In re Merhi, Case No. 1–14–42691 CEC
| Decision Date | 10 October 2014 |
| Docket Number | Case No. 1–14–42691 CEC |
| Citation | 518 B.R. 705 |
| Parties | In re Taghrid Merhi, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Bruce Weiner, Rosenberg, Musso & Weiner, LLP, 26 Court Street, Suite 2211, Brooklyn, New York 11242, Counsel for Creditor
Karamvir Dahiya, Dahiya Law Offices, LLC, 75 Maiden Lane, Suite 506, New York, NY 10038, Counsel for Debtor
DECISION
This matter comes before the Court on motion of a secured creditor, Ms. Georgette Kodsi (“Ms. Kodsi” or “Creditor”), seeking, pursuant to §§ 1307(c) and 362(d)(1), to dismiss the case of Taghrid Merhi (the “Debtor”) or, alternatively, to vacate the automatic stay with respect to the Creditor's interest in real property located at 86 72nd Street, Brooklyn, New York 11209.1 Because the Debtor has insufficient income to pay the amounts required to reorganize under Chapter 13, confirmation of the Debtor's Chapter 13 plan is denied, and the Creditor's motion to dismiss is granted.
This Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 157(b)(2)(G), and (L), 28 U.S.C. § 1334, and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(L). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Bankruptcy Rule 7052.
The following facts are undisputed, except as otherwise indicated.
On February 7, 2008, the Creditor sold the Debtor real property located at 86 72nd Street, Brooklyn, New York 11209 (the “Property”). (Mot. to Dismiss, Case No. 14–42691–CEC, ECF No. 9 at ¶ 2.) In consideration for the Property, the Creditor took two notes, totaling $736,854.17, secured by mortgages on the Property. (Id. ) Under the terms of both notes, the Debtor was obligated to make monthly payments of interest only, at a rate of 10%, for twenty-four months, beginning March 1, 2008 and ending February 1, 2010, and repay the full principal amount on March 1, 2010 (the “Maturity Date”). (Id. )
On January 7, 2010, the Creditor commenced a foreclosure action against the Debtor in Supreme Court, Kings County, Index No. 345/2010. (Mot. to Dismiss Ex. C, Case No. 14–42691–CEC, ECF No. 9–3.) On July 26, 2013, Justice Sylvia G. Ash signed a Judgment of Foreclosure and Sale (the “Foreclosure Judgment”) providing for the sale of the Property and the application of the proceeds to the Debtor's obligation to the Creditor. (Id. ) The Foreclosure Judgment is in the amount of $913,003.23, as of April 29, 2013, plus fees, costs, and interest accruing after that date. (Id. at p. 11.)
On September 30, 2013, the Debtor and Creditor entered into a stipulation (the “First Stipulation”) that canceled the first foreclosure sale, scheduled for October 3, 2013. (Mot. to Dismiss Ex. D, Case No. 14–42691–CEC, ECF No. 9–4 at pp. 2–5.) In exchange for a $20,000 payment, applied to costs of the sale and accrued interest, the Creditor agreed to provide the Debtor until December 2, 2013 to repay the entire judgment in full. (Id. at pp. 3–4.) In the First Stipulation, the Debtor “specifically acknowledge[d] and admit [ted] that ... [the Foreclosure Judgment] was entered in the County Clerks [sic] Office ... and that there are no defenses, offsets or counterclaims thereto and [the Debtor] waive[d] all defect or irregularities, if any, in the [Foreclosure Judgment].” (Id. at p. 2.)
On December 9, 2013, the Debtor and Creditor entered into a second stipulation (the “Second Stipulation”), modifying the language of the First Stipulation, to extend the Debtor's time to satisfy the Foreclosure Judgment by another sixty days. (Mot. to Dismiss Ex. D, Case No. 14–42691–CEC, ECF No. 9–4 at pp. 6–8.) Under the Second Stipulation, the Debtor paid the Creditor $15,000, which was solely in exchange for the extension and not applied to the amount due under the Foreclosure Judgment. (Id. at p. 7.)
On February 7, 2014, the Debtor and Creditor entered into a third stipulation (the “Third Stipulation”) that incorporated the First and Second Stipulations, and further extended the Debtor's time to satisfy the Foreclosure Judgment by an additional sixty days. (Mot. to Dismiss Ex. D, Case No. 14–42691–CEC, ECF No. 9–4 at pp. 9–13.) Under the Third Stipulation, the Debtor was granted an extension of time until April 11, 2014 to repay the Foreclosure Judgment in full. In exchange for this stipulation, the Debtor paid $30,000, of which $1,500 was applied to publication fees, $18,500 to partial payment of the interest accrued post-petition on the Foreclosure Judgment, and $10,000 as a payment to the Creditor for the sixty day extension. (Id. at pp. 10–11.)
The Debtor failed to make any further payments, and the full amount of the Foreclosure Judgment became due on April 11, 2014. (Mot. to Dismiss, Case No. 14–42691–CEC, ECF No. 9 ¶ 3; Mem. of Law in Supp., Case No. 14–42691–CEC, ECF No. 24 at p. 3.) A sale of the Property was scheduled for May 29, 2014. (Mot. to Dismiss, Case No. 14–42691–CEC, ECF No. 9 ¶ 3; Mem. of Law in Supp., Case No. 14–42691–CEC, ECF No. 24 at p. 3.)
The Debtor commenced this case under Chapter 13 of the Bankruptcy Code on May 28, 2014 (the “Petition Date”). (Voluntary Pet., Case No. 14–42691–CEC, ECF No. 1) On June 18, 2014, the Creditor filed a motion to dismiss the Debtor's Chapter 13 case or, alternatively, to vacate the automatic stay with respect to the Property. (Mot. to Dismiss, Case No. 14–42691–CEC, ECF No. 9.) The Debtor filed an Affirmation in Opposition to the Creditor's Motion on July 22, 2014. (Aff. in Opp., Case No. 14–42691–CEC, ECF No. 20.)
This Court held a hearing on July 22, 2014, at which the Court directed the parties to file additional submissions. On July 24, 2014, the Court issued an Order that provided for adequate protection payments in the amount of $6,847.00 per month to be made to the Creditor. (Order, Case No. 14–42691–CEC, ECF No. 22.) Additionally, the July 24th Order directed the Debtor to file a proposed Chapter 13 plan by August 1, 2014. Id.
On August 4, 2014, the Creditor filed a memorandum of law in support to the Motion to Dismiss (Mem. of Law in Supp., Case No. 14–42691–CEC, ECF No. 24.), and, on August 6, 2014, the Debtor filed a Chapter 13 plan (the “Proposed Plan”). (Ch. 13 Plan, Case No. 14–42691–CEC, ECF No. 26.) On August 6, 2014, the Debtor also filed proof of the first adequate protection payment made to the Creditor. (Docs., Case No. 14–42691–CEC, ECF No. 28.) On August 12, 2014, a hearing was held to consider the Creditor's Motion to Dismiss and confirmation of the Debtor's Proposed Plan. At that hearing, the Debtor orally responded to the Creditor's memorandum of law, filed August 4, 2014. On August 21, 2014, the Creditor filed a second memorandum of law to respond to the Debtor's arguments made at the hearing on August 12th. (Sec. Mem. of Law in Supp., Case No. 14–42691–CEC, ECF No. 31.)
Section 1307(c) provides that the court may dismiss a case “for cause” when doing so would be in the best interest of creditors and the estate. In re Palazzolo, 55 B.R. 17, 17 (Bankr.E.D.N.Y.1985). Section 1307(c) provides that cause includes “unreasonable delay by the debtor that is prejudicial to creditors” and “denial of confirmation of a plan under section 1325 of this title.” 11 U.S.C. §§ 1307(c)(1), (c)(5). The Creditor asserts that the Debtor's case should be dismissed, or, alternatively, stay relief should be granted, because the Debtor cannot confirm a plan. The Creditor's Motion to Dismiss was adjourned to give the Debtor additional time to propose a confirmable plan, and the Debtor's Proposed Plan was considered for confirmation at the August 12th Hearing.
The debtor carries the burden of showing that a proposed Chapter 13 plan can be confirmed, which includes an obligation to demonstrate that “the debtor will be able to make all payments under the plan....” 11 U.S.C. § 1325(a)(6). “Section 1325(a)(6) requires from the court to determine whether the debtor will be able to comply with [the] proposed plan in totality.”
In re Lynch, No. 08–46308–dem, 2009 WL 1955748, at *2 (Bankr.E.D.N.Y. July 6, 2009) ; see, e.g., Regan v. Ross, 691 F.2d 81, 86 (2d Cir.1982) ; Connelly v. Bath Nat'l Bank, No. 93–CV–6449L, 1995 WL 822677, at *4 (W.D.N.Y. April 13, 1995) () (quotation omitted). The debtor must show that he or she has sufficient regular income to support the proposed plan. In re Tornheim, 239 B.R. 677, 685 (Bankr.E.D.N.Y.1999). To meet the feasibility requirement, “a debtor's plan must have a reasonable likelihood of success, i.e., that it is likely that the debtor will have the necessary resources to make all payments as directed by the plan.” In re Fantasia, 211 B.R. 420, 423 (1st Cir. BAP 1997) (citations omitted). Here, the Proposed Plan is not confirmable because the Debtor has failed to carry the burden of proof with respect to feasibility of the Proposed Plan, as required by § 1325(a)(6).
By the terms of the Foreclosure Judgment, the Debtor owes Ms. Kodsi $913,003.23, plus costs, fees, and interest since April 29, 2013. Under § 1325(a)(5)(B)(ii), Ms. Kodsi must be paid an amount not less than the value of the allowed secured claim, over the life of the Proposed Plan. Based on the amount of the Foreclosure Judgment and nine percent statutory interest accrued to the date of the commencement of the case, the Debtor would have to pay at least $968,626.05 over the life of the plan (not including interest under the Proposed Plan) to satisfy the Creditor's claim in full.2 When...
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