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Section 109 Debt Limits - Disputed Debts
Yes, that is why I posted the question. It's not that simple.....
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Patrick Green
Sent: Friday, May 15, 2009 12:41 PM
To: cdcbaa@yahoogroups.com
Subject: RE: [cdcbaa] Section 109 Debt Limits - Disputed Debts
Disregard my previous analysis, as I began to question it just after I hit
send!! Further reflection and research indicates that contingent may have
to with future events. However, I on further reflection I still like it as
a plain meaning argument.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
The post was migrated from Yahoo.
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Disregard my previous analysis, as I began to question it just after I hit
send!! Further reflection and research indicates that contingent may have
to with future events. However, I on further reflection I still like it as
a plain meaning argument.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
The post was migrated from Yahoo.
charset="windows-1251"
It is a contingent debt. Eg. Tort claims are contingent until adjudication
of liability. Liquidated applies to the amount of the liability not the
existence of the liability. Therefore your ID thefts are contingent. The
creditor has not had an adjudication that they are the persons debt.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
The post was migrated from Yahoo.
Prevailed in 109 dispute before EC using the following argument.
This is old (2003) so check cases!
a. Debtors are eligible to be a Chapter 13 Debtor pursuant to the debt limit provisions of 11 U.S.C. 109(e)
Section 109(e) of the Bankruptcy Code sets forth the debt limits for Chapter 13 debtors and provides that when calculating debt amounts, "contingent" and "unliquidated" debts are not counted. 11 U.S.C. 109(e) (emphasis added). Debtors Amended Schedules "E" and "F" contain liquidated and non-contingent claims totaling $250,123.64. Debtors content that the objected to claim is "unliquidated", except for the $8,000.00 note which they personally guaranteed and request that this Court estimate the claim at $8,000.00 where Debtors are not clearly liable for alter ego and fraud.
1) Where this Court is not able to readily ascertain Debtors personal claim liability and requires an evidentiary hearing to determine alter ego or fraud liability for corporate debts, then the claim should be determined "unliquidated" for the purposes of 11 U.S.C. 109(e) and estimated pursuant to 11 U.S.C. 502(c), to prevent unnecessary delay in administering the case
The United States Bankruptcy Code provides that where a claim is "contingent" or "unliquidated" it shall be estimated: "(c) There shall be estimated for the purpose of allowance under this section - (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case..." 11 U.S.C. 502(c) (emphasis added). Read conversely, the plain language of Section 502(c) provides that claims which require estimation in order to avoid undue delay in the administration of the case are either "contingent" or "unliquidated" claims. Arguably, the need to estimate the claim, in and of itself, means that the claim is either "contingent" or "unliquidated". Under the facts of this case, this Court must rule on the claims allegations of alter ego for corporate debts and fraud for the claim to be greater than $8,000.00. In the absence of Debtors being clearly liable under the claim alleged theories of liability, and where this Court requires a contested evidentiary hearing to determine liability, which will delay the administration of the case, the claim should be determined to be "unliquidated." In re Ho, 274 B.R. 867 (B.A.P. 9th Cir. 2002) (holding that chapter 13 debtors unliquidated for purposes of determining eligibility to be a chapter 13 debtor under 109(e)).
Claimant would have this Court rule that the ready determination of the amount of the $38,500 note, without a determination of Debtors alter ego or fraud liability, would render the entire claim "liquidated." Claimant has cited In re Nicholes, 184 B.R. 82 (B.A.P. 9th Cir. 1995) as support for its position that where a note amount is readily ascertainable, the claim is automatically "liquidated." That is not the current law in this circuit and the facts of this case are readily distinguishable from those in Nicholes.1 The Bankruptcy Appellate Panel decision In re Ho established that the issue of liability does play a role2 in determining whether a claim is "unliquidated" for purposes of determining eligibility under 109(e).
The facts in Ho vary somewhat from the facts of this case, but the courtquidated." In Ho, the debtor was a minor shareholder of a corporation, not a majority shareholder as in this case. She scheduled3 a breach of contract debt between a corporation "Great Tone" and a third party "Daiho" She did not personally guarantee the debt nor was she named personally in the state court suit, Great Tone v. Diaho. In this case the debt also did not personally guarantee the note, but Debtors were named in the state court suit. The Bankruptcy Court held that the claim was readily ascertained as arising out of a contract and liquidated for purposes of 11 U.S.C. 109(e). Id. at Page 872.
///
The Bankruptcy Appellate Panel in Ho found that the Bankruptcy Court had erred in finding the debt liquidated:
Obviously, in this case, there would need to be allegations of liability and an extensive hearing to determine Debtors liability for the Great Tone contract debt. The amount of the open book account debt allegedly owed to Great Tone can be ascertained to the penny. But not even Great Tone contends that Debtor is personally liable.[n7] Therein lies the rub. This is not a case where all that is lacking is a final determination as to the debtors liability. [n8 We acknowledge that there will be cases where a debtors liability for a corporate debt will be liquidated. Our holding in this case should not be construed to foreclose the possibility in different factual circumstances] In addition, even if Debtor is liable, it is not self-evident that she is liable for the entire amount of the debt. While a dispute as to liability will not necessarily render a debt unliquidated, Slack, 187 F.3d at 1074, the nature of this dispute does. [n9]
Ho, 274 B.R. 867, 875 (emphasis added).
The Ho Courts statement "[T]his is not a case where all that is lacking is a final determination as to the debtors liability" Id. at 873. must be read in conjunction with its explanation of that phase, albeit in footnote number eight, "[W]e acknowledge that there will be cases where a debtors liability for a corporate debt will be liquidated. Our holding in this case should not be construed to foreclose the possibility in different factual circumstances," Id. (emphasis added) together with the following sentence "In addition, even if Debtor is liable, it is not self-evident that she is liable for the entire amount of the debt." Id. (emphasis added) and in light of the prior cases it was distinguishing which suggest that the Ho Courts use of the phrase "final determination of liability" Id. (emphasis added) means debtors readily ascertainable liability, prior to finally adjudicated. See eg., In re Slack; In re Nicholes; In re Fostvedt; In
re Sylvester.
The Ho Courts use of this specific language regarding the variation of factual circumstances from case to cases in determining a debtort in determining the contested issue of liability in this case. Furthermore, the Ho Courts references that debtors hypothetical liability for the corporate debt and the need to determine how much of the debt the debtor is liable for, arguably smacks of a hypothetical fact pattern similar to the facts before this Court, where debtor was named as a defendant under alter ego and fraud and the liability issue must be determined before an amount of the claim, if any, can be assigned to the Debtors.
The Ho Court does not specify which cases of corporate debt will be liquidated or unliquidated, but one may reasonably inferred from the entire decision that those cases where the Bankruptcy Court can readily ascertain debtorary hearing to determine debtors liability, which will delay administration of the case, will be "unliquidated." This general reasoning is consistent with the plain language of 11 U.S.C. 502(c) in that the ready determination of claim liability and amount prevent the need for the court to estimate the claim and therefore render the claim "liquidated", while the need for an evidentiary hearing on the issues of claim liability or amount, which may delay the administration of the case, result in the claim being "unliquidated."
It arguably follows that this Court should find the portion of the claim above the personally guaranteed $8,000.00 note to be "unliquidated" if a determination of Debtors claim liability will require an evidentiary hearing which will delay the administration of the case. Should this Court find the remaining balance of the claim unliquidated, then Debtors are well within the applicable Chapter 13 debt limit under 11 U.S.C. 109(e).
2) Where the facts do not support a prima facie determination of liability pursuant to 11 U.S.C. 502(c) and the benefit to the estate in expeditiously and efficiently administering the case outweigh possible detriment to Claimant in not being able to further pursue its litigation, this Court should estimate the claim at $8,000.00
Debtors have asserted that the Corporation was created for a proper purpose, had multiple shareholders, operated successfully and paid on its notes, kept books and records, and ultimately was forced out of business through unfair business practices of another corporation, LA Fitness, Inc.. Furthermore, while settlement was ultimately reached between Debtors and LA Fitness, Inc., Debtors were represented by counsel in litigation pending with Claimant. The hypothetical Chapter 7 liquidation of Corporation at the time of settlement, would have resulted in the Internal Revenue Service receiving all of the settlement award and Claimants receiving none. The Internal Revenue Service is provided for 100% in Debtors First Amended Plan. Debtors, on advise of counsel, applied the settlement funds to pay some Corporate debts and the balance to establish a new business from which they are now able to fund their reorganization.
On these facts, this Court should find prima facie under 11 U.S.C. 502(c) that Debtors are not liable to Claimant under alter ego or fraud and limit the claim to the $8,000.00 personally guaranteed Corporate note. The practical effect will be that Debtors Plan will likely be confirmed and the issue of fraud will be moot.4 Significant time and litigation cost savings will be realized by the estate and the successful reorganization will benefit of the overwhelming majority of estate creditors. Alternatively, a prima facie determination that Debtors are liable for alter ego and fraud will likely have the practical effect of requiring that the case be converted to Chapter 7 or Chapter 11, significantly increasing the time and costs to the estate for administration and decreasing the reorganization potential and ultimately the payout to creditors. Moreover, Debtors may return to their pre-petition dilemma of not being able to afford the costs of
litigating, likely resulting in an inability to reorganize and pay their creditors.
Not only do the facts of this case justify a prima facie finding that Debtors are not liable for alter ego and fraud, such a finding will prevent additional time and expense of case administration which arguably outweigh the possible detriment to Claimant in not being able to pursue its litigation.
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In a message dated 5/15/2009 9:10:40 AM Pacific Daylight Time,
DavidTilem@TilemLaw.com writes:
Potential client was victim of ID theft and has "debts" over debt limits. I looked at 109 and it says unliquidated and noncontingent are not countedtowards the debt limit, but it doesn't say anything about disputed debts.
Has anyone argued that a disputed debt should not be counted towards the
debt limit? Which judge and what was the result?
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, , G, ,
The post was migrated from Yahoo.
Potential client was victim of ID theft and has "debts" over debt limits. I
looked at 109 and it says unliquidated and noncontingent are not counted
towards the debt limit, but it doesn't say anything about disputed debts.
Has anyone argued that a disputed debt should not be counted towards the
debt limit? Which judge and what was the result?
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Message
Potential client was victim
of ID theft and has "debts" over debt limits. I looked at 109 and it says
unliquidated and noncontingent are not counted towards the debt limit, but it
doesn't say anything about disputed debts.
Has anyone argued that a
disputed debt should not be counted towards the debt limit? Which judge
and what was the result?
David A.
Tilem
Certified Bankruptcy
Specialist*
The post was migrated from Yahoo.