Opinion
Case No. 02-53647-DHA, APN 04-5040.
February 16, 2005
MEMORANDUM OPINION AND ORDER
This matter came before the Court on the debtor's Motion to Reconsider the Court's December 8, 2004 opinion denying debtor's Motion to Determine Violation of the Automatic Stay by the defendants. In that opinion the Court determined that once the creditor had obtained a relief from stay, then refinanced the note and the debtor defaulted on the refinanced note, the automatic stay was not in effect and did not protect the debtor's home from foreclosure, as the property had re-vested in the debtor upon confirmation of the bankruptcy plan as called for by the plan. Counsel for the debtor suggests that the Court's initial ruling in this case is not consistent with 11 U.S.C. §§ 541, 1306, and 1327, which counsel states, when read together, shows Congress' intent that property that re-vested in the debtor upon confirmation of the bankruptcy plan, remains in the bankruptcy estate and is, therefore, still subject to the protections of the automatic stay. Additionally, debtor's counsel argues that the finding of this Court in its December 8, 2004 opinion is contradictory to an opinion, In re Leavell, 190 B.R. 536 (Bankr. E.D. Va. 1995), previously issued by another judge in this district.
This is a core proceeding over which this Court has jurisdiction under 28 U.S.C. §§ 157(b)(2) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
After taking the matter under advisement a second time, we make the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
The application of this opinion is very fact specific and applies only to the facts of this case. Therefore, a restatement of the facts is imperative.
On December 15, 2002, the debtor filed a petition in Chapter 13. At the time of that filing Resource Bank held a Second Deed of Trust securing a note in the principal amount of $150,000.00 on property owned by the debtor. Debtor's plan called for the debtor to pay Resource Bank directly for the payments due under its second mortgage. On February 10, 2003, Resource Bank filed a Motion for Relief from Stay regarding the aforementioned note and real property, which was granted by a consent order entered April 24, 2003.
Subsequently, the parties negotiated a refinancing arrangement involving the $150,000 note. The debtor moved this Court to approve the refinancing of the Resource Bank note, which the Court did by order entered November 24, 2003. The debtor executed a new note, dated January 15, 2004, and an amendment to the Second Deed of Trust, dated January 27, 2004. The consent order provided in pertinent part:
". . . the automatic stay provided for by 11 U.S.C. § 362 be, and it hereby is, modified, to permit Plaintiff (i) to institute all acts necessary to foreclose on the collateral securing the Note described below (which was not in fact described) . . .
In the event of foreclosure, Resource Bank shall notify the trustee of such foreclosure within fifteen (15) days after its occurrence . . ."
On January 20, 2004, the debtor's plan was confirmed. On February 1, 2004 and March 1, 2004, debtor failed to make his first and second payments on the refinanced note, causing Resource Bank to call the balance due under the new note. On April 21, 2004, the debtor received notification that Resource Bank would hold a foreclosure sale of the property on May 14, 2004. On the stated date Resource Bank did conduct the foreclosure sale, selling the property to a third party for the full amount of the refinanced note.
CONCLUSIONS OF LAW
11 U.S.C. § 362(c)(1) provides that "[e]xcept as provided in subsections (d), (e), and (f) of this section — (1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate." 11 U.S.C. § 362(c)(1) (2004). Subsection (d) of that same statute states:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay —
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this section, if —
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization; or
(3) with respect to a stay of an act against single asset real estate under subsection (a), by a creditor whose claim is secured by an interest in such real estate, unless, not later than the date that is 90 days after the entry of the order for relief (or such later date as the court may determine for cause by order entered within that 90-day period) —
(A) the debtor has filed a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time; or
(B) the debtor has commenced monthly payments to each creditor whose claim is secured by such real estate (other than a claim secured by a judgment lien or by an unmatured statutory lien), which payments are in an amount equal to interest at a current fair market rate on the value of the creditor's interest in the real estate.
Id. § 362(d).
11 U.S.C. § 541, in relevant part, defines property of the estate as "[e]xcept as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (2004). This definition includes "[a]ny interest in property that the estate acquires after the commencement of the case." Id. § 541(a)(7).
11 U.S.C. § 1306 states in pertinent part that:
(a) Property of the estate includes, in addition to the property specified in section 541 of this title —
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, or 11, or 12 of this title, whichever occurs first;
. . . .
(b) Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate.
Id. § 1306.
Finally, 11 U.S.C. § 1327(b) states that "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor. Id. § 1327.
Confusion arises when attempting to read § 1327(b), stating that the property of the estate vests in the debtor after confirmation of the plan, with § 1306, which alludes to the fact that the estate exists until the case is close, converted or dismissed. To add to the confusion, there is a split in the authorities on whether the estate survives the confirmation of the plan. Many courts have found that the estate does survive. See In re Ziegler, 136 B.R. 497, 501 (Bankr. N.D. Ill 1992); Price v. United States, 130 B.R. 259, 269-70 (Bankr. N.D. Ill. 1991); In re Aneiro, 72 B.R. 424, 429 (Bankr. S.D. Cal. 1987); In re Clark, 71 B.R. 747 (Bankr. E.D. Pa. 1987); In re Dickey, 64 B.R. 3 (Bankr. E.D. Va. 1985). While others have found that it does not. See Shell Oil Co. v. Capital Financial Services, 170 B.R. 903, 905-06 (Bankr. S.D. Tex. 1994); In re Rhodes, 1995 WL 128486. (Bankr. D. Idaho 1995); In re McCray, 172 B.R. 154, 156 (Bankr. S.D. Ga. 1994); In re Lambright, 125 B.R. 733, 735 (Bankr. N.D. Tex. 1991); In re Jones, 152 B.R. 155 (Bankr. E.D. Mich. 1993); In re Petruccelli, 113 B.R. 5, 16 (Bankr. S.D. Cal. 1990); In re Walker, 84 B.R. 888, 888 (Bankr. D.D.C. 1988); In re Mason, 45 B.R. 498, 500 (Bankr. D. Ore. 1984), affirmed, 51 B.R. 548 (Bankr. D. Ore. 1985).
The court in Leavell quite adeptly discusses the interplay of these statutes and whether any part of the estate survives the confirmation of a bankruptcy plan. Leavell, 190 B.R. at 538-40. Leavell determined that the estate does survive the confirmation of the Chapter 13 plan, otherwise there would be no property for the Trustee to administer or on which to make a final report, and certain sections of the code would be superfluous and not be given full effect. Id. at 539-40. Ultimately, the Leavell court held that unless the plan states otherwise, only the postconfirmation earnings necessary to implement the plan are part of the estate and protected by the automatic stay against garnishment on a post-petition claim. Id. at 540-41 (emphasis added).
This Court agrees with the conclusions reached by the Court in Leavell and distinguishes that case from the facts presented in the case sub judice; they are totally different and require a different analysis in this case. In Leavell, the debtor purchased a ring and video cassette recorder six days after she filed for Chapter 13 relief. The debtor's plan, confirmed approximately two months after the filing of the Chapter 13 petition, did not provide for the payment of the obligation owed to the pawn broker. Soon the debtor failed to make the monthly payments on her purchases, and the pawn broker obtained a judgment against her for the balance due. More than six months after her petition was filed, the post-petition judgment creditor began garnishing her wages, which was soon brought to the Court's attention in the form of a motion for contempt for violating the automatic stay. It is important to note that the debtor did not allege the judgment obtained against her violated the stay.
The Court found that property rights acquired by the debtor post-petition and during the pendency of the Chapter 13 case are property of the debtor's bankruptcy estate. See Section 541 (a)(1), and all property of the estate vests in the debtor upon confirmation, unless the plan provides otherwise. The Court in Leavell then narrowed the focus of its analysis to the issue of the post-petition earnings of the debtor and what portion thereof becomes property of the estate after confirmation, recognizing that the automatic stay only protects property of the estate postconfirmation. The Court concluded that upon confirmation, the estate continues to exist under § 1327(b), to give meaning to § 1306(a) and (b), finding that Congress intended to protect so much of the post-petition earnings of the debtor as are necessary to fund the plan. Therefore, that portion of the debtor's post-petition earnings necessary to make plan payments to the Chapter 13 trustee are property of the estate and protected by the automatic stay; conversely, the excess of earnings over the monthly amounts needed for the plan payments are not protected by the automatic stay are in that case are subject to the pawn brokers garnishment action.
Debtor's counsel argues that this Court's original ruling does not give effect to § 1306, is in contrary to the findings in Leavell, and could have far reaching consequences, with creditors initiating or continuing collection actions against debtors without court approval once the debtor confirms his plan, concerns that are apparently shared by the local bar. This Court recognizes these concerns; however, given the specific facts of this case, the Court finds they are unfounded. The decision in this case is very fact specific to this case. The automatic stay would have protected the debtor's residence had the debtor not agreed to waive his protection under § 362 relative to the Resource Bank debt. That waiver was in effect and continued beyond the refinancing of the Resource Bank debt.
While neither are trustees in the instant case, Frank Santoro and George Neal, made appearances, as well as Robert Van Ardsdale, Assistant United States Attorney, to voice concerns that this Court's original opinion was being interpreted too broadly. All three reported that the concern of the local bar is that once a plan is confirmed neither creditors nor debtors will seek permission of the court to pursue or sell property of the estate.
In this case, pursuant to § 362(d), the creditor obtained relief from stay as to the subject property by an order entered April 24, 2003. The subsequent refinancing by the same creditor and the debtor of the same indebtedness on the same property did not nullify that consensual relief. When the debtor did not make his first and second payments under the continuing obligation, evidenced by the refinanced note in favor of Resource Bank, the creditor was allowed to pursue foreclosure of the property under the terms of the order of relief from stay entered on April 24, 2003. Of course, this entire controversy could have been avoided by explicit and careful drafting of the agreed relief order.
We reject the arguments made on behalf of Resource Bank that the refinanced note is a post-petition obligation not covered by the automatic stay and the argument that the residence was not part of the bankruptcy estate at the time of the foreclosure under § 1327(b) of the Bankruptcy Code. However, we do not have to address those issues with specificity inasmuch as we have found that the obligation to Resource Bank was a continuing pre-petition debt that was excluded from the protections of the automatic stay by agreement.
In an effort to be extremely clear and to restate it, in applying the above stated conclusions of law to the facts of this case, and only this case, the Courts finds that debtor's home was not protected by the automatic stay because the consensual relief Order entered on April 24, 2003 waived that protection for the obligation of the debtor to Resource Bank however it was evidenced; therefore the foreclosure sale was appropriately conducted and its occurrence did not violate the previously waived automatic stay. The stay, once waived by agreement, continued to be waived relative to the debtor's obligation to Resource Bank. Had the Resource Bank obligation been paid off by a post-petition refinancing with another financial institution, the second lender would have been bound by the provisions of the automatic stay and could not have foreclosed without relief from the Court.
Thus, we conclude that the debtor's residence would have remained protected by the automatic stay post-confirmation but for the Consent Order of April 24, 2003. Had the debtor not waived the protection of the automatic stay and later decided to sell his residence prior to the closing of the estate, he would have had to seek permission to do so from the Court. Those are not the facts in this case, however.
CONCLUSION
We have determined that the following resolution of the issues presented is appropriate under the facts of this case and the law as applied to those facts:
1. The creditor obtained relief from stay as to the debtor and property on April 24, 2003, pursuant to § 362(d).
2. The subsequent refinancing of the original Resource Bank debt by the same creditor and debtor on the same property did not nullify that previously granted relief from stay.
3. The automatic stay was not in effect at the time of foreclosure on May 14, 2004.
Therefore, the debtor's Motion to Reconsider the Motion to Determine Violation of the Automatic Stay is GRANTED, but the Motion to Determine Violation of the Automatic Stay is once again DENIED. IT IS SO ORDERED.