In re: Salomon Levis Goldstein

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: May 17, 2024
• Docket: 23-03743
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT 2 FOR THE DISTRICT OF PUERTO RICO

3 IN RE: CASE NO. 23-03743-ESL

4 SALOMON LEVIS GOLDSTEIN Chapter 13

5 Debtor 6 OPINION AND ORDER 7 This case is before the court upon the Trustee’s Motion to Convert or Dismiss (the “Motion 8 to Convert or Dismiss”) filed by the Chapter 13 Trustee, Osmarie Navarro Martinez (the 9 10 “Trustee”) (dkt. #43) arguing that Debtor is ineligible to be a Chapter 13 debtor under 11 U.S.C. 11 § 109(e). Also pending before the court are Debtor’s Response to “Trustee’s Motion to Convert 12 or Dismiss” Filed at Docket No. 43 (the “Response”) (dkt. #70), and the Trustee’s Motion in 13 Compliance with Order Submitting Opposition to Debtor’s “Response to ‘Trustee’s Motion to 14 Convert or Dismiss’ Filed at Docket No. 43” Dkt. 71 (the “Reply”) (dkt. 82). 15 For the reasons stated below, this court finds that Debtor is ineligible for Chapter 13 relief. 16 17 The Motion to Convert or Dismiss is GRANTED and the case is hereby dismissed. 18 Procedural Background 19 1. Debtor filed a voluntary bankruptcy petition under Chapter 13 of the Bankruptcy 20 Code, his Schedules, Statement of Currently Monthly and Disposable Income Calculation, and 21 Statement of Financial Affairs on November 14, 2023 (dkt. #1).1 22 2. In Schedule A/B: Property (“Schedule A/B”), Debtor identified a property located 23 at Calle Cerezo #5, Urb. San Patricio, Guaynabo PR 00968 (the “Property”) as “Fee Simple 24 25 (Community Property)”, with a current value of $3,250,000.00 relating to the portion owned by 26 1 The chapter 13 bankruptcy petition and its schedules were revised after a Notice of Deficient Filing and Notice of 27 Possible Dismissal for failure to submit certain documents and because the original filing included confidential information that was later redacted was entered. See dkts. #4, 6, 9, 15, and 16. him ($6,500,000.00 for the entire Property) (dkt. #1-1, p. 13, item 1.1.). Debtor also disclosed 1 2 that he “ceded [his] share to spouse”. Id. See also Amended Schedule A/B, dkt. #14-1, p. 13. 3 3. In Schedule D: Creditors Who Have Claims Secured by Property (“Schedule D”), 4 Debtor identified two (2) secured creditors: Banco Popular de Puerto Rico (“Banco Popular”) 5 with a contingent, unliquidated and disputed claim of $1,000.00 relating to an agreement (such 6 as mortgage or secured car loan) secured by collateral valued at $1,000.00, and Corporación de 7 la Comunidad San Patricio, Inc. (“Comunidad San Patricio”), with a contingent, unliquidated and 8 disputed claim of $8,416.00 relating to a judgment lien secured by collateral valued at $500.00 9 10 and an unsecured portion of $500.00 (dkt. #1-1, p. 25). Both claims are secured by the Property 11 and relate to community debt (id.). 12 4. In Schedule E/F: Creditors Who Have Unsecured Claims (“Schedule E/F”), 13 Debtor identified the following creditors as having priority unsecured claims: Banco Popular with 14 a contingent, unliquidated, and disputed claim of $1,000.00 for domestic support obligations, 15 Comunidad San Patricio, with a contingent, unliquidated, and disputed claim of $8,416.00 16 ($500.00 priority amount and $500.00 nonpriority amount) for taxes and certain other debts owed 17 18 to the government (dkt. #1-1, p. 28). Debtor also included a claim with a priority amount of 19 $200,000.00 for taxes and certain other debts owed to the government but did not include a 20 creditor name (id., p. 29). The forgoing claims are subject to offset (id., pp. 28-29). Debtor also 21 identified the following creditors as having nonpriority unsecured claims: Sergio Blanco with a 22 contingent, unliquidated claim of $80,000.00 for a personal loan, Raul Menendez with a 23 contingent, unliquidated claim of $50,000.00 for a personal loan, Mariela Levis with a contingent, 24 25 unliquidated claim of $128,000.00 for a personal loan, Salymar Investments, Inc., with 26 contingent, unliquidated claims of $152,000.00 and $108,000.00 for loans related to the sale of 27 property, and Thomas Green, Esq., with a contingent, unliquidated claim of $500,000.00 for a personal loan (id., pp. 30-31). Debtor identified the total unsecured claims as $1,100.500.00 (id., 1 2 p. 33). See also Amended Schedule E/F, dkt. #14-1, pp. 30-31 and 33. 3 5. On November 29, 2023, Comunidad San Patricio filed a proof of claim in the 4 secured amount of $9,604.75 on account of homeowners’ association fees (POC #2-1). 5 6. On December 13, 2023, Banco Popular filed two proofs of claims in the unsecured 6 amounts of $4,668.64 (POC #4-1) and $53,234.85 (POC #5-1), respectively, both on account of 7 VISA credit cards. 8 7. On December 22, 2024, Banco Popular filed and subsequently amended a proof 9 10 of claim in the secured amount of $4,881,227.42, with arrears of $1,550,566.90, on account of a 11 mortgage note (POC #6-2). POC #6-2 is secured by the Property. 12 8. It is uncontested that the secured debt disclosed in Schedule D with creditor Banco 13 Popular is the same claimed by Banco Popular in POC #6-2. 14 9. On January 8, 2024, the Trustee filed the Motion to Convert or Dismiss (dkt. #43), 15 arguing that Debtor is ineligible to be a Chapter 13 debtor under 11 U.S.C. § 109(e). 16 10. On February 27, 2024, Debtor filed his Response (dkt. #70). 17 18 11. On February 28, 2024, the Court granted the Trustee twenty-one (21) days to state 19 their position as to the Response (dkt. #71). 20 12. On March 19, 2024, the Trustee filed the Reply (dkt. 82). 21 13. On April 12, 2024, the U.S. Trustee filed a Motion to Show Case under Section 22 329, Federal Rules of Bankruptcy Procedure 2017, and PR LBR 2016-1(f) (dkt. #83) (the “Motion 23 to Show Cause”), averring that there are numerous errors in Debtor’s bankruptcy petition and 24 25 schedules, which —prior to the filing of such motion— had already been amended twice (dkt. #9 26 and #14). The U.S. Trustee avers that such deficiencies reflect that Debtor’s counsel failed to 27 exercise proper care in preparing the petition and related bankruptcy documents, neglected to list the correct amount of Banco Popular’s claim, misclassified other claims, and left many entries 1 2 either unanswered or incorrectly answered, and advised Debtor to file under Chapter 13, for which 3 he is ineligible. As such, they request Attorney Saxton and Juris Zone show cause as to why the 4 proposed fee arrangement should not be cancelled or otherwise reduced. 5 14. On April 26, 2024, the Debtor filed a Response to “United States Trustee's Motion 6 to Show Case under Section 329, Federal Rules of Bankruptcy Procedure 2017, and PR LBR 7 2016-1(f)” Filed at Docket No. 83 (dkt. #84), averring that a new application for compensation 8 form will be filed; that the errors and/or omissions regarding the initial filings were promptly 9 10 corrected; that Debtor surrendered all interest in the Property and that the entirety of the debt 11 owed to Banco Popular cannot be attributed solely to Debtor nor computed in its entirely for 12 eligibility purposes; that Banco Popular’s POC #6 will be included under Section 3.5 of any future 13 amended plan, in order to surrender the collateral and any Debtor’s interest in the Property. 14 Jurisdiction 15 The court has jurisdiction over the instant contested matter pursuant to 28 U.S.C. §§ 16 157(a) and 1334(b). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and 157(b)(2). 17 18 See In re Ashley Oaks Dev. Corp., 458 B.R. 280, 282 (Bankr. D.S.C. 2011) (finding that the 19 disposition of motions to convert or dismiss constitutes a core proceeding under 11 U.S.C. § 20 157(b)(2)). 21 Issues 22 The issue under the court’s consideration is whether Debtor meets the eligibility 23 requirements of Section 109(e) to be a Chapter 13 debtor. Specifically, the court must determine 24 25 whether Debtor’s noncontingent, liquidated claims exceed the $2,750,000.00 threshold. 26 27 Position of the Parties 1 2 A. Trustee’s Motion to Convert or Dismiss and the Reply 3 The Trustee contends that – as of the date the Motion to Convert or Dismiss was filed – 4 Debtor owed $4,890,832.17 in secured debts, $576,622.09 in non-priority unsecured debts, and 5 $54,680.31 in priority secured debts. The total debt owed by Debtor was $5,522,134.57. The 6 Trustee also argues that the mortgage loan in the amount of $1,000.00 owed to creditor Banco 7 Popular and listed in Schedule D as noncontingent, unliquidated, and disputed, is a secured, 8 noncontingent and liquidated debt. Thus, it is the Trustee’s position that Debtor’s total debts 9 10 exceed the amounts provided in 11 U.S.C. § 109(e) and Debtor is not eligible for Chapter 13 11 relief. The Trustee also argues that Banco Popular’s POC #6-2 should be counted for eligibility 12 purposes in the amount so indicated in such proof of claim. The Trustee requests that Debtor be 13 ordered to convert the case to another chapter and should Debtor fail to do so, the case be 14 dismissed. 15 The Trustee also argues that the Response does not comply with PR LBR 9013-2(a) as it does 16 not include any legal authorities in support of Debtor’s position and should be denied outright. 17 18 The Trustee further argues that Debtor did not execute a public deed to transfer his interest in the 19 Property as required by Article 30 of the Puerto Rico Mortgage Law, P.R. LAWS ANN. tit. 30, § 20 6045, and that the sworn statement executed by Debtor, indicating that the 100% of the net 21 proceeds from the sale of the Property will be for his former spouse (dkt. #52-1), is insufficient 22 to transfer his interest in the Property. The Trustee argues that even if, arguendo, Debtor executed 23 a public deed to transfer his interest in the Property, he would still owe the debt because Article 24 25 1185 of the Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31, § 9424, requires that a creditor 26 consents to extinguishing a debtor’s debt (“novación por expromisión” in the Spanish language). 27 Further, the Trustee argues that Debtor recognized the validity of the debt owed to Banco Popular by proposing the surrender of the Property in favor of Banco Popular, and that Debtor did not 1 2 question and/or dispute the Trustee’s argument that said debt is liquidated and noncontingent. 3 B. Debtor’s Response to Trustee’s Motion to Convert or Dismiss 4 Debtor avers that he “ceded” his interest in the Property that secures Banco Popular’s 5 claim to his ex-wife and, for that reason, “it should not be counted for eligibility” (dkt. #70, p. 3). 6 Debtor also argues that, because the Property was a “community and marital property”, the 7 entirety of the debt claimed by Banco Popular cannot be solely attributed to Debtor, nor can the 8 debt be considered in its entirety for eligibility purposes (id.). Debtor also states that he has been 9 10 in conversations with Banco Popular’s counsel and had agreed to surrender the Property and any 11 interest Debtor may have in such Property (id., at p. 4). Debtor alleges that the Property is not 12 necessary for Debtor’s reorganization plan because Banco Popular’s POC #6-2 “is higher than 13 the current property value” (id.). Debtor did not submit any documents to support its arguments. 14 Instead, Debtor limits himself to referencing a sworn statement executed by Debtor in the Spanish 15 language (dkt. #52-1). Further, the court notes that Debtor’s Response contains not a single 16 citation to any relevant controlling authority in support of his position, in violation of the PR LBR 17 18 9013-2(a). 19 Legal Analysis and Discussion 20 A. English Language Requirement in the Federal Courts of Puerto Rico.

21 “It is well settled that the law incontrovertibly demands that federal litigation in Puerto 22 Rico be conducted in English”, in accordance with 48 U.S.C. § 864. Banco Popular de P.R. v. 23 Santiago-Salicrup, 630 B.R. 374, 378 (D.P.R. 2021), citing Estades-Negroni v. Assocs. Corp. of 24 25 N. Am., 359 F. 3d 1, 2-3 (1st Cir. 2004). See also 48 U.S.C. § 864 (“All pleadings and proceedings 26 in the United States District Court for the District of Puerto Rico shall be conducted in the English 27 language.”); L. Civ. R. 5(c) (“All documents not in the English language which are presented or filed, whether as evidence or otherwise, must be accompanied by a certified translation into 1 2 English…”); P.R. LBR 9070-1(c) (“All Exhibits and documentary evidence in Spanish or other 3 language shall be fully translated to the English language by a certified translator.”); In re Bernier, 4 2022 WL 17096264, at *6-7, 2022 Bankr. LEXIS 3283, at *17-18 (Bankr. D.P.R. 2022) (holding 5 that documents not in the English language should not be considered). 6 Debtor has not filed a certified translation in the English language of the sworn statement 7 (dkt. #52-1), and thus failed to comply with 48 U.S.C. § 864, L. Civ. R. 5(c), and P.R. LBR 9070- 8 1(c). Consequently, this court will not consider the merits of the same in support of Debtor’s 9 10 argument. Meanwhile, POC #6-2 is comprised of some documents in the English language and 11 some documents in the Spanish language. This court will only consider the merits of those in the 12 English language. 13 B. Chapter 13 Debtor Eligibility Requirements under Section 109(e) of the Bankruptcy Code. 14 Section 109(e) of the Bankruptcy Code outlines the eligibility criteria that an individual 15 must meet to be a debtor under Chapter 13 as follows: 16 [o]nly an individual with regular income that owes, on the date of the filing of the 17 petition, noncontingent, liquidated debts of less than $2,750,000 or 18 an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of 19 the petition, noncontingent, liquidated debts that aggregate less than $2,750,000 may be a debtor under chapter 13 of this title. 20 11 U.S.C § 109(e) (emphasis ours). 21

22 The above eligibility criteria are “specific and restrictive, with monetary amounts 23 established to govern eligibility so as to ensure that those persons for whose benefit the chapter 24 is directed are those who employ its provisions. Thus, the fundamental purpose of section 109(e) 25 is to establish the dollar limitation on the amount of indebtedness that an individual with regular 26 income can owe and still file under chapter 13.” 2 Collier on Bankruptcy § 109.06 (16th ed. 2024). 27 Eligibility for chapter 13 is based upon debts as of the petition date, and not upon post- 1 2 petition events such as allowed claims, filed claims, or treatment of claims in a confirmed Chapter 3 13 plan. See In re Piovanetti, 496 B.R. 57, 61 (Bankr. D.P.R. 2013), citing DeJounghe v. Lugo 4 Mender (In re DeJounghe), 334 B.R. 760, 768 (1st Cir. BAP 2005). The starting point of the 5 eligibility analysis are a debtor’s schedules. See id. However, a debtor’s characterization of the 6 debt is not ultimately conclusive. See In re Piovanetti, 496 B.R. at 62, citing In re De Jounghe, 7 334 B.R. at 768, citing In re Stern, 266 B.R. 322, 326 (Bankr. D.Md. 2001) (remarking that 8 debtor’s labeling of claim as “unliquidated” did not make it so), and In re Redburn, 193 B.R. 249, 9 10 255 (Bankr. W.D.Mich. 1996) (“Although a court should rely primarily upon the debtor’s 11 schedules the court is not necessarily bound by the information contained in a debtor’s schedules 12 where it appears to a legal certainty that the amount owed is other than what the debtor says is 13 owed ...”). “[W]hen it appears the debtor did not exercise reasonable diligence or good faith in 14 completing and filing the schedules, the bankruptcy court may look to other evidence, including 15 post-petition events, to determine eligibility.” In re Piovanetti, 496 B.R. at 62, quoting In re 16 DeJounghe, 334 B.R. at 768. 17 18 Based on the above, if the Debtor's schedules were completed after the exercise of due 19 diligence and were filed in good faith, this court should rely solely upon the schedules to 20 determine the Debtor’s eligibility for Chapter 13. Conversely, if it appears Debtor did not exercise 21 reasonable diligence or good faith in completing and filing the schedules, it is proper to look 22 beyond the schedules and to other evidence to determine eligibility for Chapter 13 relief. See In 23 re Piovanetti, 496 B.R. at 62. 24 25 26 27 C. Noncontingent, Liquidated Debts for Eligibility Purposes under Section 109(e) of the 1 Bankruptcy Code. 2 There is no controversy on whether Debtor meets the “individual with regular income” 3 requirement in Section 109(e), only on whether the mortgage debt owed to Banco Popular, 4 identified in POC #6-2, is contingent and unliquidated as Debtor claims in his Chapter 13 5 6 bankruptcy petition. As such, we limit our discussion to these two terms. 7 If a claim is subject to ready determination and precision in computation of the amount 8 due, it is generally viewed as liquidated. See In re Piovanetti, 496 B.R. at 63, citing In re Huelbig, 9 313 B.R. 540, 544 (D.R.I. 2004). In re Vaughn, 276 B.R. 323, 325 (Bankr. D.N.H. 2002); In re 10 Keenan, 201 B.R. 263 (Bankr. S.D.Cal. 1996); In re Mitchell, 255 B.R. 345, 360 (Bankr. D.Mass. 11 2000). If the value of the claim depends instead on “a future exercise of discretion, not restricted 12 by specific criteria, the claim is unliquidated.” In re Piovanetti, 496 B.R. at 63, quoting Mazzeo 13 14 v. United States (In re Mazzeo), 131 F.3d 295, 304 (2nd Cir. 1997). Therefore, “courts have 15 generally held that a debt is liquidated if its amount is readily and precisely determinable, as 16 where the claim is determinable by reference to an agreement or by a simple computation.” 2 17 Collier on Bankruptcy P 109.06[2][c] (16th ed. 2024). 18 Contingent debts have been defined by case law as those in which a liability is dependent 19 upon a future extrinsic event. See In re Piovanetti, 496 B.R. at 63 (citations omitted). That is, a 20 claim is contingent as to liability if the debtor’s legal duty to pay does not come into existence 21 22 until triggered by the occurrence of a future event. See 2 Collier on Bankruptcy § 109.06[2][b] 23 (16th ed. 2024). Thus, a creditor’s claim is not contingent when the “triggering event” occurs 24 before the filing of the Chapter 13 petition. See id. 25

27 D. Debtor’s Eligibility for Chapter 13 Relief Considering the Facts of this Case. 1 2 Here, there are ample facts to warrant the conclusion, and the court thus finds, that Debtor 3 did not exercise reasonable diligence when preparing and amending his schedules. This court 4 finds support in the U.S. Trustee’s Motion to Show Cause, wherein the U.S. Trustee notes that 5 there are numerous errors in Debtor’s Chapter 13 bankruptcy petition and schedules, which — 6 prior to the filing of the U.S. Trustee’s motion— had already been amended twice (dkt. #9 and 7 #14). Moreover, there is a significant discrepancy in the amount disclosed in Schedule D and the 8 amount claimed by Banco Popular in POC #6-2. Compare POC #6-2 (noncontingent, liquidated 9 10 claim of $4,881,227.42 secured by the Property) with Schedule D, dkt. #1-1, p. 25 (contingent, 11 unliquidated and disputed claim of $1,000.00 secured by the Property allegedly valued at 12 $500.00). Debtor did not produce any documents to support its position as to the amounts claimed 13 in his schedules as owed to Banco Popular and whether such debt is noncontingent and liquidated. 14 Meanwhile, Banco Popular included various supporting documents with POC #6-2. For this 15 reason, the court will look beyond Debtor’s schedules to determine the characterization of Banco 16 Popular’s debt and Debtor’s eligibility for Chapter 13 relief. 17 18 As stated, Debtor identified Banco Popular as a creditor with a contingent, unliquidated, 19 disputed claim of $1,000.00 for a mortgage note (dkt. #1-1, p. 25). Banco Popular later filed POC 20 #6-2 with supporting documentation stating that the amount owed by Debtor for a fully secured 21 noncontingent, liquidated claim of $4,881,227.42. Debtor did not object to the amount, property 22 value, or classification of Banco Popular’s POC #6-2, or otherwise rebut the Trustee’s arguments 23 that the debt with Banco Popular is noncontingent and liquidated. Importantly, a proof of claim 24 25 is deemed allowed unless a party in interest files an objection thereto. See Fed. R. Bankr. P. 26 3001(f) (“A proof of claim executed and filed in accordance with these rules shall constitute prima 27 facie evidence of the validity and amount of the claim.”); In re Galindez, 514 B.R. 79, 86 (Bankr. D.P.R. 2014) (“[C]laims for which proper proofs have been filed are deemed allowed unless an 1 2 objection is filed.”). Thus, this court concludes that POC #6-2 constitutes prima facie evidence 3 of the validity and amount of Banco Popular’s claim for purposes of eligibility. 4 The debt with Banco Popular relates to a pre-petition mortgage note and its subsequent, 5 pre-petition amendments. That is, the claim is calculable by reference to an agreement or by 6 simple computation. Further, it is clear that Debtor’s liability is not dependent upon a future 7 extrinsic event as Debtor defaulted on the mortgage note long before filing his Chapter 13 8 bankruptcy petition (see POC #6-2). Thus, this court concludes that the debt is both liquidated 9 10 and noncontingent for purposes of eligibility. 11 Lastly, we address Debtor’s argument that, because the Property was a “community and 12 marital property”, the entirety of the debt claimed by Banco Popular cannot be solely attributed 13 to Debtor for eligibility purposes. On this matter, it is important to note that, on June 30, 2003, 14 Debtor executed a mortgage note jointly and severally with his ex-wife in favor of Banco Popular 15 for the original, principal amount of $4,920,000.00 (POC #6-2, p. 16). Although it appears that 16 some terms of the mortgage note were later amended (see, e.g., POC #6-2, p. 14), the relationship 17 18 between the borrowers remained unchanged. Debtor has not proffered any evidence in support of 19 its contention that the debt was either extinguished in accordance with the Puerto Rico Civil Code 20 or that only a portion of such debt may be attributable to him. Thus, this court concludes that 21 Banco Popular may claim the entire amount owed for purposes of eligibility. 22 Debtor also claims that he “ceded” his interest in the Property to his ex-wife and gave up 23 a right or claim with regards to the Property. Thus, Debtor claims that the debt related to the 24 25 mortgage note that is secured by the Property should not be counted for eligibility purposes. 26 Notably, Debtor has not provided any documentation evidencing the alleged transfer of ownership 27 or interest in the Property to his ex-wife other than the sworn statement at dkt. #52-1, which will 1 not be considered for the reasons stated above. Although Debtor may have conveyed his

|| ownership in his marital property to his ex-wife — which has only been alleged and no supporting 3 || document has been provided — this does not change the fact that Debtor is jointly and severally 4 || liable under the mortgage note executed with Banco Popular. 5 Thus, this court concludes that Debtor has a noncontingent, liquidated debt of $4,881,227.42 with Banco Popular, which far exceeds the monetary limits for Chapter 13 eligibility established in 11 U.S.C. § 109(e). This court further concludes that Debtor has had

9 ample time to voluntarily convert this case to Chapter 11 and has opted not to do so. 10 Conclusion 11 For the reasons stated herein, this court concludes that Debtor is not eligible for Chapter 12 || 13 relief because he exceeds the statutory debt limits set forth in Section 109(e) of the Bankruptcy 13 Code. Thus, the Motion to Convert or Dismiss is hereby GRANTED, and the case is dismissed. 4 IT IS SO ORDERED. In San Juan, Puerto Rico, this 17" day of May 2024.

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