In re Renz

476 B.R. 382, 2012 WL 3200874, 2012 Bankr. LEXIS 3579
CourtUnited States Bankruptcy Court, E.D. New York
DecidedAugust 1, 2012
DocketNo. 11-73471-ast
StatusPublished
Cited by8 cases

This text of 476 B.R. 382 (In re Renz) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.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 Renz, 476 B.R. 382, 2012 WL 3200874, 2012 Bankr. LEXIS 3579 (N.Y. 2012).

Opinion

DECISION AND ORDER DENYING CONFIRMATION OF DEBTORS’ CHAPTER 13 PLAN

ALAN S. TRUST, Bankruptcy Judge.

Issue Pending and Summary of Ruling

This case tests the outer limits of how debtors may seek to utilize the Bankruptcy Code and Rules to obtain the maximum advantages of the process known as “Chapter 20”1; that is, whether debtors can obtain a Chapter 7 discharge and thus be absolved of personal liability on their home mortgage debts, then file a Chapter 13 case before they are eligible for another discharge and strip off2 an underwater junior mortgage3 on their home, and do all of this without paying any consideration to the holder of the underwater mortgage. The specific issue now pending is whether this Court should confirm Debtors’ Chapter 13 plan and permit these Debtors, who previously received a Chapter 7 discharge and are ineligible for a Chapter 13 discharge, to file a proof of claim on behalf of the underwater junior mortgage holder, file and prevail in an adversary proceeding against the mortgage holder to strip off the lien, then withdraw the claim and pay nothing to the holder of the stripped off underwater mortgage. Here, where Debtors enjoy sufficient disposable income to pay the value of the junior mortgagee’s in rem claim in full, this Court concludes that not only may Debtors not withdraw the proof of claim they filed on behalf of the junior mortgage holder, but their plan should not be confirmed as it was not proposed in good faith.

Jurisdiction

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(A), (K) and (L), and the Standing Order of Reference in effect in the Eastern District of New York dated August 28,1986.

Background

Adam John Renz and Claudia Marie Renz (the “Debtors”) filed for Chapter 7 bankruptcy relief in 2009 and received a Chapter 7 discharge on December 15, 2009. Case No. 09-76999-ast. Debtors filed this Chapter 13 case less than two years later on May 16, 2011 (the “Petition Date”) and, as such, are ineligible to receive a Chapter 13 discharge. See 11 U.S.C. § 1328(f)(1).4

The Schedules in this case reveal that Debtors own real property located at 69 Talfor Road, East Rockaway, New York [385]*38511518 as their primary residence (the “Property”). Debtors have estimated the value of the Property in their Schedule A to be approximately $500,000.00. The Schedules further disclose that the Property serves as collateral for two different mortgage debts: Wells Fargo Bank, N.A. (“Wells Fargo”) holds the first mortgage on the Property in the amount of $599,216.00, and JPMorgan Chase Bank, N.A. (“Chase”) holds the second mortgage on the Property in the amount of $100,516.80 (the “Chase Mortgage”). Before the deadline for creditors to file proofs of claim had expired, Debtors, through their counsel, filed a proof of claim on behalf of Chase on June 21, 2011, asserting a mortgage debt of $100,516.80, the same amount as was stated in Debtors Schedules (the “Chase Claim”). As is further discussed infra, Bankruptcy Rule 3004 allows a debtor to file a claim on behalf of a creditor under certain circumstances. See Feb. R. BankeR. 3004.

On that very same day, June 21, 2011, Debtors commenced an adversary proceeding against Chase (the “Adversary”),5 seeking, inter alia, a judgment declaring the Chase Mortgage wholly unsecured. Chase failed to answer or otherwise appear in the Adversary. Consequently, Debtors filed a motion for default judgment, which was also unopposed by Chase. On November 3, 2011, the Court granted the default judgment (the “Judgment”). The Judgment specifically provides, inter alia, that “the claim held by Chase, secured by a mortgage lien on the Debtors’ real property ... [shall] be deemed a wholly unsecured claim, and that the entire subordinate mortgage lien be declared null and void upon the filing by the Chapter 13 Trustee of a Certification of Completed Chapter 13 Plan.”6 • [adv. pro. dkt item 8]

Shortly thereafter, on November 15, 2011, Debtors’ counsel filed a letter in the main case purporting to withdraw the Chase Claim, [dkt item 19] Less than an hour later, Debtors filed a Third Amended Chapter 13 Plan (the “Plan”), which declared the Chase Mortgage avoided, called for all post-petition payments on the Wells Fargo first mortgage to be made outside the Plan, and provided for a one hundred percent (100%) distribution7 to all unsecured creditors who had filed timely proofs of claim, [dkt item 20] As such, the Plan, if confirmed by this Court, would result in no distribution of any kind to Chase.

On March 7, 2012, the Chapter 13 Trustee (the “Trustee”) filed an objection to confirmation of the Plan, on the following grounds: that the Plan had not been proposed in good faith; that the Bankruptcy Rules do not permit Debtors to withdraw the Chase Claim; and that Debtors’ Schedules indicate that Debtors have sufficient income to pay the Chase Claim in full, [dkt item 26]

Debtors filed an Affirmation in Response to Trustee’s Objection alleging that the Bankruptcy Code does not explicitly prohibit Debtors from withdrawing the Chase Claim and, in fact, implicitly permits such withdrawal; that Chase’s failure to participate in both the main case and the Adversary suggests Chase’s tacit acceptance of Debtors’ withdrawal of the Chase Claim; that the totality of the cir[386]*386cumstances demonstrates that the Plan was proposed in good faith; and that if withdrawal of the Chase Claim is not permitted, the Chase Claim should be disallowed due to Debtors’ prior Chapter 7 discharge of their in personam liability to Chase, [dkt item 27] Debtors did not dispute their ability to pay the Chase Claim in full.

On March 22, 2012, this Court held a confirmation hearing, and at the conclusion of the hearing decided to take this matter under submission. The Court allowed Debtors three weeks to file supplemental briefing, and two weeks for the Trustee to file any supplemental reply briefing. On April 3, 2012, Debtors filed a memorandum of law in support of their plan, and on April 23, 2012, the Trustee filed a brief in opposition, [dkt items 28, 29]

DISCUSSION

This Court will first address whether Debtors may withdraw the Chase Claim they filed and then address whether the Plan should be confirmed.

Withdrawal of the Chase Claim

There are two considerations in deciding whether Debtors may withdraw the Chase Claim; the first is a rules-based approach, that is, whether the Bankruptcy Rules that allow debtors to file a claim on behalf of a creditor allow debtors to unilaterally withdraw that claim; the second is an adjudicative approach, that is, whether allowing withdrawal of the Chase Claim here would be inconsistent with the Judgment stripping the Chase lien.

Filing of Claims under Rule 300U and Withdrawal of the Claims under Rule 3006

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Cite This Page — Counsel Stack

Bluebook (online)
476 B.R. 382, 2012 WL 3200874, 2012 Bankr. LEXIS 3579, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-renz-nyeb-2012.