Christina Fama-Chiarizia, 655 B.R. 648

Background

Debtor Christina Fama‑Chiarizia (individual) filed a Chapter 11 Subchapter V petition on Sept. 15, 2021 after a New Jersey state court entered judgment (the "Triboro Judgment") for $3,353,219.18 arising from an August 2014 promissory note of Industrial Urban Corp. (IUC) on which she was a co‑maker.
Fama‑Chiarizia owns 25% of IUC but had not been involved in IUC operations since ~2016; the Triboro Judgment is the principal liability she seeks to address in bankruptcy.
Filosas (creditors) objected to her Subchapter V designation, arguing she was not "engaged in commercial or business activities" as required by 11 U.S.C. § 1182(1)(A) and thus ineligible.
Debtor responded that: (1) Subchapter V does not require current operations; (2) the Triboro Judgment is legacy business debt; (3) she was pursuing a multi‑million dollar counterclaim (Frisina Action) tied to IUC assets; and (4) she collected rental income from part of her residence since 2019.
The key legal question was whether, as of the petition date, she was "engaged in commercial or business activities" and whether at least 50% of her debt arose from such activities.
Court held the Filosas’ objection overruled: Fama‑Chiarizia satisfied § 1182(1)(A) — she is a "person," her aggregate debt is under $7.5M, >50% of her debt is business‑related, and her post‑operational activities (litigation to marshal assets and rental activity) satisfied the "engaged in commercial or business activities" requirement.

Issues

Issue	Filosas' Argument	Fama‑Chiarizia's Argument	Held
Whether § 1182(1)(A) requires the debtor to be "engaged in commercial or business activities" on the petition date (i.e., current activity).	"Engaged in" is present‑tense; requires active, current participation in buying/selling or operating a business.	The statute does not require active operation; legacy business debt and related actions can qualify.	Court: "engaged in" has a temporal focus (present) but may include non‑operational commercial activities (winding down, litigation, asset marshaling).
Whether pursuing litigation and collecting legacy business assets qualifies as "commercial or business activities."	Litigation over distributions and residual claims is not equivalent to operating a business; wind‑up litigation alone should not qualify.	Pursuing counterclaims and marshaling assets is business activity that addresses legacy business debt and can fund creditor distributions.	Court: Litigation to recover business assets and marshaling residual business claims can satisfy the requirement under a totality‑of‑the‑circumstances test.
Whether isolated rental of part of debtor's residence constitutes "commercial or business activities."	Rental of a small studio does not meaningfully establish commercial activity and could be easily manufactured.	Rental income since 2019 is a recurring business activity and, in combination with other factors, supports eligibility.	Court: Rental activity may qualify; here it supported the finding when viewed with other commercial activities and not shown to be manufactured.
Whether other § 1182 elements are met (person; debt under $7.5M; ≥50% business‑related).	N/A — primary attack focused on "engaged in" requirement.	Debtor’s schedules show aggregate debt below $7.5M and that the Triboro Judgment makes >50% business‑related debt.	Court: Debtor is a "person," aggregate debt is under $7.5M, and >50% of debt arose from business activities — element satisfied.

Key Cases Cited

In re Bonert, 619 B.R. 248 (Bankr. C.D. Cal. 2020) (permitting Subchapter V designation where liabilities stem from prior business operations).
In re Ikalowych, 629 B.R. 261 (Bankr. D. Colo. 2021) ("engaged in" viewed as describing present state; legacy activity can qualify).
In re Offer Space, 629 B.R. 302 (Bankr. [reported decision]) (totality‑of‑the‑circumstances test; winding‑down activities may satisfy § 1182).
In re Port Arthur Steam Energy, 629 B.R. 233 (Bankr. S.D. Tex. 2021) (litigation, collections, and reporting can constitute commercial activities).
In re Blue, 630 B.R. 179 (Bankr. M.D.N.C. 2021) (rental of real property and non‑operational business debts can support Subchapter V eligibility).
In re RS Air, 638 B.R. 403 (B.A.P. 9th Cir. 2022) ("engaged in" is contemporary; totality test includes winding‑down and litigation activities).
In re Homaidan, 596 B.R. 86 (Bankr. E.D.N.Y. 2019) (statutory construction principles cited for contextual reading).
Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (U.S. 2011) (canon: interpret statutory language in context).
Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (U.S. 2017) (use of past participles as adjectives to describe present state cited in analysis).