Matter of McGovern, Bankruptcy No. 89-30227.
| Citation | 122 BR 712 |
| Decision Date | 26 January 1990 |
| Docket Number | Bankruptcy No. 89-30227. |
| Parties | In the Matter of Terrence Ray McGOVERN, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
Daniel J. Skekloff, Fort Wayne, Ind., for debtor.
Peter A. Velde, Indianapolis, Ind., for Cincinnati Ins. Co.
John C. Muehlhausen, Logansport, Ind., for Area Five Council on Aging.
DECISION
This matter is before the court on a motion to dismiss. The motion has been filed on behalf of the Area Five Counsel on Aging and Cincinnati Insurance Company. Movants claim the debtor is not eligible for relief under Chapter 13 because his noncontingent, liquidated, unsecured debts exceed $100,000.00.
Relief under Chapter 13 of the Bankruptcy Code is restricted to individuals whose debts fall within certain parameters and are of a certain type. See 11 U.S.C. § 109(e). At the present time, we need only address the limitations upon unsecured obligations. To be eligible for Chapter 13, on the date of the petition, a debtor's noncontingent, liquidated, unsecured debts must be less than $100,000.00. 11 U.S.C. § 109(e).
Resolution of the eligibility question requires the court to focus upon movants' claim against the debtor. This claim was apparently the subject of litigation in the state courts prior to the petition for relief under Chapter 13. That litigation was stayed by the petition and the claim has not been reduced to judgment or proceeded to trial.
The foundation for movants' claim is described in the exhibits which accompany its memorandum in support of the motion to dismiss. The Counsel on Aging is a nonprofit organization. From June of 1978 to mid March of 1987, debtor was the Counsel's executive director. Based upon an audit conducted by the Indiana State Board of Accounts, movants claim that, while employed as executive director, the debtor misappropriated funds, totalling $150,655.00, for his own personal benefit. Pursuant to a bond, Cincinnati Insurance Company claims a subrogation interest in anything the Counsel may recover on account of this claim. Debtor vehemently denies any wrongdoing. At all times he has denied and disputed all of the operative facts concerning liability on this claim.
Debtor's eligibility for relief under Chapter 13 depends upon the proper characterization of the amounts claimed due the movants. The inquiry is a preliminary or threshold determination. The court need not and does not pass on the ultimate merits when reviewing claims for the purpose of determining eligibility. See In re Sylvester, 19 B.R. 671, 673 (9th Cir.B.A.P. 1982) (citing In re Thomas, 211 F.Supp. 187, 192 (D.Colo.1962), aff'd, 327 F.2d 667 (10th Cir.1964)). If movants' claim is both noncontingent and liquidated, debtor is not eligible for relief. If, on the other hand, the claim was either contingent or unliquidated on the date of the petition the debtor is eligible.
A debtor's eligibility for relief under Chapter 13 is not determined solely by reference to the debts and claims as he has chosen to schedule them. Congress did not intend that debtors would be given exclusive control over the accessibility to Chapter 13 or be permitted to circumvent its debt ceilings by the artful manipulation of the information contained in the bankruptcy filings. See Matter of Day, 747 F.2d 405 (7th Cir.1984); In re Albano, 55 B.R. 363, 368 (D.N.D.Ill.1985). Even where the Chapter 13 statement is filed in good faith, it is not dispositive on the question of eligibility. Rather, it is only the point of beginning. In re Edwards, 51 B.R. 790, 791 (Bankr.D.N.M.1985). Thus, just because a creditor has been scheduled in one fashion or another does not necessarily make it so. In the same fashion, the court is not bound by the claims as creditors have chosen to assert them. Just as the debtor is not permitted to control its eligibility for relief under Chapter 13, that right should not be restricted by the demands of creditors. Instead, in each instance, the court is required to look beyond the information given and make an independent determination. In re Sylvester, supra, 19 B.R. at 673.
"By defining a debt as a `liability on a claim,' Congress gave debt the same broad meaning it gave claim." In re Energy Co-op, Inc., 832 F.2d 997, 1001 (7th Cir. 1987). The two concepts are co-extensive or synonymous. Id.; In re Burgat, 68 B.R. 408, 409 (Bankr.D.Colo.1986). The different terms simply refer "to a single obligation as seen from the point of view of the debtor and the creditor, respectively — a debtor has `debts' and a creditor has `claims.'" In re Burgat, supra, 68 B.R. at 409. See also In re Pulliam, 90 B.R. 241, 245 (Bankr.N.D.Tex.1988). "In other words, when a creditor has a claim against a debtor — even if the claim is unliquidated, unfixed, or contingent — the debtor has incurred a debt to the creditor." In re Energy Co-op, Inc., supra, 832 F.2d at 1001 (citing In re Vasu Fabrics, Inc., 39 B.R. 513, 516-17 (Bankr.S.D.N.Y.1984). Consequently, the definition of debt as "liability on a claim" does not require that liability be conceded or otherwise established. Instead, liability on a claim exists even though that claim has not been finally determined and is disputed, contingent, or unliquidated. See Vasu Fabrics, Inc., supra, 39 B.R. at 517.
To determine this debtor's eligibility for relief under Chapter 13 requires the court to examine the concepts of contingent and liquidated claims, as well as how or whether disputes affect those characterizations. These three concepts — contingent, liquidated, and disputed — are interrelated. They are not, however, interdependent. Contingency relates to the nature or origin of a liability. Liquidation refers to ascertaining the amount due. Disputes can involve questions concerning either or both the fact of liability or the amount. Thus, while all three concepts impact upon the existence or the extent of liability, they relate to different aspects of it.
Liquidation relates only to the amount of any liability. It does not concern the existence of liability itself. It focuses upon the certainty of the amount claimed due or the precision with which it can be determined. See In re Silver, 109 F.Supp. 200, 203-04 (D.E.D.Ill.1953), aff'd per curiam, 204 F.2d 259 (7th Cir.1953). "Whether a debt is liquidated turns on whether it is subject to `ready determination and precision in computation of the amount due.'" In re Fostvedt, 823 F.2d 305, 306 (9th Cir.1987) (citing In re Sylvester, supra, 19 B.R. at 673). Since the question of liquidation is independent of the question of liability, even if liability is conceded or established, so long as the amount of liability cannot be readily determined the debt is unliquidated. See In re Silver, supra, 109 F.Supp. at 204.
A claim is often characterized as liquidated if the amount due can be readily ascertained either by reference to an agreement or through simple mathematics. In re Sylvester, supra, 19 B.R. at 673; In re Michaelsen, 74 B.R. 245, 250 (Bankr.D. Nev.1987); In re Williams, 51 B.R. 249, 250 (Bankr.S.D.Ind.1984); In re Flaherty, 10 B.R. 118, 120 (Bankr.N.D.Ill.1981).
If the amount of the claim can be ascertained, or is capable of ascertainment by mere calculation or computation, it is liquidated; if judgment, discretion, or opinion, as distinguished from calculation or computation is required to determine the amount of the claim, it is unliquidated. First National Bank v. Insurance Co., 606 F.2d 760, 769-70 (7th Cir.1979) (applying Illinois law). See also Public Service Co. v. Bath Iron Works Corp., 773 F.2d 783, 796 (7th Cir.1985) (applying Indiana law).
Thus, a claim is unliquidated when the finder of fact must rely upon its judgment to establish an appropriate amount to compensate for past and future injury. See Public Service Co. v. Bath Iron Works Corp., supra, 773 F.2d at 796. It is liquidated when judgment or discretion is not required.1
In broad terms, the concept of contingency involves the nature or origin of liability. More precisely, it relates to the time or the circumstances under which liability arises. "In this connection `liability' does not mean the same as judgment or remedy, but only a condition of being obligated to answer for a claim." In re Longhorn 1979-II Drilling Program, 32 B.R. 923, 927 (Bankr.W.D.Okla.1983).
The rule is clear that a contingent debt is "one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor." In re Fostvedt, supra, 823 F.2d at 306 (quoting Brockenbrough v. Commissioner, 61 B.R. 685, 686 (D.W.D.Va.1986)). See also Armstrong v. Corn Belt Bank, 55 B.R. 755, 762 (D.C.D.Ill.1985), aff\'d 812 F.2d 1024 (7th Cir.1987).
Thus, where the existence or accrual of liability depends upon some future event that may never happen or upon a condition which may never be fulfiled a claim is contingent. In re Albano, supra, 55 B.R. at 366-67; In re Pulliam, supra, 90 B.R. at 243; In re Williams, supra, 51 B.R. at 250; In re Flaherty, supra, 10 B.R. at 119. See also, In re B.D. International Discount Corp., 701 F.2d 1071, 1073 n. 2 (2nd Cir.1983); In re Trimble Co., 339 F.2d 838, 844 n. 9 (3rd Cir.1964); Matter of Bowers, 16 B.R. 298, 300 (Bankr.D.Conn.1981); In re All Media Properties, Inc., 5 B.R. 126, 132-133 (Bankr.S.D.Tex.1980).
Stated another way, where all the facts giving rise to liability are in existence at the time of the filing of the...
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