Opinion
Case No. 12-21445-svk
11-01-2012
In re: Connell Adams, Debtor.
Chapter 13
AMENDED MEMORANDUM DECISION
(TO CORRECT TYPOGRAPHICAL ERROR)
The City of Milwaukee seeks relief from the automatic stay to collect unpaid post-petition charges for water, sewer and municipal services incurred by the Debtor, Connell Adams. According to the City's Motion, the Debtor is delinquent over $6,180 in post-petition charges. The City wants to rely on Wis. Stat. § 66.0809(3) to levy the post-petition charges and penalties against the real estate to which the utility service was furnished. In other words, the City seeks to impose a first priority lien on the Debtor's property to secure the unpaid post-petition water bills.
The Debtor opposes the City's Motion, noting that the property is property of the bankruptcy estate and arguing that the City will be unfairly advantaged by obtaining a lien on estate property. The City counters that if it is not able to use the statutory lien process, the only remaining remedy will be disconnection of the Debtor's water and sewer services.
The Debtor's plan has not been confirmed, and the Court is not required to wade into the thicket of theories on the effect of confirmation on property of the estate. See, e.g., In re Wetzel, 381 B.R. 247 (Bankr. E.D. Wis. 2008). The City's attempts to obtain a lien on property of the estate are indeed stayed, even though the City's efforts involve a post-petition claim. Section 362(a)(4) of the Bankruptcy Code stays "any act to create, perfect, or enforce any lien against property of the estate." Contrast this with § 362(a)(5) which imposes the stay against "any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title." 11 U.S.C. § 362(a)(5) (emphasis added).
Creditors holding post-petition claims can collect those claims from property of the debtor, but not property of the estate, unless relief from stay is obtained. A few courts have explored the issues surrounding the post-petition claimant's rights to enforce liens on property of the estate. In EconoLube N' Tune, Inc. v. Frausto (In re Frausto), 259 B.R. 201, 215-17 (Bankr. N.D. Ala. 2000), a post-petition creditor sought to garnish funds that the Chapter 13 trustee collected to settle the debtor's pre-petition lawsuit. The confirmed plan vested property of the estate in the debtor, and the bankruptcy court determined that the post-petition creditor was free to pursue the estate assets, including the settlement proceeds. In response to the argument that the post-petition creditor was being elevated unfairly over the pre-petition creditors, the court explained:
There is no evidence from the language of the statutes that Congress intended to insulate Chapter 13 debtors from the consequences of their own post-petition actions and transactions or that Congress intended to favor pre-petition creditors over post-petition creditors. Congress, in fact, apparently intended for Chapter 13 debtors to pay post-petition creditors from any assets available to them and for the Chapter 13 process to have no effect on post-petition creditors. On one hand, to be paid in a case, pre-petition creditors are required to file claims and to participate in the bankruptcy process. On the other hand, post-petition creditors are not required either to file claims or to involve themselves in the Chapter 13 process. See 11 U.S.C. § 1305(a). And unlike pre-petition creditors, post-petition creditors are not bound by confirmation. See 11 U.S.C. § 1327(a).Id. at 216.
Addressing the question before this Court, the Frausto court stated:
If post-petition creditors are restricted from exercising collection rights, what are the parameters for granting them relief from the stay? Are post-petition creditors entitled ipso facto to relief from the stay or to meet a reduced burden in order to obtain relief? See In re Clark, 71 B.R. 747, 750 (Bankr. E.D. Pa. 1987) ("WeId. n.17.
believe that a party standing in the shoes of the Movant should have a relatively slight burden to overcome to obtain relief from the automatic stay prospectively. Otherwise, as we indicated above, a post-petition creditor, even one holding, as here, a valid judgment against a debtor, would be unfairly frozen in place until the debtor, in leisurely fashion, completes his Plan payments and is discharged.")
In In re Clark, 71 B.R. 747, 749-50 (Bankr. E.D. Pa. 1987), another case exploring the rights of post-confirmation creditors, the court noted the conflicting interests of an "upstart" post-petition creditor who can tank a debtor's good faith effort to pay pre-petition debts and a debtor who "stymies" legitimate collection of post-petition claims that are not provided in the plan. In the end, the Clark court held that a post-petition creditor who was not provided for by the plan should have the ability to execute on the real property to collect its judgment, and conditioned the stay accordingly. Id. at 750.
In addition to the notion expressed by Clark and Frausto that a post-petition creditor should bear a relaxed burden to obtain stay relief, the Bankruptcy Code provides special protection for post-petition utility providers like the City. Section 366 states that "a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due." 11 U.S.C. § 366(a) (emphasis added). Courts have concluded that use of the word "solely" in § 366(a) implies that a utility may refuse to furnish service and terminate service for failure to pay post-petition bills. Jones v. Boston Gas Co. (In re Jones), 369 B.R. 745, 749 (B.A.P. 1st Cir. 2007) (observing that courts "routinely" allow utilities to terminate service for post-petition delinquencies without obtaining relief from stay). The Jones court held that, provided the utility followed procedures under applicable nonbankruptcy law for termination, the utility did not violate the automatic stay in a Chapter 13 case by terminating the debtor's utility service for nonpayment of post-petition bills. See also Begley v. Philadelphia Elec. Co., 760 F.2d 46, 49 (3d Cir. 1985) ("purpose and policy of section 366 . . . is to prevent the threat of termination from being used to collect pre-petition debts, while not forcing the utility to provide services for which it may never be paid."); Weisel v. Dominion Peoples Gas Co. (In re Weisel), 400 B.R. 457 (Bankr. W.D. Pa. 2009) (utility company did not have to seek relief from stay or increased deposit to terminate Chapter 13 debtor's service for post-petition delinquencies).
In this case, the City seeks to add the delinquent utility charges to the Debtor's real estate tax bill, thereby creating a lien on property of the estate. While relief from stay undoubtedly is necessary, this relief should be freely granted in recognition of the principle set forth in Clark and Frausto that a post-petition creditor not provided for by the Plan bears a relaxed burden to obtain stay relief. The City, as a post-petition creditor, is not bound by the Debtor's Chapter 13 Plan, and should not be forced to wait years for completion of the Plan to exercise its rights. If the City's Motion is not granted, what happens if the Debtor sells the property? The City would be highly prejudiced if it is not be allowed to perfect its lien. Moreover, the fact that the Debtor is unable to maintain post-petition payments for water and sewer services, which should be part of the Debtor's budgeted expenses, suggests that the Debtor's Chapter 13 case is not feasible.
Another factor bearing on this decision is the principle recognized in § 366(a) that a utility may terminate service when post-petition bills are unpaid. Congress recognized that the City should not be forced to supply the Debtor with utilities with no hope of being paid. Rather than exercise the drastic remedy of termination of the Debtor's water and sewer services, the City has sought to exercise its rights under Wis. Stat. § 66.0809(3) to perfect a lien for the post- petition obligations. This reasonable request does not offend the policies of Chapter 13, especially where the City's post-petition claim is not provided for by the Plan.
The City's Motion for Relief from Stay is granted. A separate Order will be entered consistent with this Decision.
By the Court:
_________________
Susan V. Kelley
U.S. Bankruptcy Judge