Opinion
Case No. 6:22-bk-01856-TPG
2023-09-30
IN RE: Teresa Gail PHELPS, Debtor.
Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtor.
Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtor. ORDER DENYING CONFIRMATION OF DEBTOR'S SECOND AMENDED CHAPTER 13 PLAN Tiffany P. Geyer, United States Bankruptcy Judge
THIS CASE came on for hearing on May 24, 2023, and July 18, 2023 (Doc. Nos. 83, 88), to consider confirmation of the Debtor's Second Amended Chapter 13 Plan (the "Plan") (Doc. No. 70). The Chapter 13 Trustee (the "Trustee") objects to confirmation, arguing that the Plan fails to pass the "best interest of creditors" test in 11 U.S.C. § 1325(a). (Doc. No. 73.) Creditor 1st Orlando Real Estate Services ("1st Orlando") objects to the Plan on those same grounds and others. (Doc. No. 79.) The Trustee and 1st Orlando note that, among other things, the Debtor's liquidation analysis failed to account for equity in a parcel of non-exempt real property located at 31 West Harding Street, Orlando, Florida, 32806 ("Harding Street"). They argue that if Harding Street was liquidated in a Chapter 7 case, the distribution to unsecured creditors would be far higher than what the Plan currently provides. (Doc. No. 73 at 1-2; Doc. No. 79 ¶ 12.) In response, the Debtor argues that this Court previously ruled that there is no equity in Harding Street, and that this ruling is now "the law of the case." (Doc. No. 76 ¶ 7.) As such, the Debtor posits, liquidation of Harding Street would yield no benefit to unsecured creditors. After considering the parties' arguments, the record in this case, and being otherwise advised in the premises and the law, confirmation of the Plan is denied for the reasons set forth below.
Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. PREPETITION BACKGROUND
Debtor Teresa Phelps entered into a listing agreement with 1st Orlando in February 2020 to sell her business and two underlying parcels of real estate—Harding Street and her homestead located at 36 West Esther Street ("Esther Street") (collectively, the "Properties"). (Doc. No. 26-1 at 1-5.) 1st Orlando found a buyer, and the buyer and the Debtor entered into a sales agreement for the buyer to purchase the business and the Properties for $1.3 million. (Id. at 6-14.) The Debtor subsequently backed out of the sale agreement. (Doc. No. 26-3 at 25.)
In response, 1st Orlando filed a claim of lien on the Properties pursuant to Florida Statute § 475.42(1)(i) (the "Claim of Lien") (Doc. No. 26-2) and then filed a two-count complaint in state court for breach of contract and to foreclose the Claim of Lien (Doc. No. 26-3 at 1-5). About two years later, on March 22, 2022, the state court entered a final judgment for 1st Orlando (the "Final Judgment") (Claim 9-2 at 14-17), concluding that the Debtor breached the contract and owed 1st Orlando $78,000 plus attorney's fees and costs. (Id. at 16.) 1st Orlando recorded the Final Judgment, creating a lien against the Properties. (Doc. No. 20 ¶ 2.) Another creditor, First-Citizens Bank & Trust Company ("First-Citizens") also has a lien encumbering the Properties. (Doc. No. 27 ¶ 4.) The parties agree that First-Citizens' lien was earlier in time and has priority over 1st Orlando's lien. (Id.; Doc. No. 32 ¶¶ 4, 11.)
II. THE DEBTOR'S CHAPTER 13 CASE
A. The Debtor strips 1st Orlando's judgment lien from Esther Street pursuant to § 522(f)(1)(A) .
On May 24, 2022, the Debtor filed this Chapter 13 case. (Doc. No. 1.) First-Citizens filed a secured claim (Claim 11) in the amount of $360,423.28, and 1st Orlando filed Claim 9 in the amount of $112,598.42. The Debtor claimed Esther Street as her exempt homestead. (Id. at 17.) Because 1st Orlando's judgment lien impaired the Debtor's homestead exemption, the Court entered an order (Doc. No. 51) granting the Debtor's motion (Doc. No. 20) to avoid the lien pursuant to § 522(f)(1)(A). As a result, 1st Orlando's lien was stripped from Esther Street, with its second position lien now encumbering only Harding Street, while First-Citizens' lien still encumbers both Properties.
1st Orlando filed Claim 10 for attorney's fees incurred in pursuing its judgment, but later filed an amendment to Claim 9 in which it included those fees. (Doc. Nos. 33, 40.)
She also claimed Harding Street as exempt, but the Trustee successfully challenged this exemption (Doc. Nos. 16, 44), and the Debtor amended her schedules to remove the exemption (Doc. No. 19 at 10-11).
Art. X, § 4(a)(1), Fla. Const.; Fla. Stat. §§ 222.01, 222.01 (2022).
Absent certain exceptions not present here, Section 522(f)(1)(A) permits a debtor to avoid a lien on the debtor's property "to the extent that such lien impairs an exemption to which the debtor would have been entitled . . . if such lien is . . . a judicial lien . . . ." Debtors commonly use § 522(f)(1)(A) to avoid judicial liens which impair their homestead exemption.
The Debtor collectively values the Properties at $685,000. (Doc. No. 1 at 10.) The Debtor and 1st Orlando stipulated that Harding Street is worth $260,000. (Doc. No. 55 at 3; Doc. No. 57 at 2.) As such, using the Debtor's numbers, Esther Street is worth $425,000 ($685,000 - $260,000 = $425,000). The Debtor did not object to First-Citizens' $360,423.28 secured claim, and, since its claim encumbers both Properties, First-Citizens contends it "is an over-secured creditor and therefore also entitled to an award of post-petition interest, attorneys' fees and costs, pursuant to 11 U.S.C. § 506(b), [its] Loan Documents, and applicable law." (Claim 11-1 at 4.)
In First-Citizens' addendum to its proof of claim, it opines that the Properties have "a current value of at least $685,000.00, as scheduled by the Debtor." (Claim 11-1 at 4 (emphasis in original)).
B. The Debtor next strips 1st Orlando's judgment lien from Harding Street pursuant to § 506(a) after the Court rejects 1st Orlando's argument that the marshaling doctrine should operate to preclude its lien from being stripped.
Having eliminated 1st Orlando's lien on Esther Street as her exempt homestead, the Debtor next sought to strip 1st Orlando's lien on Harding Street under § 506(a), arguing that Harding Street is fully encumbered by First-Citizens' first position lien because First-Citizens' $360,423.28 claim far exceeds the stipulated $260,000 value of Harding Street. (Doc. Nos. 27, 34, 41.) Bankruptcy Code § 506(a) relevantly provides that
Although the Debtor and 1st Orlando stipulated to the value of Harding Street at $260,000, the Debtor and the Trustee assigned Harding Street a liquidation value of $294,000. (Doc. No. 86 at 2; Doc. No. 92 at 4, Ex. A). The $34,000 difference is immaterial to the Court's conclusions with respect to 11 U.S.C. § 1325(a), as discussed infra.
[a]n allowed secured claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim.11 U.S.C. § 506(a). As such, the Debtor argued there was no value to support 1st Orlando's lien.
In response, 1st Orlando urged the Court to apply the equitable doctrine of marshaling on the basis that First-Citizens' $360,423.28 claim is fully secured by Esther Street. (Doc. No. 32 ¶ 10.) With Esther Street worth $425,000, after deducting First-Citizens' $360,423.28 secured claim, there is excess value of over $64,000, so First-Citizens is amply over-secured by Esther Street alone. Accordingly, 1st Orlando argued the marshaling doctrine should prevent its lien from being stripped from Harding Street. (Id. ¶¶ 10, 11.) To be clear, 1st Orlando did not argue that the Debtor should be required to sell her exempt Esther Street homestead, only that First-Citizens was adequately protected by the value of Esther Street in the event of a future default and ensuing foreclosure, and that therefore First-Citizens' liens should be marshaled against Esther Street.
The marshaling doctrine was first raised in connection with the following motions, objections, and responses:
• Debtor's Amended Motion to Determine Secured Status of Claim 10 and Void Junior Lien Held by 1st Orlando Real Estate Services, Inc. (Doc. No. 27);The Court held numerous hearings on the above filings and took under advisement the issue of whether a creditor can employ the doctrine of marshaling to block a debtor's motion to strip a lien under Section 506(a) on February 28, 2023. (Doc. Nos. 42, 50, 57.) The parties returned to Court on March 29, 2023, and the Court advised the parties that the doctrine may not be so used. (Doc. No. 60.) This Order memorializes the Court's ruling on that issue as it arose in the § 506(a) context, as well as in the present § 1325(a)(4) context, in addition to providing the Court's ruling on confirmation.
• 1st Orlando's Objection to Amended Motion to Determine Secured Status of Claim 10 and Void Junior Lien Held By 1st Orlando Real Estate Services, Inc. (Doc. No. 32);
• Debtor's Second Amended Motion to Determine Secured Status of Claim Number 9 and Void Junior Lien Held By 1st Orlando Real Estate Services, Inc. (Doc. No. 34);
• 1st Orlando's Amended Objection to Second Amended Motion to Determine Secured Status of Claim 9 and Void Junior Lien Held By 1st Orlando Real Estate Services, Inc. (Doc. No. 39); and
• Debtor's Response to Amended Objection to Second Amended Motion to Determine Secured Status of Claim 9 and Void Junior Lien Held By 1st Orlando Real Estate Services, Inc. (Doc. No. 41).
The Florida Constitution provides that, with certain exceptions, a debtor's homestead is exempt from forced sale by creditors. Art. X, § 4(a), Fla. Const.
"Bankruptcy courts have the equitable power to order the marshaling of assets in a bankruptcy case or proceeding." Hennessey Cap. SE, LLC v. David (In re Miller Eng'g, Inc.), 398 B.R. 473, 488 (Bankr. S.D. Fla. 2008) (citing Canal Nat'l Bank v. Larry's Equip. Serv., Inc. (In re Larry's Equip. Serv., Inc.), 23 B.R. 132, 133 (Bankr. D. Me. 1982)). Marshaling is an equitable remedy "designed to promote fair dealing and justice." Id. The doctrine "exists for the benefit of junior creditors," In re Pray, 242 B.R. 205, 209 (Bankr. D. Mass. 1999), and evolved to prevent a senior lienor from arbitrarily destroying "the rights of a junior lienor or a creditor having less security" and takes into account "the rights of all who have an interest in the property involved . . . ." In re Miller Eng'g, Inc., 398 B.R. at 488 (citing Meyer v. United States, 375 U.S. 233, 236, 84 S. Ct. 318, 11 L.Ed. 2d 293 (1963)).
"The doctrine of marshaling applies only when there are: '(i) two creditors of the same debtor; (ii) two or more funds belonging to that debtor; and (iii) one creditor with the right to resort to both funds with the other creditor having rights against only one.' " Cox Enters., Inc. v. News-J. Corp., No. 6:04-CV-698-ORL-28DAB, 2013 WL 12164661, at *3 (M.D. Fla. Sept. 18, 2013) (quoting In re Talmo, 192 B.R. 272, 275 (Bankr. S.D. Fla. 1996)). "Under those circumstances, the creditor with two sources of recovery may be required to collect first from the source to which the other creditor does not have rights." Id. (citing In re Talmo, 192 B.R. at 275). In Florida, junior lien creditors may ask a court to require a creditor with senior liens to marshal them if the required elements are met. SAC Constr. Co. v. Eagle Nat'l Bank of Miami, 449 So.2d 301, 303 (Fla. 3d DCA 1984) (recognizing doctrine), citing Walter T. Embry, Inc. v. LaSalle Nat. Bank, 792 So. 2d 567, 569 (Fla. 4th DCA 2001).
In In re Hale, 141 B.R. 225, 226 (Bankr. N.D. Fla. 1992), the bankruptcy court for the Northern District of Florida noted two other factors courts should consider in a marshaling analysis: (1) absence of impairment to the senior creditor's right to a complete satisfaction, and (2) absence of injustice to third persons.
Here, each of the three factors is met. Both 1st Orlando and First-Citizens are creditors of the Debtor and assert claims against two or more funds (the Properties) belonging to the Debtor, but since the Debtor stripped 1st Orlando's lien from Esther Street using § 522(f)(1)(A), 1st Orlando's lien now encumbers just Harding Street. Because of this, 1st Orlando urged the Court to invoke the marshaling doctrine to block the Debtor from using § 506(a) to strip its lien from Harding Street and require First-Citizens to marshal its liens against Esther Street.
1st Orlando did not provide the Court with any caselaw in which a bankruptcy court applied the marshaling doctrine to defeat a debtor's attempt to strip a lien using § 506(a), nor did the Court's independent research reveal anything that would support 1st Orlando's position in the § 506(a) context. In opposing use of the marshaling doctrine, the Debtor relied upon In re Pray, in which the bankruptcy court, for several reasons, declined to invoke the marshaling doctrine to prevent the debtor's avoidance of judicial liens using § 522(f). Most relevant here, in Pray, the bankruptcy court concluded that marshaling was premature insofar as the debtor was proposing to retain his properties rather than liquidate them. In re Pray, 242 B.R. at 210 (citing In re Borges, 184 B.R. 874, 880 (Bankr. D. Conn. 1995)); see also In re Jones, No. 02-12496, 2003 WL 23024502, at *5 (Bankr. M.D. Ga. Dec. 12, 2003) ("The Court will not deviate from the plain language of [§ 522] to benefit a judgment creditor at the expense of a senior secured creditor.").
The Court found only one case involving a creditor's attempt to invoke the marshaling doctrine to prevent its lien from being stripped by § 506(a), In re Luby, 89 B.R. 120, 124 (Bankr. D. Or. 1988). But Luby is of limited relevance because the court determined it did not have the power to enter a marshaling order in the absence of certain essential parties. Id. Here, the Court has all necessary parties before it, but declines to elevate equity over the powers supplied to debtors by Congress under § 506(a) and § 522(f) which are expressly designed to permit the removal (or reduction) of certain liens when the conditions for such are satisfied. "[T]he Court is disinclined to intervene on an equitable basis where there is a comprehensive statutory system in place dictating priority of the parties' interests." Tri-River Chem. Co. v. TNT Farms (In re TNT Farms), 226 B.R. 436, 446 (Bankr. D. Idaho 1998).
In In re Bowshier, 389 B.R. 542, 548-49 (Bankr. S.D. Ohio 2008), the bankruptcy court for the Southern District of Ohio also considered the marshaling doctrine in the § 522(f)(2) context, and likewise deemed it inappropriate to resort to equity where § 522(f)(2) was designed to operate with "formulaic precision," concluding that "[i]t would run counter to the intent of Congress . . . to inject the uncertainty of equitable principles and abstract theories into a clearly worded statute . . . ." See also In re TNT Farms, 226 B.R. 436, 446 (Bankr. D. Idaho 1998) ("Where the legislature has considered the relative rights of the parties and declared as a matter of policy what the outcome of a priority contest should be, the Court should be, and here is, reluctant to adjust the results solely in the name of equity."); but see In re Kerbs, 207 B.R. 211, 215 (Bankr. D. Mont. 1997) (holding "that since the senior lienholder has other collateral to satisfy its secured interests in the event of foreclosure, the value of those other assets should, for the purposes of judicial lien avoidance, diminish the total of its consensual lien on a property also encumbered by junior lienholders."). Ultimately, this Court agreed with the courts that declined the invitation to displace a clearly worded statute and the priorities established by Congress by the marshaling doctrine and entered its order permitting the Debtor to strip 1st Orlando's lien under § 506(a). (Doc. No. 62). Lien marshaling cannot be employed to defeat lien stripping under § 506(a). But this is not the end of the story.
The Court's order permitting the Debtor to strip 1st Orlando's lien under § 506(a) concluded that 1st Orlando had "no secured claim" and deemed its Claim of Lien "void and extinguished" once the Chapter 13 trustee filed a notice that the Debtor completed her payments under the Plan. (Doc. No. 62 ¶¶ 2, 4). But the order "is not recordable, effective, or enforceable until the Chapter 13 Trustee's [o]ffice files a notice of completion of plan payments with this Court." (Id. ¶ 5); see 11 U.S.C. § 349. Additionally, the Court reserved jurisdiction to consider the avoidance of 1st Orlando's lien prior to completion of the Plan. (Doc. No. 62 ¶ 6). As such, the Order is interlocutory and dependent upon future events, specifically confirmation and completion of payments under the Plan, and confirmation requires the Court to undertake additional analysis. Thus, if the Plan is not confirmed or this case is dismissed or converted prior to the completion of Plan payments, 1st Orlando's lien on Harding Street passes through unaffected.
But see fn. 15, infra.
C. The Plan is not in the best interests of creditors and cannot be confirmed.
"Bankruptcy courts are charged with an independent duty to ensure that Chapter 13 plans comply with the confirmation standards of the Bankruptcy Code." In re Visintainer, 435 B.R. 727, 732 (Bankr. M.D. Fla. 2010). Among other requirements, a chapter 13 plan cannot be confirmed "unless it satisfies what is generally known as the 'best interest of creditors test.' " In re Nott, 269 B.R. 250, 254 (Bankr. M.D. Fla. 2000). Under this test, "also known as the liquidation test, unsecured creditors must receive at least as much as they would if the case were a chapter 7 liquidation." In re Hill, 652 B.R. 212, 219 (Bankr. S.D. Ala. 2023). The test is supplied in Section 1325(a)(4) and directs the court to confirm a plan if "the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date." 11 U.S.C. § 1325(a)(4). So, courts compare the value of property that unsecured creditors are to receive under the debtor's plan with the value of property that would be distributed to unsecured creditors in a hypothetical chapter 7 case. In re Nott, 269 B.R. at 254 (citing In re Forbes, 215 B.R. 183, 189 (8th Cir. BAP 1997)).
The Debtor and the Trustee dispute whether it is appropriate to include the fees for Chapter 13 counsel in the liquidation analysis. Resolution of the dispute would require the Court to determine the proper date to be used for the liquidation analysis. The Trustee argues that the date is the petition date, and the Debtor argues that the date is the date of confirmation. There are good arguments on both sides of the dispute. Compare In re Nott, 269 B.R. 250, 254-55 (Bankr. M.D. Fla. 2000) (date that the property is valued for purposes of the test is the effective date of modified plan, rather than initial plan), and In re Buettner, 625 B.R. 78 (Bankr. E.D. Wis. 2021) (date plan is confirmed is "effective date of the plan"), with In re Goudreau, 530 B.R. 783, 788 n.22 (Bankr. D. Kan. 2015) ("effective date of the plan" is the date the petition was filed, citing 8 Collier on Bankruptcy ¶ 1325.05[2][a]; 2 Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy § 160.1 (4th ed.); Chapter 13 Practice and Procedure § 7:9 (2014); 7 William L. Norton, Jr., and William L. Norton III, Norton Bankruptcy Law & Practice 3d § 151:11 at n.6 (2014)). Here, the Court declines to address the issue as it is immaterial to the Court's ruling because the Court has determined creditors will fare better in a Chapter 7 in this case regardless of whether Chapter 13 counsel fees are included in the liquidation analysis.
Citing Chittenden Trust Co. v. Sebert Lumber Co. (In re Vermont Toy Works, Inc.), 135 B.R. 762 (D. Vt. 1991), and Fundex Cap. Corp. v. Balaber-Strauss (In re Tampa Chain Co.), 53 B.R. 772 (Bankr. S.D.N.Y. 1985), 1st Orlando argues that the marshaling doctrine can be invoked by a Chapter 7 trustee for the benefit of unsecured creditors in a Chapter 7 case. (Doc. No. 79, ¶¶ 12, 13). Thus, in a hypothetical § 1325(a)(4) liquidation, a Chapter 7 trustee could request that First-Citizens marshal its liens against Esther Street. The trustee could then sell Harding Street and distribute the proceeds to creditors according to priority. (Doc. No. 79 ¶ 12.) In response, the Debtor argues that because the Court already declined to require First-Citizens to marshal its liens against Esther Street when 1st Orlando initially raised it as a defense to the Debtor's lien stripping motion under § 506(a), this ruling is now "the law of the case" (Doc. No. 76 ¶ 7).
In Vermont Toy Works, the court referred to the entity arguing for marshaling as the unsecured creditor when in fact it was the unsecured creditor's attorney who advanced a marshaling argument on behalf of a trustee. 135 B.R. at 766 n.3. The court "assumed that the trustee may hire the unsecured creditor's attorney as special counsel to prosecute the lawsuit." 135 B.R. at 766 n.3. The court then held that the trustee had the authority to bring a marshaling action under Vermont law because the trustee held the status of a hypothetical lien creditor, and under Vermont law, a judicial lien creditor is considered a secured party. 135 B.R. at 768. In Tampa Chain Co., the court held that the trustee was deemed to be a secured creditor because under New York law, "an unsatisfied execution creditor has rights to the personal property of a debtor served with a writ of execution superior to all but prior secured creditors and bona fide purchasers for value[,]" and by stepping into the place of an unsatisfied execution creditor, "the trustee enjoys whatever rights and powers that status conveys under state law." 53 B.R. at 777-78.
"Under the law-of-the-case doctrine, an issue decided at one stage of a case is binding at later stages of the same case." United States v. Escobar-Urrego, 110 F.3d 1556, 1560 (11th Cir. 1997). "Almost all cases discussing the 'law of the case' doctrine generally refer to it as applying to decisions made by a court of appeals in a prior appeal of the same case." United States v. Williams, 728 F.2d 1402, 1406 (11th Cir. 1984). A court's previous rulings may be reconsidered as long as the case remains within their jurisdiction. Id. Thus, "[o]rdinarily law of the case applies only where there has been a final judgment and not to interlocutory rulings." Gregg v. U.S. Indus., Inc., 715 F.2d 1522, 1530 (11th Cir.), decision clarified on reh'g sub nom. Gregg v. U.S. Indus., Inc. (Two Cases), 721 F.2d 345 (11th Cir. 1983). Here, the Court's order (Doc. No. 62) on the § 506(a) issue is interlocutory and is not the law of the case.
Moreover, a § 1325(a)(4) analysis is very different from a § 506(a) analysis, both generally and with respect to the applicability of marshaling. Section 506(a) calls for valuing property to determine whether the property's value supports a lien. If the value does not support a lien, the statute allows for the removal (or the reduction of the value) of the lien from the property. But § 1325(a)(4) requires a court to assess whether creditors are better off in a Chapter 13 or in a Chapter 7, and this entails consideration of likely events in a liquidation scenario. So, while a marshaling analysis may be premature when a debtor is proposing to retain property, In re Pray, 242 B.R. at 210, it is ripe for consideration at plan confirmation when § 1325(a)(4) demands the court analyze creditor treatment under a Chapter 13 plan versus liquidation treatment in a Chapter 7.
In a Chapter 7 case, the debtor surrenders all non-exempt property owned as of the petition date to the Chapter 7 trustee, who then liquidates the property to pay the debtor's creditors. In re Calixto, 648 B.R. 119, 123 (Bankr. S.D. Fla. 2023); In re Hill, 652 B.R. 212, 219 (Bankr. S.D. Ala. 2023). Following liquidation, the trustee distributes proceeds in accordance with the established priorities, satisfying valid liens, and remitting any excess towards payment of unsecured claims. In re Lambdin, 33 B.R. 11, 12-13 (Bankr. M.D. Tenn. 1983). Absent application of the marshaling doctrine in this case, there would be no equity in Harding Street for the benefit of unsecured creditors because First-Citizens' lien fully encumbers it. So, it is unlikely the trustee would seek to administer this property because it would not benefit the estate.
The Debtor alleges 1st Orlando's Final Judgment was recorded within the 90-day preference period. (Doc. No. 41 at 3 ¶ 10.) If true, a Chapter 7 Trustee would have the power to seek avoidance of 1st Orlando's lien pursuant to 11 U.S.C. § 547(b) and if successful, 1st Orlando would again hold only an unsecured claim.
But § 544(a) arms the Chapter 7 trustee with the rights of a judicial lienholder, and "[n]either the language of § 544(a) nor the legislative history indicates that the so-called 'strong arm' rights do not apply in a marshalling context." In re Wilmot Min. Co., 167 B.R. 806, 811 (Bankr. W.D. Pa. 1994) (citing In re C & B Oil Co., Inc., 72 B.R. 228, 229-30 (Bankr. N.D. Ohio 1987)). Therefore, this Court must consider the Chapter 7 trustee's status as a judicial lienholder and resultant ability to marshal assets when considering whether creditors would fare better under the Plan or in a liquidating Chapter 7 case. Here, First-Citizens is amply secured by Esther Street, and Harding Street is not exempt. As such, a Chapter 7 trustee could seek to employ marshaling for the benefit of unsecured creditors such that First-Citizens must marshal its liens against Esther Street as its sole collateral, freeing up Harding Street for sale. The application of marshaling in this manner will not impair First-Citizens' rights because there is more than enough equity in Esther Street to satisfy First-Citizens' lien, including accruing interest and other amounts which may be provided for under the parties' loan documents in the event the Debtor defaults and First-Citizens seeks to foreclose.
The Court concludes that all elements necessary to require First-Citizens to marshal its liens against Ether Street are met such that Harding Street would be subject to administration for the benefit of creditors in a Chapter 7 case. Therefore, the Plan does not comply with § 1325(a)(4).
Accordingly, it is
ORDERED:
1. The Chapter 13 Trustee's Objection to Confirmation of Chapter 13 Plan (Doc. No. 74) is SUSTAINED;
2. 1st Orlando's Fourth Amended Objection to Confirmation of Chapter 13 Plan (Doc. No. 79) is SUSTAINED; and
3. The Debtor has fourteen days from the date this Order is filed to file a modified Chapter 13 plan that comports with the best interest of creditors, or to seek dismissal of this case or conversion to a Chapter 7 case.
ORDERED.