In re Green

574 B.R. 570

IN RE: Stanley Boyd GREEN, Debtor

CASE NO. 16–02105–5–SWH

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

Signed July 27, 2017

William F. Braziel, III, William E. Brewer, Jr., Janvier Law Firm, PLLC, Tobias Hampson, Raleigh, NC, for Debtor.

John F. Logan, Office of the Chapter 13 Trustee, Raleigh, NC, for Trustee.

MEMORANDUM OPINION REGARDING MOTION TO DISMISS

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the motion filed by Jennifer Cleland to dismiss this case pursuant to 11 U.S.C. § 109(e).¹ A hearing took place in Raleigh, North Carolina, on February 21, 2017. At issue is whether the debts owed by the debtor, Stanley Boyd Green, exceed the statutory limits set forth in § 109(e), rendering Mr. Green ineligible to be a debtor under chapter 13 of the Bankruptcy Code.

BACKGROUND

Mr. Green filed a petition for relief under chapter 13 of the Bankruptcy Code on April 20, 2016. Mr. Green is an attorney with the firm of Strauch, Green and Mistretta, P.C. (the "Law Firm"). Ms. Cleland is Mr. Green's former spouse. Mr. Green and Ms. Cleland were married on October 22, 1994, and divorced on September 8, 2014. Mr. Green and Ms. Cleland's divorce proceedings were ongoing as of the petition date, with several orders impacting the issues before the court. First, on February 22, 2016, the Forsyth County District Court entered an Equitable Distribution Judgment and Order (the "ED Order"), which provided for Mr. Green to deed the marital home to Ms. Cleland, and further provided for certain payments to be made by Mr. Green to Ms. Cleland. Mr. Green made a payment of $116,000 under the ED Order on March 22, 2016, leaving $356,364.07 due to Ms. Cleland as of the petition date.

On March 2, 2016, the Forsyth County District Court entered an Alimony Judgment and Order (the "Alimony Order"), requiring Mr. Green to pay the sum of $6,000 per month to Ms. Cleland. Mr. Green was current on all alimony payments when he filed his bankruptcy petition. Under the various state court orders, the alimony payments were to be used by Ms. Cleland to make continuing payments on a mortgage loan to Wells Fargo Bank, N.A. on which Mr. Green is a co-borrower. On March 23, 2016, Mr. Green filed a pro se notice of appeal from the ED and Alimony Orders, claiming that the Orders were inaccurate in the amounts due to Ms. Cleland.

Ms. Cleland's equitable distribution award would be treated as an unsecured claim in a chapter 13 case, with any unpaid balance discharged pursuant to 11 U.S.C. § 1328.² Mr. Green's chapter 13 plan proposes to pay a dividend of approximately 10 percent to unsecured creditors. Dkt. 10. Mr. Green's Statement of Financial Affairs lists income of $396,446 in 2014 and $2,407,546 in 2015. His original schedules list secured claims in the amount of $479,708.02 and general unsecured claims in the amount of $389,834.16. Dkt. 9 at 1. The uncontested listed claims included American Express ($11,018.36) and Barclay Card ($22,739.23). Dkt. 9 at 22. Ms. Cleland's claim was listed as an "unliquidated" claim in the amount of $356,076.57. Dkt. 9 at 22. Wells Fargo was originally scheduled as a secured creditor with a claim in the amount of $479,708.02. Dkt. 9 at 19.

On September 15, 2016, Ms. Cleland filed her Motion to Dismiss, contending that Mr. Green is ineligible for chapter 13 relief because his noncontingent, liquidated debts exceed the $394,725 limit set forth in 11 U.S.C. § 109(e). Dkt. 40. Ms. Cleland maintained that her claim should properly be listed as "disputed," not "unliquidated," and thus should be considered in its full amount in calculating whether Mr. Green's debts exceed the statutory limit.

Thereafter, Mr. Green amended his Schedule D on October 5, 2016 to reduce the amount owed to Ms. Cleland to $356,364.07 (still denoted "unliquidated"), and reclassifying Wells Fargo as an unsecured creditor for "potential liability" on the loan secured by the former marital residence in an unknown amount. Dkt. 71 at 21, 22. Mr. Green also added First Bank as a contingent, unliquidated claim in an unknown amount for "potential personal guarantee" on Law Firm debt that is not in default. The total amount of unsecured debt remained at $389,834.16 in the amended schedules. Dkt. 71 at 23.

Ms. Cleland amended her motion to dismiss on January 25, 2017, Dkt. 110, contending that Mr. Green omitted several obligations on his schedules and amended schedules and that the proper calculation of his debts still results in unsecured debts in excess of the debt limits. Specifically, Ms. Cleland noted that because Mr. Green deeded the former marital residence to her, the Wells Fargo debt is now unsecured as to Mr. Green, but he is still obligated on the loan such that the full balance of that debt should be included in the calculation of the unsecured debt limits. Ms. Cleland also contended that the Law Firm's obligation to First Bank was in default (as evidenced by the filing of an unsecured claim by First Bank, Claim No. 10–1, in the amount of $300,408.33), such that its claim should have been included. Finally, Ms. Cleland maintained that an unsecured obligation to James Stemper should have been listed. Mr. Stemper filed a proof of claim in an "unknown" amount, Claim No. 4–1, that apparently arose from renovation expenditures advanced by Mr. Stemper on a condominium jointly used by Mr. Stemper and Mr. Green. Mr. Stemper's claim indicates that he has an oral agreement with Mr. Green that in exchange for the $42,000 he spent on renovations, Mr. Green would maintain a 2015 Scout Dorado boat for Mr. Stemper's use, which obligation Ms. Cleland contends would conservatively be valued at $19,620.

Further, according to a Complaint filed by the chapter 13 trustee against Vermont Student Assistance Corporation ("VSAC"), Mr. Green paid the balance owed to VSAC approximately one month prior to filing his bankruptcy petition. See Logan v. Vermont Student Assistance Corp. , Adv. Pro. No. 16–00179–5–SWH. The complaint sought to avoid that payment as a preferential transfer pursuant to 11 U.S.C. § 547. The trustee obtained a default judgment against VSAC on April 13, 2017, after which VSAC filed an unsecured proof of claim in the amount of $20,804.61, the amount of the avoided payment. Claim 11–1. Ms. Cleland contends that the unsecured debt created by the prepetition preferential payment should also be counted toward the debt limit.

Mr. Green denies that he owed any debt to VSAC as of the petition date, and asserts that his debts are listed correctly as shown in his Amended Schedules. Mr. Green further contends that Ms. Cleland's claim under the ED Order in the amount of $356,364.07 and the Wells Fargo mortgage loan claim should be characterized as "contingent" or "unliquidated," such that they do not count toward the debt limits of § 109(e). Finally, Mr. Green contends that in reviewing the § 109(e) debt limits, the court should consider only the debtor's schedules, not the claims filed in the case.³

As noted, Mr. Green has appealed the ED Order in the state court, contending that the trial court's award of the marital residence to Ms. Cleland without a corresponding assignment of the Wells Fargo debt was erroneous and that the distributive award double counts expected income from the Law Firm relating to work performed during the marriage. Mr. Green has similarly objected to Ms. Cleland's claim filed in the bankruptcy case, contending that the proper amount of the claim is $38,076.57. Dkt. 113. Based on the state court appeal, Mr. Green maintains that the debt owed to Ms. Cleland is not a liquidated or noncontingent debt that should count for chapter 13 eligibility under § 109(e).

In addition, prior to the petition date, Mr. Green jointly owned property at 2733 Spring Garden Road, Winston–Salem, North Carolina (the "Winston Property") with Ms. Cleland. He is jointly liable to Wells Fargo on the mortgage on the Winston Property. His original schedules listed the Winston Property as property of the estate and listed Wells Fargo as a secured creditor. Dkt. 9 at 4, 18–19. However, per the ED Order, Mr. Green deeded the Winston Property to Ms. Cleland on March 16, 2016, rendering the debt to Wells Fargo unsecured as to Mr. Green.⁴ The amended schedules no longer list the Winston Property as an asset and list Wells Fargo as an unsecured creditor with a contingent, unliquidated claim in an unknown amount. Dkt. 71 at 22. Ms. Cleland contends that because Mr. Green is a primary obligor and no longer owns the collateral, the Wells Fargo debt is an unsecured obligation in the full amount of the balance of the loan. While Mr. Green concedes he is an obligor on the debt, he maintains (1) that the debt is still a secured debt for purposes of § 109(e), and (2) that his liability to Wells Fargo is now contingent upon the default of Ms. Cleland, such that the mortgage balance of $344,587 also should not be included in the eligibility calculation.

In summary, as of the petition date, Mr. Green contends that his noncontingent, liquidated, unsecured debts included only the claims of American Express ($11,018.36) and Barclay Card ($22,739.23), for a total of $33,757.59. He contends that Ms. Cleland's claim is unliquidated except in the amount of $38,076.57; that the Wells Fargo debt is secured, contingent, and unliquidated; that the First Bank debt is both unliquidated and contingent; and that the VSAC debt was not owed on the petition date. If the court finds that almost any combination of the debts excluded by Mr. Green constitute noncontingent, liquidated, unsecured debts, then Mr. Green's obligations exceed the debt limits, rendering him ineligible for chapter 13 relief under § 109(e).

DISCUSSION

I. SECTION 109(e) ELIGIBILITY

Section 109(e) provides, in relevant part, that

[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less

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