In re Covelli

550 B.R. 256, 2016 Bankr. LEXIS 1996, 2016 WL 2858534
CourtUnited States Bankruptcy Court, S.D. New York
DecidedMay 13, 2016
DocketCase No. 15-36090 (CGM)
StatusPublished
Cited by14 cases

This text of 550 B.R. 256 (In re Covelli) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Covelli, 550 B.R. 256, 2016 Bankr. LEXIS 1996, 2016 WL 2858534 (N.Y. 2016).

Opinion

MEMORANDUM DECISION GRANTING DEBTORS’ MOTION TO REOPEN AND FOR SANCTIONS AND DENYING WILLIAM CLEMENT’S MOTION FOR AN ORDER ON THE PETITION DATE

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

Before the Court are the motions of Edward M. Covelli, Jr. and Rita B. Covelli [260]*260(“Debtors”) to reopen their chapter 7 bankruptcy case and to impose sanctions on creditor William Clement (“Clement”) for his alleged violation of the discharge injunction. Amended Mot. to Reopen and for Sanctions, Feb. 23, 2016, ECF No. 36 (“Mot. for Sanctions”).1 Also before this Court is Clement’s motion for an order declaring the Debtors’ chapter 7 petition date to be the earlier petition date from Debtors’ chapter 13 case. Mot. for Order Determining Petition Date, Mar. 22, 2016, ECF No. 39 (“Mot. for Petition Date”). As explained below, the Court grants the Debtors’ motions to reopen the case and for sanctions and denies Clement’s motion to use the chapter 13 petition date as the petition date for purposes of the Debtors’ chapter 7 discharge.

Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A), as it is a matter concerning the administration of the estate.

Background

Debtors filed their first petition for relief under chapter 13 of the Bankruptcy Code on December 2, 2014. See Vol. Petition, In re Covelli, No. 14-37379 (Bankr.S.D.N.Y. Dec. 2, 2014), ECF No. 1.2 Debtors’ chapter 13 petition indicated Debtors owned and lived in certain real property located at 231 Ressique Road, Stormville, New York (the “Property”). See id. at 9. The chapter 13 petition also listed the Property as encumbered by a first mortgage, held by Clement. Id. at 15.

Clement, a contractor who builds homes, holds a note secured by a mortgage on the Property. Mot, for Order Terminating Stay ¶¶ 2-5, No. 14-37379, ECF No. 30 (“Chapter 13 Mot. Lift Stay”). On November 6, 2013, prior to Debtors’ chapter 13 filing, Clement commenced a foreclo.-sure action in New York state court. Id. ¶ 7. On October 24,2014, Clement obtained a judgment of foreclosure and sale on the Property. Id. ¶ 8; Mot. for Petition Date 2. Clement scheduled a foreclosure sale for December 27, 2014, which was stayed by the filing of Debtors’ chapter 13 petition. Amended Compl. ¶¶ 7-8, Clement v. Covelli, Adv. No. 15-09024 (Bankr.S.D.N.Y. Sept. 14, 2015), ECF No. 33 (“Amended Compl.”).

On March 12, 2015, Clement filed a secured proof of claim in the Debtors’ chapter 13 case in an amount of $448,189.56, stating the claim was secured by a note and mortgage on the Property. See Proof of Claim No. 14-1, No. 14-37379. On the same day, Clement filed a motion for relief from the automatic stay. See Chapter 13 Mot. Lift Stay. The Court granted Clement relief from the stay in the Debtors’ chapter 13 case by order entered on April 6, 2015. Order, No. 14-37379, ECF No. 35. Roughly two months later, on June 8, 2015, Debtors voluntarily dismissed their chapter 13 case prior to receiving a discharge. See Mot. to Dismiss, No. 14-37379, ECF No. 46; Order on Mot. to Dismiss, No. 14-37379, ECF No. 48.

[261]*261On June 15, 2015, only seven days later and before the chapter 13 case had been closed, Debtors filed a petition for relief under chapter 7 of the Bankruptcy Code. See Vol. Petition, June 15, 2015, ECF No. 1. On June 16, 2015, Clement filed a motion to dismiss Debtors’ chapter 7 case, or in the alternative, for relief from the automatic stay. See Mot. to Dismiss or for Relief, June 15, 2015, ECF No. 7. In support of the motion to dismiss, Clement argued that Debtors were ineligible to be chapter 7 debtors under 11 U.S.C. § 109(g)(2). Id. ¶¶ 10-11. In the alternative, Clement sought relief from the stay to proceed with the foreclosure sale of the Property scheduled for June 17, 2015. Id. ¶¶ 12,13.

At the June 30, 2015 hearing on the motion to dismiss, the parties informed the Court they had settled the matter. The parties agreed to lift the stay as to Clement’s interest in the Property, with prejudice, which was approved by order of this Court (“Chapter 7 Lift Stay Order”). See Order, July 7, 2015, ECF No. 10. The Court did not rule on the motion to dismiss. The Debtors’ chapter 7 case proceeded, and Debtors received a discharge of their debts in chapter 7 on' September 30, 2015. Order Discharging Debtor, Sept. 30, 2015, ECF No. 18.

On September 11, 2015, Clement filed an adversary proceeding against the Debtors to contest the dischargeability of the deficiency amount Debtors allegedly owed him on the note and mortgage. See Amended Compl ¶¶2, 5, 17. Clement argued that the deficiency on the note and mortgage was a non-dischargeable debt under 11 U.S.C. § 523(a)(6), as a debt incurred for willful and malicious injury by the Debtors to the Property. Id. ¶¶ 13, 17. Clement claimed that after this Court entered the Chapter 7 Lift Stay Order, Debtors agreed to vacate the Property by August 1, 2015. Id. ¶ 12. Clement claimed that on July 23, 2015, a neighbor of the Debtors informed him that the back door to the Property was open. Id. ¶ 13. Clement claimed that upon receiving this information he went to secure the Property. Id. Clement contended Debtors had removed appliances and fixtures from the Property that were subject to the mortgage, damaged electrical wiring, and left wiring exposed without turning the electricity off. Id. Clement claimed that the appliances and fixtures were in fact subject to the mortgage, and that he had the right to foreclose on the personal property as well. Id. ¶¶ 12-14.

Clement asserted that but for the removal of the appliances and fixtures and the damage caused to the Property, the fair market value of the Property would have been $364,933. Id. ¶ 17. Clement claimed the Debtors’ actions had resulted in actual damages of $93,207 and correspondingly reduced the fair market value of the property by $93,207 from $364,933 to $271,726. Id. ¶¶ 15, 17. Clement argued he was entitled to the difference between the face value of the note, $501,944, and the reduced fair market value of the Property of $271,726, resulting in a deficiency claim of $230,218.4 Id. ¶¶ 16-17. Clement argued that the personal debt of $230,218 was not dischargeable, as Debtors’ had created the deficiency through their willful and malicious injury to the Property. Id. ¶ 19.

On September 25, 2015, Debtors filed a motion to dismiss the adversary proceeding. Mot. to Dismiss, Adv. No. 15-09024, ECF No. 6. Debtors argued Clement had [262]*262not pled sufficient facts to establish a claim for relief under § 523(a)(6). See id.

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Cite This Page — Counsel Stack

Bluebook (online)
550 B.R. 256, 2016 Bankr. LEXIS 1996, 2016 WL 2858534, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-covelli-nysb-2016.