Cite as: Keith M. Lundin, Lundin On Chapter 13, § 14.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
Because of the strict statutory debt limitations in 11 U.S.C. § 109(e),1 debt counting can be outcome determinative of eligibility for Chapter 13 relief. Debt counting involves two preliminary questions: (1) As of what moment in time are debts determined for eligibility purposes? (2) What are the time constraints for a motion to dismiss or other challenge to eligibility that brings the counting of debts before the bankruptcy court?
With respect to the second question, filing a challenge to eligibility as soon as possible after the petition is the best advice but certainly, before confirmation, else eligibility considerations may be out of reach altogether.2 It has been said that there is no statutory or rule-based deadline for a motion to dismiss based on debt limitations,3 but postconfirmation motions challenging eligibility have been refused as untimely—sometimes on preclusion principles or as a statutory effect of confirmation under 11 U.S.C. § 1327.4
At least one court has addressed the interesting argument whether laches can be raised by the debtor as a defense to a trustee’s motion to dismiss based on debt limitations. In In re Harwood,5 the Chapter 13 petition was filed on January 24, 2011, and the trustee’s motion to dismiss for ineligibility was filed more than three years later, on April 10, 2014. During that unusual6 period, the debtor made substantial payments to the trustee and postpetition “forgiveness” of debts could have changed the eligibility calculus.7 Characterizing as a matter of first impression the debtor’s argument that laches barred the trustee’s motion to dismiss, the bankruptcy court said, maybe, but not on these facts:
[A]s a “party in interest,” chapter 13 trustees frequently move to dismiss cases under 11 U.S.C. § 1307(c). The Court therefore assumes, without deciding, that the doctrine of laches can apply to a chapter 13 trustee who has taken an adversarial stance to a debtor, even if such trustee has nothing personal to gain.
* * * *
It could be argued that a chapter 13 trustee’s motion to dismiss based on a debtor’s lack of eligibility is in service of the public interest . . . .
Regardless of whether the Trustee’s motion is in service of the public interest, the doctrine of laches could apply. The unresolved questions are whether the Trustee unreasonably delayed in raising the argument, and whether any unreasonable delay caused prejudice to the Debtor.
The Trustee, here, has not offered any explanation for the more than three-year delay in raising the eligibility issue. . . . On this record, the delay in moving to dismiss for lack of eligibility was unreasonable.
As for prejudice, the Debtor was, without a doubt, prejudiced by the delay in raising the eligibility issue. The Debtor spent more than three years proceeding forward with the assumption that the Debtor could obtain relief under chapter 13, expending attorney’s fees toward that result. . . .
However, this prejudice cannot be attributed solely to the Trustee. Significantly, the case has languished for several years while the Debtor has failed to confirm a plan . . . .
[T]he Debtor has failed to propose a confirmable plan for more than three years, at no fault of the Trustee. All the while, the Debtor has had the benefit of the automatic stay . . . .
. . . . [T]he Debtor . . . was in a position to avoid this prejudice.
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Several courts have ruled that Fed. R. Bankr.P. 9011 imposes an obligation on debtors’ attorneys to ensure a debtor is eligible for chapter 13 relief before pursuing such relief, and such courts have sanctioned attorneys for filing petitions on behalf of ineligible debtors. . . . [T]hese cases support the general notion that the duty to determine eligibility lies first and foremost with the debtor’s own lawyer.
. . . [T]he Trustee and the Debtor’s attorneys all missed the threshold issue—an issue for which the Debtor bore primary responsibility. Under these circumstances, the Court will not bar the Trustee from pursuing dismissal based on the Debtor’s lack of chapter 13 eligibility.8
With respect to the first question, there are many cases holding that the debt limitations for eligibility are measured as of the date of the petition.9 This general rule should mean that events occurring after the petition do not affect the counting or character of debt for eligibility purposes.
For example, when a debt is forgiven after the petition, the debt is counted in eligibility analysis because the debt existed on the petition date.10 When the debtor rescinds a home mortgage after the petition, the amount of the home mortgage is still included in the debts that are counted at the petition.11 A debt that was unliquidated at the petition and not counted for eligibility purposes12 remains unliquidated and not counted notwithstanding that the debt is reduced to judgment during the Chapter 13 case.13
Similarly, the eligibility calculation should not be based on allowed claims as they may be later determined after claims litigation.14 Failure of a creditor to file a timely proof of claim is a postpetition event that impacts allowance, but eligibility is determined based on debts at the petition without regard to the allowance of claims.15 Section 109(e) speaks in terms of “debts,” not in terms of “allowed claims.” Elsewhere in the Code, Congress demonstrated an appreciation for the distinction between these concepts.16 It has been held that a debt to the IRS for a 100 percent tax penalty is counted for eligibility purposes notwithstanding that the IRS failed to timely file its proof of claim and thus cannot have an allowed claim.17 When the debtor’s good faith in scheduling debts is in doubt, some courts have considered postpetition events to determine eligibility.18
Despite near universal acknowledgment that the petition date controls the eligibility calculation, there are so many decisions disrespecting this rule that the rule itself is suspect. Repeatedly, events occurring after the petition are used by courts to change the amounts or characterization of debts for § 109(e) purposes. Some courts have surrendered to the temptation to litigate the allowance of claims19 and to even determine avoidance actions as part of the eligibility calculation.20
For example, in In re Toronto,21 the debtor listed a lienholder as a secured claim holder on Schedule D to Official Bankruptcy Form B6 (now, Official Form 106D)22 but indicated that the creditor’s lien could be avoided as a preference under 11 U.S.C. § 547.23 The lienholder was not listed as an unsecured claim holder on Schedule F (now Official Form 106F).24 The court held it was necessary to consider whether the debtor could avoid the creditor’s lien under § 547 for purposes of the eligibility calculation in § 109(e). The court explained that avoidance of the creditor’s lien would change the allowance of claims and the computation of unsecured debt:
The debtors argue that the movant’s unsecured claim arose for § 109(e) eligibility purposes when the postpetition judgment that voided the lien entered. I disagree. The movant’s unsecured claim arose as a result of the debtors’ “recovery” of their residence, . . . by the avoidance of the involuntary “transfer” of a lien to the movant . . . . Section 502(h) therefore mandates that the movant’s claim be determined and allowed as though it has arisen before the date the petition was filed. . . . Arguably, the reversal of a transfer under § 547 and the consequent recovery by the estate under § 550 should not affect the amount of prepetition debt determined under § 502(h) for eligibility purposes under § 109(e), to avoid the potentially anomalous result of a debtor recovering a preference for the benefit of creditors and thereby becoming ineligible for chapter 13 relief. I reject that construction because in my view it offends congressional policy. Reading § 502(h) as impacting on the § 109(e) determination in fact comports with the congressional purpose motivating those statutes and § 547. . . . If a debtor was ineligible for chapter 13 relief at the start of the preference period, eligibility cannot be created by a preferential transfer which the debtor subsequently avoids and which is treated under the code as though it had never occurred. . . . [T]he debtors are attempting to classify the movant’s claim as wholly unsecured for the purpose of distribution under the plan, but wholly secured for the purpose of determining their eligibility for chapter 13 relief, and that inconsistency is not cognizable under the code.25
The appellate courts are not immune to sliding past the petition date for facts that then become outcome determinative of a Chapter 13 debtor’s eligibility. In Henrichsen v. Scovis (In re Scovis),26 the Bankruptcy Appellate Panel for the Ninth Circuit approved the analysis in Toronto and held that a lien avoided by the debtor after the Chapter 13 petition rendered the judgment wholly unsecured for eligibility purposes notwithstanding the validity of the lien at the petition. In Scovis, the Chapter 13 petition was filed on October 25, 1996. In the original schedules, the debtors valued their residence at $325,000, encumbered by a first deed of trust for $249,026.91 and a judgment lien to Henrichsen for $208,000. In Schedule C, (now Official Form 106C), the debtors listed a $100,000 homestead exemption. Henrichsen’s judgment lien was avoided by order entered April 23, 1997.
The BAP held that the homestead exemption rendered Henrichsen’s claim completely unsecured for purposes of § 109(e). The BAP explained this result by citing § 502(h) of the Code, which provides that claims arising from the recovery of property by lien avoidance under § 522 “shall be allowed . . . or disallowed . . . the same as if such claim had arisen before the date of the filing of the petition.”27 The BAP remanded to the bankruptcy court to recalculate eligibility “taking into account other evidence of the correct figures as of the petition date.”28 Among the “other evidence” identified by the BAP were amended schedules filed by the debtor that reduced general unsecured debt from $40,499.83 to $22,919.85, based on postpetition payments from insurance and other sources and the release of a claim owed to the debtor’s mother.
On further appeal, a divided panel of the Ninth Circuit affirmed the BAP’s conclusion that Henrichsen’s judgment lien was entirely unsecured for eligibility purposes29 but reversed the BAP’s remand for consideration of the amended schedules. With respect to the judgment lien:
Even though the lien was not judicially avoided until after the Chapter 13 petition was filed, the fact that Debtors listed both the homestead exemption and the lien on the schedules provides the bankruptcy court with a sufficient degree of certainty to regard the judgment lien as unsecured for eligibility purposes.30
With respect to the decrease in the scheduled amount of general unsecured debt, the Ninth Circuit recited that eligibility is determined “from the time the petition is filed,” and the amended schedules were not considered because “ordinary events occurring subsequent to the filing (e.g., paying down debt) do not affect the eligibility determination.”31
The debtors in Scovis lien avoided themselves right out of eligibility, and the Ninth Circuit prohibited them from amending their way back in. The rule in Scovis—that some postpetition events will be considered in the eligibility calculus (for example, lien avoidance), but not “ordinary” events—leaves much to be desired as a guide for decision in the next case.
Other reported decisions consider amended schedules in the eligibility calculus.32 For example, in In re Faulhaber,33 the noncontingent, liquidated, unsecured debt in the Chapter 7 schedules exceeded the eligibility limit for Chapter 13. When the debtor converted to Chapter 13, amended schedules were filed recharacterizing a large unsecured debt as contingent and unliquidated. The bankruptcy court concluded it was appropriate to consider the recharacterization in the amended schedules for eligibility purposes in the Chapter 13 case.
Similarly, in In re Hatzenbuehler,34 the debtor scheduled a $70,000 debt as unsecured, creating an eligibility problem. Twelve days after the petition, the debtor filed amended schedules reclassifying the $70,000 debt as secured. Acknowledging that § 109(e) “calls for a snapshot of indebtedness at the time a debtor files his petition,”35 the bankruptcy court considered the amended schedules based in part on the fact that there had been no detrimental reliance in the 12 days before the amendment. In contrast, the bankruptcy court in Hatzenbuehler refused to consider the postpetition settlement of a claim that changed the character of a debt from contingent to noncontingent. The court explained its different conclusions:
[W]here a secured debt is mistakenly scheduled as an unsecured obligation, it would exalt form over substance to refuse to consider a postpetition amendment to the schedules that properly classify the indebtedness. . . . On the other hand, the postpetition occurrence of a condition precedent to the debtor’s liability on a debt should not be considered for purposes of determining chapter 13 eligibility.36
In Soderlund v. Cohen (In re Soderlund),37 reported before the Ninth Circuit decided Scovis, the Ninth Circuit BAP approved the bankruptcy court’s consideration of proofs of claim and statements by the debtor in the proposed plan in reaching the conclusion that unsecured debts exceeded the eligibility limit. The debtor in Soderlund invited eligibility scrutiny by filing three versions of the schedules. In the first version, unsecured debts totaled $500,000 and none were designated as contingent38 or unliquidated.39 Through two amendments the noncontingent, liquidated, unsecured debt was reduced in the schedules to $30,000 by recharacterizing and adjusting values. Proofs of claim were filed exceeding $400,000 to which no objections had been filed. Statements in the plan indicated that unsecured claims exceeded $300,000. The BAP stated:
We have held that a bankruptcy court may look past the schedules to other evidence submitted when a good faith objection to the debtor’s eligibility under § 109(e) is raised. . . . [S]tatements contained in the debtor’s proposed Chapter 13 plan regarding the characterization of unsecured debt is [sic] admissible evidence under FRE 801.40
Is Soderlund correctly decided when viewed through the lens of the Ninth Circuit’s subsequent decision in Scovis? After Scovis, would the debtor in Soderlund be bound by the first version of the schedules listing unsecured debt? Put another way, would the amended schedules recharacterizing unsecured debt as contingent and unliquidated be “ordinary events” that are not considered for eligibility purposes? Or is recharacterization a mental exercise or legal conclusion not based at all on postpetition events and thus appropriately considered for eligibility purposes after Scovis? Is the plan in Soderlund more like the lien avoidance action in Scovis or more like the amended schedules in Scovis? The answer to that question might determine whether the admissions in the plan were properly considered in Soderlund. Scovis does not illuminate whether and what events after the petition are appropriately considered for eligibility purposes.
In Elliott v. Papatones (In re Papatones),41 a state court orally announced a judgment against the debtor for $276,606.87. The debtor quickly filed a Chapter 13 petition before the state court docketed that judgment. The judgment was docketed the day after the petition. The First Circuit assumed without deciding that the state court judgment did not become liquidated for purposes of counting toward Chapter 13 eligibility under § 109(e) until the judgment was docketed—the day after the petition. However, the debtor’s quick action in filing the petition came to naught. The First Circuit held that “an unsecured debt becomes ‘liquidated’ in amount once reduced to judgment. . . . The $276,606.87 unsecured, liquidated debt owed . . . on the date of the filing of the Chapter 13 petition rendered [the debtor] ineligible for Chapter 13 relief as provided in Bankruptcy Code § 109(e).”42 The First Circuit’s explanation for this sleight of hand was that docketing the state court judgment was a “clerical” action that did not violate the automatic stay. At least in the First Circuit, clerical actions also travel through time for Chapter 13 eligibility purposes.
Contrast Papatones with Slack v. Wilshire Insurance Co. (In re Slack).43 In Slack the debtor was sued for misrepresentation and negligence. Before the Chapter 13 petition, a state court judge announced a “tentative decision” that Slack was liable for $659,971. Slack filed Chapter 13 before judgment was entered by the state court. Wilshire, the state court plaintiff, filed a proof of claim for $659,971. Slack objected to the proof of claim. Wilshire moved to dismiss the Chapter 13 petition for ineligibility. The parties “stipulated to the amount of damages Wilshire actually suffered before the state and bankruptcy courts.”44 The stipulated damages were $255,954. The bankruptcy court granted Wilshire’s motion to dismiss based on the stipulated amount of damages. Slack appealed, but no stay was in effect. While the appeal was pending, the state court entered a final judgment in favor of Wilshire for $455,480. Wilshire asked the Ninth Circuit to take judicial notice of the state court judgment. The Ninth Circuit refused:
The language of the statute clearly states that the amount of the debt is determined as of “the date of the filing of the petition.” . . . Because we cannot consider the final judgment entered in the state court, after the petition was filed, in deciding the amount of the debt owed by Slack, we must deny Wilshire’s motion for judicial notice as irrelevant to our task.45
The Ninth Circuit found the debtor was ineligible based on the stipulated damages, not based on the final judgment entered after the Chapter 13 petition. The First Circuit in Papatones permitted the postpetition judgment to determine the debtor’s ineligibility.
Maybe the most startling example of this ignore-the-petition-date approach to eligibility is the court that granted relief from the stay after the Chapter 13 petition to let a state court determine whether a claim was liquidated and then used the state court’s postpetition judgment to conclude that the debtor exceeded the unsecured debt limitation in § 109(e).46 This court reasoned from its result that the state court could answer the question whether a claim was liquidated on the filing date and in what amount by entering summary judgment for the creditor after the petition. It is not obvious from this opinion what is left of the principle that debt limitations are determined as of the date of the petition.
The debt limitations, and the terms of art used in § 109(e) to describe the debts that are counted toward those limitations, are matters of federal law. Preemptive filing of a Chapter 13 petition before a state court enters a judgment may render a debt unliquidated47 or contingent48 and thus not counted for eligibility purposes. Granting relief from the stay after the petition to let a state court liquidate a debt by entering judgment against the debtor drains § 109(e) of precision and impairs its function as gatekeeper for Chapter 13.
These cases would make sense if the treatment to which a creditor is ultimately entitled in a Chapter 13 case after confirmation and after all claims litigation should also control the eligibility calculation. In other words, did Congress intend that eligibility for Chapter 13 should be determined after all confirmation issues are resolved, all avoidance and recovery actions are accounted for, all collateral is valued and all claims are finally allowed? Evaluating avoidance actions and engaging the claims allowance process to determine the amount of debt for eligibility purposes destroys what Chapter 13 does best—getting money to creditors quickly and efficiently. The need for expeditious resolution of eligibility questions in advance of other, more complex litigation has been the justification offered by many courts for resolving debt limitations disputes based largely on the statements and schedules filed by the debtor.49 Carried to its (il)logical end, including postpetition events in the eligibility calculation would require consideration of the treatment of claims by the plan.50 This would not be a healthy development in Chapter 13 law. Courts should be encouraged to return to the stability of the original principle that the date of the petition controls the eligibility inquiry.
The date for measurement of the amount of debt is unstable when a Chapter 7 case is converted to Chapter 13.51 It has been held that eligibility is determined as of the date of the original Chapter 7 filing.52 Thus, tort claims that were contingent and unliquidated at the filing of the Chapter 7 case remain contingent and unliquidated for eligibility purposes after conversion to Chapter 13, notwithstanding that the tort claims were liquidated and rendered noncontingent between the filing of the Chapter 7 case and conversion to Chapter 13.53 Settlements of debts during the Chapter 7 case cannot improve the debtor’s eligibility for Chapter 13 at conversion.54 Looking to the original Chapter 7 petition, one court found the debtor ineligible to convert to Chapter 13 when the schedules showed unsecured debt in excess of the § 109(e) limitations notwithstanding that claims actually filed in the Chapter 7 case were less than the limits.55 A debtor who listed a noncontingent, liquidated, unsecured debt of $615,000 in the Chapter 7 schedules is ineligible to convert to Chapter 13 notwithstanding amended schedules that changed the amount of the claim to “unknown.”56
Some courts have looked not only to the original Chapter 7 schedules but also to events occurring during the Chapter 7 case, such as amendments.57 When a Chapter 7 debtor listed noncontingent, liquidated, unsecured debts of $129,302, upon conversion to Chapter 13, one court concluded that the debtor was ineligible even though conversion occurred after discharge in the Chapter 7 case.58 In contrast, another court held that conversion from Chapter 7 to Chapter 13 did not vacate or revoke the Chapter 7 discharge entered before conversion.59 By this view, the only debts remaining for eligibility purposes in the Chapter 13 case are debts that survived discharge in the Chapter 7 case. This court measured the amount of debt at the time of conversion to Chapter 13 rather than at the filing of the Chapter 7 petition.60
Judgments in a prior Chapter 13 case can affect debt counting for eligibility purposes upon refiling. In In re Brooks,61 the bankruptcy court determined in a prior Chapter 13 case that the debtor was ineligible because claims of the IRS exceeded the unsecured debt limitation. The case was dismissed. The debtor refiled. In the second case, the bankruptcy court held that no facts had changed, thus the prior order was res judicata of the debtor’s ineligibility.
1 See § 14.1 Dollar Amounts.
2 See below in this section, and see § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.
3 See, e.g., In re Jones, No. 12-04833-HB, 2013 WL 2352569 (Bankr. D.S.C. May 29, 2013) (Burris) (There is no Code- or Rule-based deadline for motion to dismiss based on ineligibility; trustee’s motion filed six months after petition is granted.). See also In re Moore, No. 10-11491, 2012 WL 1192776, at *5 (Bankr. N.D.N.Y. Apr. 10, 2012) (Littlefield) (Although case was filed in 2010, court retained sua sponte authority to dismiss for ineligibility. Using schedules as “‘jumping off’ place,” undersecured claim must be bifurcated for eligibility. Unsecured debt included guaranty which, if noncontingent and liquidated, would cause unsecured debt to exceed statutory limit.).
4 See § 119.1 11 U.S.C. § 1325(c): Income Deduction Orders. See, e.g., In re Harris, No. 11-07131-8-JRL, 2012 WL 3732808 (Bankr. E.D.N.C. Aug. 28, 2012) (Leonard) (Trustee is precluded to litigate eligibility in postconfirmation motion to dismiss. Section 109(e) eligibility is not jurisdictional.). See also In re Perez, 400 B.R. 879 (Bankr. S.D. Fla. Sept. 18, 2008) (Isicoff) (Objection to eligibility is timely raised in objection to confirmation. Determination of eligibility at confirmation did not prejudice debtor or other parties, and no plan was confirmed prior to determination of eligibility. Debtor was ineligible because noncontingent, liquidated, unsecured debt exceeded limit.).
5 519 B.R. 535 (Bankr. N.D. Cal. Nov. 7, 2014) (Weissbrodt).
6 It is rare for a Chapter 13 case to be pending for three years without either confirmation of a plan or dismissal for unreasonable delay. See § 152.2 Cause for Dismissal—In General.
7 See below in this section.
8 In re Harwood, 519 B.R. at 542–44.
9 See, e.g., Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski); Slack v. Wilshire Ins. Co. (In re Slack), 187 F.3d 1070 (9th Cir. Sept. 9, 1999) (Reavley, Alarcon, McKeown); Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751 (6th Cir. Oct. 9, 1985) (Engel, Keith, Jones); Brockenbrough v. IRS, 61 B.R. 685 (W.D. Va. Feb. 12, 1986) (Michael); Craig Corp. v. Albano, 55 B.R. 363 (N.D. Ill. Nov. 7, 1985) (Toles); In re Harwood, 519 B.R. 535, 539 (Bankr. N.D. Cal. Nov. 7, 2014) (Weissbrodt) (“Under the plain language of 11 U.S.C. § 109(e), postpetition events are not considered in the eligibility determination.”); In re Guzman, No. 10-10169-8-JRL, 2011 WL 5909522 (Bankr. E.D.N.C. May 31, 2011) (Leonard) (Eligibility under § 109(e) is determined as of filing date; when accident and all events necessary to trigger liability for workers’ compensation subrogation claim occurred prepetition, claim was not contingent.); In re De La Hoz, 451 B.R. 192 (Bankr. M.D. Fla. May 5, 2011) (Adams) (Applying plain language of § 109(e), debts are determined at petition date for eligibility purposes.); Johnson v. Stemple (In re Stemple), 361 B.R. 778 (Bankr. E.D. Va. Feb. 14, 2007) (St. John); In re Doyle, 340 B.R. 381 (Bankr. D. Or. Mar. 21, 2006) (Alley); In re Reader, 274 B.R. 893 (Bankr. D. Colo. Mar. 26, 2002) (Brown); In re Faulhaber, 269 B.R. 348 (Bankr. W.D. Mich. Nov. 7, 2001) (Hughes); In re Stern, 266 B.R. 322 (Bankr. D. Md. Aug. 13, 2001) (Schneider); In re Newman, 259 B.R. 914 (Bankr. M.D. Fla. Mar. 5, 2001) (Glenn); In re Allen, 241 B.R. 710 (Bankr. D. Mont. Dec. 3, 1999) (Peterson); In re Hutchens, 69 B.R. 806 (Bankr. E.D. Tenn. Jan. 20, 1987) (Stair); In re Kutner, 3 B.R. 422 (Bankr. N.D. Tex. Mar. 3, 1980) (Ford); In re Cole, 3 B.R. 346 (Bankr. S.D. W. Va. Apr. 4, 1980) (Flowers).
10 In re Harwood, 519 B.R. 535 (Bankr. N.D. Cal. Nov. 7, 2014) (Weissbrodt).
11 In re Dally, 110 B.R. 630 (Bankr. D. Conn. Feb. 22, 1990) (Shiff).
13 In re Smith, 365 B.R. 770 (Bankr. S.D. Ohio Feb. 12, 2007) (Hoffman) (Because postpetition events do not affect eligibility, postpetition entry of $2 million judgment did not liquidate claim for § 109(e) purposes. Liability to SEC had been established by prebankruptcy summary judgment order, making debt noncontingent; however, debt was not liquidated prior to petition.); In re Horne, 277 B.R. 320 (Bankr. E.D. Tex. Mar. 12, 2002) (Sharp). See also In re Horne, 277 B.R. 712 (Bankr. E.D. Tex. Mar. 12, 2002) (Sharp).
14 See In re Deel, 213 B.R. 112 (Bankr. W.D. Va. Sept. 11, 1997) (Pearson) (Confirms Chapter 13 plan notwithstanding pending adversary proceeding in which debtor challenges validity and amount of IRS claim of $465,427.72. Court notes that litigation of IRS claim could take years and creditors would suffer without payments if the plan was not confirmed. Also, postconfirmation modification would be available to deal with outcome of the litigation.).
15 See In re Murphy, 374 B.R. 73 (Bankr. W.D.N.Y. Aug. 29, 2007) (Ninfo) (Date of petition determines amount of debt for § 109(e) purposes; that creditor with $524,556.84 unsecured claim did not timely file a proof of claim does not change outcome that debt was noncontingent and liquidated at petition.); In re Reader, 274 B.R. 893, 898 (Bankr. D. Colo. Mar. 26, 2002) (Brown) (Date of petition controls eligibility calculation; debt is counted for eligibility purposes notwithstanding that deadline has passed for creditor to file timely proof of claim. “[T]he determination of eligibility is intended to be made early in a case, before the proof of claim bar date would have passed. In this case, the Court is making this determination nearly two years after the case has been filed, due in part because the parties did not bring it directly to the Court’s attention and in part because of unusual circumstances involving the transfer of this case from one judge to another. Regardless of when the eligibility decision is actually made, Section 109(e) states that it must reflect the claims as they existed on the date of the filing.”).
16 See, e.g., 11 U.S.C. §§ 501, 502, 506(a), 1325(a)(4), 1325(a)(5).
18 See § 14.3 Use of Statements and Schedules in Eligibility Calculations. See, e.g., In re Marrama, 345 B.R. 458, 468–69 (Bankr. D. Mass. July 14, 2006) (Hillman) (“Generally, eligibility for Chapter 13 is based on debts as of the petition date and not upon post-petition events such as allowed claims, filed claims, or treatment of claims in a confirmed Chapter 13 plan. . . . [W]hen it appears the debtor did not exercise reasonable diligence or good faith in completing and filing the schedules, the bankruptcy court may look to other evidence, including post-petition events, to determine eligibility.”); In re Smith, 325 B.R. 498, 502 (Bankr. D.N.H. Apr. 15, 2005) (Deasy) (Because debtor omitted tax claims from schedules after failing to file tax returns for several years, schedules were not filed in good faith, and court would consider amount claimed by taxing authorities in timely filed proof of claim as evidence of amount of tax debt for eligibility purposes.).
19 See, e.g., Dillon v. Texas Comm’n on Envtl. Quality (In re Dillon), 138 F. App’x 609 (5th Cir. May 23, 2005) (Davis, Smith, Dennis) (Debtor not eligible because claim of Texas Commission on Environmental Quality exceeds $290,925.); Hounsom v. United States, 325 B.R. 319, 326 (M.D. Fla. May 13, 2005) (Antoon) (Upon objection to eligibility, bankruptcy court can consider matters such as proofs of claim filed after the petition. “[P]roofs of claim filed in the bankruptcy case—necessarily after the petition itself was filed—have been used in determining eligibility under Section 109(e). Courts have found it permissible to look beyond the debt amounts listed in debtor’s schedules where the issue of Section 109(e) eligibility is raised.”); In re Rogan, No. 08-23221 JPK, 2009 WL 2671709 (Bankr. N.D. Ind. July 15, 2009) (Klingeberger) (Further hearing necessary to determine whether IRS audit procedure had properly determined deficiency assessments for purposes of eligibility calculation.); Al-Sedah v. Alabama Dep’t of Rev. (In re Al-Sedah), 347 B.R. 901 (Bankr. N.D. Ala. July 19, 2005) (Mitchell) (Department of Revenue’s proof of claim for $516,101.46 establishes that debtor is not eligible.); In re Steffens, 342 B.R. 851 (Bankr. M.D. Fla. Sept. 14, 2005) (Paskay) (Without evidence of bad faith, bankruptcy court considers proofs of claim to determine that debtor is ineligible.); In re Thompson, 116 B.R. 610 (Bankr. S.D. Ohio July 3, 1990) (Calhoun) (Amount of lease guaranty counted in eligibility calculus is limited to allowable amount of lessor’s claim under § 502(b)(6).).
20 See In re Reyes Ramos, No. 04-90168 GAC, 2006 WL 3898377, at *4 (Bankr. D.P.R. Jan. 13, 2006) (unpublished) (Carolo) (Motion to dismiss based on debt limits held in abeyance pending outcome of adversary proceeding contesting validity of second and third mortgages: if debtor succeeds in adversary proceeding, “eligibility will not be an issue”; but “if on the other hand, the liens are valid[,] Reyes seeks to convert to Chapter 11.”).
21 165 B.R. 746 (Bankr. D. Conn. Mar. 31, 1994) (Shiff).
23 See § 50.3 Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances for discussion of a Chapter 13 debtor’s limited power to avoid preferences under 11 U.S.C. § 547.
25 In re Toronto, 165 B.R. at 753–55. Accord In re Hanson, 275 B.R. 593, 597–98 (Bankr. D. Colo. Apr. 3, 2002) (Brown) (Citing In re Toronto, 165 B.R. 746 (Bankr. D. Conn. Mar. 31, 1994) (Shiff), and Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), judgment liens obtained during preference period are unsecured debts for eligibility purposes. “[F]or the purpose of Section 109(e), the unsecured claim did not arise when the post-petition judgment voiding the lien was entered, but rather existed as of the date of the filing of the petition. . . . [T]he debt limitations of Section 109(e) must be construed to include claims deemed unsecured by operation of the Bankruptcy Code. . . . [T]he Moving Creditors’ judgment liens, filed during the preference period, are subject to avoidance and must be treated as unsecured for the purpose of determining eligibility under Section 109(e).”).
26 231 B.R. 336 (B.A.P. 9th Cir. Mar. 5, 1999) (Brandt, Klein, Jones).
27 11 U.S.C. § 502(h).
28 Henrichsen v. Scovis (In re Scovis), 231 B.R. at 343.
30 Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski).
31 Scovis v. Henrichsen (In re Scovis), 249 F.3d at 984. Accord Nelson v. Meyer (In re Nelson), 343 B.R. 671 (B.A.P. 9th Cir. May 15, 2006) (Klein, Ryan, Brandt), on remand, No. 05-10660, 2006 WL 2091899, at *2 (Bankr. N.D. Cal. July 26, 2006) (unpublished) (Jaroslovsky) (Because eligibility is determined at petition and “postpetition waiver or forgiveness of a debt has no effect on eligibility,” debtor with scheduled unsecured debts of $324,832 is ineligible notwithstanding amended schedules that reduced unsecured debt by $279,000 after trustee objected to eligibility.); In re Hanson, 282 B.R. 240, 243–44 (Bankr. D. Colo. July 25, 2002) (Brown) (Because the debtor scheduled judgment liens as unsecured and changed this characterization only after creditors challenged eligibility, the debts are properly counted as unsecured. Interpreting Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), and Slack v. Wilshire Insurance (In re Slack), 187 F.3d 1070 (9th Cir. Sept. 9, 1999) (Reavley, Alarcon, McKeown): “The holding of the Ninth Circuit can be summarized as follows: (a) look at the debtor’s debts as they existed on the date of filing; (b) look at the schedules to see if they are filed in good faith; (c) considering the schedules, proofs of claims and other readily determinable information, make a summary determination as to the nature and amount of the debts. In making this summary determination, it is permissible to consider the avoidability of liens, if there is a reasonable degree of certainty as to their avoidability. . . . [Debtor] wants to treat these claims as secured only for the eligibility analysis, but he had no intention of confirming a plan that allows them as secured claims. In short, the Debtor is attempting ‘to have his cake, and eat it too.’”).
32 See also In re Sims, No. 13-05-20101-SR, 2007 WL 3166774 (Bankr. D.N.M. Oct. 26, 2007) (unpublished) (Starzynski) (Postpetition amendment of homestead exemption reduces unsecured debt, rendering debtors eligible.); Singer Asset Fin. Co., LLC v. Mullins (In re Mullins), 360 B.R. 493 (Bankr. W.D. Va. Feb. 12, 2007) (Krumm) (Through three postpetition amendments to the schedules, debtor went from eligible to not eligible and back to eligible again based on amount of secured, unsecured and undersecured debt.).
33 269 B.R. 348 (Bankr. W.D. Mich. Nov. 7, 2001) (Hughes).
34 282 B.R. 828 (Bankr. N.D. Tex. Aug. 26, 2002) (Lynn).
35 In re Hatzenbuehler, 282 B.R. at 833.
36 In re Hatzenbuehler, 282 B.R. at 833.
37 236 B.R. 271 (B.A.P. 9th Cir. June 28, 1999) (Radcliffe, Brandt, Klein).
40 Soderlund v. Cohen (In re Soderlund), 236 B.R. at 273. See also In re Schwartz, No. 05-90610, 2006 WL 1367440 (Bankr. C.D. Ill. May 17, 2006) (unpublished) (Fines) (Proof of claim for $509,661.89 does not render debtor ineligible because creditor filed secured claim and the amount cannot be added to unsecured debts for § 109(e) purposes.); In re Newman, 259 B.R. 914, 920 (Bankr. M.D. Fla. Mar. 5, 2001) (Glenn) (On the IRS’s motion to dismiss filed 25 months after the petition but before confirmation, amount of debt for eligibility purposes is determined as of the petition, and it is appropriate to consider amended proofs of claim filed by the IRS between the petition and the motion to dismiss. “In this case, the examination and audit of the Debtor’s returns continued after the date of the petition, the parties were conferring post petition to reach a resolution . . . and the plan has not been confirmed.”).
41 143 F.3d 623 (1st Cir. May 13, 1998) (Boudin, Bownes, Cyr).
42 Elliott v. Papatones (In re Papatones), 143 F.3d at 626.
43 187 F.3d 1070 (9th Cir. Sept. 9, 1999) (Reavley, Alarcon, McKeown).
44 Slack v. Wilshire Ins. Co. (In re Slack), 187 F.3d at 1073.
45 Slack v. Wilshire Ins. Co. (In re Slack), 187 F.3d at 1073. Accord In re Allen, 241 B.R. 710, 716 (Bankr. D. Mont. Dec. 3, 1999) (Peterson) (“[T]he petition date governs the eligibility requirements, not some uncertain future date when a lawsuit may ripen into judgment of a now unknown amount. . . . The issue is settled by Slack v. Wilshire Ins. Co. (In re Slack), 187 F.3d 1070 (9th Cir. Sept. 9, 1999) (Reavley, Alarcon, McKeown), which holds the language of § 109(e) states ‘the amount of the debt is determined as of “the date of the filing of the petition.”’” Ex-spouse’s $3,025,000 claim for assault and battery is contingent and unliquidated because no trial or judgment occurred before the petition.); In re Horne, 277 B.R. 320 (Bankr. E.D. Tex. Mar. 12, 2002) (Sharp) (Claim that debtor violated Texas Consumer Protection Act was unliquidated at the petition though it was reduced to judgment by district court during the Chapter 13 case.). See also In re Horne, 277 B.R. 712 (Bankr. E.D. Tex. Mar. 12, 2002) (Sharp).
46 In re Johnson, 191 B.R. 179, 182 (Bankr. D. Ariz. Oct. 5, 1995) (Case), and In re Johnson, 191 B.R. 184, 185 (Bankr. D. Ariz. Jan. 12, 1996) (Case) (Grants relief from the stay to permit state court to determine summary judgment motion with respect to a creditor’s claim against the debtor. State court entered summary judgment for the creditor. Based on that postpetition judgment, debtor is ineligible. “[T]his Chapter 13 case was filed on the day before continued summary judgment proceedings on the Russoli claims. The summary judgment proceedings could have, and could still, determine whether the Russoli claims were liquidated on the filing date—i.e. whether the Russoli claims are capable of ready computation. The fact that those proceedings were not finished on the bankruptcy filing date does not mean that the Russoli claims will forever be deleted from the Section 109(e) calculus. Rather, the state court can still decide today whether the debt was liquidated, and in what amount, on the filing date. . . . Therefore, the stay will be lifted to allow that determination to be made.” After the grant of relief from the stay, “the state court granted summary judgment in favor of the Russoli’s [sic] and against Debtor. . . . The summary judgment order from the state court on the Russoli claim establishes that the [Russolis] have a liquidated, noncontingent claim of at least $175,000, not including interest, attorney’s fees or treble damages.”).
50 See In re Smith, 325 B.R. 498, 502 (Bankr. D.N.H. Apr. 15, 2005) (Deasy) (“[C]hapter 13 eligibility is determined on the petition date . . . . Eligibility for chapter 13 is not based upon postpetition events such as allowed claims, filed claims, or treatment of claims in a confirmed chapter 13 plan. . . . [D]ebtors cannot affect or alter their eligibility for chapter 13 by how they treat a claim in a confirmed chapter 13 plan, let alone in a proposed chapter 13 plan.”); In re White, 216 B.R. 232, 235 (Bankr. S.D. Ohio Dec. 11, 1997) (Aug) (“[W]hatever happens upon confirmation of the plan has no bearing on the amount of the Debtors’ debts as of the petition filing date.” Debt on business property is counted for eligibility purposes notwithstanding a prepetition foreclosure sale and a proposed plan that the foreclosing creditor would confirm the sale.); In re Knize, 210 B.R. 773, 777 (Bankr. N.D. Ill. June 17, 1997) (Schmetterer) (Court rejects debtor’s argument that only the 10% to be paid through the plan is counted for § 109(e) purposes: “Debtors clearly misread the Bankruptcy Code when arguing that an unsecured debt over $250,000 should be discounted to what their Plan offers in determining eligibility. . . . [F]or purposes of qualifying under § 109(e), it is only relevant how much the debtor owes, not how much the debtor actually intends to pay or can pay or will pay through the Plan.”).
51 See § 148.1 Procedure, § 148.2 Absolute Right of Debtor? and § 148.3 Effects of Conversion from Chapter 7 to Chapter 13. Conversion from other Chapters to Chapter 13 presents the same timing issue. See § 149.1 Conversion from Chapter 11 to Chapter 13 and § 149.2 Conversion from Chapter 12 to Chapter 13. See, e.g., De Jounghe v. Mender (In re De Jounghe), 334 B.R. 760 (B.A.P. 1st Cir. Dec. 12, 2005) (Votolato, Deasy, Rosenthal) (Eligibility is determined at hearing on debtors’ motion to convert from Chapter 11 to 13.).
52 In re O’Neil, No. 07-12533-MWV, 2008 WL 781866 (Bankr. D.N.H. Mar. 20, 2008) (unpublished) (Vaughn) (Ineligibility for Chapter 13 defeats debtor’s motion to convert from Chapter 7; debtor exceeded § 109(e) unsecured debt limit at time of filing Chapter 7 and at time of attempted conversion.); In re Truong, No. 03-40283 (NLW), 2007 WL 708874 (Bankr. D.N.J. Mar. 5, 2007) (unpublished) (Winfield); In re Rohl, 298 B.R. 95 (Bankr. E.D. Mich. Sept. 3, 2003) (Shefferly); In re Grew, 278 B.R. 619 (Bankr. M.D. Fla. May 8, 2002) (Paskay); In re Faulhaber, 269 B.R. 348 (Bankr. W.D. Mich. Nov. 7, 2001) (Hughes); In re Stern, 266 B.R. 322 (Bankr. D. Md. Aug. 13, 2001) (Schneider); In re Bush, 120 B.R. 403 (Bankr. E.D. Tex. Sept. 28, 1990) (Sharp).
53 In re Bush, 120 B.R. 403 (Bankr. E.D. Tex. Sept. 28, 1990) (Sharp).
54 In re Rohl, 298 B.R. 95 (Bankr. E.D. Mich. Sept. 3, 2003) (Shefferly).
55 In re Grew, 278 B.R. 619 (Bankr. M.D. Fla. May 8, 2002) (Paskay).
56 In re Faulhaber, 269 B.R. 348 (Bankr. W.D. Mich. Nov. 7, 2001) (Hughes).
57 See In re Arcella-Coffman, 318 B.R. 463 (Bankr. N.D. Ind. Dec. 8, 2004) (Klingeberger) (At conversion from Chapter 7 to Chapter 13, eligibility is determined at date of Chapter 7 petition, but facts and circumstances that developed during the bankruptcy case—including amendments to the statement and schedules—can be considered.).
58 See In re Safley, 132 B.R. 397 (Bankr. E.D. Ark. Oct. 7, 1991) (Scott) (At conversion from Chapter 7 to Chapter 13, Bankruptcy Code is not clear what effect should be given to Chapter 7 discharge for purposes of determining debtor’s eligibility for Chapter 13. Debtor converted to Chapter 13 after entry of discharge in Chapter 7 case. Debtor listed noncontingent, liquidated, unsecured debts of $129,302 at filing of Chapter 7 case. If debtor intends to deal with debt listed in original Chapter 7 petition after conversion to Chapter 13, then debtor is not eligible for Chapter 13 because noncontingent, liquidated, unsecured debts exceeded $100,000 at time of filing the Chapter 7 petition. If debtor intends to take advantage of discharge entered in Chapter 7 case, then debtor has no debts to deal with upon conversion to Chapter 13 and Chapter 13 case is meaningless. Conversion is denied.).
59 In re Sieg, 120 B.R. 533 (Bankr. D.N.D. Oct. 19, 1990) (Hill).
60 Accord In re Griggs, 181 B.R. 111, 114 (Bankr. N.D. Ala. Sept. 15, 1994) (Cohen) (On a Chapter 7 debtor’s motion to convert to Chapter 13, eligibility is determined at the time of conversion because “[b]ut for a change in circumstances or a reevaluation of existing circumstances, no debtor would request a conversion of a case. Not to allow a court to consider the changed circumstances or to make its own reevaluation of existing circumstances would hamstring any review of such a request.” Schedules show that noncontingent, liquidated, unsecured debts do not exceed the $100,000 limitation in § 109(e).). For further discussion of eligibility for Chapter 13 relief at conversion from Chapter 7 to Chapter 13, see § 148.2 Absolute Right of Debtor?. See § 23.1 Eligibility of a Serial Filer: “Chapter 20” and Beyond for discussion of the effect of a prior Chapter 7 discharge on eligibility in a subsequent Chapter 13 case.
61 216 B.R. 838 (Bankr. N.D. Okla. Jan. 5, 1998) (Michael).