In re Mohammad
The issue before the Court is whether to approve the Amended Disclosure Statement filed by Furqan Mohammad ("Debtor"), on November 13, 2018. The U.S. Trustee and Select Portfolio Servicing Inc., as servicing agent for U.S. Bank NA, as trustee, for the Chase Mortgage Finance Corporation ("U.S. Bank") filed objections to the amended statement. A hearing on the matter was held on December 11, 2018. After reviewing the relevant Court dockets, the pleadings filed in this case and arguments of Counsel and the Debtor, the Court makes the following Findings of Fact and Conclusions of Law sustaining the objections to the Amended Disclosure Statement.
The Debtor and Azra Yasmin, his wife, executed a promissory note dated July 10, 2006 in the original amount of $ 911,000.00. The note was secured by the lien of a first priority deed of trust of the same date encumbering real property designated as 7183 Evans Court, Warrenton, Virginia 20187 ("the Property"). Title to the property is vested in Furqan Mohammed, Azra Yasmin and Hasan Norman.
The Debtor and Azra Yasmin filed Case No. 10-19040 requesting relief under Chapter 13 of the Bankruptcy Code on October 26, 2010. Case No 10-19040 at Docket No. 1 ("Petition"). While the case was pending, U.S. Bank filed a motion for relief from the stay alleging that the post-petition arrears were $ 158,085.16I from January 2012. Id. at Docket Nos. 55 and 63. Relief from the stay was granted to U.S. Bank to exercise its rights against the Debtor's principal residence located at 7183 Evan Court, Warrenton, Virginia ("the Property") on August 15, 2014. Id. at Docket No. 65. On January 23, 2015, the U.S. District Court entered an order affirming the order granting relief from the stay and on June 22, 2015, the U.S. Court of Appeals for the Fourth Circuit affirmed the District Court's holding. Id. at Docket Nos. 97 and 101. The debtors were discharged on February 24, 2016 and the case was closed.
The Debtor filed a voluntary petition pro se , requesting relief under Chapter 13 of the Code on September 27, 2016. Case No 16-13258 at Docket No. 1("Petition"). The Debtor's plan proposed to pay $ 717.75 per month for 60 months for a total of $ 43,065.00. U.S. Bank objected to the plan alleging it failed to pay pre-petition mortgage arrears in excess of $ 300,000. Id. at Docket 21. The Trustee filed a motion to dismiss the case for material default alleging the debtor had made only one plan payment in five months. The motion was subsequently amended to note that the Debtor was not eligible to be a debtor in Chapter 13 because his debts exceeded the limits described in
The Debtor pro se, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on March 7, 2018. Case No. 18-10785, Docket No. 1(the "Petition"). On May 10, 2018, U.S. Bank filed a motion for relief from the automatic stay on the Debtor's property.
The Debtor failed to appear at the hearing on the motion for relief held on June 13, 2018. The Court, after reviewing the previous case filings, the pleadings in this case and the argument of counsel for U.S. Bank, found that the instant case was filed in bad faith based on the six-year default period and the Debtor's two latest bankruptcy petitions filed shortly before scheduled foreclosure sales. The Court entered an Order granting the motion for relief that included an equitable servitude on the property for a period of two years from the date of the entry of the Order.
On September 21, 2018, the Debtor filed his first disclosure statement and proposed plan. The U.S. Trustee objected to the disclosure statement alleging that the Debtor failed to provide adequate information to creditors pursuant to
At the hearing on approval of the disclosure statement held on October 23, 2018, the U.S. Trustee noted that the Debtor failed to define and state his projected disposable income, and failed to disclose his prior bankruptcy filings in the statement. The Court instructed the Debtor to file an amended disclosure statement by November 13, 2018 and set a hearing for approval of the amended statement.
In his Amended Disclosure Statement, the Debtor proposed to make regular monthly mortgages payments of $ 4,626.62 and a monthly payment on arrearages of $ 1,927.76 to Chase Mortgage Finance Corporation.
An Affidavit of Contribution was filed simultaneously with the Amended Disclosure Statement and Plan. The Affidavit affirms that Hassan Norman is a legal title owner of the property and that the Debtor's wife would contribute $ 2,500.00 a month and his four sons would each contribute $ 1,250.00 a month to the plan.
U.S. Bank objected to the amended statement on feasibility grounds because the Debtor proposed to pay arrearages in an amount that was less than the amount listed in the allowed claim.
The Court held a hearing on the Amended Disclosure Statement on December 11, 2018 and the Debtor attended the hearing. None of the Debtor's family members referred to in the Affidavit of Contribution attended to give evidence of their ability to help fund the plan.
Mr. Mohammad testified he had not made a mortgage payment since 2012 because he was in a dispute with his mortgage company and that he did not know the amount of the arrears, but affirmed his intention to pay off the arrears through the Plan.
Conclusions of Law
The U.S. Trustee has objected to the Amended Disclosure Statement pursuant to
Bankruptcy courts and creditors rely on a debtor's disclosure statement in determining whether to vote for or approve a proposed plan of reorganization.
The determination of whether a disclosure statement has adequate information is made on a case by case basis and is largely within the discretion of the bankruptcy court. In the Matter of Texas Extrusion Corp. ,
Mr. Mohammad has filed two bankruptcy petitions prior to the instant case. His first petition was filed jointly with his wife in 2010. In that case the Debtors proposed to pay $ 32,000 in mortgage arrears on his residence and a 2% dividend to his unsecured creditors. While the case was pending, U.S. Bank was granted relief from the automatic stay. The Order granting relief was affirmed by the U.S. District Court and by the Fourth Circuit Court of Appeals. Mr. Mohammad also opposed his attorney's application for attorney's fees, but the Court approved the fees over his objections.
Six months after the first bankruptcy closed, and two days prior to a scheduled foreclosure sale of his residence, Mr. Mohammad filed his second chapter 13 petition pro se . The Debtor's plan proposed his sons would contribute $ 4,500 per month to the plan; however, the Debtor fell behind on his payments to the trustee before the plan could be confirmed. The Court granted the chapter 13 trustee's motion to dismiss and the Debtor continued to enjoy the protection of the automatic stay while the case remained open an additional five months pending his appeal of the dismissal. The case was closed following the entry of the District Court's Order affirming this Court's ruling dismissing the case.
The proponent of the plan has the burden of demonstrating by at least a preponderance of the evidence that the plan satisfies all of the requirements of section 1129(a)(1) through (13) inclusive, except section 1129(a)(8). In re Rusty Jones, Inc. ,
In making a feasibility analysis, the court must "scrutinize a debtor's proposed plan payments in light of projected income and expenses in order to determine whether it is likely the debtor will be able to make the payments required by the plan." In re Howard , 212 B.R.864, 879-80 (E.D. Tenn. 1997).
The purpose of the feasibility test is " 'to prevent confirmation of visionary schemes which promise creditors and equity holders more under a proposed plan
The instant chapter 11 petition was filed one day prior to a scheduled foreclosure sale. When the Court granted U.S. Bank in rem relief from the stay, it declined to exercise its authority to dismiss the case in order to give Mr. Mohammad one last opportunity to propose a plan of reorganization. He was put on notice in the pleadings filed by the U.S. Trustee and U.S. Bank and at the hearing on his first Disclosure Statement that he needed to include information regarding his prior bankruptcies in an amended Statement; however, he chose not to do so. In short, his Amended Disclosure Statement contained the same deficiencies as the previous disclosure statement. Under these circumstances, the Court has no reason to believe that a second amended disclosure statement would be proposed.
Mr. Mohammad knew that he was responsible for showing how he could afford to pay for his plan. His attempt to meet that responsibility by filing the Affidavit of Contribution has fallen short. The Affidavit alone is insufficient evidence of the Debtor's ability to fund a feasible plan. No supporting documents were attached to the document to indicate the source of the funds of the family members and their expenses and liabilities that would take precedence over their proposed contributions. The Monthly Operating Reports filed by Mr. Mohammad in this case do not show a history of income contributions from his family members comparable to the contributions they propose to pay into the plan. None of the Debtor's family members appeared in this Court to testify to their ability to provide the Debtor with the income necessary to fund his plan.
The Debtor has established a history of proposing plans that are only feasible with substantial financial contributions of family members; however, there is no evidence before the Court to demonstrate that the proposed contributions are sufficiently stable and regular to support a plan or that they would be likely to continue for the duration of a plan.
U.S. Bank's objection to the Debtor's treatment of its claim is well founded. First, the Debtor proposes to cure the arrearages in the amount of $ 346,996.50 through the plan even though the stated arrears according to the Bank's allowed claim is $ 418,975.95. This alone makes the plan not feasible. Second, the Disclosure Statement describes a plan that would allow curing the mortgage deficiency over a period of no less than 179 months. The Court finds the length of time to cure is unreasonable and its proposal demonstrates an abuse of the bankruptcy process. The plan under review is nothing more than a visionary scheme unsupported by evidence of financial viability. Thus, the debtor has failed to carry his burden of demonstrating by a preponderance of the evidence, that he can propose a feasible plan
A court may deny approval of a disclosure statement, even if it is not by
Section 1112(b) of the Bankruptcy Code permits a bankruptcy court to convert or dismiss a case for "cause". That statute enumerates nine examples of cause; however, that list is not absolute. Legislative history states, "The court will be able to consider other factors as they arise, and use its equitable powers to reach an appropriate result in individual cases." House Report No. 95-595, 95th Cong. 1st Sess. (1977), U.S. Code Cong. & Admin. News 1978, p. 5787.
The Code also provides bankruptcy courts with an expansive equity power to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title."
Based on a review of the bankruptcies filed by the Debtor, the pleadings filed in these cases, statements made by the Debtor in Court, and arguments of Counsel and for the reasons stated herein, the Court finds the Amended Disclosure Statement fails to provide adequate information to creditors pursuant to
The Court will enter a separate Order consistent with the findings and conclusions contained in this Memorandum Opinion.
Notes
Hassan Norman is the Debtor's son.
The Disclosure Statement provides contradictory treatment for the secured claims on the Debtor's residence. Article III, Section 3.5 indicates that the loan is current and shall be paid in accordance with the terms of the contract; however, Part 1, Treatment of Secured Creditors Sections b-f provides for payment of estimated arrears of $ 346,990.60 through the plan. Id at 7, 13-18.
Although the Amended Disclosure Statement implies the Debtor's intent to continue to market the property, no evidence was presented to show he has ever tried to sell the property.