Darryl Rose

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
DARRYL ROSE,
Debtor.
)
)
)
)
)
)
Case No. 09-00346
(Chapter 11)
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION RE MOTION TO RECONSIDER
This case began as a case under chapter 13 of the Bankruptcy
Code (11 U.S.C.). 	The debtor’s attorney seeks reconsideration of
the court’s order requiring him to disgorge to the Clerk of the
court $750 in fees pursuant to the chapter 13 trustee’s motion to
disgorge fees. 	That order was based upon his filing the petition
under Chapter 13, without adequate pre-filing inquiry as required
by Fed. R. Bankr. P. 9011(b), when the debtor was ineligible to
file under Chapter 13 based on the debt limitations of 11 U.S.C.
§ 109(e). 	Under § 109(e), an individual is not eligible to be a
debtor under chapter 13 of the Bankruptcy Code unless, among
other things, the debtor “owes, on the date of the filing of the
petition, noncontingent, liquidated, unsecured debts of less than
$336,900 and noncontingent, liquidated, secured debts of less
The document below is hereby signed.
Signed: August 11, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 1 of 7

2
than $1,010,650,” which equates on an aggregate basis to
noncontingent, liquidated debts (both unsecured and secured) of
less than $1,347,550.
In a prior chapter 13 case commenced in February 2009, the
same attorney filed a petition for the debtor which included a
Summary of Schedules that listed liabilities owed to creditors
of: $1,292,832.00 to holders of secured claims; 9,842.67 to
holders of unsecured priority claims; and $607,186.69 to holders
of unsecured nonpriority claims, resulting in total liabilities
listed of $1,909,861.36. 	Only the Summary of Schedules was
filed: schedules themselves were never filed indicating what
part, if any, of the $1,909,861.36 in debts were contingent or
unliquidated.
The case was dismissed on March 26, 2009, for lack of
prepetition credit counseling as required by 11 U.S.C. § 109(h).
On April 10, 2009, the attorney filed on behalf of the debtor a
motion for reinstatement of the case. 	On April 23, 2009, that
motion was denied pursuant to 11 U.S.C. § 521(i), which required
dismissal because the debtor had failed timely to file certain
documents, including the debtor’s schedules. 	It never became
necessary for the trustee to examine the issue of debt
ineligibility in that case.
The petition commencing the instant case was filed on April
27, 2009. 	Eventually the debtor filed a Summary of Schedules
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 2 of 7

1 	The Schedules themselves showed an aggregate of
$1,761,554.00 owed to creditors holding secured claims, not
$1,493,554.00, but for purposes of this decision, and without
deciding which figure is correct, I will use the lower
$1,493,554.00 figure listed in the Summary of Schedules as the
amount of liabilities owed to such creditors (that figure being
more favorable to the debtor’s attorney with respect to the
eligibility issue). 	Schedule D, the schedule of creditors
holding secured claims, reported that $692,554 of the $1,761,554
in claims were unsecured based on the value of the collateral
securing the claims, for secured claims based on the value of
collateral of $1,069,000 (the result of $1,761,554 less
$692,554). 	That $1,069,000 was still in excess of the $1,010,650
debt limit for secured claims, and the unsecured portion of those
claims would only increase the amount of noncontingent,
liquidated unsecured claims in the case, an amount that already
exceeded the debt limit for noncontingent, liquidated unsecured
claims.
3
that reflected liabilities owed to creditors of: $1,493,554.00 to
holders of secured claims; 1 $9,842.67 to holders of unsecured
priority claims; and $406,464.69 to holders of unsecured
nonpriority claims, resulting in total liabilities listed of
$1,909,861.36, an aggregate amount of debts equal to the
aggregate amount reported on the Summary of Schedules filed with
the petition in the debtor’s prior case. 	The Schedules in the
instant case listed none of the debts as contingent or
unliquidated.
It is unnecessary to determine what part of a debtor’s debts
are secured and what part are unsecured in determining
eligibility for a chapter 13 case under § 109(e) if the aggregate
amount of noncontingent, liquidated debts (the aggregate of all
such debts whether unsecured or secured) is equal to or exceeds
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 3 of 7

4
$1,347,550: a debtor is eligible to file a chapter 13 case only
if (among other things) that aggregate amount is less than
$1,347,550. 	Here, the Summary of Schedules filed in the earlier
case in February 2009 showed $1,909,861.36 in aggregate debts,
and the Summary of Schedules in the instant case showed the exact
same amount of aggregate debts, thus making the debtor ineligible
to file a Chapter 13 case unless more than $562,311.36 of the
debts were contingent or unliquidated: $1,909,861.36 less the
minimum ineligibility amount of $1,347,550 of noncontingent and
liquidated debts equals $562,311.36. 	That $562,311.36 amount was
more than 29 percent of the total of aggregate debts, and ought
to have been a red flag to the debtor’s counsel as to the
possibility that the debtor was ineligible for chapter 13 relief.
Moreover, the amount of unsecured debts listed in the prior
case was $617,029.36 (liabilities of $9,842.67 to holders of
unsecured priority claims and of $607,186.69 to holders of
unsecured nonpriority claims). 	Noncontingent, liquidated
unsecured debts of $336,900 would have made the debtor ineligible
to be a chapter 13 debtor. 	Because the $607,186.69 amount
exceeded the $336,900 statutory amount by 80 percent, that should
have been a red flag to the debtor’s counsel that he should make
reasonable inquiry assuring himself that at least $270,286.69 of
the unsecured debts were contingent or unliquidated.
The debtor’s counsel should have made inquiry before filing
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 4 of 7

5
the prior case as to the extent of the debts that were contingent
or unliquidated, and when he filed the motion for reinstatement,
he similarly ought to have made that inquiry (as reinstatement
ought not to have been sought if the debtor was ineligible based
on the debt limits of § 109(e)). 	Although sanctions are not
being imposed with respect to the prior case, the debtor’s
attorney was well aware for a long time before filing this case
that the debtor had debts in an amount, that if noncontingent and
liquidated, vastly exceeded the eligibility limits of § 109(e).
Before filing the petition under chapter 13 of the
Bankruptcy Code, the debtor’s counsel was aware of the amount of
the debtor’s debts, an amount that presented an obvious issue of
ineligibility pursuant to the debt limitations of § 109(e).
Before filing the case, he should have made inquiry of the debtor
regarding the extent to which any of the debts were contingent or
unliquidated. 	In his motion for reconsideration, he states that
after filing a “bare bones” petition (that is, one without
schedules), he “subsequently examined the nature of the debtor’s
debts (in terms of whether the debts were contingent, liquidated,
or disputed),” and determined then that the debtor was ineligible
to be a chapter 13 debtor. 	Such a post-filing inquiry does not
constitute a pre-filing inquiry as required by Rule 9011(b).
The debtor’s attorney had in his own possession a Summary of
Schedules from the prior case listing $1,909,861.36 in debts, and
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 5 of 7

6
was obligated before filing the petition for the instant case to
ascertain whether those debts made the debtor ineligible under §
109(e) to be a chapter 13 debtor. He could not properly have
certified, as required by Rule 9011(b), “that to the best of
[his] knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances” the petition was warranted
under § 109(e). 	Sanctions under Rule 9011 were thus appropriate.
The remaining contentions raised by the debtor’s attorney,
in his motion and in his reply to the trustee’s opposition, to
the extent that those contentions address the issue of whether
sanctions were properly imposed under Rule 9011, were not
previously raised, and are frivolous in any event. 	Even in a
dismissed case, a court may impose Rule 9011 sanctions on motion
of the chapter 13 trustee, and it follows that in a case
converted to chapter 11 she may pursue such sanctions as well.
In any event, the court has authority to impose sanctions even if
a motion had not been filed. 	Prejudice to creditors is not
required before Rule 9011 sanctions may be imposed, and, in any
event, creditors were prejudiced by the debtor’s unauthorized
sojourn in chapter 13 which delayed the start of the debtor’s
being subjected to the strictures of a chapter 11 case
(including, for example, the limited time within which the debtor
has an exclusive right to file a plan). 	Finally, the trustee’s
motion adequately identified Rule 9011 as a source of authority
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 6 of 7

7	O:\TEEL\Judge Temp Docs\Rose (Darryl) Mem Decsn re Mtn to Reconsider $750 Sanction Award.wpd
for seeking sanctions, and identified ineligibility under §
109(e) as a basis upon which Rule 9011(b) was violated (by
stating that she was moving “this Court pursuant to 11 U.S.C. §
329 and Bankruptcy Rule 9011 to review and disgorge all
attorney’s fees paid to the debtor’s counsel” and by alleging a
“flagrant disregard of the Bankruptcy Rules and eligibility
issues” and noting that this case was filed “with admitted
secured and unsecured debt limit ineligibility on petition
date”).
An order follows denying the motion to reconsider.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 13 Trustee; Office
of U.S. Trustee.
Case 09-00346 Doc 68 Filed 08/12/09 Entered 08/12/09 09:21:11 Desc Main
Document Page 7 of 7