This mаtter is before the Panel on the Debtors’ appeal from an order of the United States Bankruptcy Court for the District of Puerto Rico (1) denying their motion to convert their Chapter 11 case to a Chapter 13 case, and (2) dismissing their bankruptcy case. For the reasons set forth below, the decision is AFFIRMED.
BACKGROUND
On December 23, 2003, Ted Read De Jounghe and Marisa Varela Giacoy (“Debtors”) filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code. 1 Thereafter, the Debtors filed their schedules. In February, 2004, the Debtors filed a notice of conversion to Chapter 11, which the bankruptcy court granted on March 25, 2004. After the conversion, the bankruptcy court issued an order dated July 27, 2004, directing the Debtors to: (1) file lists, schedules and statements as required by Bankruptcy Rule 1007; (2) appear at the § 341 meeting of creditors; (3) file a plan of reorganization and disclosure statement within 180 days from the filing of the Chapter 11 petition (or by September 27, 2004); (4) file monthly operating reports; аnd (5) pay quarterly fees to the U.S. Trustee. The order also stated that “[fjailure to comply may constitute cause under 11 U.S.C. § 1112(b) for the dismissal or conversion to Chapter 7 of the Chapter 11 petition.”
On September 2, 2004, creditor Enilda Jiménez filed a motion to dismiss the case based on the Debtors’ alleged failure to submit monthly operating reports and “procedural conduct” causing “unreasonable delay that is prejudicial to creditors.” The Debtors opposed the motion, claiming that thеy had filed the requisite operating reports.
The Debtors did not file a disclosure statement or plan of reorganization by the September 27, 2004 deadline, nor did they request an extension of the deadline. Instead, on that date, the Debtors filed a motion to convert the case to Chapter 13. On October 5, 2004, in response to Creditor Jiménez’s motion to dismiss and the Debtors’ motion to convert to Chapter 13, the bankruptcy court issued an order directing the Debtors to show cause why the request for conversion to Chapter 13 should not be denied for lack of eligibility under § 109(e), and why the case should not be dismissed for unreasonable delay prejudicial to creditors (“Show Cause Order”). The Debtors were required to file their response within 30 days, or by November 4, 2004.
In the meantime, on October 27, 2004, creditor Raul Hernandez Gonzalez filed a motion opposing conversion to Chapter 13, arguing that the Debtors did not meet the eligibility requirements under § 109(e) and requesting dismissal of the case under § 1112(b) for failure to propose a plan. The Debtors objected. In addition, on November 1, 2004, the Debtors filed a response to the Show Cause Order, arguing that they met the eligibility requirements of § 109(e). Creditor Hernandez filed an opposition to the Debtors’ response to the Show Cause Order.
At the February 15th hearing, after hearing from the parties, the bankruptcy court denied the Debtоrs’ motion to convert to Chapter 13, and dismissed the bankruptcy case. The Debtors filed a timely notice of appeal on February 25, 2005. On that same date, the Debtors filed a motion to convert to Chapter 7, and a motion for a stay pending appeal. From a review of the docket, it does not appear that the bankruptcy court took any action on either motion.
JURISDICTION
The bankruptcy appellate panel has jurisdiction to hear appeals from “finаl judgments, orders, and decrees” pursuant to 28 U.S.C. § 158(a)(1) or, “with leave of the court, from interlocutory orders and decrees” pursuant to 28 U.S.C. § 158(a)(3).
Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.),
STANDARD OF REVIEW
Appellate courts reviewing an appeal from the bankruptcy court generally apply the clearly erroneous standard to findings of fact and
de novo
review to conclusions of law.
See T I Fed. Credit Union v. DelBonis,
Whether a debt is “noncontingent” and “liquidated” for purposes of § 109(e) is an issue involving interpretation of the Bankruptcy Code and therefore a question of law subject to
de novo
review.
See Slack v. Wilshire Ins. Co.,
A bankruptcy court’s decision to dismiss a case under § 1112 is reviewed for an abuse of discretion.
See In re Abijoe Realty Corp.,
DISCUSSION
I. Lack of An Evidentiary Hearing
The Debtors contend that the bankruptcy court did not give them the
Section 1112 permits the bankruptcy court to convert or dismiss a chapter 11 proceeding “after notice and a hearing.” The term “after notice and a hearing” means after such notice and such opportunity for hearing as is appropriate. 11 U.S.C. § 102(1)(A). However, a full evidentiary is not required, so long as the parties had a fair opportunity to offer relevant facts and arguments to the court and to confront their adversaries’ submissions.
Prebor v. Collins (In re I Don’t Trust),
II. Motion to Convert to Chapter 13
Section 1112(d) of the Bankruptcy Code governs conversion of a case from Chapter 11 to Chapter 13. It states in pertinent part:
The court may convert a case under [Chapter 11] to a case under chapter 12 or 13 of this title only if — •
(1) the debtor requests such conversion;
(2) the debtor has not been discharged under section 1141(d) оf this title ...
11 U.S.C. § 1112(d) (emphasis added). Although the language of § 1112(d) permits the bankruptcy court to exercise its discretion in converting a Chapter 11 case to Chapter 13, subsection (f) dictates that such a conversion is permissible only if the Chapter 11 debtor originally would have qualified as a debtor under Chapter 13.
See
11 U.S.C. § 1112(f).
3
The language of § 1112(f) is not expansive but constrictive, further limiting the circumstances for conversion under §§ 1112(a)-(e).
See In re Tornheim,
Section 109(e) sets forth the requirements a debtor must meet to qualify as a Chapter 13 debtor. Under § 109(e), “only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than [$290,525] 4 ... may be a debtor under Chapter 13.” 11 U.S.C. § 109(e). The bankruptcy court concluded that the Debtors did not establish their eligibility to proceed as Chapter 13 debtors as their noncontingent, liquidated, unsecured debts exceeded the statutory limit.
A. Scheduled Debts
The bankruptcy court first observed that in their Schedule F, the Debtors listed general unsecured claims totaling $417,699.30, clearly exceeding the statutory limit. The Debtors admit that the unsecured debts identified in their initial schedules exceed the statutory limit, but claim that their “amended schedules,” answer to the Show Cause Order, and opрosition to Creditor Hernandez’s motion to dismiss show that their noncontingent, liquidated, unsecured debts meet the statutory cap. 5
As a preliminary matter, the Debtors’ reliance on their “amended schedules” is misplaced. Generally, errors and omissions in a debtor’s schedules and statements may be remedied by amendment pursuant to Bankruptcy Rule 1009(a). Bankruptcy Rule 1009(a) provides that debtors may amend their schedules “as a matter of course at any time before the case is closed.” Fed. R. Bаnkr.P. 1009(a). Although the rule is liberal, it does not afford debtors a completely unfettered right to amend deficient schedules and statements.
See, e.g., Kae-lin v. Bassett (In re Kaelin),
Since there were no amended schedules and the original schedules admittedly were inaccurate, the bankruptcy court determined that it was entitled to look bеyond the schedules to determine the amount of unsecured debt. The bankruptcy court
The Debtors have raised several arguments as to why the bankruptcy court should not have included the debts owed to the Creditors in its § 109(e) calculation. First, the Debtors argue that because the Creditors were listed as creditors with an “unknown” amount, the bankruptcy court should not have considered the amounts listed on their proofs of claim in determining eligibility under § 109(e). The Debtors also contend that the claims are not “liquidated” within the meaning of § 109(e) because they are disputed. These arguments are discussed below.
B. Debts of “unknown” amount
Generally, eligibility for Chapter 13 is based upon debts as of the petition date and not upon post-petition events such as allowed claims, filed claims, or treatment of claims in a confirmed Chapter 13 plan.
See Slack,
In addition, a debtor’s designation of a debt as “unknown” or “unliquidated” does not settle the question. “The bankruptcy court can scrutinize and redesignate the characterization by a debtor of any given debt when that characterization is the subject of a case or controversy....”
In re Stern,
The Debtors in this case admit that their original schedules were filed incorrectly. Without accurate schedules or properly amended schedules, the bankruptcy court was justified in looking beyond the sсhedules to the Creditors’ proofs of claims to determine the amount of debt owed to those Creditors.
C. “Noncontingent” and “liquidated” debts
As noted above, § 109(e) provides a statutory limit for “noncontingent, liquidated, unsecured debts.” The Debtors argue that the bankruptcy court erroneously included unliquidated amounts (namely, the Creditors’ claims) in its § 109(e) Chapter 13 eligibility calculation.
1. Is the debt contingent?
The case law uniformly holds that if all events giving rise to liability occurred prior to the filing of the bankruptcy petition, the debt is not contingent.
See, e.g., In re Huelbig,
2. Is the debt “liquidated”?
Although having a liquidated debt below the threshold amount is a precondition of Chapter 13, “liquidation” is not defined in the Bankruptcy Code. The terms “liquidated” and “unliquidated” generally refer to a claim’s value (and the size of the corresponding debt) and the ease with which that value can be ascertained.
See Mazzeo v. United States (In re Mazzeo),
The Debtors urge us to consider the issue of the Debtors’ liability to determine whether the claims are liquidated. They claim that because there is a “bona fide dispute” regarding their liability on the underlying debt, the Creditors’ claims are “unliquidated”. A few courts have held that the existence of a dispute, without more, is sufficient to render a claim unliquidated.
See, e.g., In re Lambert,
43
The [Bankruptcy] Code uses both “un-liquidated” and “disputed” in its definition of “claim”; to rule that a claim (and hence the debt with which it is coextensive) is unliquidated whenever it is disputed would be to render the term “un-liquidated” mere surplusage. Such an interpretation would also allow a debtor, simply by characterizing certain claims as disputed, to ensure his eligibility to proceed under Chapter 13 in circumstances that Congress plainly intended to exclude from that chapter. We conclude that effect must be given to both terms, and we agree with the Eleventh Circuit and that “the concept of a liquidated debt relates to the amount of liability, not the existence of liability.”
Mazzeo,
Although the Debtors dispute their liability regarding the Creditors’ claims, that fact alone does not render the Creditors’ claims unliquidated. If the amounts owed on the Creditors’ claims are readily calculable, the claims are liquidated regardless of whether the Debtors dispute liability.
See In re Scovis,
III. Dismissal under § 1112
Section 1112(b) empowеrs the bankruptcy court to convert or dismiss a Chapter 11 case “for cause, including — (1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation; (2) inability to effectuate a plan; and (3) unreasonable delay by the debtor that is prejudicial to creditors.” 11 U.S.C. § 1112(b)(l)-(3). Upon the requisite showing of cause, it is up to the court to choose between dismissal or conversion, “whichever is in the best interest of creditors and the estate.” 11 U.S.C. § 1112(b). The standard for choosing between conversion or dismissal based on “the best interest of creditors and the estate” implies application of a balancing test by the bankruptcy court.
See In re Staff Inv. Co.,
The bankruptcy court concluded that there had been a “unreasonable
From the record before the Panel, we cannot find that the bankruptcy court abused its discretion in dismissing this case for cause. First, this case had been pending for 14 months, and had been in Chapter 11 for almost a year. Since conversion to Chapter 11 in March, 2004, the Debtors had yet to submit a disclosure statement and plan for approval despite a bankruptcy court order establishing a specific deadline for filing the same. This case does not appear to be overly complex requiring an extraordinary amount of time to develop and propose a plan. The lengthy amount of time evidences no prospect for rehabilitation and the Debtors’ inability to effectuate a plan. Dismissal was warranted on this ground alone.
See In re Powell Bros.,
The bankruptcy court was also troubled by the fact that the success of the Debtors’ reorganization hinged on their prevailing in an adversary proceeding which had just beеn filed a few weeks prior to the trial, and which was “highly speculative.” On February 9, 2005, the Debtors filed an adversary complaint against Creditor Hernandez seeking to set aside as a preferential transfer his pre-petition attachment of stock that the Debtors hold in Lupi’s Enterprises. The Debtors claim that if they recover possession of the Lupi’s stock, they will sell the stock and use the proceeds to pay creditors. At trial, however, questions arose as to whether the attachment even took place during the 90-day period preceding the bankruptcy filing, a prerequisite for recovery of a preferential transfer. Based on the evidence present
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s order denying the Debtors’ motion to convert their Chapter 11 case to a Chapter 13 case, and dismissing the bankruptcy case.
Notes
. All references to the "Bankruptcy Code" and all references to specific statutory sections are to the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. § 101, et seq.
. Lupi's Enterprises, Inc. operates a Mexican food restaurant in Isla Verde, Puerto Rico.
. Section 1112(f) provides:
Notwithstanding any other provision of this section, a case may not be сonverted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.
11 U.S.C. § 1112(f).
. The applicable threshold amount at the time that the Debtors filed their bankruptcy petition was $290,525. The Judicial Conference of the United States adjusted the dollar amounts in section 109(e) effective April 1, 2004 to $307,675. See Notice dated February 18, 2004, 69 F.R. 8482.
. In determining their eligibility, the Debtors began with their total amount of scheduled unsecured debts and then deducted from that amount those debts that were either scheduled as "disputed” or which they claim were incorrectly identified as unsecured debts in their original schedules.
. O & B was scheduled as an unsecured creditor with an "unknown amount" and an "un-liquidated” and "disputed” claim. O & B subsequently filed a proof of claim in the amount of $106,656.67. Lupi’s was scheduled as an unsecured creditor with an "unknown amount” and with a "contingent,” "unliquidated” and "disputed” claim. Lupi's subsequently filed a proof of claim in the amount of $262,095. The Appendix does not contain copies of either proof of claim.