Robert E. Littlefield

Chapter 13

APPEARANCES:

Richard Croak, Esq.

Attorney for Debtor

Ganz Wolkenbreit & Siegfeld LLP

Attorneys for Creditor Frank J. Crisafulli

Robert E. Ganz, Esq.

Hon. Robert E. Littlefield, Jr., Chief United States Bankruptcy Judge

MEMORANDUM-DECISION AND ORDER

Before the court is a motion by Frank J. Crisafulli for an order permitting him to file a late proof of claim under Rule 9006(b)(1) on the grounds that Crisafulli's failure to submit a timely claim was due to "excusable neglect."

JURISDICTION

The court has jurisdiction pursuant to 28 U.S.C. §§ 157(a), (b)(1), (b)(2)(A), and 1334. FACTS

The following facts are not in dispute. Frank J. Crisafulli and the Debtor were business partners. Crisafulli loaned money to the Debtor to finance a tanning salon franchise. In 2005, Crisafulli commenced an action in state court against the Debtor to recover the money he had loaned to him. Crisafulli prevailed and received a judgment against the Debtor in the amount of $233,640.58 on December 15, 2005.

The Debtor filed a voluntary petition for relief under chapter 13 and related schedules and statements on April 20, 2010. On Schedule A, Real Property, the Debtor lists a future interest in his former marital residence. More specifically, the Debtor indicates he is entitled to 45 percent of the value of the home when it is sold pursuant to the terms of his divorce. Pursuant to an appraisal obtained by the Debtor, the property has a value of $218,000. On Schedule B, Personal Property, the Debtor lists assets having a combined value of $129,340.65. Included in the Debtor's personal property are jewelry, firearms, a vehicle, several trucks, and a snow plow.

Crisafulli is listed on Schedule D, Creditors Holding Secured Claims, as the holder of a noncontingent, liquidated, undisputed claim evidenced by a judgment. The security listed is the Debtor's interest in real estate with a value of $0. Thus, the entire debt is listed as unsecured. No other secured debt is scheduled. On Schedule E, Creditors Holding Unsecured Priority Claims, the Debtor lists a tax liability of $17,000 owed to New York State. The New York State Department of Taxation and Finance filed a timely proof of claim on May 3, 2010, in the amount of $17,072.20. (Claim No. 3.) The claim form indicates the entire claim is secured by virtue of a tax warrant filed in Albany County on March 13, 2007.

According to Schedule F, Creditors Holding Unsecured Nonpriority Claims, the Debtor's unsecured debt totals $212,124.80 and consists of credit card liabilities, medical expenses, and a claim held by M&T Bank for $176,950 pursuant to a guaranty. None of these claims are marked "disputed," "unliquidated," or "contingent," except a claim for medical services in the amount of $915.80, which is listed as disputed. Crisafulli's attorney is also included on Schedule F for "Notice Only" purposes with the notation "Collection Account Frank J. Crisafulli."

The Debtor's chapter 13 plan provides for monthly plan payments of $100 for a term of 60 months, plus the proceeds from an auction of certain personal property. Under the proposed plan, unsecured creditors will receive a dividend of 10 percent. The plan makes no provision for the payment of Crisafulli's judgment.

Crisafulli and his counsel received a copy of the Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors, & Deadlines (the "Notice"). Pursuant to the Notice, the first meeting of creditors was scheduled for May 26, 2010, and the bar date for filing proofs of claim was statutorily set at August 24, 2010, ninety days later. As a result of the bankruptcy, Crisafulli's collection activities were stayed. Crisafulli's file was put under "inactive status" by his attorney and none of the deadlines contained in the Notice were calendared.

On or about September 2, 2010, upon inquiry from Crisafulli regarding the Debtor's bankruptcy case and its impact on his judgment, Crisafulli's counsel learned that the claims bar date had passed some nine days earlier. Counsel hastily filed a proof of claim in the amount of $325,010.05 on September 3, 2010, consisting of the original judgment amount of $233,640.58 and judgment interest up to the filing date of the Debtor's petition in the amount of $91,369.47. Crisafulli characterizes his claim as being secured by a judgment against real property. (Claim No. 10.) The secured and unsecured portions of the claim are listed as "unknown."

ARGUMENTS

Crisafulli argues that the court should exercise its discretion to permit him to file a late proof of claim. Relying primarily on Pioneer Investment Services Co. v. Brunswick Associates, 507 U.S. 380 (1993), Crisafulli asserts that his untimely proof of claim should be allowed based upon excusable neglect. He offers a melange of cases from the Second Circuit where courts have applied Pioneer liberally in allowing late-filed claims in chapter 11 cases, and when vacating default judgments.

Although not raised in Crisafulli's original motion papers, at conferences conducted in connection with this matter and in his memorandum of law in support of his motion, Crisafulli argues, alternatively, that the court should sua sponte dismiss the Debtor's case as he is not eligible for relief under chapter 13 because his noncontingent, liquidated, unsecured debts exceed the statutory eligibility limit. Crisafulli asserts that at the time of filing, the Debtor owed him $325,010.05 as a result of accumulated interest on his judgment. According to Crisafulli, once his claim is added to the total listed on Schedule F, the Debtor's unsecured debts rise to $439,034.85, which exceeds the statutory maximum of $360,475 under § 109(e).

With respect to Crisafulli's late-filed claim, the Debtor contends there is no provision in the Bankruptcy Code that would permit the court to allow the late-filed claim. He cites to Rule 3002 as the controlling precedent and argues that it provides six scenarios where the filing of a proof of claim after the bar date is permitted in a chapter 13 case. As Crisafulli's claim does not fall into any of the enumerated categories, the Debtor asserts the claim must be disallowed.

The Debtor objects to Crisafulli raising eligibility without filing a motion to dismiss. If the court entertains this argument, the Debtor lays out two methods of calculating his debts: according to the schedules as filed, and according to the claims as filed. The Debtor argues that under either method, his noncontingent, liquidated, unsecured debts do not exceed the statutory maximum.

DISCUSSION

Late Filed Claim

In a chapter 13 case, a prerequisite to an allowance of a claim and a creditor's right to receive a distribution under a debtor's plan is a timely filed proof of claim. Section 502 provides that:

(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . objects.
(b) . . . if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—
(9) proof of such claim is not timely filed, except to the extent tardily filed as permitted under . . . the Federal Rules of Bankruptcy Procedure .

Crisafulli's "excusable neglect" argument is misplaced. Rule 9006 governs computing and extending time periods in bankruptcy cases in general. Rule 9006(b), relied upon by Crisafulli, permits extensions of time after the expiration of the specified time period where the failure to act was the result of "excusable neglect." Fed. R. Bankr. P. 9006(b)(1). Rule 9006(b)(3), however, states that the court may enlarge the time for taking action under Rule 3002(c) "only to the extent and under the conditions set forth in [Rule 3002(c)]." Fed. R. Bankr. P. 9006(b)(3). Thus, while in a chapter 11 case, a court may extend the bar date for filing a proof of claim based upon "excusable neglect," Pioneer Inv. Serv. Co. v. Brunswick Assocs., 507 U.S. 380, 388-89 (1993), "excusable neglect" is not a valid basis to permit a proof of claim to be filed in a chapter 13 case beyond the time period set forth in Rule 3002(c). In re Aboody, 223 B.R. 36, 37-39 (collecting cases) (1st Cir. BAP 1998); In re Bourgoin, 306 B.R. 442, 444 (Bankr. D. Conn. 2004). The court has no equitable power to extend a creditor's time to file a proof of claim in a chapter 13 case. In re Daniels, --- B.R. ----, No. 09-22822 (RDD), 2011 WL 4852258, at *3 (Bankr. S.D.N.Y. Oct. 12, 2011). As a result, Crisafulli's claim is disallowed.

Eligibility

The court may dismiss a chapter 13 case for cause, after notice and a hearing, on request of the United States Trustee or a party in interest. 11 U.S.C. § 1307(c). A creditor is a party in interest. In re Muscatello, 1:06-CV-453 (LEK), 2006 WL 3437469, at *4 (N.D.N.Y. Nov. 29, 2006). Although Crisafulli does not hold an allowed claim, he is nevertheless a creditor under the Bankruptcy Code. Under the Code, a "creditor" is defined as "an entity that has a claim against the debtor at the time of or before the order for relief concerning the debtor. 11 U.S.C. § 101(10)(A). A "claim" is defined as the "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, mature, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5)(A).

Whether an entity has a timely filed claim or not does not change its "creditor" status within the meaning of the Bankruptcy Code. An unfiled or tardily filed claim still carries with it a contingent right to payment that is extinguished only upon the issuance of a discharge. Until and unless that discharge is issued to the debtor, any entity with such a contingent right to payment is entitled to the full universe of protections awarded to a "creditor" under the Bankruptcy Code.

While there is no formal motion to dismiss the Debtor's case before the court, Crisafulli raised Debtor's eligibility at conferences held in connection with the pending motion and in the memorandum in support of his motion. The Debtor has had the opportunity to address the legal issues in the memorandum of law he filed in opposition to Crisafulli's motion. Thus, the court finds no prejudice in considering the issue. Additionally, the Bankruptcy Code provides the court with the power to:

issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse or process.

Eligibility to proceed under chapter 13 is determined under § 109(e), which provides that:

Only an individual . . . that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $360,475 and noncontingent, liquidated, secured debts of less than $1,081,400 . . . may be a debtor under chapter 13 of this title.

A § 109(e) analysis begins with a look at the debt amassed by a debtor as of the date the petition is filed. In re Reader, 274 B.R. 893, 898 (Bankr. D. Colo. 2002) ("Regardless of when the eligibility decision is actually made, Section 109(e) states that it must reflect the claims as they existed on the date of the filing."). This would include all debts the debtor is liable for on the date of filing, not just claims that have been filed by creditors. In re Smith, 325 B.R. 498, 502 (Bankr. D.N.H. 2005) ("Eligibility for chapter 13 is not based upon postpetition events such as allowed claims, filed claims, or treatment of claims in a confirmed chapter 13 plan."). Thus, the starting point of determining chapter 13 eligibility is usually the debtor's schedules. This approach provides the benefit of moving forward with a chapter 13 proceeding without litigating at the inception of a case whether the court should ultimately allow a particular claim, which preserves a debtor's limited resources. Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751, 757 (6th Cir. 1985).

Courts have varied in their assessments of which debts should be included in the eligibility calculation. Some courts place primary reliance on the characterization and amount of debt set forth in the debtor's schedules and only look past the petition where there is evidence of bad faith. See Pearson, 773 F.2d at 756 ("a court should rely primarily upon the debtor's schedules checking only to see if the schedules were made in good faith on the theory that section 109(e) considers debts as they exist at the time of filing, not after a hearing"); Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 982 (9th Cir. 2001).

Some courts will justify looking past a debtor's schedules to determine a debtor's liabilities without first finding a lack of good faith if they can determine with " 'a legal certainty' " that a debtor owes more than what was scheduled. In re Redburn, 193 B.R. 249, 255 (Bankr. W.D. Mich. 1996) (quoting In re Mannor, 175 B.R. 639, 641 (Bankr. E.D. Mich. 1994)). Other courts appear to apply a balanced approach. In re Pennypacker, 115 B.R. 504, 506 (Bankr. E.D. Pa. 1990) (rejecting approach that gives debtor unbridled authority to determine eligibility for chapter 13 relief by relying solely upon the labels the debtor ascribes to debts). In considering eligibility

it is appropriate for a court . . . to rely primarily upon a debtor's schedules and proofs of claim, checking only to see if these documents were filed in good faith. In so doing, however, 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, for to do so would place eligibility in control of either the debtor or the creditor. At a hearing on eligibility, the court should thus, canvass and review the debtor's schedules and proofs of claim, as well as other evidence offered by a debtor or the creditor to decide only whether the good faith, facial amount of the debtor's liquidated and non-contingent debts exceed statutory limits.

The court endorses the proposition enunciated by Judge Lynn in In re Arcella-Coffman, 318 B.R. 463, 475 (Bankr. N.D. Ind. 2004), that the debtor's schedules be used as a "jumping off" place for determining eligibility under § 109(e).

Recognizing that a debtor's schedules are a potentially imperfect measure of the debtor's debts, the Court concludes that a more appropriate approach is to use the debtor's schedules as a starting point in the section 109(e) inquiry, but also to
consider postpetition events and developments to the extent (and only to the extent) they shed light on the amount of secured and unsecured debt actually owed by the debtor at the time of the filing of the petition. [footnote omitted]. For example, in a situation . . . where a secured debt is mistakenly scheduled as an unsecured obligation, it would exalt form over substance to refuse to consider a postpetition amendment to the schedules that properly classifies the indebtedness. Similarly, if it were to become evident postpetition that the conditions giving rise to a contingent liability all occurred prepetition, common sense requires recognition of the reality that the debtor was liable for the debt on the petition date. [emphasis in original].

While the Second Circuit has not addressed this issue directly, it has taken into account materials outside a debtor's schedules in determining eligibility without first finding a lack of good faith. Mazzeo v. United States (In re Mazzeo), 131 F.3d 295, 305 (2d Cir. 1997) (finding officer's debt can be easily ascertained from statutory provisions and from tax returns filed by corporation).

In the present case, the Debtor contends that according to both his schedules and the filed claims, he is eligible to be a debtor under chapter 13. The court disagrees. A summary determination can be made that the Debtor's debt to Crisafulli was mischaracterized and exceeds the amount listed by the Debtor based upon the Debtor's schedules, the proof of claim filed by Crisafulli, and other readily ascertainable information.

Under New York law, interest began accruing on Crisafulli's judgment on the date of its entry at 9 percent per year. N.Y. C.P.L.R. 5003, 5004. The Debtor only scheduled the original judgment amount. Considering the interest that accumulated on the judgment up to the date of filing, it appears the Debtor's liability to Crisafulli as of the filing date was $325,010.05. While the Debtor characterizes Crisafuli's entire judgment lien debt as unsecured on Schedule D, the Debtor's interest in real property suggests the claim is at least partially secured.

Section 506(a) provides, in pertinent part:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, . . . is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim.

Although § 506(a) speaks in terms of an "allowed claim," it is necessary to apply § 506(a) to a § 109(e) determination to prevent "raising form over substance and manipulation of the debt limits" to achieve chapter 13 eligibility. In re Soderlund, 236 B.R. 271, 274 (9th Cir. 1999). Four circuit courts, and the majority of the bankruptcy courts, have held that the undersecured portion of a secured debt should be counted as unsecured debt for purposes of a § 109(e) eligibility analysis. Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 983 (9th Cir. 2001) (citing Brown & Co. Securities Corp. v. Balbus (In re Balbus), 933 F.2d 246, 247 (4th Cir. 1991); Miller v. United States, 907 F.2d 80, 81-82 (8th Cir. 1990); In re Day, 747 F.2d 405, 407 (7th Cir. 1984); In re Soderland, 236 B.R. at 273-74); see also, In re Rifkin, 124 B.R. 626, 629 (Bankr. E.D.N.Y. 1991) (citations omitted); In re Jerome, 112 B.R. 563, 566 (Bankr. S.D.N.Y. 1990). The court adopts the majority view. Based upon the Debtor's appraisal, the Debtor's 45 percent interest in his former marital residence has a value of $98,100. Thus, Crisafulli's claim should be bifurcated into a secured claim of $98,100 and an unsecured claim of $226,910.05 for purposes of determining whether the Debtor is eligible for relief under chapter 13.

The Debtor schedules $212,124.80 in other unsecured debts on Schedule F. The Debtor also scheduled the New York State Department of Tax and Finance as the holder of an unsecured priority claim in the amount of $17,000. The proof of claim filed by New York State, however, indicates the Debtor's tax debt of $17,072.20 is secured. According to the Debtor's schedules, he possesses personal property in an amount exceeding $17,072.20. Thus, the court will not include this debt in the calculation of the Debtor's noncontingent, liquidated, unsecured debt.

The majority of the Debtor's unsecured debt, namely $176,950.00, is attributable to a guaranty given to M&T Bank. A guaranty is the classic example of a contingent debt as the guarantor has no liability until the principal obligor defaults. Glaubitz v. Grossman (In re Glaubitz), No. 10-C-927, 2011 WL 147931, at *1 (E.D. Wis. Jan. 18, 2011) (citations omitted); see In re Fischel, 103 B.R. 44, 47-48 (Bankr. N.D.N.Y. 1989). In the case sub judice, the question of contingency turns on whether all of the events giving rise to liability under the guaranty occurred prior to the Debtor's filing for bankruptcy. In re Mazzeo, 131 F.3d 295, 303 (2d Cir. 1997).

Based upon the current record, the court cannot determine whether the Debtor's debts exceed the limits imposed by § 109(e). A determination depends on whether the principal obligor of the M&T Bank debt was in default as of the date the Debtor filed his petition. If the debt owing to M&T Bank is contingent, Debtor's noncontingent, liquidated, unsecured debt would be $35,174.80. Combining this amount to the unsecured portion of Crisafulli's judgment would bring the Debtor's total noncontingent, liquidated, unsecured debt to $262,084.85, well below the $360,475 limit for eligibility purposes. If the debt owing to M&T Bank is noncontingent, however, the Debtor's noncontingent, liquidated, unsecured debt would be $439,034.85, which exceeds the maximum set by § 109(e). The court will hold off ruling on Debtor's eligibility pending a hearing to be held forthwith to determine whether the debt owed to M&T Bank was contingent or noncontingent as of the filing of the petition.

CONCLUSION

Based on the foregoing, it is hereby

ORDERED, that Crisafuli's motion for leave to file a late proof of claim is denied; and it is further

ORDERED, that the parties are directed to attend a case conference on April 19, 2012 at 11:45 a.m. to schedule a hearing in conformance with this decision.

_________

Hon. Robert E. Littlefield, Jr.

Chief United States Bankruptcy Judge