John J. Tharp, Jr., United States District Judge.
This is an appeal from a bankruptcy court order dismissing the debtor's Chapter 11 petition without a confirmed reorganization plan. The bankruptcy court concluded, and this Court agrees, that dismissal was appropriate because the debtor had been given ample time to present a confirmable plan but failed to do so.
The debtor in this case, Suzanne Aleshire, filed a bankruptcy petition under Chapter 11 on January 19, 2015. On Schedule A, a required listing of her assets, Ms. Aleshire indicated that she owned four properties, three located in Winnetka, Illinois (collectively, "the Winnetka properties"): (1) 1155 Chatfield Road; (2) 402 Willow Road;
When she filed her petition, Aleshire had not made a mortgage payment on any of the Winnetka properties in more than seven years. She stopped making payments in 2008, she says, on the (dubious) advice of counsel assisting her in a dispute with Harris Bank — not Wells Fargo — relating to an erroneous credit report Harris had issued (and which apparently was adversely affecting her ability to secure loan modifications from Wells Fargo). The particulars of that dispute are not clear from the record but neither are they relevant; the gist of the story is that Aleshire maintains that she tried to resume making payments to Wells Fargo several months later but was rebuffed and told to complete the loan modification process, prompting her to abandon her efforts to pay any amounts owed on the mortgages. The bottom line of this saga is that Aleshire's accounts with respect to each of the mortgages on the Winnetka properties were substantially in arrears when she filed the bankruptcy petition at issue in this appeal.
In September 2016, Wells Fargo filed a motion to dismiss Aleshire's petition, arguing that her claim that she had almost $17,000 per month with which to fund the plan was "a red herring." According to Wells Fargo, the operating reports concerning the properties filed by Aleshire reflected that she was able to pay only an average of $2,190 per month, far less than needed even to cover the mortgage payments on the properties.
Responding, Aleshire acknowledged that her plan required funding of $16,986 per month and "that she has not always hit this target during the course of the bankruptcy case." A56. She argued, however, that she would be able to make the target going forward. Social Security and monthly rent from the Willow Road and Walden Road properties, she maintained, would bring her $12,986 each month, and the remaining gap of $4,000 would be covered
The bankruptcy court held an evidentiary hearing on Wells Fargo's motions to dismiss on December 5, 2016. At the outset of the hearing, the bankruptcy judge highlighted numerous obstacles to confirmation of the plan, including the pre- and post-petition tax payments owed to Wells Fargo, the requirement for interest only payments for four years, a 34-year payout that would extend well beyond the remaining lifetime of the debtor, application of the absolute priority rule, and the debtor's lack of sufficient income. Judge Doyle summed it up this way (A. 89-90):
Judge Doyle also identified concerns about the enforceability of many of the agreements on which Aleshire was relying in identifying her sources of income to fund the plan. She questioned reliance on income from the Walden property in the absence of documentation reflecting an enforceable agreement with the Trustee of the trust that owned the property to provide the rental income from that property to the debtor. She expressed similar concerns about the enforceability of the agreements by family members to provide financial support to the plan.
After highlighting these issues, the judge nevertheless gave Ms. Aleshire the opportunity to testify in support of the feasibility of the plan.
After a lunch break following Aleshire's testimony, however, the parties informed the bankruptcy judge that they had reached a settlement. The basic terms of the agreement were consistent with a resolution Judge Doyle had suggested at the outset of the hearing (A. 103), providing that the Willow Road and Walden Road properties would be surrendered to Wells Fargo and Aleshire would retain her residence (the Chatfield property) and the Florida property as to which she had already negotiated a loan modification agreement (with Deutsche Bank, the lender on that property). In exchange, Wells Fargo agreed to recapitalize Aleshire's arrearages on the Chatfield property, which would otherwise be subject to the existing terms of the loan. The bankruptcy court scheduled a hearing on January 12, 2017 to confirm a prospective plan that would give effect to the parties' agreement.
A week before the scheduled hearing, however, Aleshire filed a motion for an extension of time to file another amended plan — one unrelated to the parties' agreement on December 5 — that would enable her to retain all of her properties. Contemporaneously, Aleshire's counsel sought to withdraw from the representation of Aleshire for one or more unspecified reasons. Wells Fargo responded to Aleshire's motion with a third motion to dismiss, reiterating its prior grounds, and adding a request for a two-year refiling bar.
At the hearing on January 12, 2017, Aleshire's attorney
After hearing the parties' arguments, the bankruptcy judge denied Aleshire's motion for an extension of time to present a fourth amended plan and granted Wells Fargo's motion to dismiss the case. The court first noted that Aleshire had no ability to pay the post-petition taxes owed on the properties, "which is an administrative expense that the debtor would have to pay upon confirmation. Utterly impossible. The debtor hasn't been able to pay anything." Tr. 12. For that reason alone, she concluded, Aleshire could not confirm a plan. She therefore declined to "let this case go on with you having the benefit of the automatic stay without having done anything close to what you need to do to have a confirmable plan." Tr. 19. The bankruptcy judge also concluded that, in light of Aleshire's intention to hold on to all of the Winnetka properties, "[there] is no confirmable plan here. There is not enough income to support a plan; the numbers don't work." Tr. Jan. 12, 2017 at 15. Accordingly, the bankruptcy court entered an order dismissing the case and barring Aleshire from refiling for 180 days.
Aleshire then filed a timely appeal. This Court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a)(1).
The issue presented by this appeal is whether the bankruptcy judge abused her discretion in dismissing Aleshire's chapter 11 petition.
Aleshire does not dispute that, when the court dismissed her petition, she owed Wells Fargo approximately $90,000 in post-petition real estate taxes that the bank had paid to prevent tax liens on the properties. Section 1112(b)(4)(I) of the Bankruptcy Code specifically provides that the failure to pay post-petition taxes is cause for dismissal of a chapter 11 petition and certainly the bankruptcy judge did not abuse her discretion in dismissing the petition when it is undisputed both that Aleshire owed the amount of the tax payments to Wells Fargo and that she did not have the resources to pay that obligation in full upon confirmation of the plan.
Aleshire's sole argument in opposition to dismissal on this basis is that the property was not at risk of forced sale due to her delinquency in paying property taxes — in other words, that Wells Fargo didn't have to make the tax payments in order to protect its interest in the properties.
Under Chapter 11, an individual debtor is required to file and confirm a plan for reorganization "as soon as practicable." 11 U.S.C. §§ 1106(a)(5) and 1107.
It is undisputed that Aleshire failed to obtain confirmation of a plan. Indeed, when the bankruptcy judge dismissed her petition, Aleshire did not even have a plan pending. At the evidentiary hearing on Wells Fargo's motion to dismiss, Aleshire maintained that her third amended plan was feasible, but she abandoned that plan during the hearing when she reached an agreement with Wells Fargo to surrender her interests in two of the properties in exchange for default forgiveness on the mortgage to the Chatfield property, her residence. Based on the reported agreement, the bankruptcy court directed Aleshire to file a fourth amended plan that would implement that agreement, but she failed to do so. Instead, she asked for additional time to file yet another iteration of a plan that would allow her to retain all of the properties in her estate, claiming that she had begun working with a service to obtain loan modifications from Wells Fargo that would allow her to retain the properties. Wells Fargo, however, advised the court that no loan modifications were in the offing and that Aleshire was simply seeking to further delay the dismissal of her petition. In light of Wells Fargo's opposition, and in response to Aleshire's request for more time to pursue loan modifications, Judge Doyle reasonably pointed out that it was futile to continue pressing forward to confirm a plan in bankruptcy that required Wells Fargo's agreement:
Tr. Jan. 12, 2017 at 9, 16.
The bankruptcy court was well within her discretion to reject Aleshire's gambit, which the judge fairly characterized as "stringing creditors along," id. at 18, and to dismiss the petition. The petition had at that point had been pending for more than two years and, as Judge Doyle concluded, it would have been inequitable to allow Aleshire to "just keep throwing the ball someplace else and figure, you know, that's all right." Id. at 15. The judge rightly concluded: "It is not all right. Two years and your third bankruptcy case, your second Chapter 11. This has gone on way too long." Id. "[A] debtor cannot wallow in chapter 11 indefinitely." In re Brooks, 488 B.R. 483, 490-91 (Bankr. N.D. Ga. 2013) (dismissing petition where confirmation of plan was not imminent after one year). "[B]ankruptcy courts are given a great deal of discretion to say when enough is enough." Matter of Woodbrook Assocs., 19 F.3d 312, 322 (7th Cir. 1994). After two years, and in response to Aleshire's request for still more time to pursue her quixotic objective of preserving all of her rental properties, Judge Doyle exercised that discretion reasonably in this case when she said, "Enough."
Aleshire complains that the bankruptcy court should have granted her a further extension based on her health and age, but that call, too, was within the bankruptcy court's discretion — see Fed. R. Bankr. P. 9006(b)(1) — and Judge Doyle did not abuse her discretion in denying a further extension of time to Aleshire on the basis of Aleshire's health or age. Again, Aleshire had two years to put together a plan and, as set forth herein, the bankruptcy judge reasonable determined that the prospect
All that said, it must also be noted that Aleshire's claim to need accommodation for her physical condition and ongoing need for treatment and rest in order to propose another confirmation plan is fundamentally at odds with the representations she made in defense of her third proposed plan regarding her ability to locate and resume full-time employment in order to supplement her income. Aleshire's assertion that granting her further time to confirm a plan would not prejudice creditors, moreover, is baseless; creditors like Wells Fargo are necessarily prejudiced when they go years without receiving timely payments that the debtor promised to provide. The prejudice to Wells Fargo was particularly acute, because this was Aleshire's second chapter 11 petition arising from her inability to meet the mortgage payments on various properties.
In any event, the bankruptcy judge did not dismiss Aleshire's petition simply because it had been pending too long; she also concluded that there was no realistic prospect that Aleshire would
Aleshire painted an optimistic picture of her ability to make up any deficit in her monthly income, but that picture, as the bankruptcy judge noted, was sketchy and drawn with pencil rather than ink. First, Aleshire testified that the trustee of the Walden property, of which she was not the owner but just one of seven beneficiaries (the others being her six children (A. 92), had promised that all rental income derived from that property would be provided to her but there was no formal agreement to that effect). Nor, as Wells Fargo points out, did Aleshire ever present documentation demonstrating that such an assignment of the trust's income to a single beneficiary was permissible. Aleshire also maintained that she would be able to secure more rentals at peak rates for her Florida property, but that assessment was speculative in light of the rental history and because Aleshire's projections were based on agreements that were still subject to cancellation and requirements to refund deposits and failed to factor in maintenance costs and other associated expenses of managing rental properties. Aleshire maintained that she would secure personal employment and devote her salary to the Wells Fargo loans, but the operating reports she filed report no income at all from any employment during the pendency of her petition. Her prospects of quickly securing employment, moreover, were belied by the fact, which she also acknowledged, that she had surgery and ongoing cancer treatments pending over the next several months and could not definitively say when she would return to the workplace, much less where or what she would earn when she did so.
Aleshire says that the bankruptcy judge employed the wrong standard in assessing her ability to fund a confirmable plan, in that she looked for a "guarantee" that Aleshire would have the resources to fund the plan. That is simply untrue. Rather, Judge Doyle found that Aleshire had a demonstrated inability to fund the plan over the two years her petition was pending and that there was virtually no basis on which to conclude that her ability to fund a plan had suddenly improved materially — particularly in light of her obligation to pay more than $90,000 in post-petition tax payments on top of funding her mortgage obligations. It was, in Judge Doyle's view, "utterly impossible" for Aleshire to fund a confirmable plan. Plainly, then, she did not hold Aleshire to the wrong standard of certainty; she granted Wells Fargo's motion to dismiss not because she was uncertain whether Aleshire could confirm a plan but because she was certain that Aleshire could not.
Judge Doyle's assessment — "[t]here is no confirmable plan here. There is not enough income to support a plan; the numbers don't work" — was not an abuse of discretion.
For the foregoing reasons, the bankruptcy court's order of January 12, 2017, is affirmed.
Also, as noted above, the Walden property was owned by a family trust, of which Aleshire was a beneficiary during her lifetime. Aleshire explained in her response to Wells Fargo's objections to the plan that her proposal as to the Walden property was to pay off what she unilaterally deemed to be the secured portion of the debt ($600,000) over 30 years, with any deficiency to be treated as unsecured debt. She reported on her Schedule A, however, that the secured claim on the Walden property was $896,929.50 (presumably the amount of unpaid principal on the mortgage loan). Thus, in effect, Aleshire's proposal was to reduce the secured obligation on the Walden property by almost $300,000.
