In re Sinischo

561 B.R. 176

In re: Stacey Lynn Sinischo, Debtor.

Case No. 15–19535 HRT

United States Bankruptcy Court, D. Colorado.

Signed December 8, 2016

Michael M. Noyes, Denver, CO, for Debtor.

ORDER ON CREDITORS' MOTION TO CONVERT TO CHAPTER 7 AND DEBTOR'S MOTION FOR VOLUNTARY DISMISSAL

Howard R. Tallman, Judge United States Bankruptcy Court

THIS MATTER came before the Court on the following motions:

(1) Motion to Convert Case from Chapter 13 to Chapter 7 filed by creditor Yellow Dog Properties, Inc. ("Yellow Dog") (docket # 139) (the "Motion to Convert"), creditor Kelly Sparks' Joinder in the Motion (docket # 144), creditor Sam Turner's Response in Opposition to the Motion (docket # 151), and Debtor's Objection (docket # 153);

(2) Debtor's Motion for Voluntary Dismissal under 11 U.S.C. § 1307(b)¹ ("Motion for Voluntary Dismissal") (docket # 145), and Yellow Dog's Objection (docket # 147); and

(3) Motion to dismiss filed by Chapter 13 Trustee Douglas Kiel ("Trustee") (docket # 163).

The Court held an evidentiary hearing on these motions and took the matter under advisement. After considering the testimony, evidence, and arguments presented by the parties, the Court is ready to rule.

I. Procedural History

Debtor filed her petition under Chapter 13 of the Bankruptcy Code on August 25, 2015, represented by counsel Michael Noyes.² She listed three properties on Schedule A: 1) 3805 Roxbury Court in Colorado Springs (the "Roxbury Property"); 2) 1509 23rd Lane in Pueblo (the "Pueblo Property"); and 3) 7383 Tilden Street in Colorado Springs (the "Rental Property"). The only debts listed on her schedules included a secured debt on the Roxbury Property payable to Fifth Third Bank (the "Bank"), a secured debt on the Rental Property payable to Nationstar Mortgage, and a secured debt on her vehicle payable to USAA. She listed zero secured or unsecured debt on the Pueblo Property. Debtor also claimed two homestead exemptions of $75,000 each, one for the Roxbury Property and one for the Pueblo Property. She represented she was employed in "project management" for her business, LuRox Homes, and her 2015 year-to-date income was $61,253 from LuRox Homes and $2,800 from creditor Yellow Dog.

With the petition, Debtor filed a skeletal Chapter 13 plan (Plan # 1) proposing a payment of $1,013 for one month (to pay attorney and trustee fees), and payments to the Bank on the Roxbury Property outside the plan. Plan # 1 was withdrawn the next day, with a motion to extend time to file an "accurate" plan. On September 8, 2015, Debtor filed another plan (Plan # 2), which proposed a $38,000 default to the Bank to be cured over 60 months, and a monthly plan payment of $734. Plan # 2 immediately drew objections from the Bank and the Trustee, with the Bank stating the amount of the arrearage to be cured was incorrect. The Trustee's objection (docket # 18) noted Debtor had failed to include Debtor's business valuation, and had erroneously claimed two homestead exemptions when one property was an investment property. The Trustee also contended the plan did not comply with the best interests of creditors test, that Debtor was not committing all disposable income to plan payments, and that the plan may not be proposed in good faith. Finally, the Trustee noted that a monthly mortgage payment of $3,146 was excessive for Debtor's reported household size of one.

Debtor filed another plan on October 23, 2015 (Plan # 3). The only change in Plan # 3 was to correct the amount owing to the Bank. The Trustee filed an objection to Debtor's homestead exemption, again noting Debtor had claimed the objection in an investment property where she did not reside. The Trustee also filed an objection to Plan # 3 (docket # 31), restating his prior objections and also contending Debtor failed to include rental income or provide for the secured claim of her ex-husband, William Sinischo, in the Roxbury Property.

The Bank moved for relief from stay on the Roxbury Property on November 23, 2015. One day later, Debtor amended her schedules for the first time. On Schedule B, she listed LuRox Homes as a sole proprietorship with a value of zero. She amended Schedule C to claim only one homestead exemption, in the Roxbury Property. Debtor also amended Schedules I and J to reflect additional income, both from LuRox and from the Rental Property.

On December 1, 2015, the United States Trustee filed a Report of Debtor Audit performed under 28 U.S.C. § 586(f)(1) (docket # 47). The report found a material misstatement, in that Debtor had under-reported her gross monthly income by $1,481.

A stipulation entered into by the Bank, the Debtor, and the Trustee resolved the Bank's motion for relief from stay on the Roxbury Property on December 21, 2015. On January 7, 2016, creditor Sam Turner filed Proof of Claim # 6 in the amount of $44,438, based on promissory notes and two deeds of trust on the Pueblo Property, recorded in December 2014.³

Debtor then filed another amended plan (Plan # 4) on January 11, 2016, which increased her proposed payment to $871 monthly, and included language in Section V.G. as follows: "No payment or provision is made to pay ex-husband William Sinischo. The debtor does not believe that she owes him money. No payment is made to pay Sam Turner. The debtor does not believe that she owes him money." (Docket # 65, page 8). The Trustee objected to Plan # 4 because he "could not administer the language in V.G. regarding two secured claimants." (Docket # 77).

Creditor Claudia Banza then filed Proof of Claim # 7 on January 15, 2016, in the amount of $29,336.25, based on an October 2014 promissory note and deed of trust on the Pueblo Property. Debtor filed motions to disallow both Turner's and Banza's proofs of claim as late-filed. These motions were denied at a status conference on April 13, 2016 (docket # 121).

In late February, creditor Yellow Dog filed several motions, asserting it had not received notice of the bankruptcy and was entitled to file a late proof of claim, citing United States Internal Revenue Svc. v. Cole , 146 B.R. 837, 839 (D. Colo. 1992). Yellow Dog also moved to compel Debtor to accept or reject an executory contract under Fed. R. Bankr. P. 6006.⁴ In March, creditor Kelly Sparks moved to file a late claim based on lack of notice of the bankruptcy. The Court subsequently granted both creditors leave to file the late claims (docket # 96 and # 109).

Debtor amended her schedules again on March 16, 2016, adding, for the first time, creditors Sam Turner, Claudia Banza, Yellow Dog, and Kelly Sparks. Turner and Banza were listed as secured creditors, with Banza having a deed of trust,⁵ executed in October 2014, on the Pueblo Property securing a debt of $25,000, and Turner having two deeds of trust, executed in December 2014, on the Pueblo Property securing a total debt of $35,000. Kelly Sparks was listed as an unsecured creditor for $30,000, with no information provided as to when the debt was incurred. Yellow Dog's claim was listed as "Unknown" and as being incurred in 2015.

Creditor Sparks then objected to Debtor's latest filed plan (Plan # 4), noting the plan provided only $650 would be paid out under Plan # 4 to unsecured creditors, when Debtor indicated in Plan # 4 that the value of her interest in non-exempt property was $181,200. On the same day that Sparks' objection to Plan # 4 was filed, Debtor filed an amended plan (Plan # 5) (docket # 119, filed April 12, 2016) which contained a new, expanded, section V.G. That section provided: "no payment will be made to the following under any circumstance as the Debtor does not believe a debt is owed: William Sinischo (ex-husband), Thomas Lewis (ex-husband), Sam Turner (business associate), and Yellow Dog (construction services provided to them)." Debtor also stated the Pueblo Property was an "incomplete construction project" that she would either refinance or "gain further investor proceeds" to fund completion of the home, at which time it would be sold to pay "allowed" creditors. Debtor then moved to avoid William Sinischo's lien on the Roxbury Property.

In May 2016, several events occurred in quick succession. Debtor's attorney moved to withdraw on May 2, citing "irreconcilable differences." On May 10 and 11, objections to Debtor's Plan # 5 were filed by the Trustee, Sparks, Turner, and Yellow Dog. The Trustee asserted Debtor was not current on plan payments, Trustee could not administer the plan as written, and the plan still proposed to pay an arrearage to the Bank even though the Bank's order for relief from stay had been granted. Sparks renewed her objections to the prior plan. Sparks also contended that when Debtor borrowed $30,000 from her, Debtor represented the money would be used to fund completion of the Pueblo Property, and had not explained why the project was still unfinished. In Turner's objection, he noted Debtor had failed to list his secured debt on the Pueblo Property on her petition, and that despite the Court's order allowing his claim as late-filed, the plan stated no payment would be made to him. Finally, Yellow Dog argued the plan was not in the best interests of creditors and not feasible.

On May 11, Yellow Dog filed the Motion to Convert, arguing Debtor had unreasonably delayed in proposing a confirmable plan, which was grounds to convert under § 1307(c). Yellow Dog also noted Debtor had filed the plan to stop a foreclosure of her primary residence, the Roxbury Property, but "on or about May 4, 2016, Debtor filed a Notice of Intent to Cure with the El Paso County Public Trustee in connection with the pending foreclosure. Debtor's assertion that she intends to cure her default via the Public Trustee's cure process is inconsistent with her proposal to resolve the default by way of a Chapter 13 Plan." Yellow Dog contended Debtor's assets could be liquidated in a Chapter 7 case, and utilized for the satisfaction of creditors' claims.

Sparks joined in Yellow Dog's Motion to Convert the next day, agreeing Debtor's...