents filed a joint petition for relief under Chapter 11 of the Bankruptcy Code. The daughters, though they clearly knew of the defaults and their parents' bankruptcy case, did not then also file bankruptcy petitions of their own.
The parents' case remained in Chapter 11 for some 19 months, during which time SACU was stayed quite unwillingly from exercising its rights as to the properties. Their reorganization attempts failed for, among other reasons, insufficient cash flow from these and other properties to support a plan. In January 2011, after the parents' failed to obtain confirmation of the fifth iteration of their plan and the Court had concluded that no reorganization was in prospect and that the parents had been afforded more than a fair opportunity to reorganize, the Court dismissed the chapter 11 case as to Abel Moniz, converted it to one under chapter 7 as to Fatima Moniz, and, on January 25, 2011, without objection, granted SACU relief from the automatic stay to exercise its rights as to the properties.
The next day, January 26, 2011, the daughters filed petitions commencing their present cases. Both daughters' cases were initially filed in error under chapter 7, and both have since been converted to cases under chapter 13. Although it is clear from each plan filed to date that the debtors propose to retain the properties, their treatment of SACU's secured claim is otherwise unintelligible: they propose, at once, (1) payment of arrears through the trustee and maintenance of payments on the mortgages and (2) cramdown of the mortgages to the liquidation value of the properties and payment thereof over 20 years (these two treatments are, by nature and by law, mutually exclusive) and (3) treatment of the amount of the value of SACU's interest in the collateral as an unsecured claim (this treatment makes no sense at all). These have been patently unconfirmable because, among other things, (1) it is impossible to understand what they propose, and (2) to the extent that they propose a "cram down," a modification of the secured claim to the present value of SACU's interest in the collateral, they improperly rely on liquidation value, and (3) the proposed 20-year period for payment of the modified secured claim is 15 years longer than is permitted in chapter 13.
The success of their respective plans rests entirely on the cash flow from the properties; neither daughter appears willing (if she is able) to devote to the plan any income other than rents from the properties. In short, the daughters propose plans that are no better than were tested and found wanting in their parents' case. These plans have to date produced nothing but delay. Nor, at the evidentiary hearing, did the debtors give cause to believe that they are likely to produce better plans than they have produced to date.
Each daughter maintains that she filed her case on the basis of a good faith need for relief, offering this explanation: that if the properties are lost to foreclosure, each debtor faces a sizable deficiency, and, in view of the means test, neither is eligible to be a debtor in chapter 7. Therefore, each concludes, she has need for relief under a chapter 13 plan that enables her to retain her real property. The Court found as follows as to their intent: Each daughter does indeed face a sizable deficiency, and probably neither is eligible for relief under chapter 7, but, as SACU persuasively argues, each would be better off (i) letting her property go to foreclosure and managing only the unsecured deficiency in a chapter 13 plan than (ii) attempting to satisfy the mortgage claims as secured debts.
The daughters' purpose in electing the strategy they have chosen is to protect the properties and their cash flow for the sake of their parents. They have followed this strategy at the behest of their mother, who orchestrated their bankruptcy filings, the timing of those filings, and the nonparticipation of the daughters in her and her husband's chapter 11 effort. I find that the daughters filed their bankruptcy petitions as part of a scheme to delay, hinder, or defraud a creditor, SACU, that involves multiple bankruptcy filings affecting their respective properties. Section 362(d)(4)(B) of the Bankruptcy Code, a court "shall grant" relief from the automatic stay, insofar as the stay enjoins acts against real property by a creditor whose claim is secured by that property, "if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved ... multiple bankruptcy filings affecting such property."
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