Opinion
Case No. 01-80003-RGM
August 14, 2003
MEMORANDUM OPINION
This case is before the court on the affidavit of default filed by Countrywide Home Loans, Inc., and its request that an order be entered granting it relief from the automatic stay.
This case was filed on January 1, 2001, under chapter 13 of the United States Bankruptcy Code. The schedules reflect that the principal reason for filing was to save the family home. The debtor scheduled a single family townhouse situate in Centreville, Virginia, with a value of $158,000.00 and two liens, a first lien in favor of Countrywide in the approximate amount of $155,38.86 and a second lien in favor of Beneficial of Virginia in the approximate amount of $6,557.23. As scheduled, there was no equity in the property. In fact, the first lien is somewhat higher. Countrywide filed a proof of claim in March 2001 and amended it in December 2001. The amended proof of claim reflects a total payoff of $167,286.28 and a pre-petition arrears of $15,743.94. The arrears includes 10 pre-petition payments of $1,382.00 each plus costs and fees.
The case has not be without its own difficulties. The debtor's first amended chapter 13 plan was confirmed on March 15, 2001. On November 26, 2001 Countrywide filed a motion for relief from the automatic stay. The motion alleged that the debtor was three month delinquent on post-petition mortgage payments. The trustee's report reflected that the debtor was substantially current with the trustee. Countrywide and the debtor agreed that the post-petition arrears would be cured by modifying the chapter 13 plan and paying the post-petition arrears through the modified plan. The plan was modified and an order conditioning the automatic stay was entered. The order required regular payments going forward and provided that in the event of a default and after notice and an opportunity to cure, the stay could be terminated by the court without further hearing. The chapter 13 plan was later amended again. Several wage orders have been entered. It appears that the debtor has held at least three different jobs since the commencement of the case.
On July 17, 2003, Countrywide issued a notice of default stating that three post-petition payments had not been made. No response or request for hearing was filed by the debtor or the trustee as permitted in the order conditioning the automatic stay.
The debtor's spouse filed a chapter 13 case on July 1, 1998. It converted to a chapter 7 case on October 25, 2000. She received a discharge on February 2, 2001 and the case was closed on February 6, 2001. Countrywide filed a motion for relief from the automatic stay in her case and the motion was granted on December 20, 2000. As stated above, her husband filed this case eleven days later, on January 1, 2001.
In ordinary circumstances, the court would routinely enter the requested order granting Countrywide relief from the automatic stay. However, the real estate market has marked substantial gains in the last 12 to 24 months. This is reflected in the unprecedented number of chapter 13 debtors seeking authority to sell their homes. In almost all cases, the proceeds are more than sufficient to pay the secured creditor in full, all administrative expenses, all obligations under the confirmed chapter 13 plan and return — in some cases, quite substantial — sums to the debtor. Countrywide's proof of claim states that the obligation was incurred on May 23, 1996. The debtor states that he and his wife purchased the property for about $160,000, which is consistent with the loan balance and a minimal downpayment. While the debtor valued the property at $158,000 on January 1, 2001, its present market value is probably well in excess of $200,000, and probably over $225,000. Whatever the precise value, there is probably substantial equity in the property. That equity would assure Countrywide that it will be paid in full and that the other creditors will also be paid, probably in full. The consent order conditioning the automatic stay permits the court to decline to enter a final order terminating the stay and enter an order granting other appropriate relief. There is no reasonable remedy in chapter 13. It is apparent from the five years that the debtor and his spouse have been in their two bankruptcy proceedings, both initially chapter 13 cases, that they are financially unable to maintain the mortgage. The only other reasonable relief in this case would be converting the case to chapter 7 to allow a chapter 7 trustee to sell the property and pay all creditors.
Conversion is not appropriate. The property is held by the debtor and his non-filing spouse as tenants by the entirety. Tenants by the entirety property may be claimed exempt from the bankruptcy estate except as to joint creditors. Peyton v. Williams (In re Williams), 104 F.3d 688 (4th Cir. 1997). Even if claimed exempt as to individual creditors, entireties property can only be administered by a chapter 7 trustee for the benefit of joint creditors. Peyton v. Bunker (In re Bunker), 312 F.3d 145 (4th Cir. 2002); Sumy v. Schlossberg, 777 F.2d 921 (4th Cir. 1985). In this case, the debtor's non-filing spouse received a discharge in her own chapter 7 case thereby extinguishing her liability on any joint debts that existed at that time. Except for the mortgage, she is not listed in this case as a co-debtor on Schedule H, Codebtors. The debtor does list the a tax obligation to the Internal Revenue Service in the amount of $3,130. The IRS filed a proof of claim and two amendments. The first proof of claims reflected an unfiled 1998 tax return. The amended proofs of claims reflect that the return was filed, a priority claim of $763.94 and an unsecured claim of $4,358.35. No lien is asserted. While this raises questions under United States v. Craft, ___ U.S. ___, 122 S.Ct. 1414 (2002) the amounts are relatively modest.
In evaluating the relief that ought to be granted, the court must balance the reasonable expectation of the secured creditor in obtaining a termination of the automatic stay with the need to protect other creditors involved in the case. Where there is substantial equity in the property that would likely result in a substantial distribution to unsecured creditors and the debtor without posing any undue risk to the secured creditor, the case should normally be converted to chapter 7 to allow a chapter 7 trustee to liquidate the property for the benefit of all creditors. Here, however, there are no other creditors that would likely benefit from such a conversion. The IRS' claim is relatively modest and is outweighed by the secured creditor's reasonable expectations in obtaining prompt relief. The court is also mindful that this loan has been in default for more than five years and that this is the second of two bankruptcies, neither of which was successful.
After having weighed the factors, the court will grant the proffered order.