In re Scovis, BAP No. CC-98-1064-BKJ
| Decision Date | 05 March 1999 |
| Docket Number | CC-98-1219,Bankruptcy No. SV 96-22481-KL.,BAP No. CC-98-1064-BKJ |
| Citation | 231 BR 336 |
| Parties | In re Arthur Lionel SCOVIS, Debtor. Christen Brun Henrichsen, Appellant, v. Arthur Lionel Scovis and Jenny Scovis, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Christen Brun Henrichsen, pro se.
Karen L. Grant, Grant & Hurlbett, Santa Barbara, CA, for Arthur Lionel Scovis and Jenny Scovis.
Before BRANDT, KLEIN, and JONES, Bankruptcy Judges.
Appellant objected to the debtors' Chapter 13 plan on grounds of ineligibility and lack of good faith. The bankruptcy court overruled appellant's objections and confirmed the plan. Concluding that the debtors' homestead exemption must be considered in determining their eligibility, we REVERSE and REMAND.
Debtors Arthur and Jenny Scovis filed a Chapter 111 petition in February of 1994. At the time, both debtors were attorneys actively practicing law under the law partnership of Scovis and Scovis. The case was converted to Chapter 7 in August of 1994, and their discharge was granted on 13 March 1995.
During the Chapter 7 case, creditor/appellant Christian Brun Henrichsen, also an attorney, obtained judgment declaring the Scovises' debt to him on a state court judgment obtained in 1993 nondischargeable under § 523(a)(6). On appeal, this Panel affirmed, as did the Ninth Circuit in an unpublished memorandum. In re Scovis, 142 F.3d 445 (9th Cir.1998).
In September of 1995, debtor Arthur Scovis underwent quadruple bypass surgery. He was also diagnosed with severe insulin-resistant diabetes, which ultimately left him visually impaired and with a severe disability (his right foot). Shortly thereafter, the debtors filed a Chapter 13 petition, which they voluntarily dismissed in March of 1996 because they wished to resolve certain claim litigation outside the Chapter 13 case, intending to re-file later if necessary.
The Scovises filed the instant Chapter 13 case on 25 October 1996. On 8 November, the debtors filed an apparent amendment to their original petition, in which the "Nature of Debt" was changed from "Business" to "Non-Business," the estimated number of creditors and estimated liabilities were increased, and the signature of their attorney was added. In their schedules, the debtors listed their residence with a value of $325,000, encumbered by a first trust deed in favor of Great Western Bank of $249,026.91 and the Henrichsen judgment lien of $208,000. They claimed a $100,000 homestead exemption under Cal.Civ.Proc.Code (henceforth "CCP") § 704.710. (Presumably the citation should have been to CCP § 704.730(3)). In Schedule D, the Henrichsen claim was listed as unsecured in the amount of $132,026.91; the unsecured portion was not listed in Schedule F. Priority claims of $6,000 and general unsecured claims of $40,499.83 were listed on Schedules E and F, respectively.
The debtors also listed as secured a debt of $4,136.00 to Mary Scovis, Arthur Scovis's mother, for a loan she had made for the purchase a vehicle. However, they had neither executed a written security agreement nor listed Mary Scovis as a lienholder on the title to the car. Approximately a year after the petition, in the final throes of their confirmation battle, the debtors filed a declaration from Mary Scovis in which she waived any unsecured claim.
The plan called for monthly payments over 60 months, resulting in a 4% payout to general unsecured claims of $172,499.83, an amount including the unsecured portion of Henrichsen's claim as Scovises calculated it.
Henrichsen filed a general unsecured claim in November, 1996 for $219,691.06, which included interest to the date of the proof of claim. The debtors did not object.
Henrichsen objected to confirmation, asserting that the debtors' plan had not been proposed in good faith: specifically, that the debtors were misusing the automatic stay to avoid a nondischargeable judgment, that their schedules were inaccurate, and their proposed payments were inadequate. Thereafter, debtors amended Schedule F to delete three creditors who had been paid by insurance or other sources. The general unsecured claims listed totaled $22,919.85. On debtors' motion, Henrichsen's judicial lien against their residence was avoided by order entered on 23 April 1997.
The confirmation hearing was initially set in May, but was continued several times for discovery relating to Henrichsen's objection. In August, the debtors again amended Schedule F, adding a disputed, unliquidated debt to Jeannine Berry, based on a malpractice claim filed against them in Los Angeles County Superior Court in March of 1995. A default judgment for $221,400 had been entered in December 1996 in violation of the automatic stay.
In September Henrichsen filed a supplemental memorandum and a declaration in support of his objection to confirmation and request for dismissal, first raising the issue of eligibility, based on the addition of the Berry claim. The court continued confirmation to 20 October for briefing on the issue. Mary Scovis's somewhat equivocal declaration regarding her claim was filed as an exhibit to debtors' final prehearing memorandum. In that declaration, she asserted an undocumented security interest in the vehicle but waived any unsecured claim.
At the 20 October hearing, the bankruptcy judge determined that the debtors met the eligibility requirements, treating Henrichsen's lien as partially secured by the value of debtors' home in excess of the first deed of trust, notwithstanding the exemption. Concluding that the Berry claim was not discharged in the Chapter 7 case, but was unliquidated on the petition date, the bankruptcy judge excluded it from the eligibility calculation. In addition, the court found that Henrichsen had not overcome the debtors' responses to his various allegations of bad faith, but declined to make specific findings.
The order denying objection to confirmation was entered 17 November 1997. Henrichsen moved for reconsideration, asserting that the court had never ruled on his objection to debtors' expenses. The court agreed to entertain argument on that issue at a continued confirmation hearing, and in January of 1998 conditioned confirmation on the reduction of some budget items. The debtors filed an amended Chapter 13 plan on 10 February 1998, reflecting those reductions in expense items. Henrichsen filed another objection to confirmation, this time asserting that the plan did not meet the best interests test, that the debtors had manipulated figures, that the debtors had omitted any explanation of why no Social Security disability payments were scheduled, and complaining that there was no provision for the sale of non-exempt assets. None of these objections were raised in this appeal.
At a hearing on 9 March 1998, the bankruptcy court confirmed the debtors' amended plan, entering an order on 17 March 1998. The confirmed plan provided for monthly payments of $659.00 and a 5% payout to unsecured creditors. Henrichsen timely appealed.
Whether the debtors' unsecured debts exceeded the Chapter 13 eligibility limit of § 109(e).
If debtors were eligible, whether their plan was proposed in good faith.
We review statutory interpretation issues in Chapter 13 plan confirmations de novo. In re Martin, 156 B.R. 47, 49 (9th Cir. BAP 1993); In re Wenberg, 94 B.R. 631, 633 (9th Cir. BAP 1988), aff'd 902 F.2d 768 (9th Cir.1990).
A bankruptcy court's determination of the amount of the debts to be included in the eligibility calculation is a finding of fact reviewed under a clearly erroneous standard, see In re Loya, 123 B.R. 338, 340 (9th Cir. BAP 1991), as is the determination that a Chapter 13 plan is proposed in good faith. In re Padilla, 213 B.R. 349, 352 (9th Cir. BAP 1997) (citing In re Metz, 820 F.2d 1495, 1497 (9th Cir.1987)). A finding of fact is clearly erroneous if the reviewing court is left with the definite and firm conviction that a mistake has been committed. Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
According to Henrichsen, the debtors' unsecured debts exceeded $250,000 on the petition date, thus rendering the Scovises ineligible for Chapter 13 relief. Section 109(e) then provided that "only an individual with regular income that owes, on the date of filing the petition, noncontingent, liquidated, unsecured debts of less than $250,000 ... may be a debtor under Chapter 13 of this title."
Henrichsen asserts that his judgment lien was wholly unsecured on the petition date. He reaches this conclusion by taking the value of the debtors's residence of $325,000 and deducting the debtors' homestead exemption of $100,000. Because the remaining $225,000 is less than the secured claim of Great Western Bank, he asserts that his debt was completely unsecured. Henrichsen argues that California law renders his judgment lien unenforceable, because there was no equity in the property after deducting prior secured interests and the homestead exemption. CCP § 704.780(b). Moreover, he argues the debtors knew the debt was unsecured, because they planned to avoid the lien, as evidenced by the acknowledgment of debtor's counsel of a $500 deposit for filing the motion.
Henrichsen's calculation is:
Priority unsecured claims $ 6,000.00
General unsecured claims
per original schedules $ 40,499.83
Henrichsen claim (as filed) $219,691.06
Mary Scovis claim $ 4,136.00
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Total Unsecured Claims $270,326.89
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His proof of claim included interest to the date of the proof of claim, rather than to the petition date; recalculating the interest to the petition date results...
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