In Re Frazier
- Reporters:
- Before:
- Sargis
MEMORANDUM OPINION AND DECISION
Opposition to Motion to Value and Objection to Plan Confirmation by Real Time Resolutions, Inc.
RONALD H. SARGIS, Bankruptcy Judge.The court has been presented with two matters relating to the confirmation of the Debtors’ proposed Chapter 13 Plan. The first is a Motion to Value the secured claim held by Real Time Resolutions, Inc. (“Real Time”). The second matter is the Real Time Objection to Confirmation of the Debtor’s Chapter 13 Plan. Confirmation of the Debtors’ proposed Chapter 13 Plan is dependent upon the determination of value of the Real Time secured claim. Bank of America holds a claim in this case secured by the first (senior) deed of trust against property identified by the parties as the “Illinois Avenue Property”. The Real Time claim is secured by a second (junior) deed of trust against the Illinois Avenue Property.
Based on the undisputed value advanced by the Debtors, the Real Time secured claim would be valued at $0.00 pursuant to
In response to the motion to value, Real Time filed an opposition asserting that bifurcation of its claim into a secured claim and an unsecured claim pursuant to
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Real Time asserts that since the Debtors are barred from obtaining a discharge,
Real Time also asserts that even if valuation of its secured claim is proper, the Plan is not proposed in good faith. The Debtors were previously barred from valuing the Real Time secured claim and having the lien removed in the Chapter 7 case. The Debtors having obtained their Chapter 7 discharge just three days before commencing this Chapter 13 case, the substance of the Chapter 13 case is merely an improper attempt to obtain the heretofore barred removal of the Real Time lien.
The Debtors reply, asserting that both confirmation of the proposed Plan and a valuation of the Real Time secured claim pursuant to
The Debtors further assert that the proposed Chapter 13 Plan is necessary and in good faith. Under the proposed Chapter 13 Plan the Debtors are curing an arrear-age in excess of $20,000.00 secured by the first deed of trust to Bank of America, paying the restructured $4,500.00 claim secured by their vehicle, and paying in full the delinquent $16,417.00 Internal Revenue Service claim. Absent the Chapter 13 Plan, the Debtors would be unable to cure the arrearage and would lose their home.
In addition to the substantive response, the Debtors contended that Real Time does not have standing to oppose the motion to value or object to confirmation of the Chapter 13 Plan. The lack of standing is asserted based on Real Time not providing any evidence in these proceedings that it has been assigned the Countrywide Credit Line. The court ruled at the time of the hearing that Real Time had provided a minimal showing that it had an interest in the claim at issue to assert an objection to confirmation in this case based on the testimony provided at the hearing.
VALUATION OF SECURED CLAIMS AND CONFIRMATION OF CHAPTER 13 PLANS FOLLOWING THE DEBTOR OBTAINING A CHAPTER 7 DISCHARGE
The court is presented with several issues in this case. The cornerstone issue in this case is whether the Debtors can confirm a plan in this case which does not provide for payment in full Real Times secured and unsecured claims. If the plan cannot be confirmed as a matter of law, then there is no reason to rule on the motion to value, since the reason for making a
History of Bankruptcy Filings by the Debtors.
On August 3, 2009, Philip Leslie Frazier and Jennifer Jo Messerall Frazier filed a voluntary Chapter 13 case, no. 09-36325, which was converted to a Chapter 7 case on August 17, 2009 (the “Chapter 7 Case”). The scheduled general unsecured claims in that case exceeded the debt limits imposed by
The Debtors commenced the present Chapter 13 case on December 30, 2009, ease no. 09-48595, (the “Chapter 13 Case”) nine days after the entry of their discharge in the Chapter 7 Case. The Debtors admitted that the Chapter 13 case was filed due to a pending foreclosure sale by Bank of America on the first deed of trust.
Lien Stripping and Chapter 20 Cases Prior to the BAPCPA.
The filing of a Chapter 7 case to discharge debts and subsequent filing of a Chapter 13 case and plan providing to modify a secured claim which rode through the prior Chapter 7 case is commonly referred to as a “Chapter 20.” Prior to the enactment of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), 119 Stat. 23, a Chapter 20 was a useful tool for a debtor who exceeded the monetary limits for a Chapter 13 case.
See
The secured claim treatment under the Chapter 13 plan to reconvey a junior lien for a payment equal to the value of the collateral is commonly called a “lien strip.” At the completion of the plan and payment of the secured claim in the amount determined under
The short hand reference to a “lien strip” is not an accurate statement of the legal effect of the Chapter 13 plan, Bankruptcy Code, and order of the court. By the
As correctly cited in Real Time’s Opposition to Motion and Objection to Confirmation, most courts addressing this issue to date have concluded that the debtor must obtain a discharge in the Chapter 13 case in order to obtain the release of a lien based on a
The analysis in
Winitzky
cites back to one of the earliest decisions addressing this question,
In re Akram,
259 B.R. 371 (Bankr.C.D.Cal.2001). The
Akram
decision is based upon that court’s reading of the holding by the Ninth Circuit Court of Appeals in
In re Veteran Street Co.,
144 F.3d 1288 (9th Cir.1998), to be that a
This court does not concur with conclusions in prior decisions that, unless the affected creditor accepts the proposed plan treatment, the debtor must be able to obtain a discharge in the Chapter 13 case for there to be a
In
Veteran Street Co.,
the valuation was made for the purpose of the Chapter 11 debtor’s proposed plan of reorganization. When confirmation of the debtor’s proposed Chapter 11 plan of reorganization was denied by the court, the debtor in possession was not allowed to use the valuation for other purposes. The debtor in
Veteran Street
attempted to use the
*809 Another case cited in Winitzky is In re Jarvis, 390 B.R. 600 (Bankr.C.D.Ill.2008). Under the terms of the plan in Jarvis, the debtor proposed to make aggregate payments of $1,051.08 only a period of twelve months. The payments were sufficient to make only the current monthly payments on loans secured by the senior lien on the debtor’s residence and for the debtor’s car, neither of which were in default. Under the Jarvis Chapter 13 plan, no payments were made to creditors holding priority or general unsecured claims, and no arrear-age was being cured to prevent a foreclosure. One of the grounds for denying confirmation in Jarvis was a finding that the plan was not in good faith, but merely contrived camouflage to make zero payments to the creditor whose lien was being stripped. In re Jarvis, Id., p. 606. 4 That plan not being proposed in good faith, confirmation was denied.
Though the Winitzky line of cases focus on the discharge as the requirement for the lien being removed, there is no dispute that a discharge, in and of itself, does not exonerate the debtor of the obligation or remove a lien. The discharge imposes a statutory injunction preventing the creditor from enforcing the discharged debt against the debtor personally or against specified assets. Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). The discharge does not release a lien from the Debtor’s property, and the lien may continue to be enforced against the debtor’s property which is subject to that lien.
In
Dewsnup v. Timm,
502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), the Supreme Court addressed whether a debtor could obtain from the court a
The Supreme Court followed with the decision in
Nobelman v. American Savings Bank,
508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), addressing the question of whether
The Supreme Court rejected the proposed valuation, confirmation, and potential lien reconveyance in
Nobelman
because of the specific limitation stated in 11
*
The Ninth Circuit Court of Appeals subsequently held in Zimmer v. PSB Lending Corporation (In re Zimmer), 313 F.3d 1220 (2002), that the
The modification of the rights of a creditor holding a secured claim through a
It is the completion of the plan and performance under the new contract created under the Bankruptcy Code which re-suit in the debtors having the right to demand and receive the release of the lien. The granting or denying of a discharge does not alter or remove the lien, and is not the basis for the court to deny a motion to value a creditor‘s secured claim.
THE BAPCPA AMENDMENTS DO NOT REQUIRE THE DEBTORS OBTAIN A DISCHARGE FOR A CHAPTER 20 LIEN STRIP TO BE EFFECTIVE
With the 2005 amendments to the Bankruptcy Code, Congress altered the landscape for a debtor attempting to utilize Chapter 13 of the Bankruptcy Code. Before a debtor may attempt to enforce the provisions of the new contract embodied in a Chapter 13 plan, the debtor must first obtain confirmation of the plan. The BAPCPA included an amendment to
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To address Real Time’s contention that the amendment to
A creditor entitled to assert the provisions of
As directed by the Ninth Circuit Court of Appeals in
In re Zimmer, Id.,
p. 1226, if there is no value in the collateral to secure the claim, then Real Time does not hold a secured claim and therefore does not have a basis for asserting rights under
REAL TIME DOES NOT HOLD A SECURED CLAIM AND THE OBJECTION TO CONFIRMATION IS OVERRULED
In the present case, the evidence before the court establishes that the Illinois Ave Property has a value of $240,000.00 and is subject to a first deed of trust to secured a $275,681.00 claim held by Bank of America. The Bank of America deed of trust is senior in priority to, the deed of trust securing the Real Time claim. This court finds persuasive the opinions of value stated by the Debtors as the owners of the property. Further, no opposition to the value asserted by the Debtors or counter evidence was introduced by Real Time to support any other value for the Illinois Avenue Property.
The court finds that with the Illinois Avenue Property has a value of $240,000.00, the senior lien held by Bank of America secures an obligation of $275,681.00, and that the Bank of America senior lien exhausts all value in that property. There is no value in the Illinois Avenue Property to secure the Real Time claim. Pursuant to
THE DEBTORS’ PLAN IS PROPOSED IN GOOD FAITH AND MAY BE CONFIRMED
Real Time has objected to confirmation on several grounds. The first objection to
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confirmation is based on the assertion that the Debtors are barred from confirming a plan without paying Real Time’s claims (secured and unsecured) in full because of the discharge they received in the recent Chapter 7 case. As set forth above, Real Time’s objections based on
Real Time further objects asserting that the Debtors are not proceeding in good faith with the proposed Plan because the Debtors’ food budget is $350, their phone/internet/TV/eell phone expense is $370, and the Debtors’ business expense attachment includes an additional expense for cell phone. See Debtors’ Schedule J, Exhibit “2” filed by Real Time.
Schedule J filed by the Debtors lists $5,261.19 in total expenses for a month. Of these, $2,612.19 are for business expenses. For the Debtors’ family of two persons (Schedule I), their personal expenses are $2,649 a month. This does not including housing expenses, which is paid through the Plan as a Class 1 claim.
The Business Income and Expense attachment to Schedule J lists the following business expenses:
Fuel $ 600.00
Liability Insurance $ 100.00
Workers’ Comp Insurance $ 100.00
Cell Phone $ 250.00
Labor Ready $1,000.00
Supplies $ 550.00
In response to this objection, the Testimony of Jennifer Frazier has been provided. She states, under penalty of perjury,
i. The Phone/Internet/TV service are bundled services for which the total charges are $140 a month.
ii. The $600.00 a month in fuel expenses are necessary for Mr. Frazier’s work as a self employed cabinet installer. His current job is working at Fairchild Air Force Base in Washington State and is anticipated to continue for at least the next four and one-half (4½) years.
The court finds the testimony of the Debtor persuasive and sufficient to explain the reasonable and necessary expenses for the Debtors. The objection of Real Time based on the Debtors’ expenses is overruled.
Real Time has articulated a further objection to confirmation, asserting that commencing the Chapter 13 case on the heels of the Chapter 7 discharge is
per se
not in good faith. Good faith, under
1) The amount of the proposed payments and the amounts of the debt- or’s surplus;
2) The debtor’s employment history, ability to earn, and likelihood of future increases in income;
3) The probable or expected duration of the plan;
4) The accuracy of the plan’s statements of the debts, expenses and percentage of repayment of unsecured debt, and whether any inaccuracies are an attempt to mislead the court;
5) The extent of preferential treatment between classes of creditors;
6) The extent to which secured claims are modified;
7) The type of debt sought to be discharged, and whether any such debt is nondischargeable in Chapter 7;
*813 8) The existence of special circumstances such as inordinate medical expenses;
9) The frequency with which the debt- or has sought relief under the Bankruptcy Reform Act;
10) The motivation and sincerity of the debtor in seeking Chapter 13 relief; and
11) The burden which the plan’s administration would place upon the trustee.
In re Warren, 89 B.R. at 93 (citing In re Brock, 47 B.R. 167, 169 (Bankr.S.D.Cal.1985) (quoting U.S. v. Estus (In re Estus), 695 F.2d 311, 317 (8th Cir.1982))).
The Real Time objection implicates the ninth, and tenth nonexclusive factors. In substance, Real Time asserts that the Debtors are merely attempting to do indirectly through a Chapter 20 which the Supreme Court has barred in a Chapter 7 case — using
The Debtors in this case are not merely filing a perfunctory Chapter 13 Plan where no creditors are paid or arrearage cured. This is not a situation as in In re Jarvis, and In re Tran and In re Bennett with nominal payments and no substantive reorganization by the consumer debtor. In those cases the courts concluded that the Chapter 13 case was filed solely for the purpose of obtaining a lien strip, with the incidental effect of paying nominal attorneys’ fees for filing the Chapter 13 case.
The present case provides an entirely different situation. The Debtors have committed to a 60-month plan and payments of $2,743.00 a month, with plan payments totaling $164,580.00. Through the plan the debtors will cure a $20,000.00 arrearage on the Bank of America secured claim and save their residence from foreclosure. The Debtors will also pay the prepetition claim of $4,500.00 secured by the Debtors’ car and ap Internal Revenue Service prepetition nondischargeable claim of $16,417.00. The estimated Debtors’ attorneys fees are only $2,000 to be paid through the plan and the Chapter 13 trustee fees are projected to be $13,166.40. An additional $104,280.00 will be paid through the plan for post-petition installments on the Bank of America secured claim.
The curing of the arrearage and saving their family residence, and payment of several pre-petition claims represent a real, substantial plan and financial reorganization for these Debtors. The court finds that the plan has been proposed in good faith, and not by any means forbidden by law. Further, that the plan complies with the provisions of
The Real Time objections to confirmation are overruled, and the plan is confirmed by the court.
This Memorandum Opinion and Decision constitutes the Findings of Fact and Conclusions of law in support of the order determining the value of the Real time secured claim to be $0.00, and the order overruling the objection to confirmation of the Chapter 13 Plan.
Notes
. Real Time asserts its claim in this case as the successor in interest to the Bank of America claim secured by the second deed of trust scheduled by the Debtors in their Chapter 7 case.
. Upon payment of the secured obligation the lien is extinguished and the trustor/mortgagor is entitled to a certificate of discharge, the mortgage cancelled or satisfied as of record, and the deed of trust reconveyed. 4 witkin summary of California law, tenth edition, § 117, citing
. In re Veteran Street, Id., In the present case, the bankruptcy court valued the Property in light of Veteran‘s proposed plan of reorganization. Since the bankruptcy court rejected the plan, the valuation of the Property served no purpose under the Bankruptcy Code. Therefore, the valuation should not affect Gold Coast‘s rights to postpetition rents under section 552.
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The word “discharge” was not used by the Ninth Circuit in the
Veteran Street
decision. The only time it appears is in the text of
. The court in Jarvis also denied confirmation on the alternative grounds that the debtor was barred a discharge in the Chapter 13 case and the plan did not provide for payment of the secured and unsecured portions of the creditor’s claim.
. This ruling was consistent with the five other Courts of Appeals and two Bankruptcy Appellate Panels which had previously addressed the issue, and represents the majority view that a claim for which there is no value in the collateral is a completely unsecured claim for valuation and Chapter 13 plan purposes.
. Prior to the 2005 amendments, a debtor was only required to provide in the plan that the creditor retain the lien and the payments *811 on the claim to be not less than the allowed amount of such claim.
. In
Nobelman,
the Supreme Court found significance in Congress choosing to use the phrase “claim secured only by a security interest in real property ...” in carving out an exception to