ORDER REGARDING MOTION FOR RELIEF FROM AUTOMATIC STAY AND SETOFF FILED BY HAWAII STATE FEDERAL CREDIT UNION1
MIKE K. NAKAGAWA, Bankruptcy Judge.
On April 3, 2019, the court heard the Motion for Relief from Automatic Stay and Setoff Filed By Hawaii State Federal Credit Union ("MRAS"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
BACKGROUND
On February 5, 2019, Jermark K. V. Duca and Glenna M. S. Duca ("Debtors") filed a voluntary joint Chapter 13 petition ("Petition"). (ECF No. 1).
On February 7, 2019, Debtors filed some, but not all, of their schedules of assets and liabilities ("Schedules"). (ECF No. 11). On their property Schedule "A/B," Debtors listed a single-family residence located at 8681 Windy Canyon Court, Las Vegas, Nevada 89113 ("Residence"). They also listed three separate bank accounts maintained at Hawaii State Federal Credit Union ("HSFCU") containing a total amount of $5,192.42 ("Bank Accounts").
On March 22, 2019, Debtors filed their remaining Schedules, including amendments to their prior Schedules, along with their statement of financial affairs ("SOFA"). (ECF No. 23). On their amended Schedule "A/B," Debtors listed the value of their Residence at $350,000. On their Schedule "C," Debtors claimed the funds in their Bank Accounts as exempt under NRS 21.090(1)(z). On their Schedule "D," Debtors listed Flagstar Bank as having a claim in the amount of $315,042.58, secured by an interest in the Residence. On their Schedule "E/F," Debtors listed HSFCU as having three separate unsecured claims in the amounts of $40,000, $29,543, and $9,175.2
On March 22, 2019, Debtors also filed a proposed Chapter 13 Plan #1 that was noticed for confirmation to be heard on May 23, 2019. (ECF Nos. 26 and 29). On the same date, Debtors filed under penalty of perjury their Official Form 122C-1 Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period ("Form 22C-1"), as well as their Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income ("Form 22C-2"). (ECF No. 25).
DISCUSSION
HSFCU filed the instant MRAS on February 28, 2019, i.e., 23 days after the case was commenced. (ECF No. 15).3 Upon the filing of the Petition, the automatic stay arose under Section 362 to stay "the setoff of any debt owing to the debtor that arose before the commencement of the case ... against any claim against the debtor." 11 U.S.C. § 362(a)(7). Upon the filing of the Petition, HSFCU placed an "administrative hold" on the Bank Accounts in light of the aggregate claims it has against the Debtors, approximating $80,535.30. See Caluva Declaration at ¶ 7. HSFCU now seeks relief from stay for "cause" under Section 362(d)(1) so that it can setoff the amounts held in the Bank Accounts against its unsecured claims against the Debtors.4
Debtors do not allege that the administrative hold placed on the Bank Accounts constituted a completed setoff or any other act in violation of the automatic stay. Compare Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 22-23 (1995).5 Debtors argue, however, that a setoff otherwise permissible under applicable law may be disallowed on equitable grounds. See Opposition at 2:15-22, citing In re Faasoa, 576 B.R. 631 (Bankr. S.D. Cal. 2017). HSFCU does not contest this point of law, but argues that equitable grounds do not exist in this case. See Reply at 2:16 to 3:12.
Debtors argue that the $5,192.42 contained in the Bank Accounts "are approximately equivalent to the Debtors' disposable income for a month." Opposition at 2:19-20. According to Part 2 of their Form 22C-1, the Debtors' current monthly income is $5,809.48. According to Part 2 of their Form 22C-2, however, Debtor's disposable income is—$1,566.43, once their allowed expense deductions under Section 707(b)(2)(A) are applied.6 Debtors argue that if the setoff is permitted, they would be unable to afford their mortgage payment and other necessities. See Opposition at 2:20-22.
HSFCU maintains that under the loan documents supporting its claims, it has a statutory security interest in the sums held in the Bank Accounts. Debtors do not suggest otherwise. In requesting access to the funds to meet their housing and vehicle expenses, Debtors suggested at the hearing that HSFCU can simply be allowed a secured claim equal to the $5,192.42 currently in the Bank Accounts, and an unsecured claim equal to the balance of HSFCU's claim. Because HSFCU's only collateral would be the Debtors' claim to the funds in the Bank Accounts, however, the collateral value would be reduced dollar for dollar for any amount withdrawn by the Debtors. In essence, once the funds in the Bank Accounts are gone, they're gone. Without substitute or additional collateral, HSFCU's secured claim would not be adequately protected.
In Chapter 13, a debtor's access to funds is essential to confirming and performing a proposed plan. Additionally, a debtor's performance and completion of a confirmed plan is essential to obtaining a Chapter 13 discharge. In this instance, the record before the court demonstrates the Debtors' need for the funds in the Bank Accounts, but does not demonstrate that the lender's setoff rights under non-bankruptcy law should be abridged.
Under these circumstances, the court concludes that cause exists under Section 362(d)(1) to modify the automatic stay so that HSFCU can exercise its setoff rights with respect to the Bank Accounts. Because the Debtors may have equity in their Residence or other means to offer adequate protection to HSFCU, however, the court will permit the setoff to occur no earlier than April 30, 2019.
IT IS THEREFORE ORDERED that the Motion for Relief from Automatic Stay and Setoff Filed By Hawaii State Federal Credit Union, Docket No. 15, be, and the same hereby is, GRANTED AS PROVIDED IN THIS ORDER.
IT IS FURTHER ORDERED that the automatic stay in the above-captioned case is MODIFIED pursuant to 11 U.S.C. § 362(d)(1).
IT IS FURTHER ORDERED that Hawaii State Federal Credit Union may exercise any available setoff rights against the subject accounts of the above-captioned debtors, Jermark K. V. Duca and Glenna M. S. Duca, no earlier than April 30, 2019. No additional relief is granted by this Order.
