In re Fishel
Victoria Sue Fishel ("Debtor") is a consumer debtor with a car loan, tax debt, credit card and charge account debt, and a small amount of medical bills. She also has student loans dating back almost seven years. She is an above-median debtor with disposable income.
To address her debts, she filed a Chapter 13 petition. Debtor's bankruptcy schedules list unsecured, nonpriority debts in the amount of $147,891.30, including student loan debt of $16,184.78. The schedules also list certain other student loans as owed in unknown amounts. Debtor's Plan proposes to devote all disposable income for five yeаrs toward payment of her creditors.
The Trustee objects to confirmation of the Plan based on an issue of eligibility. The Trustee points to scheduled student loan debt in the amount of $132,000. The servicer for the U.S. Department of Education ("DOE"), on the other hand, filed a claim for $341,136. Attached to the claim were itemizations of amounts and a statement that the servicer had no copies of any promissory notes because it did not receive them from "the originating lender or prior servicer." The Trustee points out in his objection that the Proof of Claim filed by the DOE contains insufficient infоrmation to determine whether some of its claim overlaps with the claims the Debtor scheduled.
1. Jurisdiction
The Trustee argues that, based on the DOE claim, the noncontingent, liquidated unsecured claims exceed the statutory amount of $394,725 set forth in
There is a split of authority among the courts that have considered this question. The minority view holds that Chapter 13 eligibility requirements under section 109(e) are jurisdictional. The majority view holds that eligibility is not jurisdictional. Instead, "the eligibility requirements of § 109(e) create a gateway into thе bankruptcy process, not an ongoing limitation on the jurisdiction of the bankruptcy courts." Glance v. Carroll (In re Glance) ,
The Seventh Circuit has not yet ruled on whether section 109(e) is jurisdictional or merely sets forth a debtor's eligibility. Courts in the Seventh Circuit have interpreted other subsections of 109 in a manner consistent with the majority view. The Northern District of Illinois considered eligibility under section 109(h) and ruled that "eligibility to be a debtor under a particular chapter of the Bankruptcy Code is not the equivalent of a jurisdictional question." In re Arkuszewski ,
2. Conversion or Dismissal
Having jurisdiction, the Court has authority to еvaluate this case under section 1307(c). Section 1307(c) instructs the court "may convert ... or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including" a series of scenarios that are not relevant here. (Emphasis supplied).
Eligibility is not expressly listed as "сause" under the statute. The threshold question therefore is whether the list in section 1307(c) is exhaustive. If not, then the Court will need to determine whether lack of eligibility constitutes cause to dismiss or convert this case.
The Seventh Circuit has consistently ruled that the list in section 1307(c) is non-exhaustive. In In re Love , the Seventh Cirсuit dismissed a case under section 1307(c) for lack of good faith, which is not explicitly listed in the statute.
The Court must therefore determine whether, based on the facts here, the apparent lack of eligibility under section 109(e) constitutes "cause" for conversion or dismissal. Section 1307 gives the Court discretion to dismiss but does not compel the Court to dismiss under any scenario.
Once again, there is no decision from the Seventh Circuit on whether lack of section 109(e) eligibility constitutes "cause" under section 1307 and whether dismissal is therefore mandated. Several lower courts have ruled lack of 109(e) eligibility constitutes cause. For example, after determining an unsecured claim was non-contingent and liquidated, the Northern District of Indiana ruled that "[d]ebtor's failure to fulfill the eligibility requirements of
The list in section 1307(c) contains causes such as unreasonable delay, failure to file a plan, and failure to make рlan payments. Each of these establishes a volitional act-or failure to act-by the debtor. Even if the Court determines cause exists under 1307(c), it may still decline to convert or dismiss. Under section 1307, "the court is not required to dismiss or convert the case if it concludes that the debtor is apрropriately entitled to Chapter 13 relief and has the ability to confirm and consummate a plan." W. Homer Drake, et al., Chapter 13 Practice & Procedure § 20:5 (2017). The Court's analysis on whether to convert or dismiss must hinge on what is in the best interests of creditors and the estate.
In re Santana presented a motion to dismiss for ineligibility under section 109(g)(2).
As noted by the court in In re Pratola , the debt limits in section 109(e) expanded chapter 13 eligibility to a larger group of individuals with regular income. In re Pratola ,
It is a recognized canon of statutory construction that "[j]udicial interpretation of a statute outside its literal terms is appropriate only when a literal application of the statute would lead to an absurd or unconstitutional result." In re Stuart ,
For instance, in Shovlin v. Klaas , the Western District of Pennsylvania affirmed
The Nоrthern District of Illinois has followed a similar line of reasoning. In In re Grant , the court emphasized the discretionary nature of section 1307 and reasoned "[g]enerally, a court will find conversion or dismissal appropriate when efforts to cure a default are unsuccessful and the plan cannot be modified so as to make it feasible for completion."
The decision to convert or to dismiss a Chapter 13 case is a matter of discretion for the bankruptcy court. In re Handy ,
Here, the Trustee objects to confirmation because Debtor may fail to meet eligibility requirements. It is undisputed the Debtor can make the proposed Plan payments. The only real roadblock to confirmation оf Debtor's Plan is the alleged amount of her student loans which, in any case, will not be discharged in her bankruptcy. The Trustee also concedes inability to determine the amount of the student loans with absolute certainty. The claim filed on behalf of the DOE contains some itemization of amounts but does not include any of the purported notes or related documents and it is impossible to determine whether the claim overlaps or includes the obligations listed in Debtor's schedules. Moreover, Debtor's schedules disclose only $16,184.78 in student loans, in addition to several individual student loans in unknown amounts. It is unclear based on the record how the Trustee arrived at her estimation of $132,000 in scheduled student loans. It is equally unclear from the DOE claim the number of loans or how and over what period $80,163.68 in interest accrued on the loans.
If the Trustee's estimate of total amount is correct, thе Debtor would be eligible under section 109. If only the principal amounts in the DOE claim are considered, the Debtor would satisfy the eligibility requirements.
The Debtor can make the proposed Plan payments. She scheduled $4,816 in monthly income against $4,296 in expenses. The Plan anticipates monthly payments between $520 and $550 and the Trustee does not dispute the Debtor can meet her obligations under the Plan. Setting aside the section 109 question, Debtor has proposed a feasible Plan and can complete it. There are no objections to the Plan other than the Chapter 13 Trustеe's.
The policy considerations set forth in the Pratola opinion weigh on the side of permitting Debtor's case to proceed.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") added a significant hurdle to relief under Chapter 7. If debts are primarily consumer, the debtor must qualify through a means test. After BAPCPA, a debtor who can pay creditors or whose Chapter 7 is deemed an abuse
Based on the facts, it is in the best interests of the Debtor, the estate, and the creditors that the Debtor be permitted to pursue confirmation of her Chapter 13 Plan. The Court finds section 109 does not exclude this debtor from relief on the set of facts here. To hold otherwise would effectively exclude this Debtor from relief, and the congressional intent behind limiting the availability of Chapter 13 through section 109(e) is not applicable here. This Debtor is a true consumer debtor and should therefore be afforded the benefit of Chapter 13. The Court does not seek to determine the preclusive effect of section 109 in all cases. Rather, the Court is exercising its discretion under sections 105 and 1307 to review issues arising under section 109 on a fact specific, case-by-casе basis. The Court is also disinclined to dismiss Debtor's case where the amount of unsecured debt is not clearly established. It merely finds this type of consumer debtor, who cannot realistically obtain relief under any section of the Code, will not be dismissed simply because her unsecured debt burden may exceed the amount in section 109(e).
Literal interpretation of the statute would lead to an absurd result. This debtor has no option. She is above-median income with disposable income available to pay creditors. Based on the facts here, she will not be able to rebut the prеsumption of abuse. Thus, she faces Morton's Fork-either file a Chapter 7 that will be determined an abuse, thus leading to dismissal, or file a Chapter 13 to attempt repayment of some amounts only to have a trustee move to dismiss arguing that, as here, the debtor is ineligible for Chapter 13 relief.
If the Trustee is correct, the only other option would be the filing of a Chapter 11. Such a course would be absurd for this true consumer debtor. The Chapter 11 process is inordinately expensive and cumbersome for a consumer debtor. It would likely result in significant portions of the funds that would otherwise bе available to creditors being paid in administrative expenses and U.S. Trustee quarterly fees. For example, the U.S. Trustee's quarterly fees alone would reduce the amount available
CONCLUSION
For these reasons, the motion of the Trustee to dismiss is denied. The Debtor will be permitted to remain in Chapter 13 and proceed to confirmation of a plan.
This decision shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 and Rule 52 of the Federal Rules оf Civil Procedure.
A separate order consistent with this decision will be entered.
Notes
Only consumer debtors are subject to the means test. Debtors whose debts are primarily business are not subject to this limitation. The presumption of abuse is set out in