Opinion
Case No. 12-14322
10-18-2012
In Re MARLENE SUE VONDERHAAR Debtor
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
______________________
Beth A. Buchanan
United States Bankruptcy Judge
Chapter 13
Judge Buchanan
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR EXTENSION
OF AUTOMATIC STAY UNDER 11 U.S.C. § 362
This matter is before this Court on the Motion for Extension of Automatic Stay Under 11 U.S.C. § 362 [Docket Number 10] (the "Motion") filed by Marlene Sue Vonderhaar (the "Debtor") and the Objection to Motion for Extension of Automatic Stay Under 11 U.S.C. § 362 [Docket Number 20] (the "Objection") filed by BankUnited, N.A. ("BankUnited"). A preliminary hearing regarding the Motion was held on September 6, 2012 at which time the Debtor and BankUnited tendered an agreed order to extend the stay through October 19, 2012. The parties sought an extension of time to pursue settlement discussions, including discussions regarding a potential modification of the Debtor's mortgage on her residence with BankUnited. Counsel for the Chapter 13 Trustee was present at the September 6, 2012 hearing and did not oppose the temporary extension of stay. There being no other objections to the Motion, this Court entered the agreed order [Docket Number 21] extending the stay through October 19, 2012 and entered a separate order [Docket Number 21] requiring a report by September 28, 2012 regarding the status of settlement discussions and setting the Motion for an evidentiary hearing on October 9, 2012.
The Debtor and BankUnited filed a joint status report on September 27, 2012 [Docket Number 27] indicating that the parties were unable to reach settlement. Accordingly, the evidentiary hearing regarding the Motion proceeded on October 9, 2012.
In addition to the Debtor, respective counsel for the Debtor, BankUnited and the Chapter 13 Trustee were present at the October 9, 2012 hearing. The parties stipulated to the admission of all exhibits. The Debtor was the only witness who testified at the hearing. The following reflects this Court's findings of fact and conclusions of law.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This is a core proceeding by virtue of 28 U.S.C. §§ 157(b).
The Debtor previously filed a Chapter 13 petition on August 17, 2011 [Case Number 11-15030] (the "First Case"), which case was dismissed on April 23, 2012 for failure to make plan payments. No plan was confirmed in the First Case. The Debtor filed the instant Chapter 13 case on August 8, 2012 (the "Second Case"). Because the Debtor filed her Second Case within one year of the dismissal of her First Case, Section 362(c)(3) of the Bankruptcy Code limits the duration of the automatic stay unless this Court enters an order further extending the stay. Specifically, Section 362(c)(3) of the Bankruptcy Code provides in relevant part that:
Unless otherwise indicated, the terms "Bankruptcy Code," "Section" and "§" refer to Title 11 of the United States Code, 11 U.S.C. § 101 et seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8.
(3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)—11 U.S.C. § 362(c)(3).
(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;
(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed; and
(C) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—
(i) as to all creditors, if—
. . .
(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11, or 13 or any other reason to conclude that the later case will be concluded—
. . .
(bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; and
Accordingly, the Debtor must demonstrate that her Second Case was filed in good faith as to the creditors to be stayed. In determining good faith for purposes of Section 362(c)(3), courts have adopted the following twelve-part test suggested by the Sixth Circuit Court of Appeals in the context of evaluating whether a debtor's Chapter 13 plan is proposed in good faith:
1. the amount of the proposed payments and the amount of the debtor's surplus;In re Dowden, 429 B.R. 894, 899-900 (Bankr. S.D. Ohio 2010)(citing Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123, 1126-27 (6th Cir. 1990) and Metro Employees Credit Union v. Okoreeh-Baah, 836 F.2d 1030, 1032 n. 3 (6th Cir. 1988)).
2. the debtor's employment history, ability to earn and likelihood of future increase in income;
3. the probable or expected duration of the plan;
4. the accuracy of the plan's statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;
5. the extent of preferential treatment between classes of creditors;
6. the extent to which secured claims are modified;
7. the type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7;
8. the existence of special circumstances such as inordinate medical expenses;
9. the frequency with which the debtor has sought relief under the Bankruptcy [Code];
10. the motivation and sincerity of the debtor in seeking Chapter 13 relief;
11. the burden which the plan's administration would place upon the trustee; and,
12. whether the debtor is attempting to abuse the spirit of the Bankruptcy Code.
Additional factors that a court may consider when evaluating whether a petition is filed in good faith include:
1. the nature of the debt, including the question of whether the debt would be nondischargeable in a Chapter 7 proceeding;Alt v. United States of America (In re Alt), 305 F.3d 413, 419-20 (6th Cir. 2002)(citing In re Love, 957 F.2d 1350, 1357 (7th Cir. 1992)). While the foregoing factors provide guidance to courts in assessing good faith, the Sixth Circuit has emphasized that the determination of good faith is a factual inquiry that is to be based on the totality of the circumstances. In re Dowden, 429 B.R. at 900 (discussing Caldwell and Okoreeh-Baah).
2. the timing of the petition;
3. how the debt arose;
4. the debtor's motive in filing the petition;
5. how the debtor's actions affected creditors;
6. the debtor's treatment of creditors both before and after the petition was filed; and,
7. whether the debtor has been forthcoming with the bankruptcy court and the creditors.
The Debtor readily acknowledges that her objective in seeking bankruptcy relief is to attempt to keep the home where she has resided for more than twenty-five years. The Debtor testified that she has on-going medical problems stemming from a car accident. As a consequence, the Debtor required brain surgery and is unable to work. In light of her medical issues, the Debtor argues that it is important for her to remain in her home.
The Debtor did not indicate in her testimony when the accident or the surgery occurred. Based on the schedules filed in the First Case and this Court's observations, it would appear that the car accident occurred prior to the filing of the First Case.
The Debtor did not offer any evidence from a medical expert to support this argument.
To avoid the presumption that her Second Case was not filed in good faith, the Debtor asserts that there have been substantial changes since the dismissal of her First Case which will enable her to conclude her Second Case with a confirmed plan that will be fully performed. See 11 U.S.C. § 362(c)(3)(C)(i)(III). In support of her position, the Debtor states that she has retained new counsel who is committed to helping her explore alternatives to refinance her mortgage and to better guide her through the Chapter 13 process. To that end, the Debtor submitted evidence showing that she has engaged Liberty Credit Law, P.C. ("Liberty Credit"), a law firm that specializes in mortgage workouts, to represent her in negotiating a modification of her mortgage with BankUnited. A letter from Liberty Credit dated September 14, 2012 states that a proposal has been submitted to BankUnited and that Liberty Credit is communicating with BankUnited concerning a possible modification of the mortgage. As an additional refinancing alternative, the Debtor submitted correspondence from ACF Mortgage, which states that the Debtor has met the initial loan parameters to qualify for an FHA reverse mortgage. The Debtor maintains that these changes since the dismissal of her First Case are sufficient reason to afford her a brief extension of the stay through January 1, 2013 to complete her refinancing alternatives as proposed in her Chapter 13 plan.
This Court finds that the reasons offered by the Debtor with respect to refinancing the mortgage on her home are too contingent to enable this Court to decide at this point in time that the Debtor's Second Case will conclude with a confirmed plan that she is capable of fully performing. While this Court has no doubt that the Debtor's current bankruptcy counsel is making every effort to help the Debtor secure refinancing that would support a confirmable plan, the Debtor is not far enough into the process for this Court to conclude that the proposed refinancing options will come to fruition. In particular, the Debtor's residence has an appraised value as of August 12, 2011 of $250,000. The proof of claim filed by BankUnited reflects a mortgage balance of over $881,700 as of the petition date. There is no proof that BankUnited will agree to the modification of the mortgage that is being pursued by Liberty Credit. To the contrary, as indicated in the parties' September 27, 2012 joint status report and reiterated by BankUnited's counsel at the hearing, the parties have been unable to reach a settlement on modifying the mortgage.
The Debtor's reverse mortgage alternative seems to be an equally tentative option. Debtor's counsel explained at the hearing that the Debtor's lack of equity in her residence did not necessarily preclude her from obtaining a reverse mortgage. It was Debtor's counsel's understanding that the property would need to appraise at a sufficient future value to create enough equity for the prospective reverse mortgage lender to lend to the Debtor to satisfy BankUnited's mortgage. If the appraised future value did not create enough equity to fully satisfy BankUnited's mortgage, the Debtor would need to negotiate with BankUnited for a "buy down" of the mortgage. The unknown regarding the property's appraised future value— particularly in light of the dramatic variance between the August 2011 appraised value and the mortgage balance—coupled with the probable need for some discounting of the mortgage by BankUnited where none has been forthcoming to date mitigates against the likelihood of a reverse mortgage being a realistic solution to the Debtor's situation. Therefore, this Court finds that a presumption arises that the Second Case was not filed in good faith because the Debtor has not shown a substantial change in her financial or personal affairs since the dismissal of her First Case or any other reason to believe that the Debtor will be able to confirm a plan which she can feasibly perform.
The Debtor, however, may rebut the presumption of Section 362(c)(3)(C)(i)(III) by offering clear and convincing evidence that her Second Case was otherwise filed in good faith. In re Dowden, 429 B.R. at 900. "At [its] base, [the good faith] inquiry often comes down to a question of whether the filing is fundamentally fair." In re Love, 957 F.2d 1350, 1357 (7th Cir. 1992). In considering the multi-factor good faith test and otherwise gauging the totality of the circumstances, this Court cannot find that the Debtor has met her burden to show that her Second Case was filed in good faith as to BankUnited such as to warrant an extension of the stay.
Of particular significance to this Court in assessing the good faith of the Second Filing is the unexplained dissipation of approximately $83,000 in proceeds from the sale of the Debtor's business real estate (the "Hatch Street Property") since the dismissal of the First Case and the time of the Hearing. In the First Case, this Court approved the sale of the Hatch Street Property for $240,000. Based on the amended sale motion and fourth amended plan filed by the Debtor in the First Case, the Debtor was expected to net between $132,200 and $136,000 from the sale, which proceeds were to be used to either fund the Debtor's plan or to further negotiations with BankUnited regarding a modification of the mortgage. The Debtor, on the advice of her prior counsel, elected to allow her First Case to be dismissed and pursue a loan modification with BankUnited outside of bankruptcy. Case No. 11-15030, Docket Number 110. The closing on the sale of the Hatch Street Property occurred on or about May 9, 2012, which was after the dismissal of the First Case.
It appears from the tentative closing statement for the sale of the Hatch Street Property, which was entered into evidence at the Hearing, that the Debtor received only $57,109.89 in net proceeds from the sale—the primary difference being an escrow of $66,940.89 for what appears to be a later discovered lien against the property held by FIA Card Services. The Debtor testified that she subsequently received an additional check in the amount of $26,000, presumably the balance of the escrow left after satisfying the FIA Card Services lien. This Court inquired about an accounting of the Hatch Street Property sale proceeds (the "Sale Proceeds") at both the September 6, 2012 and October 9, 2012 hearings, as did the Chapter 13 Trustee at the September 24, 2012 meeting of creditors. Debtor's counsel likewise requested a detailed accounting from the Debtor but had not received the necessary information as of the October 9, 2012 hearing.
In response, the Debtor testified at the hearing that she believed that she could account for most of the Sale Proceeds but has not had the momentum to put the paperwork together. To the best of her recollection, the Debtor testified that the funds were generally used to pay medical bills and to pay people to help her with various everyday activities that she was not capable of doing on her own. While the Debtor may very well have used the Sale Proceeds for legitimate medical and personal expenses, the fact of the matter remains that those funds were available to the Debtor to further her efforts to refinance her mortgage with BankUnited and the Debtor opted to use those funds for other purposes and instead pursue riskier refinancing alternatives to address her mortgage situation.
Counsel for the Debtor acknowledges the speculative nature of the refinancing alternatives the Debtor is pursuing to address the BankUnited obligation but argues that the limited extension of the stay requested justifies the relief sought by the Debtor. This Court is sympathetic to the Debtor's situation, particularly in light of the Debtor's current medical condition; however, this Court must also consider the fact that BankUnited has received no payments since October of 2008 on a mortgage that is severely under-collateralized and has been thwarted twice in its efforts to foreclose on the property. While this Court neither questions the Debtor's sincerity in seeking bankruptcy relief nor believes that the Debtor was attempting to abuse the spirit of the Bankruptcy Code when filing her Second Case, under the totality of the circumstances this Court cannot find—by clear and convincing evidence—that the filing of the Debtor's Second Case is in good faith such as to warrant an extension of the stay as to BankUnited.
While this Court will not extend the stay with respect to the Debtor as to BankUnited, it bears noting that the majority of courts have construed Section 362(c)(3)(A) as terminating the stay as to the debtor and the debtor's property, but not with respect to property of the estate. In re Dowden, 429 B.R. at 902-903; Rinard v. Positive Invs., Inc. (In re Rinard), 451 B.R. 12, 17-20 (Bankr. C.D. Cal. 2011)(collecting cases); In re Johnson, 335 B.R. 805, 806 (Bankr. W.D. Tenn. 2006); see also Antal v. Carroll (In re Antal), 459 B.R. 248, 251-52 (E.D. Mich. 2011)(noting the majority and minority interpretations of Section 362(c)(3)(A)). But see Reswick v. Reswick (In re Reswick), 446 B.R. 362 (B.A.P. 9th Cir. 2011). The Debtor's residence remains property of the estate until such time as this Court enters an order confirming a Chapter 13 plan or otherwise terminates the stay with respect to the Debtor's residence. See 11 U.S.C. §§ 541(a), 1306 & 1327(b). Accordingly, the stay remains in effect as to the Debtor's residence notwithstanding the entry of this Order.
As such, the Debtor is afforded some window of time to continue to pursue her refinancing alternatives.
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The Debtor's schedules reflect only four creditors in addition to BankUnited (the "Additional Creditors"). Each of the Additional Creditors is scheduled as an unsecured creditor. None of the Additional Creditors opposed the Motion. The Debtor's proposed Chapter 13 plan provides that unsecured creditors will be paid in full over thirty-six months. While counsel for the Chapter 13 Trustee stated at the hearing that the Chapter 13 Trustee was not yet in a position to indicate whether she will recommend confirmation of the Debtor's proposed Chapter 13 plan, counsel did remark that the Debtor is remitting her plan payments to the Chapter 13 Trustee as required, which was a change from the First Case. Accordingly, this Court will extend the stay as to the Additional Creditors through January 1, 2013.
For the foregoing reasons, it is hereby ordered that:
1. The Motion is GRANTED in part and DENIED in part;
2. The stay imposed by 11 U.S.C. § 362(a) shall terminate as to BankUnited effective October 20, 2012 with respect to the Debtor and property of the Debtor; and,
3. The stay imposed by 11 U.S.C. § 362(a) shall remain in effect as to the Additional Creditors through and including January 1, 2013 with respect to the Debtor and property of the Debtor; and,
4. The stay imposed by 11 U.S.C. § 362(a) shall remain in effect as to all creditors, including BankUnited, with respect to property of the estate absent further order of this Court.
IT IS SO ORDERED. Distribution list: All creditors and parties in interest.