Opinion
8:20-bk-06411-RCT
05-09-2022
In re: Andres Rinaldo Castillo, Debtor.
Chapter 11
ORDER DENYING MOTION TO DISMISS OR CONVERT TO CHAPTER 7, AND GRANTING REQUEST FOR RETROACTIVE EXTENSION OF TIME TO FILE SUBCHAPTER V PLAN AND TO DEEM PLAN TIMELY FILED
Roberta A, Colton, United States Bankruptcy Judge
THIS CASE is considered, following a hearing on April 7, 2022, upon the United States Trustee's ("UST") Motion to Dismiss or Convert to Chapter 7 (Doc. 90) (the "Motion"), which, in relevant part, asks the Court to dismiss this Subchapter V case due to Debtor's failure to file its plan of reorganization timely as required by 11 U.S.C § 1189(b). Shortly before the hearing, the UST filed a notice of supplemental authority (Doc. 98), to which it attached a recent opinion by Judge Russin of our sister court for the Southern District of Florida, in which the court examined the governing standard for extending the statutory deadline for filing a Subchapter V plan. After hearing argument from counsel, the Court directed the parties to file supplement briefs within five 1 business days. The UST timely filed her supplemental brief (Doc. 101). Debtor timely filed a response in opposition to the Motion (Doc. 100) (the "Response"), in which he also requests, albeit indirectly, that the Court grant him a retroactive extension of the § 1189(b) deadline and deem his Subchapter V plan of reorganization (Doc. 93) (the "Plan") timely filed.
References are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code") unless stated otherwise.
In re Majestic Gardens Condo. C Assoc., Inc., No. 21-18653-PDR, 2022 WL 789447, at *1 (Bankr. S.D. Fla. Mar. 15, 2022).
For the reasons that follow, the Court will deny the UST's Motion and grant Debtor's request for a retroactive extension of time and to deem the Plan timely filed.
Background
Debtor commenced this case under Chapter 13 by petition filed on August 25, 2020. For nearly a year, the Chapter 13 case proceeded in the ordinary course, until Creditor Truist Bank ("Truist") moved to dismiss the case on the basis that Debtor was not eligible to be a debtor in Chapter 13 pursuant to § 109(e). At a joint hearing on October 20, 2021, to consider Truist's motion as well as confirmation of Debtor's Chapter 13 plan, the Court denied confirmation and dismissed the Chapter 13, but provided Debtor fourteen days to convert the case. As reflected in the order denying Truist's motion as moot, it was understood that if debtor chose to convert his case, he would convert to a Subchapter V case.
Doc. 1.
Doc. 35.
Docs. 55 & 56.
Doc. 59.
Upon Debtor's timely motion, the Court converted this case to one under Subchapter V on November 19, 2021. On December 1, 2021, the Court entered its Order Prescribing Procedures in Chapter 11 Subchapter V Case, Setting Deadline for Filing Plan, and Setting Status Conference (the "Procedures Order"). The Procedures Order set the deadline for Debtor to file his Subchapter V plan of reorganization as February 17, 2022. 2
Doc. 62.
Doc. 67.
The Court, consistent with § 1189(b), set the plan filing deadline for ninety days after the order converting the case was entered. The parties discuss the plan deadline as having been set pursuant to § 1189(b), but that is not quite accurate. Section 1189(b) sets the plan filing deadline by reference to the date of the "order for relief," i.e., the petition date. Generally, under § 348(a), an "order for relief" retains its date after the conversion of the case to another chapter. Section 348(b) contains an exception to the general rule, providing for the "order for relief" to assume the date of the order converting the case, for certain designated sections of the Code. Section § 1189 is not among those Code sections listed in § 348(b). See In re Trepetin, 617 B.R. 841, 844-46 (Bankr. D. Md. 2020). Nonetheless, the Court is empowered to extend the plan filing deadline, and it is this Court's policy to do so, and often as a matter of practicality retroactively, whenever a debtor's case is converted to Subchapter V, unless the circumstances warrant otherwise, i.e., the need for an extension is due to circumstances for which Debtor is justly accountable. Here, there was no suggestion that Debtor's filing of this case originally as a Chapter 13 was untoward, and the Court finds nothing improper. Had the issue of Debtor's eligibility been raised earlier, the Court assumes that the case would have converted that much earlier. Moreover, there is no suggestion that the conversion of this case to Subchapter V, or the delay in filing a Subchapter V plan, has prejudiced any creditor. Indeed, the Subchapter V Plan now filed by Debtor not only classifies creditors almost identically to Debtor's prior timely Chapter 13 plan but also treats unsecured creditors slightly better.
On February 17, 2022, Debtor filed a motion entitled Motion to Extend Exclusivity Period to File Plan of Reorganization (the "Exclusivity Motion"). The Exclusivity Motion cites § 1121(b) and in the prayer for relief, Debtor requests the Court extend the "exclusivity period" for filing a plan for a period of ten days. The Court denied the motion, noting that, first, § 1121 does not apply in Subchapter V cases and, second, as only a debtor may propose a plan in Subchapter V, a motion to extend exclusivity is simply unnecessary.
Doc. 81.
Doc. 82.
On March 18, a month after the plan filing deadline had passed, the UST filed the Motion based, in part, on Debtor's failure to file a plan timely. At the hearing and in his Response, Debtor asks the Court to reconsider the Exclusivity Motion, which, in retrospect, he concedes was inartfully drafted, and construe it as a motion to extend time to file a plan under § 1189(b).
The UST's other claimed grounds for dismissal have been resolved (Doc. 101 at 2 n.1).
Debtor asserts that his failure to timely file a plan was due to circumstances beyond his control, namely that he was unable to propose a plan until tax returns were prepared for the four businesses from which he derives his income. Debtor explains that his accountant could not complete the businesses' tax returns in sufficient time prior to the February 17 plan filing deadline because necessary tax information did not become available until the beginning of February. And 3 this delay, in turn, delayed the preparation of Debtor's own tax returns and, importantly, Debtor's ability to determine his disposable income for purposes of proposing the Plan.
Notwithstanding the filing of the Motion, Debtor proceeded to prepare his Plan. The Plan was filed March 24, 125 days after entry of the order converting this case and 35 days after the deadline imposed by the Procedures Order.
A hearing on confirmation of the Plan is scheduled for May 19 (Doc. 96).
Discussion
Section 1189(b) provides that a court may extend the deadline for a debtor to file its Subchapter V plan of reorganization "if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable." Without doubt, the standard imposed by § 1189(b) is more exacting than the standards generally applicable to requests for enlargement of time under Federal Rule of Bankruptcy Procedure 9006(b)(1). But nothing in the language of § 1189(b) suggests that the Court may not grant a retroactive extension of the plan filing deadline; provided, of course, that the debtor meets the statute's more exacting standard.
See, e.g., In re Majestic Gardens Condo., 2022 WL 789447, at *1 (citations omitted).
See id. at *2; see also In re Online King LLC, 629 B.R. 340, 346-49 (Bankr. E.D. N.Y. 2021).
Upon due consideration of the Response, together with the record, the Court finds that a retroactive extension of the plan filing deadline is warranted. Debtor needed information from his businesses' tax returns to propose a feasible Subchapter V plan, and it was not possible for Debtor to have those tax returns prepared in sufficient time before the February 17 deadline. Accordingly, the Court finds that Debtor cannot be justly held accountable for the delay in filing the Plan.
The UST does not contest Debtor's explanation for the delay, but rather would have the Court focus on technical deficiencies in the Exclusivity Motion, counsel for Debtor's inability at the hearing to recall the record precisely, and the fact that the Plan was filed "only after" the Motion 4 was filed. The UST's last point suggest a degree of bad faith absent from this record and more importantly, ignores that fact that § 1189(b) neither prohibits retroactive extensions of the plan filing deadline nor provides any limitation other than that any permitted extension be "attributable to circumstances for which the debtor should not be justly be held accountable." Certainly, the Debtor had no control over if or when the UST filed its Motion.
Doc. 101 ¶ 6.
§ 11 89(b)
As to the UST's other points, the UST seek to recharacterize, and somewhat unfairly, Debtor's delay in filing the Plan as occasioned solely by the errors of counsel. If that were true, the Court would agree that Debtor would be justly accountable. But counsel's "errors," if errors they be, were not the cause of the delay. The Exclusivity Motion was inartfully drafted. Had that not been the case and Debtor's explanation for the need for an extension of time been more thoroughly explained, as it would have been at a hearing on the motion, the Court would have granted the extension then, mooting the UST's Motion before it even had the chance to be filed.
See, e.g., In re Majestic Gardens Condo., 2022 WL 789447, at *2.
It is therefore ORDERED:
1. The UST's Motion (Doc. 90) is DENIED.
2. The Court hereby grants Debtor's request for a retroactive extension of the plan filing deadline, extends the deadline to March 24, 2022, and deems the Plan (Doc. 93) timely filed.
Clerk's Office to serve.
ORDERED. 5