Cenlar FSB v. Hartley (In re Hartley)

IN RE: KAREN ANN HARTLEY Debtor

CENLAR FSB and AMERICAN EAGLE FEDERAL CREDIT UNION Movants v. KAREN ANN HARTLEY Respondent

Case No.: 19-31049 (AMN)

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT NEW HAVEN DIVISION

April 14, 2020

Chapter 13

RE: ECF No. 34

MEMORANDUM OF DECISION AND ORDER FINDING CAUSE TO DISMISS CASE AND SCHEDULING FURTHER HEARING

APPEARANCES

Counsel for Movants:

Linda St. Pierre, Esq.

McCalla Raymer Liebert Pierce, LLC

50 Weston Street

Hartford, CT 06120¹

Counsel for Respondent:

Peter A. Lachmann, Esq.

250 West Main Street Room 210

Branford, CT 06405

Before the court is a motion to dismiss the Chapter 13 bankruptcy case of Karen Ann Hartley (the "Debtor") with a two-year bar to re-filing any bankruptcy case (the "Motion to Dismiss"), filed by American Eagle Federal Credit Union and Cenlar FSB (collectively,the "Lender").² ECF No. 34. For the reasons that follow, the court concludes there is cause to dismiss Debtor's case without a bar to refiling.³

This is a somewhat unusual Chapter 13 case in that the Debtor appears to have approximately $130,000.00 in equity in her residence, leaving the Lender with adequate protection at this time. What is not clear is whether the Debtor is able to propose a feasible Chapter 13 Plan, and whether the Debtor is able and willing to pay the real property taxes due during the post-petition time period. Because the court earlier established a deadline of April 24, 2020 for the Debtor to file a Fourth Amended Chapter 13 Plan, and to address this issue of unpaid real property taxes, a further hearing on the Motion to Dismiss will be scheduled for April 30, 2020, at 3:00 p.m. The court will also proceed with a status conference at that time regarding the feasibility of the Debtor's soon-to-be-filed Fourth Amended Chapter 13 Plan.

I. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over this case by virtue of 28 U.S.C. § 1334(b). This court derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1), and the District Court's General Order of Reference dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(A). This memorandum constitutes the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable in this proceeding pursuant to Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

1. The 2016 Bankruptcy Case

On March 7, 2016, the Debtor filed her first Chapter 13 bankruptcy petition. Case No. 16-30337 (the "2016 Case"), ECF No. 1. Pursuant to a proof of claim filed on July 21, 2016, the Lender claimed it was due $42,015.69, secured in full by the Debtor's residence located at 68 Childs Road, East Hampton, Connecticut (the "Property"). 2016 Case, Proof of Claim No. 14-1. On January 11, 2017, the court confirmed the Debtor's third amended Chapter 13 Plan, which provided for monthly payments to the Chapter 13 Trustee in the amount of $1,270.00, which would have paid the Lender's claim, plus 5.5% interest, over sixty (60) months. 2016 Case, ECF Nos. 49, 61.

On December 7, 2017, the Debtor commenced an adversary proceeding against the Lender, seeking damages, attorney's fees, and costs for alleged violations of the confirmed Chapter 13 Plan, the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., and the Creditors' Collection Practices Act, Conn. Gen. Stat. § 36a-648. Adversary Proceeding No. 17-3024, AP-ECF No. 1. On July 30, 2018, the Debtor voluntarily dismissed the claims brought in the adversary proceeding with prejudice.⁴ Adversary Proceeding No. 17-3024, AP-ECF No. 30.

On May 9, 2018, the Lender moved to dismiss the 2016 Case because the Debtor failed to pay property taxes and maintain homeowner's insurance. 2016 Case, ECF No. 66. After an evidentiary hearing on October 11, 2018, the court dismissed the 2016 Case without prejudice to re-filing for bankruptcy. Case No. 16-30337, ECF No. 86.

2. Subsequent State Court Proceedings

As reflected in the filings in this case, on January 9, 2019, the Lender revived its state court foreclosure action against the Debtor by moving to reopen judgment and set a new sale day. See, ECF No. 34. On January 18, 2019, the Lender filed an affidavit of attorney's fees with the state court seeking allowance of attorneys' fees in the amount of $17,078.50. See, ECF No. 42, Exhibit A. In her objection to the Motion to Dismiss the debtor stated she had, "through counsel filed objections, memorandum and replies, including a copy of the settlement agreement," in the state court foreclosure case, none of those filings are before this court. See, ECF No. 42, para. 3. On April 29, 2019, the state court awarded attorney's fees in the far lower amount of $2,431.00, and reset the foreclosure sale date for August 3, 2019. See, ECF No. 24, Exhibit B. The Debtor's subsequent attempt to extend the sale date was unsuccessful. See, ECF No. 34.

3. The Current Bankruptcy Case

On June 27, 2019 ("Petition Date"), the Debtor initiated the present Chapter 13 bankruptcy case. ECF No. 1. On August 15, 2019, the Debtor commenced an adversary proceeding against the Lender and the law firm of McCalla Raymer Liebert Pierce, LLC, concerning the attorneys' fees incurred by the Lender during the prior bankruptcy case. Adversary Proceeding No. 19-3013, AP-ECF No. 1. On October 11, 2019, the Lender filed the present Motion to Dismiss this Chapter 13 case. ECF No. 34. The Lender asserts the Debtor's bad faith justifying not only dismissal but a lengthy bar to future bankruptcy relief is demonstrated by the following:

1. The Debtor's failure to pay property taxes or maintain hazard insurance on the property pre- and post-petition, forcing the Lender to advance $20,129.32 for pre-petition property taxes and $652.00 for force-placed insurance;

2. The Debtor's erroneous reliance on a future appeal of the local tax assessment for her home that could not retroactively modify the real property taxes that havealready fallen due, and, the related, unjustified non-payment of post-petition property taxes;

3. The Debtor's failure to immediately re-file a Chapter 13 bankruptcy petition following the dismissal of the prior Chapter 13 bankruptcy case, despite alleged representations to the court that a new Chapter 13 petition would be filed and a new Chapter 13 Plan would address the additional amounts owed because of the advanced real property taxes and force-placed insurance;

4. "Frivolous" filings in the Foreclosure Case "in an effort to run up attorney's fees and thwart and delay the underlying foreclosure action"; and

5. The Debtor's initial failure during her testimony during the meeting of creditors to recall the adversary proceeding she had commenced against the Lender and the Lender's law firm, and, her inability to explain its purpose.

See, ECF. No. 34. In addition, according to the Lender, while the Debtor paid approximately $2,000.00 toward her real property taxes falling due on July 1, 2019 and nothing toward the real property taxes falling due in January 2020, leaving approximately $7,000.00 overdue and now owing. ECF Nos. 34, 88.

On October 21, 2019, the Debtor objected to the Motion to Dismiss, asserting that she is "currently engaged" in appealing the property tax assessment and that the state court filings were meritorious because they reduced the amount of attorney's fees sought by the Lender. ECF No. 42. A hearing on the Motion to Dismiss was held on December 9, 2019.⁵ ECF No. 42.

On March 6, 2020, the Debtor's most recent Chapter 13 Plan was denied confirmation with leave to amend on or before April 24, 2020. ECF No. 90. Had it been approved, the most recently filed Chapter 13 Plan would have required the Debtor to make monthly payments of $1,299.91 over sixty (60) months, paying in full the Lender's claim of $57,926.49, plus 6.75% interest per annum. ECF No. 80; see, Proof of ClaimNo. 4-1. The Debtor's Schedule A/B values the Property at $195,000.00. ECF No. 4. This valuation is consistent with an April 24, 2019 appraisal that is apparently the Lender's valuation of the Property for the foreclosure case. See, ECF Nos. 42, 42-4 (Exhibit D).

During a hearing on March 5, 2020, the Chapter 13 Trustee indicated the Debtor was almost current on plan payments, with a deficiency in the amount of $12.30. See, ECF No. 88, 00:06:26-00:06:41. During the same hearing, counsel for the Lender stated the Debtor's real property taxes were then delinquent in the amount of $6,971.59 through January 1, 2020, and, indicated the Debtor's annual real property tax obligation is $8,801.32. ECF No. 88, 00:03:00 - 00:03:16; see also, ECF No. 34, Exhibit A. The Lender argued, "[i]t is evident that the Debtor's habitual tax delinquency that occurred during her prior Chapter 13 case[] continues to occur in this present case with no resolution in sight." ECF No. 34, p.9. While the Debtor's counsel agreed post-petition taxes were owed and did not dispute the amounts provided by the Lender's counsel, he stated generally that the Debtor had attended some form of hearing concerning her real property assessment appeal the prior day. See, ECF No. 88, 00:01:51 - 00:06:05. No specific representations regarding the Debtor's imminent payment of any tax obligations becoming due post-petition were made.

During the course of this case, the Debtor filed a Third Amended Chapter 13 Plan proposing to pay the secured claim of the Lender, but not addressing the Town of East Hampton's unpaid taxes. ECF No. 80. Confirmation of the Plan was denied, with leave to file another amended Chapter 13 Plan on or before April 24, 2020. ECF No. 90. The court notes the Debtor's list of creditors in this case does not include the Town of East Hampton, or its tax collector, perhaps because at the commencement of the case theDebtor's tax status was...