In re Massie

IN RE: RONALD E. MASSIE, Debtor.

CASE NO. 19-51593

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT

May 14, 2020

CHAPTER 13

ECF No. 40

Appearances

Mr. Ronald E. Massie

Pro se Debtor

Roberta Napolitano

10 Columbus Boulevard

6th Floor

Hartford, CT 06106

Chapter 13 Trustee

MEMORANDUM OF DECISION AND ORDER GRANTING MOTION TO DISMISS CASE WITH PREJUDICE

Julie A. Manning, Chief United States Bankruptcy Judge

I. Introduction

Ronald E. Massie (the "Debtor"), proceeding pro se, commenced this case by filing a Chapter 13 petition on December 6, 2019. After a deficiency notice issued regarding the Debtor's failure to file a Chapter 13 Plan with the petition, the Debtor filed a Chapter 13 Plan on December 20, 2019. The Debtor then filed a First Amended Chapter 13 Plan on January 6, 2020 (the "First Amended Plan"). A confirmation hearing on the First Amended Plan was scheduled to be held on April 9, 2020.

The First Amended Plan proposes to retain the real property commonly known as 451 Mansfield Avenue, Darien, Connecticut (the "Debtor's principal residence"). The Debtor's principal residence is the subject of a Judgment of Foreclosure by Sale entered on August 12, 2019, more than three months before the Debtor filed this Chapter 13 case. The Judgment of Foreclosure by Sale found that as of August 12, 2019, the debt owed to the Plaintiff, Wells Fargo Bank, N.A. ("Wells Fargo"), was $4,785,353.80 and the value of the Debtor's principal residence was $3,200,000.00.

On March 13, 2020, the Chapter 13 Trustee filed a Motion to Dismiss Case with Prejudice seeking to bar the Debtor from filing a case under any chapter of the Bankruptcy Code for a period of two years (the "Motion to Dismiss with Prejudice," ECF No. 40). The Chapter 13 Trustee also filed an Objection to Confirmation of the First Amended Plan asserting, among other things, that: (i) the Debtor has not made all required payments to the Chapter 13 Trustee; (ii) the Debtor has not provided the Chapter 13 Trustee with evidence of his income for the six months prior to the filing of his Chapter 13 case; (iii) the Debtor failed to provide the Chapter 13 Trustee with a real property valuation of the Debtor's principal residence; (iv) the First Amended Plan does not treat the claim of Wells Fargo, the holder of the first mortgage on the Debtor's principal residence; and (v) the First Amended Plan is not feasible under 11 U.S.C. § 1325(a)(6) because the Debtor's excess income needed to fund the Plan is wholly insufficient to cure the debt owed to Wells Fargo (the "Objection to Confirmation," ECF No. 41).

On March 17, 2020, a Notice of Hearing was issued scheduling a hearing on the Motion to Dismiss with Prejudice to be held on April 9, 2020. On March 30, 2020, the Debtor filed an Objection and Response to the Motion to Dismiss with Prejudice (the "Objection," ECF No. 46). Also on March 30, 2020, the Debtor filed an Emergency Motion for Stay of Bankruptcy Case asserting that all matters in his Chapter 13 case should be stayed until October 2, 2020, due to the COVID-19 crisis (the "Emergency Motion for Stay," ECF No. 45).

On April 9, 2020, a hearing was held on the Motion to Dismiss with Prejudice, the Emergency Motion for Stay, and the confirmation of the First Amended Plan. At the conclusion of the hearing, the matters were taken under advisement. For the reasons that follow, the Motion to Dismiss with Prejudice is granted, and the Emergency Motion for Stay and the First Amended Plan are moot due to the dismissal of the case with prejudice.

II. Discussion

A. The Debtor is not eligible to be a Chapter 13 debtor.

Section 1307, which governs dismissal of Chapter 13 cases, states, in part, as follows:

(c) Except as provided in subsection (f) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause...

11 U.S.C. § 1307(c). Subsection (c) further provides "a non-exhaustive list of events that would be considered 'for cause.'" In re Ciarcia, 578 B.R. 495, 499 (Bankr. D. Conn. 2017). Pursuant to section 109(e) of the Bankruptcy Code, only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, secured debts of less than $1,257,850.00 is eligible to be a debtor under Chapter 13. See 11 U.S.C. § 109(e). "[I]f the court finds the debtor to be ineligible for chapter 13, the court has discretion either to dismiss or to convert the case, depending on the best interests of the creditors and the estate." 8 Collier on Bankruptcy, ¶ 1307.4 (16th ed. 2020). "Cause" under section 1307(c) "may include a debtor's failure to meet eligibility requirements." In re Villaverde, 540 B.R. 431, 433 (Bankr. C.D. Cal. 2015) (citing Smith v. Rojas (In re Smith), 435 B.R. 637, 649 (9th Cir. BAP 2010) (affirming dismissal of chapter 13 case due to debtor exceeding the § 109(e) debt limits)).

The secured claims filed in the Debtor's case total $5,063,557.93, well above the $1,257,850.00 secured debt limit set forth in section 109(e). Furthermore, the secured debt on the Debtor's principal residence alone exceeds the Chapter 13 debt limit. Wells Fargo filed Proof of Claim 1, asserting a secured claim in the amount of $4,960,926.42, which is more than three times the debt limit set forth in section 109(e). Although the Debtor has objected to Wells Fargo's Proof of Claim, the objection does not remove the amount of the claim from the debt limit calculation. See Matter of Knight, 55 F.3d 231, 234 (7th Cir. 1995) (concluding, "in light of the virtual synonymy of 'debt' and 'claim,'" that a claim that is disputed is a debt that is included when calculating section 109(e) requirements); c.f. In re Mazzeo, 131 F.3d 295, 303 (2d Cir. 1997) (explaining that a debt is not contingent merely because the debtor disputes the claim); In re Morton, 43 B.R. 215, 220 (Bankr. E.D.N.Y. 1984) (finding section 506(a), which "provides for bifurcation of an allowed claim," does not apply to an eligibility determination under section 109(e)) (emphasis in original).

Furthermore, even though the Debtor received a discharge in a prior bankruptcy case, the Debtor is still not eligible to be a Chapter 13 debtor. The "debt" or "claim" at issue in the Debtor's case is Well Fargo's claim, which is "secured only by a security interest in real property that is the [D]ebtor's principal residence...." See 11 U.S.C. § 1322(b)(2). Therefore, the rights of Wells Fargo may not be modified in the First Amended Plan in accordance with the anti-modification provision set forth in 11 U.S.C. § 1322(b)(2). Because the Debtor may not attempt to bifurcate the debt due to the operation of section 1322(b)(2), the total amount of Wells Fargo's debt is counted toward the secured debt limit in section 109(e). See 2 Collier on Bankruptcy, ¶109.06 (16th ed. 2020). Accordingly, the Debtor is not eligible to be a Chapter 13 debtor and his case is dismissed for cause in accordance with sections 1307(c) and 109(e).

B. Cause exists to dismiss the Debtor's case with prejudice.

While dismissal of a case is generally without prejudice, section 349(a) "expressly grants a bankruptcy court the authority to dismiss a case with prejudice to a subsequent filing of any bankruptcy petition." In re Casse, 219 B.R. 657, 662 (Bankr. E.D.N.Y. 1998), subsequently aff'd, 198 F.3d 327 (2d Cir. 1999). Section 349(a) provides, "[u]nless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title." 11 U.S.C. § 349. Therefore, "if 'cause' exists, a court is authorized, pursuant to § 349(a), to dismiss a bankruptcy case with prejudice to refiling." Casse, 219 B.R. at 662.

In addition to the authority to dismiss a case for cause set forth in section 349(a), section 105(a) provides that "[n]o provision of this title shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." Section 105(a) provides bankruptcy courts with a general grant of power to police dockets and afford appropriate relief. See 2 Collier on Bankruptcy, ¶ 105.01[2] (16th ed. 2020) (citing In re Oi Brasil Holdings Cooperatief U.A., 578 B.R. 169, 201 (Bankr. S.D.N.Y. 2017), reconsideration denied, 582 B.R. 358 (Bankr. S.D.N.Y. 2018) ("Section 105(a) is understood as providing courts with discretion to accommodate the unique facts of a case consistent with policies and directives set by the other applicable substantive provisions of the Bankruptcy Code.")). Thus, section 105(a) empowers the Court to act as necessary to prevent an abuse of the bankruptcy process.

The facts and circumstances surrounding the filing of the Debtor's case support the conclusion the case was not filed in good faith and was filed to hinder, delay, or frustrate creditors, which is an abuse of the bankruptcy process. There are several reasons underlying this conclusion.

1. The Debtor's case was filed without a legitimate bankruptcy purpose.

The Debtor's case lacks a legitimate bankruptcy purpose, which is an abuse of process. See In re Felberman, 196 B.R. 678, 681 (Bankr. S.D.N.Y. 1995). Wells Fargo commenced a foreclosure action against the Debtor in Connecticut Superior Court on May 2, 2013, Wells Fargo Bank, N.A. v. Massie, Ronald E. et al., FSTCV13136028422S, (the "State Court Foreclosure Action"). After years of pleadings, foreclosure mediation sessions, and the filing...