In re Patrick Ball, Case No. 06-1002 (Bankr.N.D.W.Va. 5/23/2008), Case No. 06-1002.
| Decision Date | 23 May 2008 |
| Docket Number | Case No. 06-1002. |
| Court | U.S. Bankruptcy Court — Northern District of West Virginia |
| Parties | IN RE: JOHN PATRICK BALL Debtor, Chapter 11. |
John Patrick Ball, an individual Chapter 11 debtor (the "Debtor"), requests that the court grant him a discharge, close his case, and enter an injunction. The Debtor contends that all payments under his confirmed Chapter 11 plan (the "Plan") have been made.
The members of Class 4 object to the motion on the grounds that they have not been paid in full under the Plan. The members of Class 4 are the West Virginia University Foundation (the "Foundation"), and Ward D. Stone, Jr., the Administrator of the Estates of Vivan Davis Michael, Gladys G. Davis, and Earl L. Elmore (the "Administrator"). The Debtor asserts that Class 4 creditors have been paid on the basis that he has executed a promissory note and accompanying security interest in their favor. The Foundation and the Administrator contend that a cash payment is required under the Plan.
For the reasons stated herein, the court will deny the Debtor's motion.
In § 3.5 of the Plan, as confirmed by the court on December 20, 2007, the Foundation and the Administrator are to receive $1,800,000 from distribution from both non-estate assets and from the so-called "Asset Pool," which consisted of about four items of estate property. The Debtor has already liquidated the "Asset Pool." On January 21, 2008, the Debtor reported that the liquidation generated $1,361,850 in receipts, and of that amount $419,163 was disbursed to the Foundation, and $632,914 was disbursed to the Administrator. Subsequently, the Debtor distributed an additional $20,515 to the Foundation and the Administrator; thus, about $727,408 remains to be paid to Class 4 creditors under the Plan.
By agreement, the Debtor, and his non-filing spouse, Anita Ball, granted a security interest to the Foundation and the Administrator in a Florida condominium. The condominium is partly owned by Ms. Ball, but she agreed to pay over her interest in the property to satisfy the amount due under the Plan. The condominium is the non-estate asset referred to in the Plan. According to the Debtor, there is a first mortgage owed to AmSouth Bank in the approximate amount of $200,000, and the condominium is currently being marketed for about $950,000. It is unclear at this time whether or not proceeds from the sale of the condominium will be sufficient to pay the total amount owed to Class 4 creditors after deducting the costs of sale.
Section 4.7 of the Plan provided that the condominium was to be sold no later than March 31, 2008. This has not happened. The condominium, however, is listed for sale through a realtor and is being actively marketed.
In connection with the granting of a security interest in the condominium, the Debtor and Ms. Ball also executed a balloon payment promissory note to the Foundation and the Administrator in the amount of $800,000. No interest is due on the note until March 31, 2008, at which time the note is payable in full. Based on the failure to sell the condominium by that date, the Foundation and the Administrator have the option to declare the entire balance of the note immediately due, and the note is to bear interest from March 31, 2008, at 10% per annum.
The Debtor contends that his case has been fully administered because all the assets required to be liquidated by the Plan (except the condominium) have been liquidated and the proceeds have been distributed to creditors as required by the Plan. The Debtor asserts that the note he and Ms. Ball executed to the Foundation and the Administrator is sufficient to constitute payment to them under the terms of the Plan. Consequently, the Debtor argues, no impediment exists to the entry of a discharge and the closing of his case.
Section 350(a) of the Bankruptcy Code requires the court to close a case after the estate is fully administered. 11 U.S.C. § 350(a). A Chapter 11 case cannot be deemed fully administered until sometime after the plan is "substantially consummated."
"Substantial consummation" is defined in 11 U.S.C. § 1101(2) to mean "(A) transfer of all or substantially all of the property proposed by the plan to be transferred; (B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and (C) commencement of distribution under the plan."
Fed. R. Bankr. P. 3022 governs the closing of a Chapter 11 case. It states that "[a]fter an estate is fully administered in a chapter 11 reorganization case, the court, on its own motion or on motion of a party in interest, shall enter a final decree closing the case." Id. By drafting such loose language, "Congress intended that the bankruptcy courts set the procedure for the closing of a case under title 11." 3 Collier on Bankruptcy ¶ 350.02[2] ().
The 1991 Advisory Committee Note to Rule 3022 lists non-exclusive factors to be considered in determining whether the estate has been fully administered:
(1) whether the order confirming the plan has become final, (2) whether deposits required by the plan have been distributed, (3) whether the property proposed by the plan to be transferred has been transferred, (4) whether the debtor or the successor of the debtor under the plan has assumed the business of the management of the property dealt with by the plan, (5) whether payments under the plan have commenced, and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved.
Fed. R. Bankr. P. 3022, Advisory Committee Note.
These provisions — which preexisted the Chapter 11 changes made by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") to individual cases like this one — were aimed at closing Chapter 11 cases sooner rather than later, and payments under the plan did not have to be completed before the case was closed. Fed. R. Bankr. P. 3022, Advisory Committee Note; see also In re Mold Makers, Inc., 124 B.R. 766, 768 (Bankr. N.D. Ill. 1990) (). Thus, in a non-individual case, substantial consummation generally means the case is fully administered and can be closed. Robert J. Landry III, Individual Chapter 11 Cases After BAPCPA: Can You Still Close the Case Early? 25-6 A.B.I. J. 10, 10 (Aug. 2006); cf. In re SLI, Inc., No. 02-12608, 2005 Bankr. LEXIS 1322 at *7 (Bankr. D. Del. June 24, 2005) ( that substantial consummation and full administration are not necessarily synonymous), aff'd, No. 04-4231, 2006 U.S. App. LEXIS 5188 (3d Cir. March 1, 2006).
After the passage of BAPCPA, however, the preexisting rules allowing for an early Chapter 11 case closing are in conflict with several provisions of the Bankruptcy Code governing the administration of an individual's case. For example: (1) property of the estate is now defined in 11 U.S.C. § 1115 to include the post-petition earnings of a debtor; (2) the debtor is explicitly allowed by § 1123(a)(8) to fund a plan from the debtor's post-petition earnings; (3) the holder of an unsecured claim now has the right under § 1127(e) to seek modification of a confirmed plan; (4) the debtor is subject to the best efforts test in § 1129(a)(15); and (5) pursuant to § 1141(d)(5), no discharge may be entered until all payments have been made under the plan.
These changes mean that individual Chapter 11 cases are now more akin to the administration of cases under Chapter 13 than to the Chapter 11 reorganization of non-individual debtors. Of course, Chapter 13 cases are not closed until after all plan payments have been made and a discharge is entered. As stated by one commentator, these changes "call into question whether closing individual chapter 11 cases `sooner rather than later' is intended post-BAPCPA." Landry, supra, 25-6 A.B.I. J. at 10. At this time, guidance on this issue is left up...
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