In re Bosserman, Case No. 17–32993

• Decision Date: 09 May 2018
• Docket Number: Case No. 17–32993
• Citation: 587 B.R. 668
• Parties: IN RE: Terry L. BOSSERMAN, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

587 B.R. 668

IN RE: Terry L. BOSSERMAN, Debtor.

Case No. 17–32993

United States Bankruptcy Court, N.D. Ohio, Western Division.

Signed May 9, 2018

Patricia A. Kovacs, Curtice, OH, for Debtor.

MEMORANDUM OF DECISION AND ORDER RE: DEBTOR'S CHAPTER 13 ELIGIBILITY

John P. Gustafson, United States Bankruptcy Judge

This case comes before the court on the Chapter 13 Trustee's ("Trustee") Motion to Dismiss Case ("Motion"), filed on January 11, 2018. [Doc. # 34]. Creditors First Federal Bank of the Midwest ("First Federal") and Skymark Refuelers, Inc. ("Skymark") also filed Objections to Debtor's Chapter 13 Plan seeking dismissal of Debtor's case. [Doc. ## 31, 33]. After an initial hearing on the Motions/Objections held on February 22, 2018, the court set the matter for evidentiary hearing on April 6, 2018. [Doc. # 53]. In her Motion, Trustee alleges that, because the claims filed in Debtor's case exceed the unsecured debt limits set forth in 11 U.S.C. § 109(e), Debtor's case should be dismissed. In their Objections, Creditors First Federal and Skymark allege that Debtor is ineligible for Chapter 13 relief because his unsecured debts exceed § 109(e)'s limit of $394,725.

On April 6, 2018, the court held an evidentiary hearing on the Motions/Objections that was attended in person by Debtor, Debtor's Counsel, Trustee, Counsel for Skymark, Counsel for First Federal, and a representative of First Federal. At the hearing, the parties presented testimony, exhibits, and other evidence in support of their respective positions.

The court has jurisdiction over Debtor's Chapter 13 case and this adversary proceeding pursuant to 28 U.S.C. §§ 1334, 157(a), and Local General Order 2012–7 of the United States District Court for the Northern District of Ohio. The determination of a Chapter 13 Debtor's eligibility is a core proceeding that this court may hear and determine. 28 U.S.C. § 157(b)(1) and (b)(2)(A) and (O).

For the following reasons, the Trustee's Motion to Dismiss Case will be granted.

FACTUAL BACKGROUND

Debtor Terry L. Bosserman filed for Chapter 13 bankruptcy relief on September 19, 2017. [Doc. # 1]. Initially, this case was a "skeleton filing"—Debtor did not file any Schedules, the Statement of Financial Affairs, a Means Test form, or a Chapter 13 Plan. On October 18, 2017, Debtor filed his Schedules and other required documents. [Doc. # 13]. Debtor's Schedules listed secured debt of $616,000.00, priority unsecured debt of $61,300.00, and nonpriority unsecured debt of $109,300.00. [Id. , pp. 1, 14–19]. Relevant here, Debtor's Schedule D, "Creditors Who Have Claims Secured by Property," lists First Federal as the holder of a contingent, unliquidated, and disputed claim in the amount of $440,000.00, described as: "Note and UCC filing against all inventory, Accounts, equipment and General Intangibles and an Assignment of contract-Purchase Order No. 035472 daated (sic) 07/06/2006; after acquired property, proceeds; personal guarantee." [Id. , p. 12, Part 1, Claim 2.1]. Column C states that all $440,000.00 is unsecured, and Debtor checked the boxes that further describe First Federal's claim as related to "An agreement you made" and a "Judgment Lien from a lawsuit." [Id. ].¹

On January 9, 2018, First Federal filed a Proof of Claim that, in contrast to Debtor's Schedule D, asserts an unsecured claim of $17,484,300.63 based upon "Commercial Loans, Personal Guarantees and damages." [Claim No. 5–1, p. 2]. First Federal's Proof of Claim was filed with an attached exhibit [Id. , Part 2] that outlines the scope of Debtor's obligations to First Federal and includes copies of promissory notes/commercial security agreements signed by Debtor on behalf of his business [Id. , pp. 3–27, 52–55, 62–118], and accompanying commercial guarantees signed by Debtor in his personal capacity. [Id. , pp. 28–52, 56–58]. Notably, each commercial guarantee includes Debtor's signature and provides that "[t]his is a guaranty of payment and performance and not of collection..." [Id. , pp. 28, 31, 34, 37, 40, 43, 46, 49] or "[t]his is a guaranty of payment of the Note...." [Id. , p. 56]. According to the attachment to First Federal's Proof of Claim, its claim includes: 1) the amount owed by Debtor on the loans and guarantees in the amount of $4,344,110.10; 2) treble damages arising out of the state court action in the amount of $13,323,330.00; and 3) attorney fees in the amount of $120,404.97. [Id. , p. 1].²

On January 11, 2018, Trustee filed a Motion to Dismiss Case alleging that Debtor is ineligible for Chapter 13 relief because he has unsecured debt in excess of 11 U.S.C. § 109(e)'s current eligibility limit. [Doc. # 34, p. 1]. At the February 22, 2018 hearing on Trustee's Motion, the court set the matter for an evidentiary hearing to be held on April 6, 2018. [Doc. # 53].

At the April 6, 2018 evidentiary hearing on Debtor's Chapter 13 eligibility, Trustee rested her case on the amounts shown on Debtor's Schedules and the amounts claimed by interested creditors. Creditors First Federal and Skymark presented both documentary and testimonial evidence in support of their position that Debtor owed amounts in excess of § 109(e)'s limits at the time of filing. First Federal and Skymark contend that Debtor's loan obligations to First Federal were, and still are, liquidated and noncontingent within the meaning of § 109(e). First Federal introduced its Proof of Claim with attachment [Ex. FF 1] and a summary of Debtor's business' commercial loan balances that show a total amount owed of $4,592,029.08.³ [Ex. FF 2]. Skymark also introduced exhibits that outline a state court proceeding involving First Federal that led to the appointment of a receiver and the liquidation of Debtor's business. [Ex. Skymark 1–12]. All 15 exhibits offered by First Federal and Skymark were admitted without objection.

First Federal's representative, Gwen Micham, testified that she personally handled First Federal's financial relationship with Debtor and his business. Ms. Micham testified that Debtor and First Federal entered into an agreement that provided for the restructuring of the financial obligations of Debtor's business [Ex. Skymark 1, p. 20] and that said agreement underwent four amendments. Relevant here, the restructuring agreement, and its four amendments by incorporation, contains stipulations to the effect that Debtor, Debtor's wife, and Debtor's business have defaulted on the promissory notes and that First Federal maintains the ability to pursue immediate payment from the borrowers and guarantors. [Id. , pp. 24–25, 40, 44, 48, 52]. The documents presented were all signed by Debtor. [Id. ].

Pursuant to the fourth amendment executed on September 29, 2014 [Id. , p. 51], a document authenticated by Ms. Micham, Debtor consented to the appointment of a receiver for the liquidation of his business in exchange for First Federal's promise that Debtor's outstanding commercial loan obligations would be forgiven if the receiver met, with Debtor's assistance, a liquidation recovery target of $1,800,000.00.⁴ [Id. ]. The fourth amendment expressly provides that: 1) the real property of Debtor's business was excluded from the receiver's target calculation; and 2) Debtor, Debtor's wife, and Debtor's business both recognized and reaffirmed the debts outlined in all related loan documents. [Id. , p. 51–52].

Per Ms. Micham's testimony, the receiver's target of $1,800,000.00 set forth in the fourth amendment was not met. [Ex. Skymark 10, p. 3]. Specifically, Ms. Micham testified that First Federal has only received $1,320,715.08 from the receiver's liquidation of Debtor's business and that Debtor has not made any additional payments on his outstanding obligations. [Ex. FF 2]. Consequently, Debtor remained liable on the commercial guarantees as of the date of his petition, in the amount of $4,592,029.08. This amount was reflected on First Federal's commercial loan summary [Ex. FF 2] and promissory notes. [Ex. FF 1, pp. 6, 9, 12, 17, 20, 23, 26, 29, 55, 57]. Ms. Micham further testified that the discrepancy between the commercial loan summary ($4,592,029.08) [Ex. FF 2] and First Federal's Proof of Claim attachment ($4,331,565.36) [Ex. FF 1, p. 4] resulted from First Federal originally failing to include two additional debts owed by Debtor and his business in their proof of claim.

Debtor's counsel argued that Debtor has satisfied the terms of First Federal's offer of debt forgiveness via his assignment of a life insurance policy to First Federal [Ex. Skymark 1, p. 234–35] and thus his debts do not violate § 109(e)'s threshold limits. Debtor's counsel further argued that: 1) the debts owed First Federal are contingent and unliquidated given the ongoing state court action; 2) First Federal's claim misstates the amounts owed; and 3) Debtor's signed commercial guarantees should be regarded as secured by Debtor's personal and real property. Debtor did not provide any documentary or testimonial evidence in support of his position aside from reference to the documents provided by First Federal/Skymark and Debtor's counsel's cross-examination of Ms. Micham.

LAW AND ANALYSIS

11 U.S.C. § 109(e) governs an individual's eligibility to file a case under Chapter 13 of the Bankruptcy Code. It provides:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $394,725 and noncontingent, liquidated, secured debts of less than $1,184,200, or 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 the petition, noncontingent, liquidated, unsecured debts that aggregate less than $394,725 and noncontingent, liquidated, secured debts of less than $1,184,200 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e).⁵

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