DANIEL P. COLLINS, Bankruptcy Judge.
Before the Court is Timothy R. Wright's ("Wright") Emergency Motion (the "Motion") (DE
1. Debtors filed a voluntary chapter 13 bankruptcy petition in the U.S. Bankruptcy Court for the District of Arizona on November 14, 2017.
2. Debtors filed their original schedules on November 14, 2017 (DE 1) and amended schedules on March 8, 2018 (DEs 62 and 63).
3. Debtors filed their original chapter 13 plan on November 14, 2018 (DE 2) and their amended plan on March 9, 2018 (DE 69). Wright objected to the original plan on January 10, 2018 (DE 26). It does not appear that Wright has yet filed an objection to the amended plan.
4. Wright filed an objection ("Homestead Objection") to Debtors' homestead exemption in real property located at 11 East Venado Drive, New River, Arizona (the "Venado Property") (DE 29). Debtors filed a response ("Response") to the Homestead Objection (DE 41) and each of the Debtors filed a declaration in support of their Response. Wright filed a motion to strike Debtors' Response (DE 55) and a reply in support of his Homestead Objection (DE 56). The Court has set a hearing on the Homestead Objection for April 2, 2018, at 11:00 a.m.
5. Wright filed his Motion on January 30, 2018 (DE 30) and requested that the Court set the matter for hearing on an expedited basis. Debtors filed a Response on February 13, 2018 (DE 44). The Court held an expedited hearing on February 13, 2018 (DE 46). At that hearing, the Court directed the parties to file briefs on certain legal issues. On February 27, 2018, Debtors filed their Brief on Chapter 13 Debt Limits Pursuant to 11 U.S.C. § 109(e) (DE 57) and Wright filed his Brief Regarding Debtors Eligibility Under 11 U.S.C. § 109(e) (DE 58).
This Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 157(b) and 1334.
Whether a liquidated, noncontingent claim against the Debtors is considered a secured claim in Debtors' chapter 13 case for purposes of § 109(e) if the collateral for such claim is not property of Debtors' chapter 13 bankruptcy estate.
Section 109(e) indicates who is eligible to be a chapter 13 debtor. That paragraph states, in relevant part:
When called upon to review § 109(e), the Ninth Circuit Court of Appeals held:
In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001). Wright has challenged Debtors' bankruptcy as a case filed in bad faith. Before looking at those allegations, however, this Court must examine Debtors' schedules.
Debtors' original schedules (DE 1) reflect their ownership of two residential properties: 7712 East Journey Lane, Scottsdale, Arizona ("Journey Property") valued at $439,000 and the Venado Property valued at $349,000. Although the Debtors amended their schedules, the stated values of these two residential properties have not been amended.
Debtors' original schedules reflected the following secured debts (DE 1 at Schedule D) and unsecured debts (DE 1 at Schedules E and F):
None of these secured or unsecured claims were listed as contingent, unliquidated, or disputed.
Debtors' Amended Schedule D (DE 62) reflects the following secured and unsecured debts:
Most of the secured debt balances in the amended Schedule D are different than originally scheduled. It is not clear why this is so. None of these secured claims are listed as contingent or unliquidated. Only the 1st Guaranty secured claim is identified as disputed.
If the 1st Guaranty claim (filed with this Court on March 27, 2018 as Claim #8) must be considered a secured claim, as both 1st Guaranty and the Debtors contend, Debtors numerically qualify under § 109(e) to be chapter 13 debtors. On the other hand, if the 1st Guaranty claim must be considered an unsecured claim for § 109(e) purposes, then Debtors' unsecured debt would total $427,160.35
Wright cites this Court to five cases in support of his position that the 1st Guaranty claim is an unsecured claim against this estate. Each of these cases look to § 506(a)(1) of the Code. That Code provision states, in relevant part:
In reviewing § 506(a) in connection with that court's § 109(e) analysis, Bankruptcy Judge Pappas held that:
In re Brown, 250 B.R. 382, 384 (Bankr.D.Idaho 2000). The Ninth Circuit BAP agreed with Judge Pappas when it cited § 506(a)(1) and noted that:
In re Smith, 435 B.R. 637, 647 (9th Cir. BAP 2010).
In any event, the force of logic of Judge Pappas and the BAP leaves this Court with the conviction that they both correctly interpreted § 506(a) and § 109(e).
Debtors argue that if they do not qualify to be chapter 13 debtors under the information they supplied in their amended schedules, the Court should use Wright's value of the Journey Property because it is $36,000 higher than the Debtors' valuation and he should be estopped from using any other valuation amount. If the Court adopted Debtors' argument, it would produce an increase in Debtors' secured debt by $36,000, but would correspondingly reduce their unsecured debt by $36,000. Debtors' unsecured debt would therefore total $391,160.35, a mere $3,564.65 below the unsecured debt limit of $394,725 imposed under § 109(e). While appreciating Debtors' creativity, this Court is nevertheless bound by Debtors' valuations on their property, unless those scheduled valuations were not made in good faith. See In re Scovis, 249 F.3d at 982. Debtors' valuations are, of course, the same values used to determine the secured amount to be paid to Wright under Debtors' amended chapter 13 plan. See DE 69 at 5. If any party is to be bound by collateral estoppel, it is the Debtors. The Court will not now condone Debtors to abandon their repeated and consistent $439,000 valuation of the Journey Property in an effort to squeeze under the § 109(e) unsecured debt limits.
Debtors claimed the Venado Property as their exempt homestead. Wright objected to that claimed exemption contending, among other things, that the Journey Property alone, and not the Venado Property, is the Debtors' residence for the purpose of applying Arizona's homestead statute, A.R.S. § 33-1101, et seq. As noted above, Wrights' Homestead Objection is set for hearing on Monday, April 2, 2018, at 11:00 a.m. If the Debtors prevail in that contested matter, the Court's decision herein will remain unaffected. If Wright prevails on his homestead exemption objection, the Court will look to the parties to indicate their contentions as to what implications, if any, that result would have on this Under Advisement Ruling.
Based on the foregoing, this Court finds that Debtors do not qualify under § 109(e) to be chapter 13 debtors, as their unsecured debts exceed the $394,725 maximum amount allowed. Debtors' schedules reveal that, once the 1st Guaranty claim is correctly identified as an unsecured claim, Debtors unsecured debt exceeds the § 109(e) unsecured debt limit. This determination is made without testing whether Debtors' schedules were filed in good faith.
The Court will sign an order dismissing this case if Wright chooses to lodge such an order. If Wright continues to seek an order of this Court converting this case to a chapter 7 liquidation, the Court will set an evidentiary hearing to determine whether, as Wright contends, this chapter 13 case was filed in bad faith.
