Joseph Frank Leli

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
JOSEPH FRANK LELI JR.
DEBTOR
CASE NO.
04-04172-5-ATS
ORDER ALLOWING MOTION TO APPROVE COMPROMISE
The matter before the court is the trustee's motion to approve
compromise. A hearing took place in Raleigh, North Carolina on May 17,
2006.
Joseph Frank Leli Jr. filed a petition for relief under chapter
7 of the Bankruptcy Code on November 16, 2004, and Holmes P. Harden was
appointed trustee. On June 21, 2005, Mr. Harden filed, pursuant to 11
U.S.C. § 727(a), an adversary proceeding objecting to Mr. Leli's
discharge due to Mr. Leli's failure to schedule or disclose to the
trustee a consigned engagement ring or the proceeds thereof. Harden v.
Leli (In re Leli), Adv. Pro. No. S-05-00114-5-AP. Mr. Leli and the
trustee have agreed to settle the adversary proceeding for a payment of
$7,762.66 (consisting of the $3,500 proceeds from the sale of the ring,
SO ORDERED.
SIGNED this 17 day of May, 2006.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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1 The term "domestic support obligation" was added to the
Bankruptcy Code with the enactment of the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 ("BAPCPA") and generally includes
debts in the nature of alimony, maintenance or support. 11 U.S.C. §
101(14A) (2005). Under BAPCPA, domestic support obligations are paid
first in priority. 11 U.S.C. § 507(a)(1) (2005). Because this case
was filed prior to October 17, 2005, the effective date of BAPCPA,
those provisions do not apply, and claims for alimony, maintenance or
support would receive only a seventh priority claim, behind
administrative expenses. 11 U.S.C. § 507(a)(7) (1994). The nature and
priority of Ms. Ferguson's claim is not presently before the court.
2
the attorney's fees and costs incurred by the estate, and an additional
$2,500) and a waiver of claims against the estate. The trustee
contends that the settlement is in the best interest of the estate due
to the likely cost of litigation and the uncertainty of the ability to
prove fraudulent intent.
Sally Ferguson, the former spouse of the debtor, filed an
objection to the motion to compromise. Ms. Ferguson contends that she
and Mr. Leli are the parties to a divorce settlement that requires Mr.
Leli to pay certain joint debts, and that a discharge will create a
financial hardship on Ms. Ferguson and her family. Though her proof of
claim identifies the debt as a priority "domestic support obligation,"1
Ms. Ferguson advised the court at the hearing that the debt is not for
alimony or support, but is for credit card debt used for the business
and for taxes.
Based on Ms. Ferguson's statement that the debt is not in the
nature of support, it could only be excepted from discharge if Ms.
Ferguson filed, pursuant to 11 U.S.C. § 523(a)(15), an adversary
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2 Again, the result would be different had this case been filed
after the effective date of BAPCPA, which makes all debts incurred in
the connection with a separation agreement or divorce decree (not just
those in the nature of support) nondischargeable, without the need for
an adversary proceeding. 11 U.S.C. §§ 523(a)(15), (c)(1) (2005).
3
proceeding to determine the dischargeability of the debt. See 11
U.S.C. § 523(c)(1).2 The deadline for filing a complaint to determine
the dischargeability of a debt expired on February 18, 2005. See
Notice of Chapter 7 Bankruptcy Case (November 16, 2004). Though Ms.
Ferguson stated that she was not aware of this deadline, she admits
that she received notice of the bankruptcy case. The court does not
have the discretion to extend this deadline, and the debt to Ms.
Ferguson cannot be excepted from discharge. As a result, Ms.
Ferguson's debt will be discharged unless Mr. Leli's discharge is
denied in its entirety pursuant to the trustee's adversary proceeding.
The trustee and the debtor wish to compromise the adversary
proceeding objecting to Mr. Leli's discharge. The trustee acknowledges
that it may be difficult to prove fraudulent intent, and that the costs
of litigation might outweigh any benefit to the estate. The settlement
pays to the estate the value of the undisclosed asset, reimburses all
costs of litigation expended thus far, and pays and additional $2,500
to the estate. Prior to the discovery of this asset, the case appeared
to be a no-asset case. Should the litigation go forward and the
trustee prevail, the costs of litigation might still exceed any
recovery for the estate, and would be paid ahead of Ms. Ferguson's
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claim. The debts would not be discharged, but that does not guarantee
recovery for Ms. Ferguson or any other creditor. The trustee does not
believe that this is an egregious case of hiding assets, and he
maintains that the settlement is in the best interest of the estate.
It is well established that bankruptcy courts may, in the exercise
of sound discretion, approve a settlement between a debtor and a
trustee. The settlement must be fair, equitable, reasonable under the
circumstances, and in the best interest of the estate as a whole. 10
Collier on Bankruptcy ¶ 9019.02 (15th ed. rev. 2005). The trustee is
responsible for maximizing the value to the estate, and absent a
showing that a settlement should not be approved, the court generally
gives great deference to the trustee's recommendation. Mr. Harden is
an experienced trustee who believes in his business judgment that this
compromise is in the best interest of the estate, and the court agrees.
Based on the foregoing, the motion to approve compromise is
ALLOWED and the adversary proceeding will be dismissed.
SO ORDERED.
END OF DOCUMENT
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