In re Allard
| Decision Date | 09 May 1996 |
| Docket Number | Bankruptcy No. 95 B 13935. |
| Citation | 196 BR 402 |
| Parties | In re Alfred A. ALLARD, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Laurence H. Kallen, Foster & Kallen, Chicago, IL, for The Great Southern Company.
Richard G. Larsen, Myler, Ruddy & McTavish, Aurora, IL, for Alfred A. Allard, Debtor.
M. Scott Michel, U.S. Trustee, Chicago, IL.
Jack McCullough, Chapter 13 Trustee, Chicago, IL.
This matter comes before the Court on the motion of Alfred A. Allard (the "Debtor") to avoid the lien of The Great Southern Company ("Great Southern") pursuant to 11 U.S.C. § 522(f)(1)(A) and on the objection of Great Southern to confirmation of the Debtor's Chapter 13 plan. For the reasons set forth herein, the Court hereby grants the Debtor's motion and avoids the lien of Great Southern. Further, the Court overrules the objection of Great Southern to the Debtor's plan.
The Court has jurisdiction to entertain these motions pursuant to 28 U.S.C. § 1334(b) and Local General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. They are core proceedings under 28 U.S.C. § 157(b)(2)(K) and (L).
Many of the relevant facts are not in dispute. The Debtor filed this Chapter 13 case on July 12, 1995. The Debtor listed two creditors: (1) Hamman & Benn, a law firm, in the sum of $2,252.80; and (2) Great Southern in the amount of $140,441.04. Both claims are scheduled by the Debtor on Schedule F of creditors holding unsecured nonpriority claims. The Debtor's plan proposes to pay these creditors an estimated 23% of the amount of their claims by making 48 monthly payments of $761.00 to the Chapter 13 Standing Trustee.1 Great Southern's claim arose from the result of prior litigation.
On September 10, 1992, the Debtor was named in a lawsuit by Great Southern seeking damages for violations of the Lanham Act arising from sales of merchandise bearing trademarks owned by several rock music groups without first entering into licensing agreements. Great Southern obtained a $140,441.04 judgment solely against the Debtor in the United States District Court for the Northern District of Illinois on January 18, 1995. See Great Southern's Exhibit No. 3. On March 23, 1995, a memorandum of judgment was filed with the Recorder of Deeds of Kane County, Illinois, which established a judicial lien clouding the title upon the Debtor's residence.
On October 6, 1992, less than one month after Great Southern's lawsuit was filed, and over two years prior to the judgment being entered against the Debtor, he recorded with the Recorder of Deeds of Kane County, a quit claim deed with respect to his residence commonly known as 46W798 Main Street, Kaneville, Illinois (the "Property"). The Debtor and Sharon Allard, his wife, had previously held title as joint tenants, and reconveyed the Property to themselves as tenants by the entirety. See Great Southern's Exhibit No. 2. This is the Property to which the Debtor's lien avoidance motion is directed. The Debtor's schedules list his one-half interest in the Property at $120,000.
The Debtor has filed a motion to avoid Great Southern's lien pursuant to 11 U.S.C. § 522(f)(1)(A). The Debtor argues that the lien in favor of Great Southern will impair his exemptions to which he is entitled under 11 U.S.C. § 522(b)(2)(B). The Debtor maintains that under Illinois law, any property held in tenancy by the entirety may not be attached by a creditor of only one spouse.
The Debtor testified that he and his wife own in joint tenancy some vacant land in Mountain View, Missouri. The Debtor stated that he thinks his one-half interest in the property would be worth approximately $16,000, based upon an appraisal estimating the total value at $32,480. See Debtor's Exhibit No. 2. In addition, the Debtor testified that he is the sole owner of two vacant lots in Big Coppitt Key, Florida, which he purchased in 1988 or 1989 for a total of $26,000. In December 1993, the lots were appraised at a market value of $19,500 and $22,000. See Great Southern's Exhibit No. 7. The Debtor's schedules, however, reflect his interest in this Florida real estate at only $20,000. The Debtor testified that he valued these properties lower than the appraisal because he believed that certain assumptions were made in the appraisal, namely that a building permit could be obtained. The Debtor further testified that his inability to obtain a building permit has thwarted his attempt to market the properties, which he has had listed for sale since 1991. The Debtor admitted that his opinion regarding the value of the properties is based on the inability to obtain a building permit. See Transcript of March 22, 1996 hearing p. 25, lines 5-18 (hereinafter "Transcript").
Further, the Debtor testified that he owns fifty percent of the shares of stock of Outback Concessions, Inc., an Illinois corporation ("Outback"). Outback operates a portion of the game concessions for one unit of Windy City Amusements, a carnival operator. The Debtor stated that he did not receive any income from Outback in 1995 and does not expect to receive any income from Outback in 1996 or in the future. The Debtor testified that as of 1995, the value of Outback's assets was approximately $40,000, and Outback had debts of approximately $47,000, and thus, is balance sheet insolvent. See Debtor's Exhibit Nos. 3 and 4. The Debtor also testified that Outback had a net loss of $12,000 in 1995. Id. Although the Debtor has in past years received income from Outback, due to his physical disability, he is no longer able to perform services for the company, and therefore, no longer receives a salary or any other income from Outback. The Debtor scheduled his shares in Outback at no value given the closely held nature of the business and the current balance sheet insolvency of the company. The Court had no other evidence of current valuations on the various parcels of real estate and personalty involved in this case.
In recent years, the Debtor's financial situation has markedly declined. From an income of approximately $135,000 in 1989, the Debtor's only source of income in 1995 was Social Security disability pay of $10,530. See Debtor's Exhibit No. 1. The Debtor suffers from diabetes and "rocker feet." His medical prognosis is not good, nor is he likely to receive earned income in the reasonably foreseeable future. The Debtor stated that his wife receives $1,460 per month from her retirement pension from Ameritech. See Debtor's Exhibit No. 5. In addition, his wife receives $230.00 per month from a part-time job with a dentist. See Debtor's Exhibit No. 5.
The Debtor further testified that he leases a 1996 Ford pick-up truck for a lease payment of $271.00 per month. Including his wife's car payment, the Debtor's total budget reflects car payments of $470.00 per month. The Debtor's Schedule J lists total monthly expenses of $1,844.00, and projected income of $2,605.00, leaving disposable income of $761.00 per month, which the Debtor has committed to the Chapter 13 plan. Through the 48 month term of the plan, the Debtor will pay a total of $36,528.00 to the Standing Trustee ($761.00 per month × 48 months). After payment of the Chapter 13 Standing Trustee fee, there will be $33,605.76 ($36,528.00 - 8% (Trustee fee) or $2,922.24 = $33,605.76) available for distribution to creditors and payment of administrative expenses.
Great Southern has filed an objection to the Debtor's plan. Great Southern claims that the plan was not filed in good faith in violation of 11 U.S.C. § 1325(a)(3) because the schedules are inaccurate and the debt owed to Great Southern is potentially nondischargeable in a Chapter 7 case. Further, Great Southern contends that the Debtor has not committed all of his assets to the plan in violation of 11 U.S.C. §§ 1325(a)(3) and 1325(a)(4). Additionally, Great Southern contends that the plan's failure to acknowledge its judgment lien violates 11 U.S.C. §§ 1322(b)(2) and 1325(a)(5).
The Court held a trial on March 22, 1996. The Court afforded the parties an opportunity to file post-trial briefs. Thereafter, the matters were taken under advisement.
Upon the filing of a bankruptcy petition for relief, an estate is created. 11 U.S.C. §§ 301 and 541. The estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1); see also In re Kazi, 985 F.2d 318, 320 (7th Cir.1993). Section 541 has been interpreted to result in a debtor's entirety property coming into the bankruptcy estate. See In re Hunter, 970 F.2d 299, 305 (7th Cir.1992) (collecting cases). Once the property becomes part of the bankruptcy estate, the debtor is allowed to claim as exempt certain property interests. See 11 U.S.C. § 522(l); Fed. R.Bankr.P. 4003(a).
It is undisputed that Great Southern has a judicial lien as defined by 11 U.S.C. § 101(36).2 The Debtor seeks to avoid Great Southern's lien on the Property held by the Debtor and his wife in tenancy by the entirety. 11 U.S.C. § 522(f)(1)(A) allows for the avoidance of a judicial lien and provides:
11 U.S.C. § 522(f)(1)(A). The Debtor seeks to avoid the judicial lien as impairing an exemption.
Section 522 creates two alternative sets of exemptions. Section 522(b)(1) affords debtors the federal exemptions set forth in § 522(d); alternatively, under § 522(b)(2...
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