Deirdre Ventura, 615 B.R. 1

Background

Debtor Deirdre Ventura owns the Harbor Rose property, operated as a bed-and-breakfast (Harbor Rose) where she also resides; a mortgage (now serviced by Gregory Funding) secured roughly $1.68 million of debt.
Debtor filed chapter 11 on October 24, 2018 and did not elect small-business/subchapter V treatment at filing; Gregory later proposed a plan to sell the property.
SBRA (subchapter V) became effective February 19, 2020; Debtor amended her petition on March 6, 2020 to designate herself a small-business debtor and elect subchapter V; a subchapter V trustee was appointed.
Gregory and the U.S. Trustee objected, raising: (a) timing and prejudice from retroactive application, (b) that Ventu ra’s debt is consumer (residential) not business so she is ineligible under §101(51D), (c) judicial estoppel based on prior pleadings, and (d) that §1190(3) cannot be used to modify a purchase-money mortgage on a residence.
The Court held a hearing and addressed (1) whether SBRA/subchapter V may be applied to this pending case and the timing issues, (2) whether Ventura qualifies as a “small business debtor” under §101(51D)(A), (3) whether judicial estoppel bars her recharacterization, and (4) whether §1190(3) can permit modification of the residence mortgage.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1) May debtor amend petition and invoke SBRA/subchapter V in a case pending >15 months with confirmation activity underway?	Debtor: Rule 1009 and court discretion permit amendment; SBRA should apply to pending cases; court can reset procedural deadlines.	Gregory/UST: Retroactive application prejudices creditor and interferes with vested/proceeding rights; procedural deadlines expired.	Court: Overruled timing objections; SBRA may apply to this pending case; court will reset timelines and permit subchapter V treatment.
2) Does Debtor qualify as a “small business debtor” under §101(51D)(A) when most debt is a mortgage on a property used as both residence and B&B?	Debtor: Property was purchased and used with intent to run a B&B; operations and permits show business use; aggregate debt is below statutory cap and >50% arose from business.	Gregory: Mortgage is purchase‑money residential debt (consumer); Harbor Rose formed later; prior schedules characterized debts as consumer.	Court: Finds Debtor fits §101(51D)(A); substance of transaction and ongoing business use make the mortgage debt business‑related; judicial estoppel does not bar the recharacterization.
3) Can Debtor modify the mortgage on her principal residence under §1190(3)?	Debtor: §1190(3) expressly permits modification if mortgage proceeds were not used primarily to acquire the residence and were used primarily for the business.	Gregory: Proceeds were used to acquire the residence; §1190(3) shouldn’t apply; constitutional (takings) concerns if applied retroactively.	Court: §1190(3) can apply; it asks whether proceeds were primarily for acquisition vs business. Court adopts multi‑factor test (e.g., primary use of proceeds, integrality of property to business, necessity, customer access, local reliance) and will hold evidentiary hearing to determine applicability.

Key Cases Cited

Landgraf v. USI Film Products, 511 U.S. 244 (1994) (presumption against statutory retroactivity; protect settled expectations)
United States v. Sec. Indus. Bank, 459 U.S. 70 (1982) (limits on retroactive application of new bankruptcy lien/avoidance provisions; distinction between contractual and property rights)
Butner v. United States, 440 U.S. 48 (1979) (property rights in bankruptcy are defined by state law)
New Hampshire v. Maine, 532 U.S. 742 (2001) (framework for judicial estoppel analysis)
Malat v. Riddell, 383 U.S. 569 (1966) (meaning of “primarily” in statutory context)
In re Macaluso, 254 B.R. 799 (Bankr. W.D.N.Y. 2000) (holding on non‑modification of residential mortgage under §1123(b)(5) when debtor occupies property)
In re Addams, 564 B.R. 458 (Bankr. E.D.N.Y. 2017) (treatment of residence liens in chapter 11 plans)
In re Wages, 508 B.R. 161 (B.A.P. 9th Cir. 2014) (residential occupancy and §1123(b)(5) implications)
In re Lemma, 393 B.R. 299 (Bankr. E.D.N.Y. 2008) (residential mortgage characterized as consumer debt)
In re Jones, 556 B.R. 327 (Bankr. E.D. Mich. 2016) (judicial estoppel where debtor changed characterization of debts to avoid dismissal)
In re Osborne, 490 B.R. 75 (Bankr. S.D.N.Y. 2013) (judicial estoppel applied for undisclosed assets and subsequent litigation positions)