In re Lee-Beam, C/A No. 07-06773-JW (Bankr. S.C. 2/26/2008)
| Decision Date | 26 February 2008 |
| Docket Number | C/A No. 07-06773-JW. |
| Court | U.S. Bankruptcy Court — District of South Carolina |
| Parties | IN RE: Lyn S. Lee-Beam, Chapter 11, Debtor(s). |
Based upon the Findings of Fact and Conclusions of Law made in the attached Order of the Court, U.S. Mortgage's Motion to Dismiss with Prejudice is denied.
This matter comes before the Court on Motion of U.S. Mortgage, LLC ("U.S. Mortgage") to dismiss Lyn S. Lee-Beam's ("Debtor") bankruptcy case. This Court has jurisdiction pursuant to 28 U.S.C. § 1334, and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O). Pursuant to Fed. R. Civ. P. 52, made applicable to this proceeding pursuant to Fed. R. Bankr. P. 7052, the Court makes the following Findings of Fact and Conclusions of Law.1
1. Debtor owns a historic home located on Rutledge Avenue in Charleston, South Carolina ("Home"). For the past twenty-five years, the Home has been operated as a bed and breakfast with Debtor being its most recent owner and operator. Debtor also uses the Home as her residence.
2. On August 23, 2001, Debtor granted Wachovia Bank, N.A. a first mortgage on the Home. The rights of Wachovia Bank, N.A. under the note and mortgage were assigned to U.S. Mortgage.
3. As a result of a slow down in business, due— according to Debtor— to the terrorist attacks of September 11, 2001, Debtor became past due under the note, subjecting the Home to foreclosure.2
4. U.S. Mortgage filed a foreclosure action in Charleston County during December of 2003.
5. Prior to the scheduled foreclosure sale, Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code on March 2, 2004, case number 04-02531 ("First Case").
6. Prior to confirmation of Debtor's chapter 13 plan, the First Case was dismissed on July 21, 2004 for Debtor's failure to make plan payments to the chapter 13 trustee.
7. Debtor testified that she allowed her First Case to be dismissed due to the advice of a loan broker who promised he could obtain sufficient financing to refinance the debt of U.S. Mortgage. Ultimately, the loan broker failed to do so.
8. U.S. Mortgage reinstated its foreclosure action following the dismissal of the First Case and proceeded to sell the Home through a foreclosure proceeding.
9. Prior to the foreclosure sale becoming final, Debtor filed a second case, with the assistance of counsel, under chapter 11 of the Bankruptcy Code, case number 04-14652, on December 9, 2004 ("Second Case").
10. Debtor's schedules in the Second Case stated that the Home had a value of $2.195 million dollars and that her total debts were less than one million dollars.
11. On February 16, 2005, Debtor and U.S. Mortgage entered into a consent agreement allowing Debtor to use the cash collateral of U.S. Mortgage in exchange for Debtor making adequate protection payments to U.S. Mortgage in the amount of $6,000.00 per month.3
12. Debtor filed a disclosure statement and chapter 11 plan in the Second Case on April 8, 2005.
13. The Court approved the disclosure statement and confirmed Debtor's chapter 11 plan on June 9, 2005.
14. The confirmed plan provided that Debtor would market and sell the Home within two years of the effective date of the plan.4 The plan anticipated that all creditors would be paid in full and with interest from the sale of the Home. If the Home failed to sell within two years of the effective date of the plan, the plan provided that Debtor would place the Home for sale with an auctioneer and that the Home would be auctioned within one hundred and twenty (120) days of July 9, 2007. The plan also provided that Debtor would continue to make adequate protection payments to U.S. Mortgage until the Home was sold.
15. The Court closed the Second Case on August 10, 2005, but retained jurisdiction pursuant to 11 U.S.C. § 1142.
16. Since confirmation of the plan, Debtor has made all adequate protection payments due to U.S. Mortgage.
17. Following confirmation of the plan in the Second Case, Debtor listed the Home and associated business for sale with several realtors and a business broker. Debtor received offers for the sale of the Home that exceeded the amount of U.S. Mortgage's mortgage but Debtor did not accept any offers due either to Debtor's dissatisfaction with the purchase price offered or contingencies that could not be fulfilled.5
18. Debtor contacted an auctioneer about the sale of the Home but did not place the Home up for auction. Debtor testified that she decided not to auction the Home due to the depressed housing market and upon the advice of the auctioneer.
19. U.S. Mortgage reinstated the foreclosure action and scheduled the sale of the Home for December 4, 2007.
20. Debtor testified that, prior to the scheduled foreclosure, she was approached by another loan broker, who promised that he could obtain a restructuring of the debt to U.S. Mortgage. This broker also failed to obtain the promised restructuring.
21. Prior to foreclosure, Debtor, acting pro se,6 filed this third bankruptcy case, case number 07-06773, on December 3, 2007 ("Third Case") under chapter 11 of the Bankruptcy Code.7
22. Debtor failed to undertake credit counseling within the one hundred eighty (180) day period prior to the petition date for the Third Case.
23. The Court issued a Rule to Show Cause on December 9, 2007 directing Debtor to show cause why the Third Case should not be dismissed for Debtor's failure to comply with 11 U.S.C. § 109(h).
24. On December 12, 2007, Debtor filed a certificate of credit counseling, which indicated that she received credit counseling on December 11, 2007, eight days after the petition date.
25. Prior to the hearing on the Rule to Show Cause, the Court dissolved the Rule based upon Debtor filing the certificate of credit counseling.
26. Debtor's schedules in the Third Case again estimate that the value of the Home exceeds all of her current debts.
27. On December 19, 2007, U.S. Mortgage filed a motion to dismiss this case with prejudice based upon Debtor's failure to comply with the credit counseling requirement of 11 U.S.C. § 109(h) and based upon Debtor's alleged bad faith in filing this case ("Motion to Dismiss").
28. At the hearing on the Motion to Dismiss, the Court's jurisdiction over the matter was questioned based upon Debtor's ineligibility due to the alleged failure to comply with 11 U.S.C. § 109(h). Lack of jurisdiction might render any decision to dismiss with prejudice or to deny the Motion void. The parties anticipated that any dismissal for untimely credit counseling would likely be without prejudice, which would not prohibit a re-filing of this case and which could delay the Court's decision of similar arguments by U.S. Mortgage if Debtor re-filed this case. Therefore, after consultation with the United States Trustee and in order to argue that any dismissal of this case be with prejudice, U.S. Mortgage orally withdrew and abandoned Debtor's failure to obtain pre-petition credit counseling as a ground for its Motion to Dismiss and proceeded only on the theory that Debtor filed the Third Case in bad faith.
29. Debtor presented testimony as to the value of the Home, the ongoing business operations of the bed and breakfast, her existing debts, her efforts to market and sell the Home, and her efforts to refinance the debt owed to U.S. Mortgage. Several unsecured creditors appeared at the hearing and supported Debtor's current effort to reorganize and opposed the Motion.
30. U.S. Mortgage presented testimony from Eugene A Calejo, a business broker hired by Debtor prior to the petition. Mr. Calejo testified as to offers Debtor received to purchase the Home and his opinion of the current market value of the Home.8
Though U.S. Mortgage withdrew and abandoned Debtor's failure to obtain pre-petition credit counseling as a ground to dismiss this case, a question was raised as to whether the Court may nevertheless lack jurisdiction over this matter based upon the alleged defect and whether any resulting order on the issues may be void for want of jurisdiction. Notwithstanding U.S. Mortgage's waiver of 11 U.S.C. § 109(h) as grounds to dismiss Debtor's case, the Court is required to examine its jurisdiction since parties may not consensually confer jurisdiction upon the Court. See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 118 S.Ct. 1003, 1012-13, 140 L.Ed.2d 210 (1998) (); King's Grant Golf Acquisition, LLC v. Abercrombie (In re T 2 Green, LLC), 364 B.R. 592, 601 (Bankr. D.S.C. 2007). Since it is axiomatic that this Court has sufficient jurisdiction to determine whether it has jurisdiction over the parties and the subject matter, the Court believes it can determine whether any defect in eligibility would deprive it of jurisdiction. See United States v. United Mine Workers, 330 U.S. 258, 290, 67 S.Ct. 677, 694, 91 L.Ed. 884 (1947); Argaw v. Ashcroft, 395 F.3d 521, 523 (4th Cir. 2005).
11 U.S.C. § 109(h) was added to the Bankruptcy Code by Section 106 of BAPCPA. See Pub.L. No. 109-8, § 106 (2005). This new subsection of 11 U.S.C. § 109 provides that an individual may not be a debtor under Title 11 unless the individual obtained credit counseling during the 180-day period prior to the petition date, subject to this requirement being waived by the United States Trustee, the debtor qualifying for a limited waiver to obtain credit counseling post-petition, or the debtor being exempt from the requirement based upon disability, incapacity, or military duty in a military combat zone. See 11 U.S.C. § 109(h). Since only a party eligible to be a debtor may file a voluntary petition under the Bankruptcy Code, this Court has previously dismissed the...
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