In re Smith
| Decision Date | 01 February 2019 |
| Docket Number | No. 1:18-bk-13703-SDR,1:18-bk-13703-SDR |
| Citation | 596 B.R. 872 |
| Parties | IN RE: Letitia Edwina SMITH, Debtor |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
Ray Charles Johnson, Jr., Clark & Washington LLC, Chattanooga, TN, for Debtor.
This case came to be heard upon the objection to confirmation filed by creditor Habitat for Humanity of Cleveland, Inc., ("Habitat") and creditor's motion to lift automatic stay. (Doc Nos. 26, 30).1 Letitia Smith ("the Debtor") has filed a response objecting to Habitat's motion for relief from stay. (Doc. No. 33). Following an evidentiary hearing on November 8, 2018, both parties have filed supplemental briefs. (Doc. Nos. 41, 43). At the hearing the Court confirmed with the parties which documents already filed in the case the Court would rely on in reaching its decision. After reviewing the proof of claim, the Court met with counsel for Habitat and the Debtor to outline its preliminary view of the case and requested that Habitat amend its claim to provide the information required by Rule 3001(c)(1) and (2)(A)-(C) of the Federal Rules of Bankruptcy Procedure, which was not included in the original claim. Habitat filed an amended claim on December 28, 2018. (Claim No. 5-3). On January 2, 2019, Habitat filed a Miscellaneous Motion to Supplement the Record. (Doc. No. 48). This motion provided additional allegations regarding changes to the Debtor's employment that occurred after the November hearing.
In this case, the Debtor's second filing pending before the Court within one year, Ms. Smith failed to seek an extension of the automatic stay under 11 U.S.C. § 362(c)(3) within the first 30 days. Therefore, the presumption that the current case was an abusive filing has not been rebutted. 11 U.S.C. § 362(c)(3)(C). Habitat has filed a motion for relief in which it contends that there is no stay in effect. (Doc. No. 30, at p. 2). The Debtor counters that the only stay that terminated is with respect to the Debtor, not the Debtor's residence, which is property of the estate under section 541(a). (Doc. No. 33, at p. 2). Courts are divided on the extent of the stay termination under section 362(c), and the Sixth Circuit has not taken a position on the issue. The extent to which the stay terminated is the first question to be answered.
If the stay is in effect, the next issue is whether the plan meets the requirements for confirmation. Habitat holds two mortgages on the Debtor's home. The Debtor has proposed a plan in which Habitat would receive a maintenance payment for the first mortgage of $ 345 a month and $ 200 over 60 months to cure the arrearage on that obligation, pursuant to section 1325(a)(5). (Doc. No. 2). She lists the arrearage as $ 11,500. She makes no provision for payment of the second mortgage held by Habitat.
The parties stipulate that the debt owed to Habitat is secured solely by the Debtor's principal residence and the last payment due under the notes is not due until after the plan would be completed. Therefore, the debt may not be modified [section 1322(b)(2) ] but defaults may be cured "within a reasonable time" and maintenance payments may continue to be paid [section 1322(b)(5) ]. Habitat has objected to the plan on the basis that the Debtor's plan does not adequately protect its interest. Habitat has argued that (a) almost five years is not a "reasonable time" to cure the default on the first mortgage and (b) that the plan cannot be confirmed because it fails to address the second mortgage at all.
At the hearing and in its brief, Habitat also has called into question whether a plan that is in a state of presumed abuse can be confirmed as filed in good faith and whether this case has been filed in good faith as required by section 1325(a)(3). It also challenges the feasibility of the plan based on the Debtor's income and expenses.
For the reasons set forth below, Habitat's motion for relief is DENIED. Habitat's objections to the feasibility of the plan and the treatment of its secured claim are sustained, and the confirmation of the plan is DENIED. The Debtor shall have 10 days from the entry of the order denying confirmation to amend her plan or the case will be dismissed.
The Court has subject matter jurisdiction over this bankruptcy case pursuant to 28 U.S.C. § 1334 and § 157(b)(2)(G) and (L). This case and all related proceedings have been referred to this Court for decision, pursuant to 28 U.S.C. § 157(a) and the Standing Order of United States District Court, Eastern District of Tennessee, entered July 18, 1984. Venue is proper based on 28 U.S.C. §§ 1408 and 1409.
Having considered the relevant portions in the record in the case including the evidence offered at the hearings and the arguments and briefs of counsel, the Court now makes its findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure as made applicable to contested matters by Rule 9014.
Ms. Smith first filed for relief under chapter 13 of the Bankruptcy Code ("the Code") on April 4, 2017, which was assigned Case No. 1:17-bk-11484-NWW ("2017 Case"). In her initial plan in the prior case, she proposed to pay Habitat a monthly maintenance payment of $ 355 and a monthly arrearage payment of $ 105. (2017 Case, Doc. No. 2, at p. 1). The estimated arrearage listed in her proposed plan was $ 6,104. Id.
Habitat stated in an amended claim that the Debtor owed $ 82,673.12, of which $ 9,533.08 was necessary to cure any default. (2017 Case, Claim No. 2-3). The amended proof of claim does not adequately explain what composed the arrearage. Its attached statement of account reflects that Habitat charged a $ 25 late fee each month from April 2016 to April 2017, totaling $ 325, and another page reflects attorney fees of $ 879.50. Id. at 4, 20. The monthly payment on the first mortgage appears to be $ 345, which included $ 196.47 in principal and interest and $ 148.53 in escrow. Id. at 19. A separate attached page shows an escrow accounting that reflects the payment of taxes, hazard insurance, and a home owner's association fee, totaling $ 1,028.78 for 2016. Id. at 21. The escrow account statement, which also includes a separate hazard insurance payment and a home owner's association fee for 2017, has a cumulative negative balance of $ 2,018.46 for the period of March 2, 2016 to February 27, 2017. Id. Assuming the payments of principal and interest were $ 196.47 per month, the payment arrearage for the 14-month period from March 2016 to April 2017 should have been approximately $ 2,750.58, not the $ 5,803.57 amount shown on the claim attachment. Id. at 19. Adding to the payment arrearage the escrow balance of $ 2,018.46, attorney fees of $ 879.50, and late fees of $ 325, the Court's calculation of the total arrearage is $ 5,973.54. The Court cannot tell what composes the difference between its calculation of $ 5,973.54 and the arrearage amount reflected in Habitat's proof of claim, $ 9,533.08, although most of it seems attributable to the difference in past due principal and interest numbers. Id. at 2.
The account history also shows an initial loan advance on September 15, 2011 as $ 62,122.81. Id. at 20. However, the promissory note that created the debt, also dated September 15, 2011, states the principal amount is $ 70,729.08. Id. at 5. No explanation is provided for this discrepancy.
The Debtor filed an amended plan in the 2017 Case. (2017 Case, Doc. No. 34). In it, she adopted rather than challenged Habitat's arrearage amount. The amended plan provided for an estimated arrearage of $ 9,533 to be paid at the rate of $ 200 a month. Id. at 1-2. The plan also provided for a maintenance payment of $ 355 to be paid by the Trustee and an additional payment of $ 100 to be paid on a second deed of trust "until pre-petition arrears are satisfied." Id. Copies of a second note and its deed of trust were not attached to Habitat's claim filed in the 2017 Case. The amended plan was confirmed August 31, 2017. (2017 Case, Doc. No. 38).
The Debtor made payments for several months. The Debtor developed health problems that caused her to lose her job, and she stopped making payments in January of 2018. A motion to dismiss was filed June 1, 2018, which stated that payments had not been made from January to May. (2017 Case, Doc. No. 47). The 2017 Case was dismissed June 28, 2018, for nonpayment. The trustee's final report reflects that the Debtor paid $ 17,622.90 into the 2017 Case. (2017 Case, Doc. No. 56, at p. 2). Of that, $ 5,387 was refunded to the Debtor and $ 12,235.90 was paid to creditors. Id. Of the sum paid to creditors, Habitat received $ 2,653.93 – 7.4 of the 14 payments of $ 355 that accrued during the 2017 Case – as maintenance payments and $ 1,026.53 on its arrearage. Id. The Debtor offered no proof related to what happened to the $ 5,387 refunded to her.
On August 17, 2018, approximately six weeks after the dismissal, Ms. Smith filed this case for relief under chapter 13 ("2018 Case"). In the current case, Habitat filed a proof of claim for $ 88,199.84 and attached copies of both notes to its proof of claim. (Claim No. 5-1). Each note was secured by its own deed of trust. Now the arrearage initially claimed was $ 13,630.22. Id.
From April of 2017 to August of 2018, Habitat was owed 17 payments of $ 355 a month for $ 6,035.00. In that time, Habitat received $ 2,653.93 toward maintenance payments (2017 Case Doc. No. 56, at p. 2), creating an additional arrearage of $ 3,381.07. In the 2017 Case, Habitat also received $ 1,026.53 toward the arrearage of $ 9,533.08 (2017 Case Doc. No. 56, at p. 2), which should have been a credit to the arrearage. Based on that accrual and the credit, the Court calculates that the arrearage at the time of filing the 2018 case would be $ 11,887.62 ($ 9,533.08 + $ 3,381.07 – $...
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