In re Salazar

• Decision Date: 15 August 2006
• Docket Number: No. 05-16058 HRT.,05-16058 HRT.
• Citation: 348 B.R. 559
• Parties: In re Ernest Andrew SALAZAR, Jr., and Kathryn Diane Salazar, Debtors.
• Court: U.S. Bankruptcy Court — District of Colorado

348 B.R. 559

In re Ernest Andrew SALAZAR, Jr., and Kathryn Diane Salazar, Debtors.

No. 05-16058 HRT.

United States Bankruptcy Court, D. Colorado.

August 15, 2006.

COPYRIGHT MATERIAL OMITTED

Stephen E. Berken and Jennifer Pielsticker, Law Offices of Stephen E. Berken, Denver. CO, for Debtors.

Charles H. Torres, Charles H. Torres, C.. Denver, CO, Michael Cooksey, Cooksey

& Cooksey, P.A.; and Porya Mansorian, for the Judson Creditors.

ORDER FINDING THAT DEBTORS ARE ELIGIBLE FOR CHAPTER 13 RELIEF

HOWARD R. TALLMAN, Bankruptcy Judge.

This case comes before the Court on Debtors' Amended Chapter 13 Plan Dated: October 7, 2005 (docket # 48) [the "Amended Plan"]; Debtors' Motion to Confirm Chapter 13 Plan Dated October 6 [sic], 2005 (docket # 50) [the "Motion to Confirm"]; and Judson Creditors' Renewed Objection to Debtors' Amended Chapter 13 Plan (docket # 77) [the "Objection"].

Beginning on January 20, 2006, the Court held a two day evidentiary hearing limited to issues relating to the Debtors' eligibility to be chapter 13 debtors under 11 U.S.C. § 109(e). The parties submitted written closing arguments regarding eligibility. The Court has reviewed the various pleadings filed in this matter and considered the evidence and argument presented at hearing.

I. BACKGROUND

The Debtors filed their chapter 13 petition on March 23, 2005. The bankruptcy filing was precipitated by lengthy state court litigation in Weld County, Colorado, to which Mr. Salazar was a party. Mr. Salazar is the owner of businesses that engage in construction activities and mortgage services. Mrs. Salazar also works in those businesses. The Judson Creditors are a group comprised partly of individuals who are plaintiffs in that Weld County litigation as well as other similarly situated individuals who do not appear to have become involved in that lawsuit. Each of the Judson Creditors claim, to have been defrauded by Mr. Salazar in connection with a series of real estate investments. Eight proofs of claim have been filed on behalf of the individual Judson Creditors. Those proofs of claim allege unsecured debts that total over $4.6 million. All of those proofs of claim relate to the Judson Creditors' allegation that they have been defrauded by Mr. Salazar. The Debtors' Plan is a 60 month plan that provides escalating payments that begin at the level of $850.00 per month and end at the level of $2,300.00 per month for the final 12 months of the plan term. The Debtors estimate that approximately $58,000.00 will be shared by all of the unsecured creditors, including the Judson Creditors. The Judson Creditors' Objection raises issues with respect to the Debtors' chapter 13 eligibility under § 109(e). Because all Plan confirmation issues are moot if the Debtors are ineligible for chapter 13 relief, the Court chose to address eligibility as an initial matter in this separate proceeding.

II. DISCUSSION

A. Objection to Admission of Exhibits

At hearing, the Debtors objected to the admission of certain exhibits, which had not been provided to the Debtors by the Judson Creditors in a timely manner in accordance with the Court's scheduling order. The Court took the matter under advisement. Admission of those exhibits is denied. Requiring exhibits to be exchanged several days before a proceeding insures that the parties have had an opportunity to examine documents that will be used in the hearing. It prevents unfair surprise and insures that a hearing will not be delayed because a party needs to take time to review voluminous documents during the proceeding. The Judson Creditors gave an insufficient explanation for the failure to abide by this Court's scheduling order.

However, the Judson Creditors are not harmed by the Court's denial of admission with respect to those exhibits. As the Court notes in its discussion, it finds that it must limit its examination of evidence at this eligibility stage to the Debtors' schedules; the filed proofs of claim; and other limited evidence bearing directly upon the good faith and reliability of the schedules and proofs of claim. Therefore, the Court finds it necessary to disregard much of the voluminous evidence that it heard during this proceeding.

B. Eligibility Under 11 U.S.C. 109(c)

The provisions of 109(e)¹ control eligibility for relief under chapter 13. That section provides that

Only an individual with regular income that owes, on the date of the filing of petition, noncontingent, liquidated, unsecured debts of less than $307,675 and noncontingent, liquidated, secured debts of less than $922,975, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $307,675 and noncontingent, liquidated, secured debts of less than $922,975 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e) (West 2005). The Debtors have scheduled secured debts well below the eligibility threshold reflected in § 109(e) and no issue has been raised with respect to the total of the Debtors' secured debts. The focus of the Court's eligibility determination, therefore, is upon the amount of the Debtors' unsecured debts. If the debtors owed noncontingent, liquidated, unsecured debts, on the petition date, in excess of $307,675.00, then they are ineligible for relief under chapter 13 and the case must be dismissed.

On their bankruptcy schedules, the Debtors have scheduled total unsecured debts in the amount of $129,544.00. But, this amount differs greatly from the total amount of unsecured claims that have been filed in this case.

The following table lists all of the timely filed proofs of claim in this case:

                No.   Creditor               Total Claim       Secured         Priority      Unsecured        Judson Creditors
                1     Target                        $490.03                                        $490.03
                2     Chevron                       $267.24                                        $267.24
                3     VW Credit                  $17,977.69      $17,977.69
                4     AmEx Travel                $42,011.30                                     $42,011.30
                5     Kohl's Dept. Store            $135.91                                        $135.91
                6     IRS                        $21,688.51                    $21,622.13           $66.38
                7     World Savings             $245,955.60     $245,955.60
                8     B-Line, L.L.C.              $2,130.67                                      $2,130.67
                9     B-Line, L.L.C.              $1,421.38                                      $1,421.38
                

                10    Ford Motor Credit          $14,213.90      $14,213.90
                11    NCCMC                       $1,915.81                                      $1,915.81
                12    eCAST/HSBC Bank             $1,317.98                                      $1,317.98
                13    eCAST/HSBC Bank               $517.77                                        $517.77
                14    Centennial Bank            $10,907.67      $10,907.67
                15    Centennial Bank             $6,921.05       $6,921.05
                16    Sherman Acquisition         $2,268.95                                      $2,268.95
                17    Sherman Acquisition         $5,884.32                                      $5,884.32
                18    Richard & Louise
                      Parish                  $1,043,000.00                                  $1,043,000.00    $1,043,000.00
                19    James Leatherwood         $517,000.00                                    $517,000.00      $517,000.00
                20    Kevin & Diane
                      McCarley                  $897,370.00                                    $897,370.00      $897,370.00
                21    Leyan Duhart              $445,733.34                                    $445,733.34      $445,733.34
                22    Randy Anglin              $423,000.00                                    $423,000.00      $423,000.00
                23    Robert Rivas              $435,000.00                                    $435,000.00      $435,000.00
                24    Jamie Judson              $820,520.00                                    $820,520.00      $820,520.00
                25    Sak's Fifth Ave.            $1,735.34                                      $1,735.34
                26    Daimler Chrysler
                      Services                   $24,451.14      $18,650.00                      $5,801.14
                27    Abel Ramirez               $44,500.00                                     $44,500.00       $44,500.00
                      Totals $5,028,335.60 $314,625.91 $21,622.13 $4,692,087.56 $4,626,123.34
                

The total of the unsecured claims (priority and general) filed in the case is $4,713,709.69. It will be immediately recognized that the difference between the relatively modest amount of unsecured claims scheduled by the Debtors and the total of the filed proofs of claim is accounted for by the claims filed by members of the Judson Creditors group. Claims filed by the Judson Creditors account for $4,626,123.34 (98%) of the total of the filed unsecured proofs of claim.

C. Eligibility Analysis

An important issue the Court confronts in this case is the level of analysis that it must apply to the Judson Creditors' claims in order to determine the Debtors' eligibility for relief under chapter 13. Determination of eligibility for relief under chapter 13 is a threshold matter that should be determined on a summary basis without the need for extensive evidence. See, e.g., In re Slack, 187 F.3d 1070, 1073-74 (9th Cir.1999); In re Arcella-Coffman, 318 B.R. 463, 472 (Bankr.N.D.Ind.2004) ("Any solution that would require the Court to engage in a lengthy fact finding process would add dramatically to the cost of chapter 13, inject an unwarranted element of uncertainty into the section 109(e) analysis and hamper the rehabilitative goals of chapter 13.").

Chapter 13 eligibility has been analogized to the determination of whether or not a federal district court has diversity jurisdiction over a case based on the amount of the claim asserted in the complaint. Comprehensive Accounting Corp v. Pearson (In re Pearson)...