§ 15.4 — Are Contract Debts Contingent?
Revised: April 28, 2016
Only “noncontingent” debts (that are also “liquidated”1) are counted toward the secured and unsecured debt limitations for Chapter 13 in 11 U.S.C. § 109(e).2 Contract claims against the debtor other than guaranties3 are generally held to be noncontingent debts for Chapter 13 eligibility purposes. For example, when the debtor breaches a contract by failure to act prepetition, no subsequent extrinsic event is necessary to trigger the debtor’s liability, and the claim for breach of contract is noncontingent.4 Debts based on promissory notes or marketplace loan agreements typically are not contingent because the debtor’s liability is fixed by contract from the inception and is not dependent on any future event other than the passage of time.5 Debtors have argued unsuccessfully that terms such as contractual subordination6 or the right of foreclosure7 render a note contingent.
Because the liability of a debtor on a joint debt is not dependent upon the occurrence of any future event, each joint debtor’s liability is noncontingent in a Chapter 13 case.8 The debtor’s liability as an undisclosed principal under a stock purchase agreement is not contingent because an undisclosed principal’s liability arises when the agent enters into the contract and no further act is needed to render the principal liable.9 Similarly, claims of an insurance company as subrogee under a fidelity policy are not contingent notwithstanding that the debtor may have counterclaims or affirmative defenses, because no preconditions remain for the debtor’s liability under the contract.10 It has been said that contract claims become contingent when the debtor’s contest is effective to defeat liability altogether;11 but, absent liability, there is no debt in the first instance, and disputing liability rarely is effective to render a debt contingent or unliquidated.12
4 In re Moe, No. 09-31218, 2010 WL 1904830 (Bankr. D.N.D. May 11, 2010) (unpublished) (Hill) (Contract for seed potatoes was not contingent because invoices demonstrated that all events giving rise to liability occurred prior to petition. Noncontingent debts exceeded § 109(e) unsecured limit.); In re Michaelsen, 74 B.R. 245 (Bankr. D. Nev. May 13, 1987) (Thompson).
5 See In re Hendricks, 250 B.R. 415 (Bankr. M.D. Fla. Mar. 28, 2000) (Jennemann) (Prepetition attorney fees and credit cards are noncontingent debts and when added to allowed unsecured claims render the debtor ineligible.); In re Tabor, 232 B.R. 85, 91 (Bankr. N.D. Ohio Mar. 29, 1999) (Shea-Stonum) (Liability on notes was noncontingent because “Mr. Tabor’s liability under the Notes was established once the Schumachers made the loans, and no further event was required to trigger Mr. Tabor’s liability.”).
6 See Commonwealth Bank v. Pambianco (In re Pambianco), 206 B.R. 351 (Bankr. M.D. Pa. Dec. 16, 1996) (Thomas) (Condition in bank loan that debtors’ obligation to sellers of business was subordinated to bank’s debt did not render the debt to the sellers contingent. Five hundred thousand dollar promissory note from debtors to sellers was noncontingent and rendered the debtors ineligible to convert from Chapter 11 to Chapter 13.).
7 See In re White, 216 B.R. 232, 234–35 (Bankr. S.D. Ohio Dec. 11, 1997) (Aug) (Debt on business property is counted for eligibility purposes notwithstanding prepetition foreclosure sale because no order was entered confirming the sale and sale did not render the debtors’ obligations contingent. “[S]ince the sheriff’s sale of the [debtors’ business property] had not been confirmed by the state court as of the petition filing date, the Debtors still possessed their right of redemption . . . . Accordingly, the Debtors should have listed the [business property] on their schedules as well as the debts associated with the [business property]. . . . [A]s of the petition filing date, the Debtors owed (and still do owe) the debts associated with the [business property]. The fact that the sheriff’s sale of the [business property] has not yet been confirmed does not render the [business property’s] debts contingent.” Proposed plan provided that the foreclosing creditor would confirm the foreclosure sale. “Further, whatever happens upon confirmation of the plan has no bearing on the amount of the Debtors’ debts as of the petition filing date.”).
8 In re Martz, 293 B.R. 409 (Bankr. N.D. Ohio Oct. 17, 2002) (Speer).
9 In re Kaufman, 93 B.R. 319 (Bankr. S.D.N.Y. Nov. 17, 1988) (Schwartzberg).
10 In re Clark, 91 B.R. 570 (Bankr. D. Colo. Oct. 14, 1988) (Brooks).
11 See In re Monaco, 36 B.R. 882 (Bankr. M.D. Fla. Nov. 2, 1983) (Paskay) (Contract claim against a debtor/general contractor for defects in construction is contingent when liability is contested.).