570 B.R. 272
Bankr. S.D. Tex.2017Background
- Ira and Crystal Gamble filed a joint Chapter 13 petition on December 22, 2016, proposing to pay about $182,420 over 60 months.
- They had four prior bankruptcy filings (three within the last 8 years); none were pending.
- The Chapter 13 Trustee moved to dismiss or convert, alleging missed plan payments under 11 U.S.C. § 1326(a)(1), failure to appear at the § 341 meeting, lack of eligibility under § 109(e) (excess unsecured debt), and failure to provide a 2015 tax return and an employer wage order.
- The Gambles responded: they had made substantial January 2017 payment and intended further payments, Mr. Gamble appeared at the § 341 meeting (Mrs. Gamble missed for work), they provided the 2015 tax return, will submit payroll order, and argued § 502(b)(6) should cap a large lessor claim to make them § 109(e)-eligible.
- The disputed large unsecured claim arises from a lessor, Jung H. Kwak, who obtained a judgment for unpaid rent under a lease the Gambles abandoned; Kwak’s claim was listed at $306,135.
- The court focused on whether § 502(b)(6) can be applied prepetition to reduce a creditor’s scheduled claim for purposes of determining § 109(e) Chapter 13 eligibility.
Issues
| Issue | Gambles' Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether § 502(b)(6) cap can be applied prepetition to reduce scheduled unsecured debt for § 109(e) eligibility | § 502(b)(6) should limit Kwak’s unsecured claim (to one year’s rent), reducing total unsecured debt below § 109(e) cap | Eligibility must be measured by actual, scheduled noncontingent, liquidated debt on petition date; § 502(b)(6) is a postpetition allowance limitation and cannot be applied prepetition | Court held § 502(b)(6) cannot be used to reduce petition-date debt for § 109(e); eligibility determined from schedules on filing date |
| Whether the Gambles’ schedules were prepared in bad faith (which could affect reliance on schedules) | Schedules were accurate; no bad faith alleged facts | Trustee suggested defects (missed payments, nonappearance) but did not press eligibility objection at hearing | Court found no evidence of bad faith and thus relied on schedules for debt calculation |
| Whether consideration of other code provisions (e.g., § 506) supports adjusting debt figures for § 109(e) | Other case law allows characterization/valuation under other sections to determine secured vs unsecured status | Court distinguishes those cases as addressing characterization/valuation of scheduled debts, not prepetition elimination/reduction of scheduled claims | Court declined to apply § 502(b)(6) by analogy; limited use of other statutes to characterization only |
| Procedural defects (missed § 341 appearance, missed plan payments, missing wage order/tax return) | Gambles asserted partial payment made, would cure deficiencies, provided tax return, and would submit wage order | Trustee moved to dismiss on those grounds among others | Court granted Trustee’s motion (on eligibility ground); other deficiencies noted though primary legal holding concerned § 109(e) eligibility |
Key Cases Cited
- In re Hammers, 988 F.2d 32 (5th Cir. 1993) (statutory § 109(e) debt-limit language must be applied as written)
- In re Pearson, 773 F.2d 751 (6th Cir. 1985) (Chapter 13 eligibility normally determined from debtor’s schedules as of petition date absent bad faith)
- In re Scovis, 249 F.3d 975 (9th Cir. 2001) (use of other Bankruptcy Code provisions to classify scheduled debts, not to reduce scheduled claim totals)
- U.S. Trustee v. Mohr, 436 B.R. 504 (S.D. Ohio 2010) (postpetition condition precedents like § 502(b)(6) caps cannot be applied to re-characterize petition-date indebtedness for eligibility purposes)