In re Barbosa, Bankruptcy No. 96-17709-JNF.
| Decision Date | 30 July 1999 |
| Docket Number | Bankruptcy No. 96-17709-JNF. |
| Citation | 236 BR 540 |
| Parties | In re Marcelino BARBOSA and Mariana Barbosa, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Anthony Gray, Boston, MA, for debtor.
Doreen Solomon, Milton, MA, trustee.
Richard Hackel, Samuel Shriro, Boston, MA, for creditor.
Two matters are before the Court: 1) the "Motion of the Chapter 13 Trustee for Modification of Plan after Confirmation" (the "Motion to Modify Plan"); and 2) Mellon Mortgage Company's "Motion to Modify Order of March 31, 1999 to Compel Debtors' Counsel to Escrow the Net Sale Proceeds Pending Further Order of this Court and/or to Compel Turn Over of $50,668.35 from the Net Sale Proceeds and to Compel Conversion to a Case under Chapter 7 in the Event that This Case Becomes Ripe for Dismissal" (the "Motion to Modify Order"). The Debtors filed Oppositions to both motions. The pleadings raise difficult issues as to what constitutes property of the estate in a Chapter 13 case in which a confirmed plan vests real property in the Debtors and the Debtors subsequently sell the real property for a price in excess of the value ascribed to the property in both a stipulation filed with the Court and the order of confirmation. In practical terms, the pleadings raise the issues of whether the Debtors, as a result of receipt of proceeds from the sale of investment property in excess of what is required to satisfy their confirmed Chapter 13 plan, may be compelled to increase the dividend to unsecured creditors from 10% to 100% as a condition of their discharge. The pleadings highlight the intricacies and inconsistencies of various sections of Chapter 13 of the Bankruptcy Code.
The facts are undisputed. The Debtors filed a voluntary petition under Chapter 13 on October 9, 1996. On the same day, they filed Schedules and a Statement of Financial Affairs. On Schedules I and J, they disclosed monthly income of $5,113.00, including income from real property of $1,030.00, monthly expenses of $3,145.00, and excess income of $1,968.00. The Debtors amended Schedule J several times. On July 17, 1998, they filed an amended Schedule J in which they showed projected monthly expenses of $3,545.00 and excess income of $1,586.00
On September 23, 1998 the Court confirmed a Chapter 13 plan following the approval, on May 12, 1997, of a Stipulation signed on May 5, 1997 as to the value of the Debtors' investment property located at 26 Payson Avenue, Dorchester, Massachusetts (the "Property").1 The Stipulation between Mellon Mortgage Company ("Mellon") and the Debtors provided that the Property had a value of $64,000.00. It also provided that the Debtors would repay the entire $64,000.00 as a secured claim with annual interest of 9% and that "the balance of the Creditors sic claim shall be paid through the repayment plan at a rate of not less than 10%." (emphasis supplied). Finally, the Stipulation provided that Mellon would retain its lien until completion of the plan and that the Stipulation "be entered as a judgment . . . without the necessity of a hearing."
The plan as confirmed 1) provided for monthly plan payments over 60 months of $1,486.00; 2) provided for payments to Mellon on its 2 3) provided for direct payments to The Money Store, the mortgagee with respect to the Debtors' residence; 4) provided for a dividend of 10% both for two general unsecured creditors with claims totaling $1,036.34 and for Mellon with respect to its unsecured claim in the stipulated sum of $50,000.00 arising from cramdown of its mortgage, see 11 U.S.C. §§ 1322(c), § 506(d); and 5) provided that "if the secured claim of Mellon . . . is prepaid (with interest earned to the date of payment), the monthly plan payment shall thereafter be reduced to an amount sufficient to cover the amount payable monthly on Section IV unsecured claims, plus Trustee's commission, thereon." The Debtors' confirmed 13 plan had an effective date of November 1, 1996. The order of confirmation provided in pertinent part the following:
Pursuant to 11 U.S.C. § 1327, the provisions of the confirmed Plan bind the debtors and all creditors; the confirmation of the Plan vests all property of the estate in the debtors; and all property vesting in the debtors is free and clear of any claim or interest of any creditor, except as provided in the Plan or this order.
On February 19, 1999, the Debtors filed a Motion under 11 U.S.C. § 1303 and Bankruptcy Rule 6004 Authorizing the Sale of Property Free and Clear of Liens and Encumbrances.3 Pursuant to their Motion and Notice of Intended Private Sale of Estate Property, the Debtors sought authority to sell the Property to Gregston Maxwell or his nominee for $137,500.00. The Debtors represented in their Motion that the sale of the Property was in their best interest and that of plan creditors because Mellon's secured claim would be prepaid in full from the proceeds and the amount of their monthly plan payments would be substantially reduced. The Chapter 13 Trustee and Mellon were not convinced. Both filed objections to the sale. Although the Chapter 13 Trustee's objection was timely filed, Mellon's was not.
On April 2, 1999, the Court entered an order overruling the objections and permitting the sale of the Property subject to the following:
The mortgage lien in favor of Mellon Mortgage Company ("Mellon") securing a stipulated claim of $64,000 (as reduced by payments made under the Plan) shall be paid in full from the proceeds of the sale of the Property, and with the balance of such proceeds to be held in escrow by Brown, Rudnick, Freed & Gesmer ("BRF & G"), until the earlier of (a) an agreement by and between the Debtors and Doreen Solomon of the Office of the Chapter 13 trustee ("Chapter 13 Trustee") regarding disbursement of such proceeds, and (b) disposition by the Court, by a final order, adjudicating a motion filed by the Chapter 13 Trustee (with respect to which the Debtors reserve their right to oppose) seeking an amendment to the Plan, provided however, that if such motion is not filed and served on or before April 2, 1999, BRF & G shall immediately release the proceeds from escrow and disburse such proceeds to the Debtors without any requirement of an agreement with the Chapter 13 Trustee.
On April 2, 1999, the Chapter 13 Trustee filed her Motion for Modification of Plan after Confirmation seeking to increase the amount of payments to unsecured creditors from 10% to 100% and to reduce the time for such payments to no more than 14 days after the closing on the sale. On April 5, 1999, Mellon filed its Motion to Modify Order seeking an order requiring the Debtors to turn over $50,668.35 to the Chapter 13 Trustee to enable her to pay a dividend of 100% to unsecured creditors or in the alternative converting the case to a case under Chapter 13 prior to "any dismissal of this case for any reason whatsoever."
On May 3, 1999, the Court heard the Motions and the Oppositions filed by the Debtors. During the hearing, the Debtors, the Chapter 13 Trustee and Mellon consented to the entry of an order pursuant to which they agreed to the following: 1) that the net proceeds of the sale of the Property in the amount of $129,397.64 were to be held in escrow by BRF & G, pending further order of the Court; 2) BRF & G was authorized to release the sum of $73,946.25 from the escrow to be "used to pay in full the current balance of the secured stipulated claim of Mellon (totaling $37,184.82 as of April 28, 1999, plus interest at the per diem rate of $8.98, less any additional amounts received by Mellon from the Chapter 13 trustee) and hazard insurance paid by Mellon (totaling $7,013.00) with respect to the Property, with the balance of the released funds to by paid to the Debtors;" and 3) that the order would be valid, binding and enforceable notwithstanding the dismissal, conversion or closing of the case. The Court took Mellon's Motion to Modify Order and the Chapter 13 Trustee's Motion to Modify Plan under advisement, although the effect of the Assented to Order partially mooted the relief requested by Mellon.
The Chapter 13 Trustee seeks an order compelling the Debtors to file an amended plan increasing the dividend to unsecured creditors to 100%. She observes that pursuant to the Sale Motion, after satisfaction of Mellon's secured claim and liens against the Property, the Debtors intend to retain the proceeds of the sale, which by her calculations would amount to approximately $95,000. Because of the absence of an explicit statement in the Sale Motion that the Debtors intend to continue making their plan payments, the Chapter 13 assumes that the Debtors believe that the sale completes their obligations under their plan. Seeking to extend the holding of Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), she argues that it is improper for the Debtors to retain the proceeds from the sale and receive a windfall of close to $100,000, as, in her view, the increase in the value of the Property should accrue to the benefit of creditors, not the Debtors.
Although she cites In re Rangel, 233 B.R. 191 (Bankr.D.Mass.1999), and admits that the Property vested in the Debtors pursuant to the confirmation order and, thus, is no longer property of the estate, the Chapter 13 Trustee also argues that the Debtors through the Sale Motion, seek to reduce both the time and amount of their payments on both secured and unsecured claims. Accordingly, she argues that the Debtors are modifying their plan and must comply with 11 U.S.C. § 1325. See In re Martin, 232 B.R. 29 (Bankr. D.Mass.1999). She maintains that, if the Debtors are compelled to modify...
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