In re Sofio
| Docket Number | 22-10049-j7 |
| Decision Date | 08 September 2022 |
| Citation | 644 B.R. 875 |
| Parties | IN RE: Gregory Paul SOFIO, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Charles R. Hughson, Attorney for Sarah Beans, Yandell Beans, and Patty Lamb, Rodey, Dickason, Sloan, Akin & Robb, P.A, P.O. Box 1888, Albuquerque, NM 87103-1888.
Leslie D. Maxwell, Attorney for Debtor, Maxwell & Gilchrist, P.C., 7007 Wyoming Blvd. NE, Ste A-1, Albuquerque, NM 87109.
After filing a voluntary petition for relief under chapter 7 of the Bankruptcy Code, Debtor became aware that the largest debt he seeks to discharge is eligible for a chapter 13 super discharge.1 Debtor hired new bankruptcy counsel and filed a Motion to Convert from Chapter 7 to Chapter 13 . Sarah Beans, Yandell Beans, and Patty Lamb (together, "Movants") objected to the Motion to Convert,2 asserting that Debtor does not meet the eligibility requirements for chapter 13 relief because he had no regular income on the petition date and has noncontingent, liquidated, unsecured debts in excess of the debt limits fixed in 11 U.S.C. § 109(e).3 ,4
The Court held a final, evidentiary hearing on the Motion to Convert and took the matter under advisement. Having considered the evidence in light of applicable caselaw, the Court concludes that Debtor is not eligible to be a chapter 13 debtor because on the petition date the Debtor's noncontingent, liquidated unsecured debts, which include indebtedness under two personal guarantees, exceeded the debt limit fixed in § 109(e). Consequently, the Court will deny the Motion to Convert.
Debtor developed commercial properties with Mako Kellman through a company called Anvil Development, LLC, a Washington limited liability company ("Anvil"). Anvil obtained funds from certain people, including Sarah Beans, Yandell Beans, Patty Lamb, Kevin Vo, Alan Zelicoff, and Mary Frederick, for use in Anvil's development of commercial properties.5
On November 15, 2017, Mr. Kellman, on behalf of Anvil, executed a Note payable to the order of Kevin Vo in the original principal amount of $60,000 (the "Vo Note").6 The Vo Note provided for payment of $60,000 in principle plus interest in the amount of $6,000 payable no later than May 15, 2018.7 If Anvil failed to make the payment required under the Vo Note, the Vo Note provides for interest on the principal and interest amount of $66,000 "from their [sic.] due date until paid at the rate of eighteen percent (18%) per annum."8 Debtor signed a Personal Guarantee of the Vo Note (the "Vo Guarantee").9 The Vo Guarantee identifies Mako Kellman and Greg Sofio as "Guarantor" and provides that Mako Kellman and Greg Sofio "personally, severally and jointly unconditionally guarantee the performance of the [Vo] Note[.]"10 Anvil has made no payment under the Vo Note.
On July 16, 2018, Mr. Kellman, on behalf of Anvil, executed a Note payable to the order of Alan Zelicoff and Mary Frederick in the original principal amount of $251,000 (the "Zelicoff/Frederick Note").11 The Zelicoff/Frederick Note provided for payment of $251,000 in principle plus interest in the amount of $5,020.00 if paid no later than September 17, 2018, or, if paid no later than October 17, 2018, payment of $251,000 in principle plus interest in the amount of $7,530.00.12 If Anvil failed to make the payments under the Zelicoff/Frederick Note, the Zelicoff/Frederick Note provides for interest on principal and interest "from their due date until paid at the rate of Twelve percent (12%) per annum."13
Debtor signed a Personal Guarantee of the Zelicoff/Frederick Note (the "Zelicoff/Frederick Guarantee").14 The Zelicoff/Frederick Guarantee provides:
In the event that Anvil Development, LLC fails to make any payment to Alan Zelicoff and Mary Frederick, or fails to perform in any manner with regard to said Note between the two entities, the Guarantor [Debtor] does herby promise to make all payments to Alan Zelicoff and Mary Frederick in the same manner as if they were the Maker of said Note.15
Anvil did not make any of the payments due under the Zelicoff/Frederick Note.
On April 3, 2020, in an action styled Sara Beans, Yandell Beans, and Patty Lamb v. Mako Kellman, Gregory Sofio, and Anvil Development, LLC , Case No. D-202-2019-03797 (the "State Court Action"), the state court entered partial summary judgment against the Debtor and the other named defendants in the State Court Action determining that investment agreements Anvil obtained from Sarah Beans, Yandell Beans, and Patty Lamb violated applicable New Mexico state securities laws.16 After entry of the State Court Memorandum Opinion, Sarah Beans, Yandell Beans, and Patty Lamb filed a motion for partial summary judgment in the State Court Action requesting damages, including interest, attorney's fees, and costs based on the violation of state securities laws as determined in the State Court Memorandum Opinion.17 Debtor opposed the Plaintiffs’ Motion for Damages.18
The day before the scheduled hearing in the State Court Action to determine damages, Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code on January 19, 2022. At the time he was represented by attorney James Clay Hume. Debtor's Schedule E/F included the following unsecured debts:19
| Creditor | Amount | Nature of Debt |
| Duhigg, Cronin, Spring & Berlin, PA (Attorney for Alan Zelicoff and Mary Frederick) | $313,436.14 | Unsecured debt |
| Kevin Vo | $88,173.37 | Unsecured debt |
| Rodey, Dickason, Sloan Akin, and Robb (Attorney for Beans, Beans and Lamb) | $426,084.93 | Unsecured debt |
Debtor's Schedule E/F reflected total unsecured nonpriority debts of $855,069.44.20
Debtor's Schedule I reported that the Debtor was employed in real estate development, but listed $0.00 monthly income.21 Debtor was not employed on the petition date. Schedule I reflects gross monthly income for Debtor's non-filing spouse in the amount of $5,410.49 from her employment as a counselor with Rio Rancho Public Schools.22
After retaining new bankruptcy counsel, Debtor filed Amended Schedules E/F and I on June 10, 2022.23 Debtor's Amended Schedule E/F revised the descriptions of the unsecured debts to Mr. Zelicoff, Ms. Fredrickson, Mr. Bean, Ms. Bean, and Ms. Lamb as follows:24
| Creditor | Amount | Nature of Debt |
| Duhigg, Cronin, Spring & berlin, P.A. (Attorney for Zelicoff and Frederick) | $313,436.14 | Contingent |
| Kevin Vo | $88,173.37 | Contingent |
| Rodey, Dickason, Sloan, Akin & Robb | Unknown | Unliquidated |
Debtor's Amended Schedule E/F reflected unsecured debts in the total amount of $403,984.51.25
Debtor's Amended Schedule I reflects that Debtor is employed as a construction manager earning gross monthly income of $10,000.26 Debtor's Amended Schedule I reflects zero income for the Debtor's non-filing spouse because she did not work as a counselor during the summer months.27 Debtor started his new job with HZ Ops Holdings, Inc. in June of 2022. His annual salary is $120,000.
The total amount due under the Vo Note and Vo Guarantee as of the petition date is $109,679.85.28 The total amount due under the Zelicoff/Frederick Note and Zelicoff/Frederick Guarantee as of the petition date is $359,420.80.29
Eligibility to be a debtor under chapter 13 of the Code is defined in § 109(e), which provides, in relevant part:
Only an individual debtor with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $419,275 ... may be a debtor under chapter 13 of this title.
The unsecured debt limit in § 109(e) is adjusted every three years. 2 Collier on Bankruptcy ¶ 109.06[2][a] (Richard Levin & Henry J. Sommer eds., 16th ed.). As of the date Debtor filed his chapter 7 petition, the unsecured debt limit was $419,275.30 Debts that are either contingent or unliquidated as of the petition date do not count toward the § 109(e) debt limits. In re Barcal , 213 B.R. 1008, 1012 (8th Cir. BAP 1997) () (citation omitted).
The starting point for evaluating eligibility under § 109(e) is the debtor's schedules and the creditors’ proofs of claim. Barcal , 213 B.R. at 1015 () (citation omitted); In re Bello , 609 B.R. 695, 699 (Bankr. E.D. Mich. 2019) (); In re Garcia , 520 B.R. 848 (Bankr. D.N.M. 2014) (). Yet, the Court "should neither place total reliance upon a debtor's characterization of a debt nor rely unquestionably on a creditor's proof of claim" to adjudicate eligibility under § 109(e). Barcal , 213 B.R. at 1015.
Here, Debtor's original Schedules reflected unsecured debts well above the § 109(e) debt limit, but Debtor later amended Schedule E/F to change the nature of the Vo Guarantee and the Zelicoff/Frederickson Guarantee from unsecured to "contingent." Debtor reasons that because none of these parties has sought to collect on the debt, and because Anvil could still pay the debt, the guarantees remain contingent. Debtor's characterization of the Vo Guarantee and the Zelicoff/Frederickson Guarantee as contingent debts is incorrect.
"A debt is noncontingent when all events giving rise to liability occurred prior to the debtor's filing for bankruptcy." In re Reader , 274 B.R. 893, 896 (Bankr. D. Colo. 2002) (citing In re Mazzeo, 131 F.3d 295, 303 (2d Cir. 1997) ). See also In re Adams , 373 B.R. 116, 119-20 (10th Cir. BAP 2007) ( ...
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