In re Schreiber

• Decision Date: 21 January 1994
• Docket Number: Bankruptcy No. 91 B 16970. Adv. No. 93 A 00918.
• Citation: In re Schreiber, 163 B.R. 327 (Bankr. N.D. Ill. 1994)
• Parties: In re Elmer J. SCHREIBER and Linda Schreiber a/k/a Linda Spies, Debtors. Linda SCHREIBER a/k/a Linda Spies, Plaintiff, v. The UNITED STATES of America, DEPARTMENT OF the TREASURY INTERNAL REVENUE SERVICE, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

163 B.R. 327 (1994)

In re Elmer J. SCHREIBER and Linda Schreiber a/k/a Linda Spies, DebtorsLinda SCHREIBER a/k/a Linda Spies, Plaintiff, v.The UNITED STATES of America, DEPARTMENT OF the TREASURY INTERNAL REVENUE SERVICE, Defendant.

Bankruptcy No. 91 B 16970. Adv. No. 93 A 00918.

United States Bankruptcy Court, N.D. Illinois, E.D.

January 21, 1994.

Arthur G. Jaros, Jr., Richter & Jaros, Oak Brook, IL, for plaintiff.

David E. Cohen, Skokie, IL, Chapter 7Trustee.

Samuel D. Brooks, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC.

Mayer Silber, Dist. Counsel, I.R.S., Chicago, IL.

MEMORANDUM OPINION

JACK B. SCHMETTERER, Bankruptcy Judge.

This adversary proceeding relates to the bankruptcy petition of Elmer and Linda Schreiber("Schreibers" or "Debtors") filed under Chapter 11 of the Bankruptcy Code,Title 11 U.S.C.Their Plan was confirmed.Pursuant thereto, their house was later sold.The net proceeds of that sale are here in dispute.The United States asserts a tax lien against those proceeds

Ms. Schreiber filed this action partly to determine the extent of the government's lien on Debtors' home.Mr. Schreiber is not a party to this adversary proceeding.Ms. Schreiber contends that, for purposes of the Internal Revenue Service's ("IRS") lien under 26 U.S.C. § 6321, the amount of its allowed secured claim should be determined as of the petition date.She thereby seeks to take advantage of certain work by her attorney during the bankruptcy which resulted in a negotiated reduction of the second mortgage on the house.The home has since been sold and net proceeds resulted.The IRS claims that its lien applies to those proceeds.Pre-bankruptcy, the IRS held a tax lien on Debtors' property of $41,486.92.Ms. Schreiber says that the IRS had no equity to attach to when the bankruptcy was filed, and therefore cannot claim such equity now.

Ms. Schreiber further maintains that Mr. Schreiber's Qualified Individual Retirement Annuity ("IRA") should be excluded from the property subject to the IRS lien when determining extent of that lien.Plaintiff maintains that the IRA is exempt from the IRS lien pursuant to Treasury Regulation 401(a)-13(b)(2), and therefore should be excluded from Debtors' property subject to the lien.Finally, she contends that the government lien on other property, to the extent it applies to her, only applies to the value of "her" portion of those properties because the Schreibers are now divorced.

The IRS argues that the government is an oversecured creditor, as defined by § 506(b), and thereby is entitled to post-petition interest.In addition, the government maintains that there is no legal basis for valuing the Schreiber's residence as of the petition date or for excluding the IRA from the reach of its lien.

The parties herein filed cross-motions for summary judgment.Both parties have made their respective filings required under Local District Rule 12(m) and (n).

For reasons discussed below, the government's allowed secured claim is valued as of the date of sale and at the actual sale price of the home, and Mr. Schreiber's IRA is found to be included in Debtors' property subject to the IRS lien.After those rulings, Debtors' home equity exceeds the amount of the IRS allowed secured claim, and so the IRS lien and claim accrued interest post-petition.

Ms. Schreiber's contentions as to the extent of the government's lien on other property are not supported by authority and are overruled.

Accordingly, by separate order the IRS motion for summary judgment is allowed and that of Ms. Schreiber is denied.Judgment will enter accordingly.

UNDISPUTED FACTS

From the respective filings these facts emerge as undisputed:

When the bankruptcy was filed, in addition to their home and Mr. Schreiber's IRA, Debtors had personal property subject to the IRS lien, and that other property is valued at $23,850.00.¹In addition, Mr. Schreiber owned an IRA valued at $15,856.87.

The Schreibers filed their petition for relief under Chapter 11 of the Bankruptcy Code on August 9, 1991.Their marriage has since been dissolved.Debtors scheduled an IRS secured claim of $40,000.00 pursuant to 26 U.S.C. § 6321, for income taxes, penalties, and interest for the tax periods ending December 1986 and 1987.In addition, an IRS unsecured priority claim for $84,000.00 was scheduled due to an asserted 100% tax liability of Mr. Schreiber as responsible officer of his corporate business under 26 U.S.C. § 6672.The latter claim arose because of withholding taxes owed by Princeton Products, Inc., for tax periods through August of 1991.

The IRS filed proofs of claims on October 11, 1991; December 16, 1991; and July 2, 1993.The amounts sought included $41,486.92 related to the secured claim under § 6321, and $35,016.35 for all IRS unsecured claims under § 6672 for tax periods ending September of 1991.On September 18, 1990, the IRS had recorded a revenue lien against the Debtors in the Cook County, Illinois, Recorder of Deed's office for $33,772.28.Its $41,486.92 secured claim includes pre-petition interest and penalties on top of the recorded revenue lien.

When the bankruptcy petition was filed, the IRS lien against Debtors' residence was subordinate both to a first mortgage having a balance between $65,000.00 and $70,000.00 and a second mortgage of $195,000.00.Thus, on the filing date, the home was encumbered with a total of $265,000.00 in liens superior to that of the IRS.Since the home was appraised at $230,000.00 and ultimately sold for $231,000.00, a sum far less than this total of pre-bankruptcy liens, Plaintiff argues that the Debtors had no equity when the proceeding was filed.Subsequent to the bankruptcy filing, however, through settlement the second mortgage was allowed in the sharply reduced amount of $97,338.12, thereby lowering the total of the two superior liens to $167,661.88, at the time of sale, much less than the sale price.

On May 28, 1992, (nine and one-half months after the bankruptcy filing), Debtors' First Amended Plan of Reorganization as modified ("Plan") was confirmed herein.That Plan provided for sale of the Debtors' residence and for distribution following sale of all proceeds according to priorities of liens under non-bankruptcy law.On April 30, 1993, (eleven months after Plan confirmation) the Debtors' residence was sold for a gross selling price of $231,100.00.After disbursing proceeds in full payment to holders of the two mortgages and paying closing costs, $45,022.59 remained.The parties here each seek some or all of those proceeds.

The actual sale price of $231,100.00 may be compared to the estimated home value of $275,000.00 scheduled by Debtors when they filed in bankruptcy,² the appraised value of that property at $230,000.00, and the Debtors' asking price of $268,500.00.Disclosure Statementat p. 10.Thus, the ultimate sale price was very close to the appraised value reported in the Disclosure Statement, but well below the Debtors' hopes for the sale.

Through litigation and negotiation, the total of mortgage liens on the property was reduced and the house sale produced a surplus.Who gets the benefit, Debtors or the government?

JURISDICTION

These matters are before the Court pursuant to 28 U.S.C. § 157, and are referred here under Local District Rule 2.33.This Court has subject matter jurisdiction under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

SUMMARY JUDGMENT STANDARDS

In order for a party to prevail on a motion for summary judgment, the movant must meet the criteria set forth in Fed.R.Civ.P. 56(Fed.R.Bankr.P. 7056).A summary judgment avoids unnecessary trials when there is no genuine issue of material fact in dispute.Trautvetter v. Quick,916 F.2d 1140, 1147(7th Cir.1990).

The burden is on the moving party to show that no genuine issue of material fact is in dispute.Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202(1986);Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538(1986);Celotex Corp. v. Catrett,477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265(1986).

On a summary judgment motion, inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion.Anderson,477 U.S. at 255, 106 S.Ct. at 2513;Matsushita,475 U.S. at 586, 106 S.Ct. at 1355;Billups v. Methodist Hosp. of Chicago,922 F.2d 1300, 1302(7th Cir.1991).However, the existence of a material factual dispute is sufficient only if the disputed fact is determinative of the outcome under applicable law.Anderson,477 U.S. at 248, 106 S.Ct. at 2510;Howland v. Kilquist,833 F.2d 639, 642(7th Cir.1987).

When the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial and summary judgment should be granted.Matsushita,475 U.S. at 587, 106 S.Ct. at 1356.

Cross Motions for Summary Judgment

When each side seeks summary judgment, that does not by itself indicate that there are no genuine issues of material fact.The Court must rule on each motion separately in determining whether or not each judgment should be entered, in accordance with applicable principles.ITT Indus. Credit Co. v. D.S. America, Inc.,674 F.Supp. 1330, 1331(N.D.Ill.1987)(Shadur, J.);In re Woodstock Assoc. I, Inc.,120 B.R. 436, 442(Bankr.N.D.Ill.1990).SeeC. Wright, A. Miller & M. Kane, Federal Practice and Procedure§ 2720 (2d ed. 1983 & Supp.1987).The Court can deny both motions if both parties fail to meet their burden.ITT,674 F.Supp. at 1331;Wolf v. Maryland Casualty,617 F.Supp. 456, 458(S.D.Ill.1985).SeeC. Wright, A. Miller & M. Kane, Federal Practice and Procedure§ 2720 (2d ed. 1983 & Supp.1987).

However, that is not the result indicated here.For reasons discussed below, Plaintiff's motion for summary...