In re Sheridan, 08-00110-8-ATS.

• Decision Date: 14 July 2008
• Docket Number: No. 08-00110-8-ATS.,08-00110-8-ATS.
• Citation: 391 B.R. 287
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: In re Paul A. SHERIDAN, Amanda Lee McKee-Sheridan, Debtors.

391 B.R. 287

In re Paul A. SHERIDAN, Amanda Lee McKee-Sheridan, Debtors.

No. 08-00110-8-ATS.

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

July 14, 2008.

Richard D. Sparkman, Angier, NC, for Debtors.

Anna B. Osterhout, Jeffrey M. Cook, Wilson, NC, for Bankruptcy Administrator.

MEMORANDUM OPINION REGARDING TIMING OF DISCHARGE

A. THOMAS SMALL, Bankruptcy Judge.

A combined hearing to consider approval of the debtors' disclosure statement and confirmation of their chapter 11 plan of reorganization was held in Raleigh, North Carolina on July 8, 2008. The debtors' disclosure statement, which had been conditionally approved, contains adequate information and will be approved. Also, the debtors' plan of reorganization meets the confirmation requirements of 11 U.S.C. § 1129(a) and will be confirmed.

In this chapter 11 case the debtors are individuals, and the issue to be addressed in this memorandum opinion is the timing of the debtors' discharges. Should discharge be granted upon completion of all payments under the plan, or, should, as requested by the debtors, discharge become effective, as it would in a chapter 11 case involving a debtor that is not an individual, upon confirmation of the plan? The debtors have followed the court's procedures for requesting that their discharges take effect prior to completion of their plan payments and have shown cause why their request should be granted.

Paul A. Sheridan and Amanda Lee McKee-Sheridan filed a voluntary joint petition for relief under chapter 11 of the Bankruptcy Code on January 7, 2008. As is the custom in this district, an order was entered on January 9, 2008, directing the debtors to file a plan and disclosure statement within 90 days of the petition date. The debtors requested and were granted a 30-day extension, and their plan and disclosure statement were filed on May 6, 2008. The court conditionally approved the disclosure statement on May 7, 2008, and the combined hearing was held on July 8, 2008.¹

Mr. Sheridan is an attorney in Raleigh, North Carolina who specializes in construction law. Mrs. Sheridan is a veterinarian, who is currently unemployed because she is staying at home to attend to the debtors' two-year-old child, who requires care for a serious medical condition. Mr. Sheridan left the practice of law in 2005 and moved to Arizona to become a real estate developer. His timing could not have been worse. The Arizona real estate market collapsed and so did his real estate development business. The debtors returned to North Carolina, and Mr. Sheridan has resumed his law practice. According to Schedule I, Mr. Sheridan's annual income is $100,000, which is somewhat less than he made as an attorney before leaving for Arizona.

The debtors' schedules reflect unsecured debts of more than $1,074,000, most of which are related to failed business ventures in Arizona and are listed as unliquidated, contingent or contested. The debtors' disclosure statement estimates that of the listed unsecured obligations, only $189,000, primarily consumer claims, are liquidated debts.

The debtors' other debts include administrative obligations for their attorney and accountant, an ad valorem tax debt of $3,412 owed to the Pima County, Arizona, unknown priority debt to the Internal Revenue Service and the North Carolina Department of Revenue, a domestic support obligation owed by Mr. Sheridan for child support, a secured debt to Wells Fargo Home Mortgage secured by a deed of trust on their residence in Fuquay Varina, North Carolina, two secured debts to Countrywide Home Loans secured by deeds of trust on the debtors' former residence in Tucson, Arizona, and a secured debt to Vantage West Credit Union secured by a lien on their 2005 Ford F250 truck.

The debtors' assets include their residence in North Carolina, valued at $175,000 subject to a lien of $116,000 in favor of Wells Fargo, their former residence in Arizona valued at $400,000 subject to the two liens aggregating $548,000 in favor of Countrywide, their Ford truck valued at $6,600 subject to the lien in favor of Vantage West of $4,600, net equity of $3,000 in a Jeep owned by Mrs. Sheridan and her mother, an unencumbered inoperable 1971 MGB automobile valued at $4,000, IRA accounts totaling $77,000, personal property valued at no more than $3,000, and nonexempt business investments worth no more than $25,000.

The debtors were residents of two states within 730 days prior to bankruptcy, and under § 522(b)(3), Arizona law applies to the debtors' exemptions. Pursuant to those exemptions, the debtors claimed the equity in their North Carolina home, their IRA accounts, one of their automobiles, and personal household goods as exempt. After accounting for exemptions, assets available to creditors are worth approximately $30,000, and after deducting priority claims of $13,000, the amount available for unsecured creditors is only $17,000.

The debtors' plan includes 9 classes, only one of which, Class IX for general unsecured claims, is impaired. Administrative claims (Class I) will be paid in full at confirmation, taxes (Classes II, III and IV), to the extent there are any owing, will be paid in accordance with § 1129(a)(9)(C), Mr. Sheridan's domestic support obligation for child support (Class V) is current and will be paid each month, the Wells Fargo claim (Class VI) secured by the debtors' North Carolina residence is current and contractual payments will be maintained, the Countrywide claim (Class VII) secured by the debtors' former residence in Arizona will be satisfied by surrendering the residence for foreclosure (which, under Arizona's anti-deficiency statute, will eliminate any remaining unsecured claim), and the Vantage West claim (Class VIII) secured by the debtors' truck is current and contractual payments will be maintained.

The only impaired class, Class IX for general unsecured claims, will be paid a total of $20,000 with interest at the rate of 6% per annum over a period of 5 years in monthly installments commencing within 90 days of the effective date of the plan. The payments will be made pro rata to general unsecured claimants and will be secured by a second deed of trust on the debtors' North Carolina residence. An attorney will serve as the trustee under the deed of trust and may foreclose if payments are not made. The trustee will release the deed of trust when the obligation to the creditors in Class IX is paid in full.

As is typical in chapter 11 cases of this size, few creditors bothered to vote for or against the plan, but there were sufficient acceptances in Class IX to satisfy the requirements of § 1129(a)(7) and § 1129(a)(10). Although one small unsecured creditor did vote to reject the plan, no holder of an allowed unsecured claim objected to the debtors' plan, and, consequently, the disposable income requirement of § 1129(a)(15) is not applicable. The bankruptcy administrator filed a response to the plan, but she generally supported confirmation.

All of the confirmation requirements of § 1129(a) were met and the only remaining issue is the timing of the discharge. In chapter 11 cases that do not involve individuals, confirmation of the plan, unless otherwise provided in the plan or the order confirming the plan, has the effect of a discharge and no separate discharge order is entered. 11 U.S.C. § 1141(d)(1). However, 1141(d)(5)(A) provides that in a chapter 11 case in which the debtor is an individual:

unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any debt provided for' in the plan until the court grants a discharge on completion of all payments under the plan.

Under § 1141(d)(5)(A), the general rule in chapter 11 cases involving...