In re Greene
| Decision Date | 28 January 1986 |
| Docket Number | Bankruptcy No. 85 B 20497. |
| Citation | 57 BR 272 |
| Parties | In re Lawrence B. GREENE and Helena Greene, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Otterbourg, Steindler, Houston & Rosen, P.C., New York City, for Gibraltar Corp. of America; Morton L. Gitter, of counsel.
Stephens & Buderwitz, White Plains, N.Y., for Mfrs. Hanover Trust Co.; Joseph M. Buderwitz, of counsel.
Barr & Faerber, Spring Valley, N.Y., for debtors; Harvey S. Barr, of counsel.
DECISION ON MOTION TO CONVERT CASE TO CHAPTER 7 OR TO DISMISS CASE.
Gibraltar Corporation of America ("Gibraltar") the holder of both a secured and an unsecured claim in this Chapter 11 case, has moved for an order pursuant to 11 U.S.C. § 1112(b) converting this case to a case under Chapter 7 of the Bankruptcy Code, or for dismissal of the case. Manufacturers Hanover Trust Company ("Trust Company"), which also holds a secured claim in this case, has joined with Gibraltar in support of the motion. The debtors, Lawrence B. Greene and his wife, Helena Greene, oppose the motion. The debtors annexed to their opposing papers a purported plan of reorganization which "contemplates the sale of the debtors' single greatest asset, their house in Larchmont, New York." The "plan" proposes that all of the debtors' creditors will be paid over a ten-year period, commencing nine months after confirmation. The debtors intend to repair and sell their residence in Larchmont, New York and apply the net proceeds of the sale to the payment of expenses of administration and priority claims in this case, followed by a payment to all allowed secured claim holders, with the balance, if any, to be applied towards a payment to unsecured claims and for use by the debtors "to further their business interests in order to generate the income necessary to make continuing payments in future years."
1. On August 27, 1985, this court determined that the separate Chapter 13 cases filed with this court by the debtors, Lawrence B. Greene, and his wife, Helena Greene, on March 13, 1985, should be dismissed because the debtors were ineligible for relief under Chapter 13. The court found that their debts exceeded the statutory maximum of unsecured and secured amounts delineated in 11 U.S.C. § 109(e). The debtors' appeals of the dismissal of their Chapter 13 cases are still pending.
2. The debtors' home in Larchmont, New York is encumbered by a first mortgage held by Trust Company, as reflected by the secured claim which it filed in this case in the amount of $108,894.32. Trust Company had obtained a judgment of foreclosure and sale in the New York State Supreme Court, Westchester County, on April 18, 1985.
3. On September 6, 1985, this court entered orders in the debtors' Chapter 13 cases determining that Gibraltar holds a secured claim against the debtors' home in the amount of $270,000 resulting from two separate mortgages, each in the sum of $135,000. The orders further recite that Gibraltar's total claim against the debtors, including the secured claim of $270,000, amounted to $954,356.08. The debtors' obligation to Gibraltar arose out of the personal guarantees which the debtors issued to Gibraltar in consideration for Gibraltar's financing the accounts receivable of a zipper manufacturing company that the debtors once operated and which has since been liquidated under Chapter 7 of the Bankruptcy Code.
4. In addition to the first mortgage of approximately $108,894.32, and Gibraltar's secured claim of $270,000, the debtors' home is also subject to a judgment lien that was entered in favor of P.A. Building Company in the then amount of approximately $117,000. Thus, when the debtors' Chapter 13 petitions were dismissed by this court the total secured claims filed against their residence approximated $495,894.32, exclusive of interest and unpaid real estate taxes.
5. On October 21, 1985, the day before the mortgage foreclosure sale scheduled by Trust Company, the debtors filed with this court their second petition for relief; this time a joint petition under Chapter 11 of the Bankruptcy Code.
6. The moving parties have established, and the debtors do not deny, that the debtor, Lawrence B. Greene, is a self-employed manufacturer's representative and has a take home income from commissions earned of approximately $500 per week. The debtor, Helena Greene, has no present income. Hence, other than the commissions earned by the debtor, Lawrence B. Greene, as a manufacturer's representative, there is no other business for which reorganizational relief is sought.
7. The debtors' only asset, except for some potential tax refunds, is their Larchmont, New York home. They reside in a fashionable three-story Mediterranean style house which is located on approximately one acre of property with an in-ground swimming pool, overlooking Long Island Sound. The house is on a dead end street in a choice neighborhood with a view of the boats on the Sound. Mr. Greene could not recall how many rooms their house had.
8. Mr. Greene testified that the house is worth approximately $500,000. He said that with some repairs, including some painting, replacing some gutters and leaders, lawn work and grass work and cleaning the swimming pool, the property would be worth between $750,000 and $1,000,000. Mr. Greene testified that he and his family could do about 80% of the work themselves and that the cost would amount to between $3000 and $4000.
9. The debtors have not paid any real estate taxes or insurance premiums with respect to their house for more than two years. The current real estate taxes on the house are in excess of $12,000 per year. The debtors' bankruptcy schedules reveal that $1229.95 is owed to the Larchmont Water Department and that the Con Edison utility debt amounts to $2449.40.
10. Gibraltar has declared that it is the debtors' single largest secured and unsecured creditor and that it will not consent to the debtors proposed ten-year plan. Moreover, Gibraltar contends that the debtors are financially incapable of achieving a confirmation of their proposed Chapter 11 plan, which Gibraltar argues was filed in bad faith on the eve of the scheduled foreclosure sale. Gibraltar points to the fact that the debtors' plan contemplates that no payments will be made to any creditors until nine months after confirmation, whereas the debtors are residing in their fashionable house, rent free and tax free while the taxes and insurance premiums continue to accrue and the creditors are deprived of the use of the money owed to them.
11. The debtors contend that they wish to repay their creditors in full over a period of ten years. They agree that their house must be sold in order to commence payments to their creditors, but argue that they should be given until nine months after confirmation before any repayments would begin in order to allow them sufficient time to upgrade their house in order to maximize the sales price. Gibraltar and Trust Company declare their objection to the debtors' Chapter 11 plan because the debtors ceased making mortgage payments on their house more than two and one-half years ago and have failed to pay real estate taxes or insurance premiums for their house. The moving parties assert that the debtors' Chapter 11 petition was filed in bad faith, without any hope of reorganization, on the eve of the scheduled foreclosure sale with respect to their home, which is their sole asset. The moving parties state that the debtors' Chapter 11 petition "was filed solely to take advantage of the automatic stay, so that they could continue their rent free, tax free occupation of their house . . . while appealing the myriad judgments which have been entered against them without the necessity of obtaining appeal bonds." Application of Gibraltar in support of the motion, dated December 18, 1985 at 1-2.
A motion to convert or dismiss a Chapter 11 case for cause is authorized under 11 U.S.C. § 1112(b). In determining what constitutes cause within the meaning of this section, the court may consider nine statutorily enumerated factors, including:
(1) continuing loss or diminution of of the estate and absence of a reasonable likelihood of rehabilitation.
A number of cases dealing with motions to convert or dismiss under 11 U.S.C. § 1112(b) have imposed as an additional ingredient of a Chapter 11 petition that it be filed in good faith, notwithstanding that good faith is not expressly stated as a factor to be considered for purposes of determining cause for conversion or dismissal. E.g. In re Winshall Settlor's Trust, 758 F.2d 1136, 1137 (6th Cir.1985); Furness v. Lilienfield (In re Lilienfield), 35 B.R. 1006 (D.Md.1983); In re Chesmid Park Corporation, 45 B.R. 153 (Bankr.E.D.Va. 1984); In re Levinsky, 23 B.R. 210, 9 B.C.D. 791 (Bankr.E.D.N.Y.1982); In re 299 Jack-Hemp Associates, 20 B.R. 412 (Bankr.S.D.N.Y.1982); Paccar Financial Corp. v. Pappas (In re Pappas), 17 B.R. 662 (Bankr.D.Mass.1982); In re Eden Associates, 13 B.R. 578, 17 B.C.D. 1190 (Bankr.S.D.N.Y.1981); First Interstate Bank v. Weathersfield Farms, Inc. (In re Weathersfield Farms, Inc.), 14 B.R. 574 (Bankr.D.Vt.1981) aff'd. 15 B.R. 282 (D.Vt. 1981); In re Nancant, Inc., 8 B.R. 1005, 7 B.C.D. 410 (Bankr.D.Mass.1981). This point was expressed recently by the Sixth Circuit Court of Appeals as follows:
Factors relevant in examining whether a Chapter 11 petition has been filed in good faith include whether the debtor had any assets, whether the debtor had an ongoing business to reorganize, and whether there was a reasonable probability of a plan being proposed and confirmed. Id. In re Dolton Lodge, Trust No. 35118, 22 B.R. 918 (Bankr.N.D.Ill.1982) at 923; see In re Eden Associates, 13 B.R. 578, 585 (Bankr.S.D.N.Y.1981) (); see also In re Tinkoff...
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