Dennis Wayne Murphy

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
DENNIS WAYNE MURPHY
DEBTOR
CASE NO.
05-10151-8-ATS
ORDER REGARDING MOTION TO DISMISS
The matter before the court is the motion to dismiss filed by
Automotive Finance Corporation ("AFC"). A hearing took place in
Raleigh, North Carolina on December 13, 2005.
Dennis Wayne Murphy filed a petition for relief under chapter 13
of the Bankruptcy Code on October 15, 2005. His schedules list
unsecured debt in the amount of $455,623.52, including a debt to AFC in
the amount of $350,000. The AFC debt is described in the schedules as
a "Personal Guaranty on Corporate Debt," and an "X" is in the box
identifying the debt as "contingent." On December 12, 2005, AFC filed
a proof of claim with the chapter 13 trustee for an unsecured debt in
the amount of $459,176.02.
AFC filed a motion to dismiss Mr. Murphy’s case, contending that
he is ineligible to be a debtor under chapter 13 because his unsecured
debt exceeds the limits set forth in 11 U.S.C. § 109(e). Section
109(e) provides that only an individual with regular income that owes
"noncontingent, liquidated, unsecured debts of less than $307,675" may
be a debtor under chapter 13. AFC maintains that its debt is not
Case 05-10151-8-ATS Doc 23 Filed 12/15/05 Entered 12/15/05 12:59:49 Page 1 of 3

2
contingent as claimed by the debtor, and that the debt to AFC itself
renders Mr. Murphy ineligible for chapter 13 whether the scheduled
amount or the amount on the proof of claim is considered.
Mr. Murphy asserts that the debt to AFC is contingent because it
is based on a personal guaranty of a corporate debt, and the
corporation has not defaulted on the debt. Mr. Murphy maintains that
until AFC has cause to pursue the guarantor, the debt is contingent
upon a default by the corporation.
A contingent debt is "one which the debtor will be called upon to
pay only upon the occurrence or happening of an extrinsic event which
will trigger the liability of the debtor to the alleged creditor."
Fostvedt v. Dow (In re Fostvedt), 823 F.2d 305, 306 (9th Cir. 1987)
(citations omitted). In contrast, "where a contract was entered into
by parties who did not contemplate that any further act had to be
completed in order to trigger contractual liability, then such
liability would not be contingent." Fostvedt at 307 (citation
omitted).
The guaranty agreement between AFC and Mr. Murphy provides that
AFC is not required to make any demand upon the corporation or exhaust
its remedies against the corporation prior to seeking payment by Mr.
Murphy. The debtor is jointly and severally liable with the
corporation, and the debt to AFC therefore is noncontingent. See
Fostvedt (liability of debtor on notes noncontingent even though
Case 05-10151-8-ATS Doc 23 Filed 12/15/05 Entered 12/15/05 12:59:49 Page 2 of 3

3
creditor had not demanded payment and possibility existed that co-
obligors would pay some or all of debt); see also Mazzeo v. United
States (In re Mazzeo), 131 F.3d 295 (2d Cir. 1997) (responsible party
liability for unpaid withholding taxes is noncontingent, even though
liability is disputed).
Because the debt to AFC is a noncontingent, liquidated unsecured
debt in excess of $307,675, Mr. Murphy is not eligible to be a debtor
under § 109(e). Mr. Murphy has 10 days from the date of this order to
convert the case to another chapter, failing which the case will be
dismissed.
SO ORDERED.
DATED: December 15, 2005
Case 05-10151-8-ATS Doc 23 Filed 12/15/05 Entered 12/15/05 12:59:49 Page 3 of 3