In re L.B. BRYANT

• Decision Date: 08 October 2010
• Docket Number: No. 4:07-bk-15787 E.,4:07-bk-15787 E.
• Citation: 439 B.R. 724
• Parties: In re L.B. BRYANT and Mary Louise Bryant, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

439 B.R. 724

In re L.B. BRYANT and Mary Louise Bryant, Debtors.

No. 4:07-bk-15787 E.

United States Bankruptcy Court,E.D. Arkansas, Little Rock Division.

Oct. 8, 2010.

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Randy Rice, Rice & Associates, Little Rock, AR, for Debtors.

MEMORANDUM OPINION AND ORDER CONDITIONALLY CONFIRMING CHAPTER 11 PLAN

AUDREY R. EVANS, Bankruptcy Judge.

Now before the Court is the Third Amended Plan of Reorganization proposed by the Debtors, L.B. Bryant and Mary Louise Bryant (the “Third Amended Plan” or “Plan”). Objections have been filed by secured creditors Bank of England (the “Bank”) and the Farm Service Agency (“FSA”). Also before the Court is a Motion to Dismiss filed by the Bank. The Court held an evidentiary hearing on these matters June 29, 2010, and June 30, 2010. Randy Rice appeared on behalf of the Debtors; Stuart Headlee appeared on the Bank's behalf, and Stacey McCord, Assistant U.S. Attorney, appeared on behalf of the FSA. After the close of evidence and closing arguments, the Court denied the Bank's Motion to Dismiss, stated that the Plan would be confirmed but may require some alterations, and took the objections to confirmation under advisement. Having reviewed the evidence, arguments of counsel, and applicable law, the Court finds the Debtors' Plan is confirmable but will require a recalculation of the Bank's claim to account for interest at the contract rate until the effective date of confirmation.

This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The Court has jurisdiction to enter a final judgment in this case. The following shall constitute findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. ¹

INTRODUCTION

The Debtors are lifelong farmers. They have been married 42 years and have lived in their home since 1974. They purchased the farmland at issue in this case between 1975 and 1996. The Debtors' property consists of a 50 acre tract, upon which the Debtors' home and a shop building are located, along with three 20 acre tracts located across the street (this 110 acres is collectively referred to as the “Home Tract”), and approximately 283 acres, ² comprised of a few different tracts, none of which is more than 2 miles from the Home Tract (the “Remaining Tracts”). The Bank holds a first lien on the Home Tract. The exact amount of the Bank's claim is disputed; the figures put into evidence range between $155,105.79 and $169,682.12. FSA holds a junior lien on the Home Tract and a first lien on the Remaining Tracts, the Debtors' crops, and farming equipment. Pursuant to an agreed order entered on a prior objection to confirmation by FSA, FSA holds a secured claim of $425,180.

Several years ago, the Debtors experienced difficulties with their farming operation. Mrs. Bryant began working full-time at a factory a little over five years ago, and the Bryants initially filed for bankruptcy relief under Chapter 12 on November 29, 2005 (4:05-bk-40188). Just over four years ago, Mr. Bryant began working full time (50-60 hours per week) at a factory while farming in his free time. Mrs. Bryant also helps with the farm in her free time by running errands and keeping the books.

The Debtors' Chapter 12 case was dismissed on July 31, 2007, due to the Debtors' failure to timely confirm a plan and failure to file monthly operating reports. Debtors filed their petition for relief under Chapter 13 of the Bankruptcy Code on October 18, 2007, and subsequently converted their case to one under Chapter 11 on November 21, 2007. Debtors have filed four plans of reorganization in this case and have continuously negotiated with their creditors as described herein. They propose to fund their current plan with their wages and farm income.

The objections raised by the FSA and the Bank, as well as the Motion to Dismiss filed by the Bank, are the subject of this Opinion. The Bank moves to dismiss the Debtors' case based on the length of time Debtors have been in bankruptcy without confirming a plan. Pointing to the Debtors' 2005 bankruptcy which was dismissed in 2007, along with this bankruptcy filed in 2007, the Bank argues the Debtors have been in bankruptcy too long without confirming a plan. At the close of the hearing in this matter, the Court orally denied the Bank's Motion to Dismiss, finding that the Debtors are making a good faith effort to propose and confirm a feasible plan of reorganization that will repay their creditors the amounts required by the Bankruptcy Code.

With respect to confirmation of the Debtors' Plan, the Bank objects to the interest rate proposed by the Plan and the extension of the repayment terms on its loans to 12 years. The Bank also argues the Plan is not confirmable and is not feasible in that it calls for approximately $60,000 of annual payments while Debtors are currently operating at a net loss according to their Chapter 11 operating reports. FSA joins the Bank in objecting to the Plan based on feasibility. FSA also objects to the valuation the Debtors have placed on certain equipment the Debtors propose to retain and to the Debtors' proposal to pay FSA $4,000 in exchange for FSA's release of its junior lien attached to the Home Tract. FSA objects to the calculation the Debtors use to value this lien, and asserts that Debtors cannot bifurcate FSA's claim because FSA's loans are cross-collateralized and secured by all of the Debtors' real property.

FACTS

Procedural History

Debtors filed their petition for relief under Chapter 13 of the Bankruptcy Code on October 18, 2007. The Bank moved for relief from the automatic stay (docket # 12) and moved to dismiss the Debtors' case (docket # 11); the Court heard these matters on November 14, 2007, and denied both motions. Subsequently, the Debtors converted their case to one under Chapter 11 on November 21, 2007. Debtors filed a plan of reorganization on April 9, 2008 (docket # 60, the “First Plan”), together with a disclosure statement (docket # 61). The Bank and the United States Trustee filed objections to the adequacy of the disclosure statement (docket # 64, # 65). The Bank's objection was sustained by agreed order (docket # 73), and the Court sustained the United States Trustee's objection after a hearing held on June 17, 2008 (docket # 75). Debtors filed an Amended Disclosure Statement on September 30, 2008 (docket # 85), and a Second Amended Disclosure Statement on November 12, 2008 (docket # 86). The Bank again objected (docket # 90) and filed a motion to dismiss the case (docket # 91). These objections were resolved by agreement, and an order approving the Second Amended Disclosure Statement was entered February 2, 2009 (docket # 103).

Meanwhile, the Debtors had filed their Amended Plan (the “First Amended Plan”) on January 12, 2009 (docket # 94). The Bank accepted the terms of the First Amended Plan (which provided for payment of its claim at 8.5% interest over five years with the balance to be paid off with a balloon note at the end of five years), and based on the agreement reached with Debtors as to the Bank's claim amount and treatment under that plan, the Bank agreed to withdraw its pending motion to dismiss, and an Agreed Order Resolving Motion to Dismiss Chapter 11 Bankruptcy was entered (docket # 99) (the “Agreed Order on Bank's Motion to Dismiss”) on January 20, 2009. The Agreed Order on Motion to Dismiss provided that the parties agreed to cooperate in moving forward in obtaining confirmation of the First Amended Plan and executing the First Amended Plan, and that the Debtors agreed to expeditiously prosecute the confirmation and execution of the First Amended Plan. However, FSA objected to confirmation (docket # 110) because the First Amended Plan proposed no payments to FSA on its secured debt. Mr. Bryant testified he initially proposed no payments to FSA because he thought the debt he owed FSA would be wiped out by the settlement owed him by FSA in the Pigford case. ³ The FSA's objection explained that the Debtors had received a cash settlement of $50,000 in the Pigford case, and debt relief of $355,690.82. The FSA maintained that the Debtors continued to owe $806,301.50, and that its secured claim was worth $425,180. The objection was sustained by an agreed order entered on October 29, 2009 (docket # 149) which set the FSA's secured claim at $425,180. (It is not clear how the FSA arrived at the secured value of $425,180).

Debtors filed their third plan of reorganization (docket # 153, the “Second Amended Plan”) on November 30, 2009. FSA filed an objection (docket # 157), as did the Bank (docket # 158). The Debtors then filed their fourth plan of reorganization (docket # 169, the “Third Amended Plan” or “Plan”) on March 15, 2010. The Bank and FSA subsequently filed objections to confirmation of the Third Amended Plan.

The Debtors' Plan

The Debtors propose to fund their current plan with their wages and their farm income. The Debtors' Plan values the Home Tract at $205,627.31 comprised of a $56,000 value on the residence and 110 acres at $1,362 per acre. The Plan values the Remaining Tract at $382,722 (281 acres at $1,362 per acre). Mr. Bryant testified he originally valued his acreage at $804 an acre but increased the values to $1,362 to match the FSA's secured claim of $425,180. ⁴

The Plan proposes to pay the Bank's claim as of the date of filing with 5.5% interest over a 12-year period. Debtors calculate the Bank's claim to be $155,105.79 as of February 24, 2010, with future monthly payments equaling $1,488.43. The Debtors propose to begin making payments within 60 days of confirmation.

By Agreed Order, the FSA's secured claim is set at $425,180. The Debtors propose to surrender $6,200 of equipment to FSA, and to keep equipment valued at $32,370 and pay that amount to FSA at 5% interest over a five-year period with annual payments of $5,096 due each December 1. ⁵...