539 B.R. 807
Bankr. E.D. Tenn.2015Background
- Debtor filed a Chapter 11 petition on May 30, 2014; schedules listed $1,281,000 in secured debt and $438,943 in unsecured portions of secured claims; Schedules E and F showed minimal additional claims.
- Peoples Bank held a $700,000 note secured by real property at 105 N. Ocoee St.; Schedule D showed $250,000 unsecured portion of that claim.
- On August 29, 2014, the court entered an agreed order granting Peoples Bank relief from the stay and providing the bank would not seek a deficiency after foreclosure; the bank later foreclosed on the Ocoee Street property.
- Debtor withdrew a proposed Chapter 11 plan and moved to convert the case to Chapter 13 on August 18, 2015; Peoples Bank opposed conversion based on Chapter 13 debt limits in 11 U.S.C. § 109(e).
- The scheduled secured and unsecured amounts (as of the petition date) exceeded § 109(e) limits whether claims were treated as whole secured claims or bifurcated into secured/unsecured components.
- The court considered whether postpetition events (foreclosure and the bank’s agreement not to seek a deficiency) can be used to determine Chapter 13 eligibility measured by debts “on the date of the filing of the petition.”
Issues
| Issue | Debtor's Argument | Peoples Bank's Argument | Held |
|---|---|---|---|
| Whether conversion to Chapter 13 is permissible when scheduled debts (as of petition date) exceed § 109(e) limits | Postpetition foreclosure and bank’s agreement not to seek a deficiency reduced debts before the conversion motion; eligibility should be measured as of motion date | Eligibility is measured as of petition date; schedules (filed in good faith) show debts exceed § 109(e) limits | Denied: eligibility measured at petition date; postpetition events cannot be considered |
| Whether § 1112(f) prohibits conversion when debtor would not qualify under target chapter | Conversion should be allowed because current circumstances satisfy Chapter 13 limits | § 1112(f) bars conversion unless debtor could be a debtor under the target chapter when measured by statute | § 1112(f) applies; debtor ineligible for Chapter 13 because petition-date debts exceed limits |
| Whether courts may look beyond good-faith schedules to determine § 109(e) eligibility | Postpetition changes should alter eligibility | Court should rely on schedules unless schedules were not filed in good faith | Court relies on schedules as reflecting petition-date condition; no reason to look beyond them |
| Whether § 348(a) permits using conversion-date or motion-date to measure eligibility | Conversion should reset relevant date to motion/conversion date | § 348(a) preserves the original petition date for measuring debts owed on petition date | § 348(a) supports using original petition date; conversion does not change petition date |
Key Cases Cited
- Marrama v. Citizens Bank, 549 U.S. 365 (recognizing limitations on conversion when debtor not eligible under target chapter)
- Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751 (6th Cir.) (rely on good-faith schedules to determine Chapter 13 eligibility as of petition date)
- St. Paul Indem. Co. v. Red Cab Co., 303 U.S. 283 (plaintiff’s good-faith assertion controls measurement like amount-in-controversy doctrine)
- Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir.) (unsecured portion of undersecured debt counts toward § 109(e) unsecured limit)