In re Wood
| Decision Date | 27 February 2019 |
| Docket Number | CASE NO. 18-52419-PMB |
| Parties | In re: GAIL SENIDA WOOD, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
IT IS ORDERED as set forth below:
This case came on for hearing before the Court on the confirmation of the Debtor's Chapter 13 Plan (Docket No. 56)(the "Plan") on November 8, 2018 (the "Hearing"). Counsel for the Debtor and counsel for Melissa J. Davey, the duly appointed Chapter 13 trustee in this case (the "Trustee"), appeared at the Hearing. No other creditors or parties in interest appeared at the Hearing or filed objections to confirmation of the Plan.
The Plan provides for monthly payments of $1,275.00 for an applicable commitment period of sixty months. The Plan provides for the cure of an arrearage on the Debtor's home loan of $6,656.91. The Plan also provides for the payment of $9,806.00 for a domestic support obligation, $3,000.00 for the fees of the Debtor's attorney, and $4,201.00 for an amount the Debtor asserts she owes to the Internal Revenue Service (the "IRS"). After those priority claims are paid, the Plan proposes to pay "a pro rata portion of the larger of (1) the sum of $39,199.00 and (2) the funds remaining after disbursements have been made to all other creditors provided for in this [P]lan" to the nonpriority unsecured creditors of the Debtor.1 Finally, the Plan provides that the Debtor's approximately $20,000.00 in student loans are in deferment and will be paid by the Debtor outside of the Plan.
At the Hearing, the Debtor and the Trustee agreed that the Plan is ready for confirmation, subject to the resolution of a single issue - whether the Plan complies with 11 U.S.C. § 1325(a)(4), otherwise known as the "best interest of creditors test."2 The Debtor and the Trustee each filed a brief (each a "Brief") on this issue on November 30, 2018 (see Docket Nos. 68 and 69). Neither party filed a response to the Brief of the other (see Docket, passim).
The dispute regarding the "best interest test" results from the fact that the value of the Debtor's home substantially exceeds the sum of the liens secured by the home and the Debtor's exemption in the home - in other words, there is substantial "equity" in the Debtor's home. In such circumstances, to satisfy the "best interest test," the Debtor must pay to her nonpriority unsecured creditors an amount at least equal to what they would receive if the case was a caseunder Chapter 7, the home was sold by the Chapter 7 trustee, the liens, exemption and other costs of sale were paid, and proceeds were distributed to creditors. The dispute in this case is precisely how that hypothetical calculation is to be conducted.
As noted previously, the Plan provides that the nonpriority unsecured creditors of the Debtor will receive, at minimum, a pro rata share of $39,199.00. The Debtor has $60,092.96 of such creditors based on filed claims,3 meaning that those creditors will receive, at minimum, an approximately two-thirds distribution on their claims under the Plan. The Trustee asserts that, using an appropriate calculation, the required distribution to nonpriority unsecured creditors would exceed $60,092.96, and thus the Debtor must propose a plan that pays those creditors 100% to satisfy the "best interest test."4
At the Hearing and in the Briefs, the parties have raised a number of issues regarding the relevant calculation. In summary, they are:
1. Valuation. What is the relevant date to value the home, and what is the value of the home on that date? The Debtor asserts that the Court must value the home as of February 12, 2018, the petition date in this case, and submits a value of $368,500.00 as of that date; the Trustee asserts that the appropriate valuation date is November 8, 2018, the date of the Hearing, and accepts the Debtor's July appraisal of $375,000.00 as the value for that purpose.
2. Costs of Sale. How should the costs of sale be determined? The Debtor asserts that the Court should apply a 10% factor for costs of sale, and then also subtract the Chapter 7trustee's statutory commission. The Trustee asserts that the Debtor can either use a 6% brokerage commission for the costs of sale and add the actual Chapter 7 trustee commission, or use 10%, but cannot use both.
3. Calculation of Chapter 7 Trustee's Commission. The Debtor asserts that the Chapter 7 trustee's statutory commission under 11 U.S.C. § 326 would be charged on the gross sales price of the home, less the Debtor's exemption. The Trustee asserts that the commission should not be payable on amounts paid to holders of security deeds who would (or could) be paid by the closing attorney upon the sale of the home, rather than directly by the Chapter 7 trustee. The Trustee also subtracts the commission paid to the real estate broker before calculating the Chapter 7 trustee's commission.
4. Deduction of Unfiled Priority Tax Claim. The Debtor subtracts from her required payment the amount provided in the Plan to be paid to the IRS, which has not filed a claim in this case. The Trustee did not include such a deduction.
These issues are addressed below in turn.
"Effective Date" and Valuation
For the Plan to be confirmed, 11 U.S.C. § 1325(a)(4) requires that:
[T]he value, as of the effective date of the plan, of property to be distributed under the plan on account of each unsecured claim is not less than the amount that would be paid on such claim of the estate of the debtor were liquidated under Chapter 7 of this title on such date[.]
The term "effective date of the plan" is not defined in Title 11 of the United States Code (the "Bankruptcy Code"). Courts have generally taken two views as to the appropriate date in thiscontext. Some have held that the petition date is the effective date of the plan;5 others have held that the date of the hearing on the confirmation of the plan is its effective date.6 Unfortunately, few of the cases actually arise in the context of confirmation,7 and even fewer contain any real analysis of the issue.
Two leading bankruptcy treatises also take opposite views. Citing only to a few of the cases taking the "filing date" view, Collier on Bankruptcy states that using the "filing date" is the most "logical and practical method for such valuation." 8 COLLIER ON BANKRUPTCY ¶ 1325.05[2][a] (A. Resnick & H. Sommer eds., 16th ed. 2018). It supports that conclusion through a discussion of some perceived difficulties in determining what property constitutes property of the estate and what exemptions might apply, as well as alleged burdens on the debtor associated with frequent postpetition amendments to the schedules, if a later date is used.8 Even in its own explanation, however, Collier seems to acknowledge that the term "effective date ofthe plan" really means the date on which the plan is confirmed.9 All in all, the analysis of this issue in Collier is hardly compelling.
In contrast, Chapter 13 Practice and Procedure states that "[logically], a plan's effective date cannot occur before it is confirmed." W. Homer Drake, Jr., et al., CHAPTER 13 PRACTICE AND PROCEDURE § 7.9 (2014-2 ed.). It goes on to observe that a proper analysis of the present value of the payments to be made under a plan would require a calculation as of the date when the plan payments begin— the confirmation date.10 The treatise then concludes that, because the statute requires the date of hypothetical liquidation and the date of the present value determination to be the same,11 the "effective date of the plan" must be the confirmation date.12
This Court agrees with Chapter 13 Practice and Procedure and finds that the "effective date of the plan," for the purposes of Section 1325(a)(4) of the Bankruptcy Code, is the date of the hearing on confirmation. It simply does not make sense that the term "effective date of the plan" could mean the petition date. First, the phrase itself suggests that the date must be a date on whichthe plan is effective. Since a plan is not otherwise binding or enforceable prior to the time it is confirmed,13 selecting the petition date as the "effective date" is simply inconsistent with the words used by Congress to describe the target date. Second, Congress clearly knows how to identify the petition date in the bankruptcy context when it intends to use it as a date of determination.14 There is no reason to think that Congress would use a different term for petition date in this context - especially one that seems by its plain meaning to call for the use of the different, later date. Finally, the phrase "effective date of the plan" is used in other contexts in the Bankruptcy Code and is never determined (or even considered) to be the petition date in any other context.15 When Congress uses the same words in the same statute, it is generally presumed that those words will have the same meaning. See Ratzlaf v. U.S., 510 U.S. 135, 143, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994)("A term appearing in several places in a statutory text is generally read the same way eachtime it appears."); Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 570, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995)(refencing the "normal rule of statutory construction" that "identical words used in different parts of the same act are intended to have the same meaning.").
In view of the foregoing, the "effective date of the plan" in this case is November 8, 2018, the date of the Hearing. With regard to the evidence, the Debtor has presented an appraisal of the home as of two dates - February 12, 2018 ($368,500.00) and July 21, 2018 ($375,000.00). The Trustee is willing to accept the July 21 value as the value as of November 8, 2018. The two valuations presented by the Debtor suggest that the home has appreciated during 2018, such that the value as of November 8, 2018 may be in excess of $375,000.00. However, the Court will accept the valuation to which the Trustee stipulates and...
To continue reading
Request your trial