In re Scotto-DiClemente

• Decision Date: 18 November 2011
• Docket Number: No. 11–28230(MBK).,11–28230(MBK).
• Citation: 459 B.R. 558
• Parties: In re Luigi SCOTTO–DICLEMENTE, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

459 B.R. 558

In re Luigi SCOTTO–DICLEMENTE, Debtor.

No. 11–28230(MBK).

United States Bankruptcy Court, D. New Jersey.

Nov. 18, 2011.

Jacqueline Rocci, Esq., Metuchen, NJ, for Debtor.

Elizabeth K. Holdren, Esq., Hill Wallack LLP, Princeton, NJ, for Creditor, Amboy Bank F/K/A Amboy National Banks.

MEMORANDUM DECISION

MICHAEL B. KAPLAN, Bankruptcy Judge.I. INTRODUCTION

This matter comes before the Court upon the motion (the “Motion”) of Amboy Bank F/K/A Amboy National Banks (the “Creditor” or “Amboy”) to dismiss Luigi Scotto–DiClemente's (the “Debtor”) Chapter 13 case. The Court has reviewed the pleadings submitted and heard oral argument on October 11, 2011. For the reasons which follow, the Court finds that the Debtor is not entitled to be a debtor under Chapter 13 and therefore grants Amboy's Motion.

II. PROCEDURAL HISTORY/FACTS

On December 15, 2003, the Debtor executed and delivered a Note to Amboy in the principal amount of $180,000. As security for the loan, and in connection with the Note, on December 15, 2003, the Debtor executed and delivered to Amboy a mortgage (the “First Mortgage”) on the Debtor's primary residence located at 23 Snyder Ave., Keansburg New Jersey (the “Property”). The First Mortgage was subsequently recorded with the Clerk of the Monmouth County on February 11, 2004. The Debtor defaulted on the First Mortgage by failing to pay the August 2009 monthly installment and each payment due thereafter.

On April 27, 2005, the Debtor executed and delivered a Choice Equity Line of Credit to Amboy, in the principal amount of $75,000 (the “Equity Line”). As security for the Equity Line, on April 27, 2005, the Debtor executed and delivered to Amboy a second mortgage (the “Second Mortgage”) on the Property, which was recorded with the Clerk of Monmouth County on June 1, 2005. The Debtor defaulted on the Second Mortgage by failing to pay the August 2009 installment and each payment due thereafter. With respect to the Equity Line, the Debtor requested Amboy convert the outstanding balance to a 15 year fixed rate loan.

On October 9, 2008, A & T, Inc., d/b/a Romer's Restaurant & Pizza (“Romer's”) executed and delivered to Amboy an Installment Note, in the principal amount of $363,279.57. In connection with the Installment Note, on October 9, 2008, the Debtor executed and delivered to Amboy a General and Continuing Guarantee. In connection with this Installment Note, the Debtor executed and delivered a third mortgage (the “Third Mortgage”) to Amboy on the Property, which was recorded with the Clerk of Monmouth County on October 29, 2008. The Debtor defaulted under his Guarantee in connection with the Third Mortgage by failing to pay the August 2009 monthly installment and each payment due thereafter.

On August 19, 2010, the Debtor filed a Chapter 7 Bankruptcy Petition with the United States Bankruptcy Court for the District of New Jersey under Case No. 10–35480. On December 10, 2010, the Debtor received a Chapter 7 Discharge. The Debtor filed the within Chapter 13 petition 6 months later on June 14, 2011, under Case No. 11–28230. The Debtor is ineligible to receive a discharge in the pending case. The Debtor's schedules reflect that the Property is subject to Amboy's First, Second, and Third Mortgages. The only other secured creditor listed on the Debtor's schedules is Credit Acceptance, with respect to a 2002 Jeep Liberty. The Debtor's Chapter 13 Plan treats Credit Acceptance as unaffected, and Debtor's Schedule D indicates that the Debtor pledges to continue to make regular payments to Credit Acceptance outside of the Plan. The Debtor also lists two unsecured creditors with claims totaling $1,482.00. The Plan proposes to cure the arrears owed to Amboy on the First Mortgage and strip off the Second and Third Mortgages, paying a pro rata distribution from any remaining funds to unsecured creditors.

Amboy filed the within motion to dismiss the Debtor's Chapter 13 case for cause, originally returnable for September 27, 2011. Oral Argument was heard on October 11, 2011, and the Court reserved its decision.

III. JURISDICTION

The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (B), (K), and (O). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The following constitutes the Court's findings of fact and conclusions of law as required by Fed. R. Bankr.P. 7052.¹

IV. DISCUSSIONA. Motion to Dismiss Under 11 U.S.C. § 1307(c) for Cause

1. 11 U.S.C. § 1307(c) Standard

Under 11 U.S.C. § 1307(c), a Chapter 13 petition may be dismissed “for cause.” In re Lilley, 91 F.3d 491, 496 (3d Cir.1996). Even though § 1307(c) lists eleven grounds for dismissal, courts are not confined to the grounds enumerated under this section, and may consider the debtor's failure to comply with other sections of the Code in deciding whether there is “cause” for a dismissal of a Chapter 13 case. Lilley, 91 F.3d at 494 (“It is an established rule of construction for bankruptcy statutes that ‘includes' and ‘including’ are not limiting.” (citing 11 U.S.C. § 101(3)). See, e.g., P.C. Pfeiffer Co. v. Ford, 444 U.S. 69, 77 n. 7, 100 S.Ct. 328, 62 L.Ed.2d 225 (1979) (noting that “including” indicates that enumerated items are part of larger group)); see also In re Orawsky, 387 B.R. 128, 136–137 (Bankr.E.D.Pa.2008); see also Grandstaff v. Casey (In re Casey), 428 B.R. 519, 522 (Bankr.S.D.Cal.2010) (“Section 1307(c) of Title 11, United States Code, provides a non-exhaustive list of grounds for dismissal for cause, including ‘unreasonable delay by the debtor that is prejudicial to creditors' ”).

Amboy contends that the Debtor filed the within Chapter 13 case in bad faith. Specifically, Amboy takes issue with the Debtor's proposal to cure the arrears due to Amboy on the First Mortgage, while striping-off the Second and Third Mortgage liens on the Property. In this regard, Amboy argues that the Debtor's filing of the within case only six months after having received a Chapter 7 discharge to avoid Amboy's Second and Third Mortgages, evidences the Debtor's bad faith. The Third Circuit has recognized that filing a Chapter 13 case in bad faith is sufficient cause for dismissal under § 1307(c). In re Lilley, 91 F.3d 491, 496 (3d Cir.1996); see also In re Roth, 2010 WL 2485951, *1–2, 2010 Bankr.LEXIS 1939, *3–5 (Bankr.D.N.J. June 14, 2010) ². Similarly, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amendments to the Bankruptcy Code explicitly indicate that a Chapter 13 plan must be filed in good faith. In re Roth, 2010 WL 2485951, *1–2, 2010 Bankr.LEXIS 1939, *3–5 (Bankr.D.N.J. June 14, 2010) (citing 11 U.S.C § 1325(a)(7)). Once a creditor alleges that a plan was filed in bad faith, the burden shifts to the debtor to prove by a preponderance of the evidence that the bankruptcy petition was filed in good faith. In re Tamecki, 229 F.3d 205, 207 (3d Cir.2000).

As there is no clear definition in the Code as to what constitutes good faith, bankruptcy courts must look at the totality of the circumstances when making such a determination. In re Goddard, 212 B.R. 233, 238 (D.N.J.1997). Factors the court may consider are:

(1) the nature of the debt, (2) the timing of the petition, (3) how the debt arose, (4) the debtor's motivation in filing his petition, (5) how the debtor's actions affected creditors, (6) the debtor's treatment of creditors both before and after the petition was filed, and (7) whether the debtor has been forthcoming with the bankruptcy court and the creditors.

In re Myers, 491 F.3d 120, 125 (3d Cir.2007) (citing In re Lilley, 91 F.3d at 496). The Court may take other relevant aspects into consideration, as no one factor is controlling. In re Goddard, 212 B.R. 233, 238 (D.N.J.1997). Additionally, actual fraud need not be proven to support a finding of bad faith.

In re Dye, 346 B.R. 669, 671 (D.Del.2006). In order to assess whether the Debtor filed the within Chapter 13 case in good faith, the Court must first address whether the Debtor can use a “Chapter 20” to strip-off residential mortgage liens.

B. “Stripping Off” Liens Under 11 U.S.C. § 1325(a)(5)

1. Lien–Stripping limitations under Chapter 13

In Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991), the Supreme Court held that a mortgage lien for which a debtor previously obtained a discharge of personal liability under a Chapter 7, remains a claim that can be treated under a Chapter 13 plan. Johnson v. Home State Bank, 501 U.S. at 84, 111 S.Ct. 2150. Following the decision in Johnson, the Supreme Court considered in Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), whether Code sections 506(a) and 1322(b)(2) granted a Chapter 13 debtor the ability to strip-down partially unsecured residential mortgage liens. See generally Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). Under 11 U.S.C. § 1322(b)(2), Chapter 13 debtors have express legislative authority to modify the rights of the holders of consensual mortgage claims. See 11 U.S.C. § 1322(b)(2). In light of this grant of authority, the debtors in Nobelman sought to strip-down a partially secured mortgage lien by utilizing § 506(a) to bifurcate the bank's secured proof of claim, consistent with the collateral's value, and then applying § 1322(b)(2) to void the unsecured portion of the lien. 508 U.S. at 326, 113 S.Ct. 2106. Relying on § 506(a), the debtors' Chapter 13 plan proposed that the debtors would make payments only up to the amount of the secured portion of the mortgage lien pegged to the value of the underlying collateral, with remainder of the bank's claim to be treated as unsecured. Id. The bank and the Chapter 13 trustee...