Darrell Francis Lantzy and Elizabeth Muncal Lantzy

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re )
) CASE NO. SV 08-20561-KT
)
DARRELL F. LANTZY and ) CHAPTER 13
ELIZABETH M. LANTZY, )
)
) MEMORANDUM ON CHAPTER 13
) TRUSTEE’S OBJECTION TO
) CONFIRMATION
)
)
) Continued Hearing Date:
) DATE: January 5, 2010
) TIME: 10:00 a.m.
) PLACE: Courtroom 301
Debtors. ) 21041 Burbank Blvd.
) Woodland Hills, CA
Darrell and Elizabeth Lantzy (“Debtors”) filed a chapter 13 petition on
December 27, 2008. On their Schedule F, Debtors listed unsecured claims in the
amount of $129,870.47. On their Schedule D, Debtors listed secured debts
totaling $569,505.70. The secured debts include a second trust deed on their
Castaic residence (“Residence”) held by Washington Mutual in the amount of
$252,476. JP Morgan Chase Bank/Washington Mutual filed a proof of claim
relating to this second trust deed in the amount of $251,569.32.
On April 6, 2009, Debtors filed a Motion to Determine Secured Value of
Real Property; To Stay Post Petition Payments (“LAM Motion”). In their LAM
Motion, Debtors requested a “determination of the secured value of the Real
Property located at 30801 Sloan Canyon Rd., Castaic, California 91384 to be
$270,000, based upon an appraisal of August 11, 2008, and stay post petition
FILED & ENTERED
DEC 29 2009
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	harraway
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payments by Debtors and to treat the claims of JP Morgan Chase 4562, as
wholly unsecured for purposes of plan confirmation…”
On June 16, 2009, an Order Granting Motion to Value Real Property and
Stay Post Petition Payments was entered (“Order”). In part, the Order states
“that the claim of JP Morgan Chase 4562, secured by a Second Deed of Trust, is
undersecured for purposes of this Chapter 13 Case, such that upon confirmation
of DEBTORS’ Chapter 13 Plan, JP Morgan Chase 4562 will be treated as a
general unsecured claim and paid pro rata with other allowed unsecured claims.”
As a result of the avoidance of the JP Morgan Chase junior lien (“JP Morgan
claim”) upon discharge and the classification of the JP Morgan claim as a general
unsecured claim, the Debtors’ total unsecured debt to be treated in their plan has
increased to approximately $381,439.79.
The Chapter 13 Trustee has objected to confirmation of Debtors’ plan
because Debtors now exceed the unsecured debt limit of $336,900 under 11
U.S.C. § 109(e). Debtors filed a response to the Chapter 13 Trustee’s objections
on November 2, 2009. Debtors contend that despite the treatment of the JP
Morgan claim as unsecured in this case, it should be considered a secured claim
for purposes of assessing eligibility because the lien remains until completion of
the plan and discharge.
Based on a review of the pleadings, applicable case law, as well as the
testimony at the hearings, the court finds that the Chapter 13 Trustee’s Objection
to Debtors’ eligibility must be sustained. A debtor must meet the debt limits as of
the petition date. In re Smith, 2009 WL 4048015 (Bkrtcy.C.D.Cal.); Scovis v.
Henrichsen (In re Scovis), 249 F.3d 975, 981 (9th Cir. 2001). A court must look at
the debtor’s schedules to determine whether debt limits have been met. Id. A
court may look beyond the schedules to other evidence when a good faith
objection to debtor’s eligibility has been brought by a party in interest. In re
Guastella, 341 B.R. 908, 918 (9th Cir. BAP 2006).
In this case, as an initial matter, as directed by Ninth Circuit law, the court
relies on the Debtors’ schedules to determine eligibility. In this case, the Debtors
appear to be eligible because the JP Morgan claim is listed as a secured claim.
However, at the time the case was filed in December 2008, the Debtors were
already in possession of an appraisal (dated August 11, 2008) that indicated the
value of the Residence was insufficient to provide any security for the JP Morgan
claim. In fact, the Debtors relied on this information to prove that very point in
their LAM Motion.
In the schedules, the classification of the JP Morgan claim as secured is
grounded in the documentation of a lien on the Residence. However, the
Debtors could have easily drafted their initial schedules to conform with the
information they had about the value. Indeed, they intended to pursue relief that
was inconsistent with secured status for JP Morgan. In other words, the Debtors’
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“good faith” in assembling their schedules is subject to examination in light of the
circumstances. This court must look beyond the schedules and consider
whether the schedules were designed to achieve eligibility at the expense of
reality.
The valuation of the Residence under 11 U.S.C. §506(a) in the LAM
Motion relegated the JP Morgan claim to unsecured status in this bankruptcy
case. Under § 506(d), the lien is rendered void. However, if the case is
dismissed, the lien is reinstated under § 349(b)(1)(C). The fact that the ultimate
outcome remains unknown until the Debtors succeed or fail in earning a
discharge as opposed to a dismissal does not change the fact that the LAM
Motion confirmed the status of JP Morgan’s claim as unsecured.
While the court recognizes the lien interest is contingent until Debtors
complete their chapter 13 case and receive a discharge, Debtors are receiving
the benefit of treatment of their claim as unsecured during the pendancy of their
case. Therefore, in accordance with Scovis and Smith, JP Morgan’s completely
undersecured debt must be counted as unsecured for purposes of §109(e).
It is unfortunate that many Debtors whose financial problems could best
be handled in a chapter 13 case are pushed into the more cumbersome and
expensive process of chapter 11. Until amendment of the statute or clear
direction otherwise from the Ninth Circuit, this court concludes that the JP
Morgan claim may not be treated as unsecured in the plan and secured for
determining eligibility. Debtors must meet the eligibility requirements of chapter
13 based on known facts.
Based on the foregoing, the Debtors are not eligible for relief in chapter 13
because they exceed the debt limits.
IT IS SO ORDERED.
###
United States Bankruptcy Judge
DATED: December 29, 2009
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CERTIFICATE OF MAILING
I hereby certify that copies of the MEMORANDUM ON CHAPTER 13
TRUSTEE’S OBJECTION TO CONFIRMATION were mailed to the following
parties in interest:
DATED: MIKE ROTBERG
ACTING CLERK OF COURT
By:
Deputy Clerk
ELECTRONIC SERVICE
• Louis J Esbin
Esbinlaw@sbcglobal.net
• Clare Gadd
cgadd@mosscodilis.com
• Joe M Lozano
notice@NBSDefaultServices.com
• Elizabeth (SV) Rojas
cacb_ecf_sv@ch13wla.com
• Ramesh Singh
claims@recoverycorp.com
• United States Trustee (SV)
ustpregion16.wh.ecf@usdoj.gov
SERVICE BY MAIL
PRA Receivables Management,
LLC
POB 41067
Norfolk, VA 23541
Darrell and Elizabeth Lantzy
30801 Sloan Canyon Road
Castaic, CA 91384
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