In re Reis
| Docket Number | Bankruptcy 22-00517-JMM |
| Decision Date | 02 May 2023 |
| Parties | In Re: LAURA T. REIS, Debtor. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Matthew T. Christensen, JOHNSON MAY, PLLC, Boise, Idaho Attorney for Plaintiff.
Matthew W. Grimshaw, Boise, Idaho, subchapter V Trustee.
Andrew S. Jorgensen, Boise, Idaho, Attorney for United States Trustee.
Debtor Dr. Laura T. Reis ("Debtor") filed a bankruptcy petition on November 22, 2022. Doc. No. 1. In doing so, she indicated her intention to file under chapter 11, subchapter V ("Sub V").[1] Id. Matthew W. Grimshaw was appointed as the Sub V trustee ("Sub V Trustee"). Doc. No. 14. On February 6, 2023, the United States Trustee's ("UST") office filed an objection to Debtor's eligibility to proceed under Sub V. Doc No. 32. A brief opposing the objection was filed, and the Court conducted an evidentiary hearing on the objection after which it took the objection under advisement. Doc. Nos. 44 & 45.
On April 13, 2023, while the issue of eligibility was under advisement, a hearing on confirmation of Debtor's proposed plan of reorganization was conducted. Doc. Nos. 37 & 60. The parties generally conceded that all impediments to confirmation, other than eligibility, had been resolved and therefore § 1129(a)(1) was at issue.[2] In the interest of economy, the Court continued the confirmation hearing until eligibility was determined.
After considering the evidence and testimony presented and the submissions and arguments of the parties, as well as the applicable law, this decision resolves the objection. Rules 7052; 9014.
The facts of this case are largely undisputed. Prior to entering medical school, the Debtor held a master's degree in community addictions counseling and worked as a treatment coordinator for a juvenile detention facility. In that job she primarily helped juveniles and their families with the transition back into the community. Having worked in that job for numerous years, she decided that medical school would offer her the ability to care for people in a more complex manner and to provide a higher level of care, but conceded that she also believed a medical degree would increase her income. She did not own a business prior to entering medical school, nor did she have any existing student loan debt.
Between 2005-2009, Debtor attended medical school at the West Virginia School of Osteopathic Medicine. Because she was unmarried and because it is difficult to work outside of medical school classes, Debtor applied for and relied on student loans for educational and living expenses during her medical school years. In total, Debtor incurred about $320,000 in student loans. Ex. 101. When she took out the student loans and began her medical studies, Debtor knew she would first complete a residency upon graduating but did not know where or for whom she would be working afterward. She received a degree and a medical license, and immediately thereafter she completed a three-year residency in Florida. Following completion of her residency, Debtor did not return to the employment she had before entering medical school. Instead, she moved to Connecticut and worked for a hospital for a year. She contracted meningitis and spent time as a patient at Johns Hopkins due to that illness. Thereafter, Debtor took a job in Iowa, again working for a hospital, and after practicing there for a year, she was asked to sign a new contact which she refused to sign, and her employment was terminated.
In 2015, Debtor moved to Boise and worked for Saltzer Health in Nampa, and later worked for Primary Health Medical Group. From 2012 to 2022, she was unable to work from time to time due to health issues, including auto-immune issues and complications from having Covid-19 three separate times. She underwent eight hospitalizations during that time and has had to stop working for a month or two on several occasions. Despite her own health concerns, in August 2021, Debtor opened her own practice. The practice closed on October 15, 2022, due in part to unfortunate timing, as the launch of her practice occurred during the Covid-19 outbreak in the United States and Idaho. In addition, since 2021, Debtor has been providing medical services via a virtual practice called Home Health which offers men's health advice unrelated to her brick-and-mortar operation. Near the time her business closed, Debtor also began employment with the Idaho College of Osteopathic Medicine as an adjunct professor, which employment is ongoing. Ex. 203, p. 35. Debtor testified that the illness she has suffered, and continues to struggle with, along with the Covid-19 outbreak that damaged her practice, are what has hampered her ability to make a better living as a physician.
Debtor has used her medical school training since graduating and has worked continuously as a doctor except when she physically or medically could not. Until 2020, when her first LLC[3] was established and her practice opened, all of her employment, including before she went to medical school, was as an employee for companies not operated by the Debtor, including her work as an adjunct professor.
On October 17, 2018, Debtor filed a chapter 7 bankruptcy petition. Ex. 203. Notably, on Part 16 of the petition, Debtor indicated that her debts, including student loan debt in the amount of $632,723, were primarily consumer debts, although Debtor testified that she had no discussions with her then-bankruptcy counsel about that classification. Id. at pp. 6, 8, 25-27 & 32.
On November 22, 2022, Debtor filed a bankruptcy petition under Sub V. Ex. 201. In this bankruptcy case, Debtor indicated her debts were not primarily consumer debts, and she listed $645,869,89 in student loan debt. Id. at pp. 28 & 30-31. On February 6, 2023, the UST timely filed the instant objection to Debtor's election to proceed under Sub V. Doc. No. 32; Rule 1020(b).
There are some factual issues arising out of Debtor's summary of certain debts in her schedules that affect her eligibility for Sub V: the debt connected to the home where the Debtor resides,[4] the student loan debts, and her vehicle debt. The Court will address each.
In the summary of schedules filed as part of Debtor's Sub V petition, she listed her total liabilities at $1,754,787.73. Ex. No. 201, p. 8. Debtor testified she is not personally obligated on the $673,776 mortgage debt held by Shellpoint Mortgage disclosed in schedule D and included in that summary. She testified that is a separate debt incurred by her husband. On schedule D, the Debtor stated the following: Ex. No. 201, p. 23. This debt encumbers the home in which Debtor resides with her non-filing husband. Debtor does not claim any interest in the home but testified that, for reasons she did not understand, the title company handling the loan closing when the Shellpoint Mortgage debt was incurred prepared a quitclaim deed which listed her as a fee owner with her husband on the home. On this point, Debtor testified when her husband refinanced the loan last summer, that "I somehow ended up on the title." She testified her inclusion as an owner of the home is a mistake and the home, encumbered by the lien, is listed as her husband's sole asset under an executed postnuptial agreement after their marriage.[5] Neither the UST nor the Sub V Trustee object to this characterization for the purposes of this hearing.[6] Therefore, excluding the Shellpoint debt, the Debtor's total scheduled debts are $1,081,011.73.[7]
The Debtor also scheduled student loans and testified that they have a collective unpaid balance of $645,869,89. Ex. No. 201, p. 32 at Part 4. Exhibit 101, a report from the West Virginia School of Osteopathic Medicine, itemizes Debtor's student loans incurred in 2005, 2006, 2007, 2008 and 2009[8] under Perkins, Stafford, Unsubsidized Stafford, Grad Plus and Other. The collective principal amount disclosed on this exhibit is $319,028.34. Ex. 101, p. 5. [9] The Debtor testified the balance of $645,869.89[10]represents the principal plus accrued interest, along with other costs under the loans.
Debtor testified she has a debt which is secured by her automobile. While she did not identify whether she thought this was a business or a consumer debt, her counsel conceded during oral argument that the automobile debt is a consumer debt. This debt is described in schedule D as $29,066.53. Ex. No. 201, p. 23.
Pursuant to § 1182(1)(A), a debtor seeking to proceed under Sub V in 2022[11] must qualify as a "Debtor," which under Sub V:
means a person engaged in commercial or business activities . . . that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount of not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor.
The Debtor has the burden of establishing Sub V eligibility. NetJets Aviation, Inc. v. RS Air, LLC (In re RS Air LLC), 638 B.R. 403, 414 (9th Cir. BAP 2022) ( ...
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