In re: Ivelisse M. Gonzalez Aleman

Opinion

IN THE UNITED STATES BANKRUPTCY COURT 1 FOR THE DISTRICT OF PUERTO RICO 2 IN RE: CASE NO. 13-00304 (ESL) 3 IVELISSE M. GONZALEZ ALEMAN 4 CHAPTER 13 Debtor 5

6 OPINION AND ORDER 7 8 This case is before the court upon the Motion for Reconsideration of Order Disallowing 9 Claim No. 8 (the “Motion for Reconsideration”, Docket No. 41) and the Omnibus Reply to 10 Oppositions to Motion for Reconsideration… (the “Omnibus Reply”, Docket No. 47)1, both filed 11 by creditor Banco Popular de Puerto Rico (“BPPR”). 12 The relevant facts are simple and undisputed. Developers Portales de Carolina, Inc. 13 filed before the Puerto Rico Property Registry Deed No. 160 executed on November 6, 2008 14 before Notary Public Nector F. Robles Morales to submit Condominio Miraflores to the 15 horizontal property regime (“Deed No. 160”). On February 9, 2009, the Debtor purchased 16 apartment no. 133 at Condominio Miraflores through a Deed of Individualization and Sale 17 which attempted to individualize it from the property Condominio Miraflores. On the same 18 date, the Debtor executed Deed No. 15 of First Mortgage before Notary Public Nector F. Robles 19 Morales encumbering said property in favor of BPPR (“Deed No. 15”)2. On June 26, 2012, 20 BPPR acquired Condominio Miraflores through a foreclosure sale in the case of BPPR v. 21 Portales de Carolina, Inc., Case No. F CD2010-0376, before the Puerto Rico Court of First 22 Instance. By that time, the Property Registrar notified certain defects over the horizontal 23 property regime deed (Deed No. 160), and thus BPPR voluntarily withdrew both Deed No. 160 24 and Deed No. 15 from the Property Registry. About a year later, on January 17, 2013, the 25 Debtor filed the instant Chapter 13 bankruptcy petition. BPPR had not re-filed Deed No. 15 or 26

27 1 The Omnibus Reply responds to the Order entered on September 11, 2013 (Docket No. 45). 2 Deed No. 15 was filed at Claims Register No. 8-1, pp. 16-21. 1 Deed No. 160 at the Property Registry as of the petition date. The bar date for nongovernmental 2 units (like BPPR) to file claims was set for May 21, 2013 (Docket No. 5). BPPR filed a secured 3 Proof of Claim on June 11, 2013 (Claims Register No. 8). The Chapter 13 Trustee objected to 4 BPPR’s Proof of Claim on the grounds that BPPR is an unsecured creditor who must file a 5 proof of claim and that it did so untimely. See Docket No. 37. The court granted the objection 6 (Docket No. 37), which moved BPPR to file its Motion for Reconsideration (Docket No. 41). 7 The Debtor and the Chapter 13 Trustee objected to BPRR’s Motion for Reconsideration 8 (Docket Nos. 42 and 44). The Omnibus Reply (Docket No. 47) followed. 9 BPPR prays the court to apply the doctrine of Soto-Ríos v. BPPR (In re Soto-Ríos), 662 10 F.3d 112 (1st Cir. 2011), or, in the alternative, to permit its untimely proof of claim under the 11 “extraordinary circumstances” exception discussed in Wilkens v. Simon Bros., Inc., 731 F.2d 12 462, 464 (7th Cir. 1984). See Docket No. 47. The court will consider both arguments 13 separately. 14 The facts in In re Soto-Ríos, supra, are inapposite to the instant case. As expressly 15 acknowledged by BPPR, in Soto-Ríos, “the relevant mortgage deed had been presented but not 16 recorded. In this case, the relevant deed was presented for recordation, but after the deed for 17 constitution of the horizontal property regime was notified and withdrawn, it is not possible for 18 the Registrar to record BPPR’s mortgage in the absence of the deed that would allow for the 19 individualization of debtor’s apartment.” BPPR’s Omnibus Reply, p. 4, fn. 3 (Docket No. 47). 20 In the instant case there is no deed pending recordation. Thus, the court declines to apply that 21 doctrine to the instant case. 22 The court will now consider BPPR’s alternate request. 23 A secured claim against a debtor is not dischargeable. See 11 U.S.C. §§ 522(c)(2), 24 1328(a)(1) and 1322(b)(5). Secured creditors are not required to file a proof of claim for their 25 claims to be allowed but unsecured creditors are required to do so. See Bank of Am., N.A. v. 26 Gordon (In re Gordon), 471 B.R. 614, 619 (D. Colo. 2012) (“Secured creditors are not required 27 to file a claim”); Universal Am. Mort. Co. v. Bateman (In re Bateman), 331 F.3d 821, 827 (11th 1 Cir. 2003) (“[a]n unsecured creditor is required to file a proof claim for its claim to be allowed, 2 but filing is not mandatory for a secured creditor”). 3 In Puerto Rico, mortgages and titles subject to the provisions of the Horizontal Property 4 Act, 31 L.P.R.A. §§ 1291 et seq., are constitutive in nature. In other words, these titles must be 5 duly recorded in the Property Registry. See Pérez Mujica v. FirstBank, P.R. (In re Pérez 6 Mujica), 457 B.R. 177, 187-188 (Bankr. D.P.R. 2011); Article 22 of the Horizontal Property 7 Act, 31 L.P.R.A. § 1291, Brown III v. J.D. Cond. Playa Grande, 154 D.P.R. 225, 232 (2001); 8 García Larrinua v. Lichtig, 118 D.P.R. 120, 128 (1986); Bravman, González v. Consejo 9 Titulares, 183 D.P.R. 827, 845 (2011); Consejo de Titulares v. Vargas, 101 D.P.R. 579, 582 10 (1973); In re Soto-Ríos, 662 F.3d at 121 (“[U]nder Puerto Rico law, the registration is a 11 ‘constitutive’ act for a mortgage, and without the existence of a mortgage, a creditor only has an 12 unsecured personal obligation regarding the underlying debt.”); Rodríguez Ramos v. BPPR (In 13 re Rodríguez Ramos), 493 B.R. 355, 365 (Bankr. D.P.R. 2013). 14 “When a document is withdrawn or recalled from the Property Registry before it is 15 recorded, it ultimately entails the voluntary dismissal and extinction of the entry of register.” 16 Surita Acosta v. Reparto Saman, Inc. (In re Surita Acosta), 464 B.R. 86, 95-96 (Bankr. D.P.R. 17 2011), citing Luis R. Rivera Rivera, Derecho Registral Inmobiliario Puertorriqueño, San Juan, 18 Jurídica Editors, 2002, pp. 277-278, and Roig Commercial Bank v. Torres Dueño, 614 F. Supp. 19 913 (D.P.R. 1985). Also see Carrión v. USDA Rural Hous. Serv. (In re Cestary Roldán), 2012 20 Bankr. LEXIS 2720 at *23, 2012 WL 2221410 at *8 (Bankr. D.P.R. 2012). 21 In the instant case, when the Debtor filed her bankruptcy petition there was no pending 22 mortgage deed to be recorded at the Property Registry. Therefore, because a mortgage is 23 constitutive in nature, BPPR is an unsecured creditor. See Schedule E listing BPPR as an 24 unsecured creditor (Docket No. 1, p. 28). As such, BPPR was required to file a timely proof of 25 claim under Fed. R. Bankr. P. 3002(a). 26 Proofs of claims are the basis for distribution in bankruptcy. See 11 U.S.C. §§ 501 and 27 502; William D. Warren, Daniel J. Bussel & David A. Skeel, Jr., Bankruptcy, Foundation Press, 1 9th ed., 2012, p. 78. “The [Bankruptcy] Code and Bankruptcy Rules govern the requirements 2 for the filing and allowance of proofs of claim.” Municipality of Carolina v. Baker González 3 (In re Baker González), 490 B.R. 642, 647 (B.A.P. 1st Cir. 2013). To determine whether a 4 tardily filed claim can be allowed, courts must first determine whether the claim was properly 5 filed under 11 U.S.C. § 501. Id., at 647. 6 Although Sections 501 and 502 of the Bankruptcy Code do not specify the time frame 7 within which claims must be filed, the deadlines for filing proofs of claim in Chapter 13 cases 8 are prescribed by Fed. R. Bankr. P. 3002. See Vicenty v. San Miguel Sandoval (In re San 9 Miguel Sandoval), 327 B.R. 493, 512 (B.A.P. 1st Cir. 2005). Fed. R. Bankr. P. 3002(a) 10 mandates that “unsecured creditor[s] … must file a proof of claim” except under certain 11 exceptions not applicable to the instant case3. Consequently, unsecured creditors who do not 12 file a proof of claim under Fed. R. Bankr. P. 3002(a) “will be unable to participate in any 13 distribution”. Allan N. Resnick and Henry J. Sommes, 9 Collier on Bankruptcy, ¶ 3002.01 (16th 14 ed. 2013). Also see In re Baker González, 490 B.R. at 648 (“If an unsecured creditor’s claim is 15 to be allowed in a Chapter 13 case, a proof of claim must be filed. … Under the Bankruptcy 16 Code and [Fed. R. Bankr. P.] 3002(a) an unsecured creditor must file a proof of claim in order 17 to have a right to payment from the estate.”); In re San Miguel Sandoval, 327 B.R. at 512 (“In 18 Chapter 13 cases, a timely filed proof of claim is a precondition to allowance of the claim and 19 the creditor’s right to receive a distribution.”) 20 “Pursuant to Fed. Rs. Bankr. P. 3002(c) and 9006(b)(3), the court does not have 21 discretion to enlarge the time period to file an unsecured claim in a Chapter 13 case, unless one 22 of the exceptions in [Fed. R. Bankr. P.] 3002(c) applies.” In re Rodríguez Ramos, 493 B.R. at 23 369. Also see In re Baker González, 490 B.R. at 649 (“[Fed. R. Bankr. P.] 9006, in conjunction 24 with [Fed. R. Bankr. P.] 3002(c), precludes the filing of an untimely proof of claim in … 25 Chapter 13 cases, except in very limited circumstances”); In re San Miguel Sandoval, 327 B.R. 26 at 512 (“[n]umerous courts, including the United States Bankruptcy Appellate Panel for the 27 3 These exceptions are situations governed by Fed. Rs. Bankr. P. 1019(3), 3003, 3004, and 3005. 1 First Circuit, have held that the claim deadline in Chapter 13 cases cannot be extended for 2 excusable neglect so long as due process concerns are satisfied”); In re Padilla Quiñones, 2011 3 Bankr. LEXIS 727 at *3, 2011 WL 748115 at *1 (Bankr. D.P.R. 2011) (“Fed. R. Bankr. P. 4 9006(b)(3) limits the court’s jurisdiction to enlarge the time for taking action under Bankruptcy 5 Rule 3002(c) to the extent and only under the conditions stated by this particular rule”). 6 Fed. R. Bankr. P. 3002(c) mandates as follows:

7 TIME FOR FILING. In a chapter 7 liquidation, chapter 12 family farmer’s debt adjustment, or chapter 13 individual’s debt adjustment case, a proof of claim is 8 timely filed if it is filed not later than 90 days after the first date set for the meeting 9 of creditors called under § 341(a) of the [Bankruptcy] Code, except as follows:

10 (1) A proof of claim filed by a governmental unit, other than for a claim resulting from a tax return filed under § 1308, is timely filed if it is filed not later than 180 11 days after the date of the order for relief. A proof of claim filed by a governmental 12 unit for a claim resulting from a tax return filed under §1308 is timely filed if it is filed no later than 180 days after the date of the order for relief or 60 days after the 13 date of the filing of the tax return. The court may, for cause, enlarge the time for a governmental unit to file a proof of claim only upon motion of the governmental 14 unit made before expiration of the period for filing a timely proof of claim.

15 (2) In the interest of justice and if it will not unduly delay the administration of the 16 case, the court may extend the time for filing a proof of claim by an infant or incompetent person or the representative of either. 17 (3) An unsecured claim which arises in favor of an entity or becomes allowable as a 18 result of a judgment may be filed within 30 days after the judgment becomes final if the judgment is for the recovery of money or property from that entity or denies or 19 avoids the entity’s interest in property. If the judgment imposes a liability which is 20 not satisfied, or a duty which is not performed within such period or such further time as the court may permit, the claim shall not be allowed. 21 (4) A claim arising from the rejection of an executory contract or unexpired lease of 22 the debtor may be filed within such time as the court may direct.

23 (5) If notice of insufficient assets to pay a dividend was given to creditors under 24 Rule 2002(e), and subsequently the trustee notifies the court that payment of a dividend appears possible, the clerk shall give at least 90 days’ notice by mail to 25 creditors of that fact and of the date by which proofs of claim must be filed.

26 (6) If notice of the time to file a proof of claim has been mailed to a creditor at a foreign address, on motion filed by the creditor before or after the expiration of the 27 time, the court may extend the time by not more than 60 days if the court finds that the notice was insufficient under the circumstances to give the creditor a reasonable 1 time to file a proof of claim. 2 In the instant case, BPPR has not alleged, much less demonstrated, any of these 3 exceptions. Therefore, the court may not extend or enlarge the time period afforded in Fed. R. 4 Bankr. P. 3002. Accordingly, BPPR’s Proof of Claim (Claims Register No. 8) must be 5 disallowed in its entirety as the nature of the claim is unsecured and the same was filed after the 6 bar date to file unsecured claims. 7 Lastly, BPPR seems to allege in its Omnibus Reply that disallowing its claim would be 8 “unfair”. Docket No. 47, pp. 3 and 4. Although not expressly stated, BPPR seems to seek this 9 court’s equitable powers under 11 U.S.C. § 105. Notwithstanding, it is well settled that 10 “equitable powers ... in the bankruptcy courts must and can only be exercised within the 11 confines of the Bankruptcy Code”. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 12 (1988). Also see HSBC Bank USA v. Branch (In re Bank of New Engl. Corp.), 364 F.3d 355, 13 362 (1st Cir. 2003) (“equitable powers possessed by bankruptcy courts must and can only be 14 exercised within the confines of the Bankruptcy Code”)4; In re Momentum Mfg. Corp., 25 F.3d 15 1132, 1136 (2nd Cir. 1994) (“We have repeatedly emphasized the importance of the bankruptcy 16 court’s equitable power.” But “[t]his power is not unlimited. Thus, a bankruptcy court may not 17 exercise this power in contravention of provisions of the [Bankruptcy] Code.”); Tese-Milner v. 18 Moon (In re Moon), 385 B.R. 541, 551 (Bankr. S.D.N.Y. 2008) (while “bankruptcy courts are 19 courts of equity, they are nevertheless courts of law. It is well settled that a bankruptcy court’s 20 equitable powers are not boundless, and that they cannot be exercised in direct contravention of 21 provisions of the Code.”); Alan N. Resnick & Henry J. Sommer, 2 Collier on Bankruptcy ¶ 22 105.01[2] at 105-6 (16th ed. 2013) (“[I]t should be universally recognized that the [equitable] 23 power granted to the bankruptcy courts under Section 105 is not boundless and should not be 24 employed as a panacea for all ills confronted in the bankruptcy case.”); Wiscoticth Rentas v. 25 González Claudio (In re Morales García), 484 B.R. 1, 14-15 (Bankr. D.P.R. 2012). 26 27 4 Citing Norwest Bank Worthington v. Ahlers, 485 U.S. at 206. 1 Conclusion 2 In view of the foregoing, the BPPR’s Motion for Reconsideration (Docket No. 41) and 3 || Omnibus Reply (Docket No. 47) are hereby denied. The court concludes that BPPR is an 4 || unsecured creditor and as such was required to comply with the deadline for filing proofs of 5 || claim under Fed. R. Bankr. P. 3002. Because BPPR filed its proof of claim past the deadline set 6 || in the instant case, its proof of claim (Claims Register No. 8) is hereby disallowed in its entirety. 7 SO ORDERED. 8 In San Juan, Puerto Rico, this 1“ day of October, 2013. 9 10 erryerdle 1 cxiithd acaves Denkraptoy Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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