Filed: Jun. 20, 2018
Latest Update: Jun. 20, 2018
Summary: ORDER DENYING APPLICATION FOR PAYMENT OF ADMINISTRATIVE EXPENSE and OVERRULING CREDITOR'S OBJECTION TO CONFIRMATION OF THE PLAN ROBYN L. MOBERLY , Bankruptcy Judge . This case involves the question of whether a post-petition residential rent delinquency should be treated as an administrative expense pursuant to 11 U.S.C. 503. This matter was heard on May 15, 2018 on the Application for Payment for Administrative Expenses filed by the creditor, Bruce J. Lentner, ("Creditor"). The matter was
Summary: ORDER DENYING APPLICATION FOR PAYMENT OF ADMINISTRATIVE EXPENSE and OVERRULING CREDITOR'S OBJECTION TO CONFIRMATION OF THE PLAN ROBYN L. MOBERLY , Bankruptcy Judge . This case involves the question of whether a post-petition residential rent delinquency should be treated as an administrative expense pursuant to 11 U.S.C. 503. This matter was heard on May 15, 2018 on the Application for Payment for Administrative Expenses filed by the creditor, Bruce J. Lentner, ("Creditor"). The matter was ..
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ORDER DENYING APPLICATION FOR PAYMENT OF ADMINISTRATIVE EXPENSE and OVERRULING CREDITOR'S OBJECTION TO CONFIRMATION OF THE PLAN
ROBYN L. MOBERLY, Bankruptcy Judge.
This case involves the question of whether a post-petition residential rent delinquency should be treated as an administrative expense pursuant to 11 U.S.C. §503. This matter was heard on May 15, 2018 on the Application for Payment for Administrative Expenses filed by the creditor, Bruce J. Lentner, ("Creditor"). The matter was taken under advisement.
FACTS
Roshawn Modisette ("Debtor") entered into a residential lease agreement with the Creditor pre-petition. Debtor was current on her monthly rental payments at the time of the filing of her bankruptcy petition and at the time of the filing of her first Chapter 13 Plan. Her first proposed Chapter 13 Plan provided for acceptance of the residential lease with the Creditor. However, under Miscellaneous Provisions, the Plan also provided that all claims arising from the surrender of property or surrender of the Lease are to be treated as general unsecured claims. The Creditor did not object to the first plan, likely because at that time, it didn't affect the Creditor since the Debtor was current in her lease payments and the Debtor had indicated her intention to assume the lease in her first Plan.
As these things happen, the Debtor fell behind on her lease payments post petition to the Creditor, resulting in the Creditor filing a Motion for Relief from the Stay [Doc. 23]. Initially, the Debtor objected but then acquiesced, and she withdrew her objection to the motion. The motion was granted and Debtor then moved out of the property. The Trustee objected to the first proposed Plan and it was not confirmed. At that time, Debtor was ordered to file an Amended Plan, which was done on March 27, 2018 [Doc 39]. As expected, this time the Amended Plan rejected all leases and again proposed the following Non-Standard Provision:
In the event relief from stay and/or abandonment is granted to any creditor or party in interest as to any obligation of Debtor, or Debtor elects to surrender any property held by the Debtor subject to a purchase or lease agreement, whether prior to confirmation of the Plan or after confirmation of the Plan, then said creditor or party in interest shall be entitled to a general unsecured claim only, paid pro-rata with other general unsecured claims, and Debtor's personal liability on said obligation shall be discharged upon Debtor receiving a discharge following completion of Plan.
Creditor has objected to the Amended Plan and has filed an Application for Payment of Administrative Expenses [Doc. 34], requesting the unpaid post-petition lease payments be treated as an administrative expense and, therefore, given a favorable position in payment of claims. Creditor contends the Debtor's stated intention in her first proposed Plan to assume the lease obligation is binding on the Debtor. Debtor has objected to this treatment of Creditor's claim. No plan has been confirmed in this case yet.
DISCUSSION
11 U.S.C. §365(a) states: "Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor.". The Court, upon the request of a party to an executory contract, may order the Trustee to assume or reject the contract within a specified time period. 11 U.S.C.§365 (d)(2). A lease assumption may be by motion and order and it may also be accomplished through a confirmed plan. In the Chapter 13 plan, subject to the provisions of Section 365, the debtor may provide for the assumption or rejection of an unexpired lease, if it has not been previously rejected. 11 U.S.C.§ 1322(b)(7). The Court's Confirmation Order suffices for the "subject to Court approval" requirement in Section 356(a). Therefore, it is necessary to determine whether the residential lease here was assumed through the plan process, as no motion to require the debtor to assume or reject the lease was filed.
Debtor's first unconfirmed plan designated an intention to assume the lease. However, it was never confirmed and an assumption is not effective until the plan is confirmed or by other order approving the assumption. In Re Scott, 209 B.R. 777, 781 (Bankr. S.D.Ga.1997) (Debtor provided for assumption of the residential lease in the plan but it was not confirmed. Court held there had been no assumption without Court order). Likewise, a rejection of an executory contract may be by motion or may be contained in a plan under Chapters 11, 12 and 13 of the Bankruptcy Code but in either case, to be effective the rejection must be ordered by the Court. In re Milstead, 197 B.R. 33, 34 (Bankr. E.D.Va.1996). There is no "deemed" or "implied" rejection, even where the debtor surrenders the property pre-confirmation. In re Adwar Video Corp., 38 B.R. 628, 629 (Bkrtcy.N.Y.1984). If there is no effective assumption of the lease under Section 365, the rejection constitutes a breach of the lease as of the day before the filing of the petition. §365(g)(1). If an effective assumption occurs (typically that would be by way of a confirmed plan in a chapter 13 case) and the lease is later rejected, there would be an administrative claim for the unpaid rent attributable to the pre-rejection unpaid rent. § 365(g)(2)(A).
Thus far in the present case, there has been no effective assumption or rejection of the lease, since no order on a motion to deem the lease assumed or rejected has been requested by motion, nor has a plan been confirmed. Therefore, the Creditor's argument that the unconfirmed plan's stated intention to assume the lease binds the Debtor is unpersuasive. If any inference is to be made, it is that a de facto rejection occurred when the Court lifted the stay to allow the Creditor to commence eviction proceedings, thus leaving nothing for the debtor to assume.
Another avenue to treat post-petition unpaid rent as an administrative expense is to prove it was an actual and necessary cost of preserving the estate under 11 U.S.C.§503(b)(1)(A). In the present case very little argument was given contending this lease was an actual and necessary cost of preserving the estate. It's difficult to construct a scenario where purely residential property can be so classified. Residential property is rarely so unique or possesses such characteristics as to be required for the preservation of the bankruptcy estate. No argument has been developed along this line. This leasehold property has no intrinsic value essential to the estate. Further, the Debtor has moved from this residence to another without jeopardizing the property of the estate.
For the reasons stated above, the Creditor's Application for Payment of Administrative Expense is denied and the Creditor's Objection to Confirmation of the Plan is overruled. Creditor's claim for unpaid post-petition rent shall be treated as a general unsecured claim.
SO ORDERED:
