In re Roberts

• Decision Date: 14 June 1982
• Docket Number: Bankruptcy No. 181-11706-21.
• Citation: 20 BR 914
• Parties: In re Roy and Mary ROBERTS, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of New York

20 B.R. 914 (1982)

In re Roy and Mary ROBERTS, Debtors.

Bankruptcy No. 181-11706-21.

United States Bankruptcy Court, E.D. New York.

June 14, 1982.

COPYRIGHT MATERIAL OMITTED

Norman P. Horwitz, P.C., New York City, for debtors; Bruce L. Weiner, Brooklyn, N.Y., of counsel.

Philip Irwin Aaron, P.C., Jericho, for Ninth Federal Sav. and Loan Ass'n; Stuart Gelberg, Jericho, of counsel.

Kenneth Kirschenbaum, Garden City, trustee.

OPINION

CECELIA H. GOETZ, Bankruptcy Judge:

In this Chapter 13 proceeding brought under Title 11 of the United States Code, the debtors, Roy and Mary Roberts, have objected to the claim filed by Ninth Federal Savings and Loan Association ("Ninth Federal"), a secured creditor holding a mortgage on the debtors' principal residence. Although Ninth Federal originally opposed confirmation of the debtors' plan, which has as its principal objective curing arrearages on the mortgage held by Ninth Federal, the parties have resolved all differences between themselves, except the figure, if any, to be allowed Ninth Federal for attorneys' fees as part of the claim to be paid under the plan.¹

I. THE STANDING OF THE DEBTORS

Before the merits of the debtors' objection can be reached, a procedural issue raised by Ninth Federal must be resolved. Ninth Federal questions the debtors' standing to object to its claim. 11 U.S.C. § 502(a) provides that a claim filed under § 501 is allowed "unless a party in interest * * * objects." Ninth Federal asserts that a Chapter 13 debtor is not a party in interest. That position is lent some support by the authoritative text, Collier on Bankruptcy, which evidently deems the issue to be controlled by Bankruptcy Rule 306(b) and concludes that "it is the better view that the debtor himself is not a party in interest within the meaning of Rule 306(b)." 3 Collier on Bankruptcy § 502.01, at 502-12 (15th ed. 1982). But Collier suggests that in the redraft of the bankruptcy rules made necessary by the 1978 legislation, "there should be some inclination to concede to the debtor a role beyond that of a mere passive agent for the trustee in the matter of the allowance of claims against the debtor's assets particularly in respect of such claims which will survive the debtor's discharge." Id. at 502-12—502-13.

Essentially, denial to a debtor of the status of a party in interest under Bankruptcy Rule 306(b) has rested on the lack of a pecuniary interest in an insolvent debtor in how his assets are distributed. 3 Collier on Bankruptcy ¶ 57.172.1, at 275-77 (14th ed. 1977). The controlling considerations were well set forth by the Eighth Circuit in Kapp v. Naturelle, Inc., 611 F.2d 703, 706-07 (8th Cir. 1979):

"The term `party in interest\' is not defined in the Act. Courts construing the provision have reasoned that the interest must be a pecuniary interest in the estate to be distributed. Thus, since the bankrupt is normally insolvent, he is considered to have no interest in how his assets are distributed among his creditors and is held not to be a party in interest. In re Woodmar Realty Co., 241 F.2d 768 (7th Cir. 1957); In re Pramer, 131 F.2d 733 (7th Cir. 1942); Gregg Grain Co. v. Walker Grain Co., 285 F. 156 (5th Cir. 1922), cert. denied, 262 U.S. 746, 43 S.Ct. 522, 67 L.Ed. 1212 (1923). However, when it appears that, if the contested claims are disallowed, there may be a surplus of assets to be returned to the bankrupt, the bankrupt is considered to have standing to contest the claims. In re Community Neighbors, Inc., 287 F.2d 542 (7th Cir. 1961); In re Woodmar Realty Co., supra. See generally 3 Collier on Bankruptcy ¶ 57.172.1 (14th ed. 1977); Annot., 64 A.L.R.2d 889 (1959). Cf., In re J.M. Wells, Inc., 575 F.2d 329 (1st Cir. 1978); Hartman Corporation of America v. United States, 304 F.2d 429 (8th Cir. 1962) (the bankrupt is not a `person aggrieved\' within the meaning of 11 U.S.C. § 67(c) and lacks standing to appeal from an order of the bankruptcy court allowing or disallowing claims unless he has demonstrated a pecuniary interest in the outcome)." (Footnote omitted) Id.

As the quotation shows, where a pecuniary interest exists, standing has been accorded a debtor and there can be no question of the pecuniary interest of a Chapter 13 debtor in the claims which will have to be paid out under his plan. Since the claims are paid out of current income, the higher the claim, the greater the impact on the debtor and his dependents. A debtor is directly affected by each and every claim filed. No one has a greater interest in seeing that no claim is allowed that should be disallowed, and that no claim is allowed for a greater amount than the maximum to which the creditor is entitled. Words would be drained of their ordinary meaning if a debtor were not deemed to be a "party in interest."

Collier appears to have overlooked in its discussion of § 502 of the Code (which applies to cases under Chapters 11 and 13, as well as Chapter 7 (11 U.S.C. § 103(a))) that objections to claims in Chapter XIII proceedings under the Act did not fall under Bankruptcy Rule 306, but under Bankruptcy Rule 13-307. Although the language of Bankruptcy Rule 13-307, insofar as pertinent, is identical with Bankruptcy Rule 306, Collier in its pre-Code commentary did not view that rule as precluding a Chapter XIII debtor from objecting to a claim independent of the trustee. See 15 Collier on Bankruptcy ¶ 13-307.04, at 13-307-5 (14th ed. 1977). In short, whatever the rule may have been in liquidation proceedings, the debtor's right to object to claims in a rehabilitation proceeding has never been questioned. Accordingly, this Court entertains no doubt whatsoever of the standing of the debtors herein to object to the claims of Ninth Federal.²

II. THE FACTS

The facts are not in dispute and can be briefly stated. The debtors, Roy Roberts, and his wife, Mary Roberts, live at 218-30 110th Avenue, Queens Village, New York. The present value of their home is said to be $45,000, and was purchased with the help of a mortgage given by Ninth Federal carrying 8½ percent interest. The current monthly payments to Ninth Federal are $288.

Mr. Roberts is employed as a splicer by Con Edison; his wife is unemployed; she takes care of their three children, ages 17, 13, and 3. Sometime in 1980, the Roberts fell behind on their mortgage payments. On April 14, 1981, Ninth Federal wrote them, advising them that the matter had been referred to an attorney for the commencement of foreclosure proceedings, and that they would thereafter be required to pay legal fees, as well as past-due payments and late charges. The matter was, in fact, referred on that day to the law firm of Philip Irwin Aaron, P.C. ("Aaron"), which was instructed to commence foreclosure proceedings.

On May 21, 1981, prior to the initiation of such foreclosure proceeding, Mr. and Mrs. Roberts filed a Chapter 13 petition. Under their plan, $150 a month was to be paid the Chapter 13 trustee for thirty-six months. From this sum, the Chapter 13 trustee was to pay off the mortgage arrears to Ninth Federal stated to total $1,646.41, and various other obligations of the debtors. Unsecured creditors were to receive approximately 30 percent of what was owed them.

In order to demonstrate their ability to make the payments under the plan, the Roberts submitted a budget which allows all five members of the family only $30 a month for clothing for the life of the plan, and $10 a month for newspapers, periodicals, and books, including school books, although two of the children are of school age. The total allowance for recreation for these five people is $15 a month.

Ninth Federal, prior to receiving notice of the Chapter 13 proceeding, but after that proceeding had begun, began a foreclosure proceeding in the state court. In connection with that proceeding, Philip Irwin Aaron, Esq., a member of Aaron, affirms that he has expended three hours of his own time, and 1.75 hours of his secretary's time, and has incurred, and will incur, expenses of $273. According to Mr. Aaron, if the Chapter 13 plan is successfully completed, it will require an additional hour of work to discontinue the foreclosure proceeding. His affirmation adds that his office, which handles between 400 and 600 foreclosure proceedings a year, has adopted a base fee schedule which provides for a fee in the amount of $350 for foreclosure, and an additional fee of $150 for discontinuance of such proceeding should the debtor complete a Chapter 13 program; that the loan made by Ninth Federal is guaranteed by the Federal Housing Administration, and "they have found that this schedule is fair and reasonable." Mr. Aaron states that his normal billing rate for comparable nonbankruptcy foreclosure proceedings is $150 an hour. For the foreclosure proceeding alone, Ninth Federal requests attorneys' fees and expenses of $773.

Ninth Federal objected to the debtors' plan on several grounds: the plan did not include its legal fees and expenses which Ninth Federal calculated to be $1,223; the plan did not allow it interest on its arrearages, and also, according to Ninth Federal, the plan understated the amount of those arrearages, put by Ninth Federal at $2,304.72. Ninth Federal filed a proof of claim consistent with those figures.

The parties have agreed that at the time the petition was filed, Mr. and Mrs. Roberts were in arrears on their mortgage in the amount of $2,105.11, not $2,304.72 as claimed by Ninth Federal, and owed late charges in the amount of $102.16, so that Ninth Federal was owed in all $2,207.27. Further, it has been agreed that this amount will be repaid, with 12.5 percent interest, over the life of the plan. Based on this agreement, the debtors filed an amended plan increasing their monthly payments to $170 per month. What remains in dispute is the legal fees, if any, to be paid Ninth Federal which is seeking payment in the plan of $1,223 based on legal fees and disbursements in the...