In re: Debra Sue Phillips ( 2015 )


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  •                                                             FILED
    MAY 08 2015
    1                         NOT FOR PUBLICATION
    SUSAN M. SPRAUL, CLERK
    2                                                         U.S. BKCY. APP. PANEL
    OF THE NINTH CIRCUIT
    3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
    4                            OF THE NINTH CIRCUIT
    5   In re:                        )        BAP No.   NV-14-1359-JuKuD
    )
    6   DEBRA SUE PHILLIPS,           )        Bk. No.   NV-11-29783-LED
    )
    7                   Debtor.       )
    ______________________________)
    8                                 )
    DEBRA PHILLIPS,               )
    9                                 )
    Appellant,    )
    10                                 )
    1
    v.                            )        M E M O R A N D U M
    11                                 )
    KATHLEEN A. LEAVITT,          )
    12   Chapter 13 Trustee,           )
    )
    13                   Appellee.     )
    ______________________________)
    14
    Argued and Submitted on March 19, 2015
    15                            at Las Vegas, Nevada
    16                            Filed - May 8, 2015
    17               Appeal from the United States Bankruptcy Court
    for the District of Nevada
    18
    Honorable Laurel E. Davis, Bankruptcy Judge, Presiding
    19                          ________________________
    20   Appearances:     Max Couvillier, III for appellant Debra Phillips;
    Lauren Anne Peña for appellee Kathleen A.
    21                    Leavitt, Chapter 13 Trustee.
    ________________________
    22
    Before: JURY, DUNN, and KURTZ, Bankruptcy Judges.
    23
    24
    25
    26       1
    This disposition is not appropriate for publication.
    27 Although it may be cited for whatever persuasive value it may
    have (see Fed. R. App. P. 32.1), it has no precedential value.
    28 See 9th Cir. BAP Rule 8024-1.
    -1-
    1           Debtor Debra Phillips appeals from the bankruptcy court’s
    2   order granting the chapter 13 trustee’s motion to dismiss under
    3   § 1307(c).2    At the time the order was entered, Debtor’s
    4   chapter 13 case was pending without a confirmed plan for more
    5   than two years.     Because the bankruptcy court did not abuse its
    6   discretion in finding cause for dismissal, we AFFIRM.
    7                                 I.   FACTS
    8           Debtor filed both her chapter 13 petition and first plan on
    9   December 30, 2011.     In her schedules, Debtor listed
    10   302 Butterworth Ct., Henderson, Nevada (302 Butterworth) as her
    11   principal residence and 303 Butterworth Ct., Henderson, Nevada
    12   (303 Butterworth) as a rental property.     During the pendency of
    13   the case, the bankruptcy court authorized a sale of
    14   302 Butterworth.
    15           As to 303 Butterworth, on July 16, 2012, Debtor objected to
    16   the claim (the Claim) filed by the first trust deed holder, Bank
    17   of New York Mellon (Creditor), as untimely.     On October 16,
    18   2012, the Court entered an order sustaining Debtor’s objection;
    19   the Claim was allowed to the extent that it was secured by the
    20   fair market value of 303 Butterworth and disallowed as to any
    21   arrears and unsecured debt.     On July 19, 2013, Debtor filed a
    22   motion to determine and amend the Claim, requesting that the
    23   Claim be deemed amended to state the mortgage balance owed as
    24   $180,000, the fair market value of 303 Butterworth.      The Court
    25
    26       2
    Unless otherwise indicated, all chapter and section
    27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
    “Rule” references are to the Federal Rules of Bankruptcy
    28 Procedure.
    -2-
    1   granted the motion by order entered on August 28, 2013. Based on
    2   this valuation of the secured claim, under § 1325(a)(5)(B)(ii),
    3   Debtor was allowed to propose a plan that provided for full
    4   payment of the Claim in the amount of $180,000 with appropriate
    5   interest over the course of the plan.     Although Debtor filed
    6   seven proposed plans, she never proposed to pay the $180,000
    7   claim over the life of the plan as required by statute.
    8           On October 23, 2013, Debtor amended her schedules to
    9   reflect the sale of 302 Butterworth and the change of her
    10   principal residence to 303 Butterworth.     On the same date Debtor
    11   filed the fifth plan, which addressed the Claim by providing for
    12   monthly payments of $904.91 at a fixed interest rate of 3.5%
    13   over thirty-six months and extended the maturity date to July
    14   2038.     Creditor initially objected on the ground that Debtor
    15   could not modify 303 Butterworth’s secured loan because the
    16   property had become Debtor’s principal residence.3    Creditor
    17   filed a second supplemental objection arguing that even if
    18   303 Butterworth was classified as rental property, Debtor did
    19   not have sufficient income to pay the $180,000 value over the
    20   proposed thirty-six month plan and that the plan did not provide
    21   for the required treatment of the Claim.     The treatment provided
    22   in the sixth plan was substantially similar to that in the fifth
    23   plan except the monthly payments would be made over thirty-seven
    24
    25       3
    Our panel in Benafel v. One West Bank, FSB
    26 (In re Benafel), 
    461 B.R. 581
    (9th Cir. BAP 2011), held that the
    relevant date for determining whether real property is debtor’s
    27 principal residence for the purposes of the Bankruptcy Code’s
    anti-modification provision is the petition date, so this ground
    28 for objection was not persuasive.
    -3-
    1   months, “starting from the 24th month.”       The Chapter 13 Trustee
    2   (Trustee) opposed confirmation on the following grounds: the
    3   plan was not feasible as to its treatment of the Claim; the
    4   post-petition payments to secured creditors were delinquent; and
    5   the plan failed to accurately provide for the Debtor’s
    6   disposable income.   The seventh plan filed on January 4, 2014,
    7   was blank as to the Claim.     Creditor opposed the seventh plan.
    8        At a continued hearing on plan confirmation on February 19,
    9   2014, the bankruptcy court denied confirmation of all seven
    10   plans.   After more than thirty days passed with no new plan
    11   proposed, Trustee filed a motion to dismiss under § 1307(c) on
    12   March 26, 2014 (Motion to Dismiss).       The Motion to Dismiss
    13   requested as relief only dismissal, not conversion as allowed by
    14   the statute.   At the May 1, 2014 hearing on the Motion to
    15   Dismiss, the bankruptcy court noted that all seven plans were
    16   previously denied at the February 19, 2014 hearing and a new
    17   plan had not been filed.   Citing little progress since the case
    18   filing in 2011, the bankruptcy court granted dismissal.       The
    19   order granting the Motion to Dismiss was entered on May 8, 2014.
    20   Debtor filed a timely notice of appeal.
    21                            II.   JURISDICTION
    22        The bankruptcy court had jurisdiction over this proceeding
    23   under 28 U.S.C. §§ 1334 and 157(b)(2)(A).       We have jurisdiction
    24   under 28 U.S.C. § 158.
    25                                III.    ISSUES
    26   1.   Whether the bankruptcy court erred when it found “cause”
    27        under § 1307(c) to dismiss the chapter 13 case; and
    28   2.   Whether the bankruptcy court erred when it did not consider
    -4-
    1        conversion based on the best interests of creditors and the
    2        estate.
    3                         IV.   STANDARD OF REVIEW
    4        The bankruptcy court’s dismissal of a chapter 13 case is
    5   reviewed for abuse of discretion.        Leavitt v. Soto
    6   (In re Leavitt), 
    171 F.3d 1219
    , 1223 (9th Cir. 1999).
    7        The bankruptcy court abuses its discretion when it applies
    8   the incorrect legal rule or when its application of the law to
    9   the facts is: (1) illogical; (2) implausible; or (3) without
    10   support in inferences that may be drawn from the facts in the
    11   record.    United States v. Hinkson, 
    585 F.3d 1247
    , 1263 (9th Cir.
    12   2009) (en banc).
    13                               V.   DISCUSSION
    14        Section 1307(c) provides that the bankruptcy court may
    15   either dismiss or convert a chapter 13 case to chapter 7 for
    16   cause, “whichever is in the best interests of creditors and the
    17   estate.”   This provision first requires the bankruptcy court to
    18   consider “cause” based on a list of nonexclusive items
    19   designated in § 1307(c)(1)-(11).        Nelson v. Meyer
    20   (In re Nelson), 
    343 B.R. 671
    , 674-75 (9th Cir. BAP 2006).   If
    21   “cause” exists, the bankruptcy court then decides between
    22   conversion and dismissal based on the best interests of
    23   creditors and the estate.    Id.; de la Salle v. U.S. Bank, N.A.
    24   (In re de la Salle), 
    461 B.R. 593
    , 605 (9th Cir. BAP 2011).
    25   A.   The bankruptcy court did not err in finding cause to
    26        dismiss Debtor’s chapter 13 case.
    27        1) 11 U.S.C. § 1307(c)(5)
    28        Two elements must be satisfied to constitute “cause” under
    -5-
    1   § 1307(c)(5): first, denial of confirmation of a plan under
    2   § 1325 and second, denial of a request made for additional time
    3   to file another plan.    § 1307(c)(5); 
    Nelson, 343 B.R. at 675-76
    .
    4        The first element is met.    The bankruptcy court denied
    5   confirmation of all seven plans at the February 19, 2014
    6   hearing.   There was no current plan on file as of the May 1,
    7   2014 hearing on the Motion to Dismiss.
    8        The second element requires “at a minimum, that the court
    9   must afford a debtor an opportunity to propose a new or modified
    10   plan following the denial of plan confirmation.”     
    Id. at 676.
    11   Here, Debtor had ample opportunity to propose a new plan during
    12   the ten-week period between February 19, 2014, when the prior
    13   plans were denied, and May 1, 2014, the date of the hearing on
    14   the Motion to Dismiss.   Because Debtor had additional time to
    15   file an eighth plan after the denial of the prior plans, the
    16   second element is satisfied here.      After seven ineffectual plan
    17   attempts and a ten-week default in proposing an eighth plan,
    18   Debtor had plenty of time to propose a viable plan and failed to
    19   do so.   Accordingly, cause to dismiss exists under § 1307(c)(5).
    20        2) 11 U.S.C. § 1307(c)(1)
    21        A chapter 13 case may be dismissed based on a finding of
    22   “unreasonable delay by the debtor that is prejudicial to
    23   creditors.”   § 1307(c)(1).   “A debtor’s unjustified failure to
    24   expeditiously accomplish any task required either to propose or
    25   confirm a chapter 13 plan may constitute cause for dismissal
    26   under § 1307(c)(1).”    Ellsworth v. Lifescape Med. Assocs., P.C.
    27   (In re Ellsworth), 
    455 B.R. 904
    , 915 (9th Cir. BAP 2011);
    28   de la 
    Salle, 461 B.R. at 605
    (finding unreasonable delay and
    -6-
    1   prejudice to creditors where debtors had sufficient time but
    2   repeatedly failed to provide for a claim in their plan).
    3        Here, Debtor unjustifiably delayed by not proposing a new
    4   plan following the denial of the prior plans in February.           The
    5   bankruptcy court also found that no real progress had been made
    6   since the case filing in 2011 and the last hearings in 2013.
    7   Debtor’s failure to propose a confirmable plan in more than two
    8   years supports a finding of cause for dismissal under
    9   § 1307(c)(1).
    10        3) 11 U.S.C. § 1307(c)(3)
    11        The failure to file a plan timely under § 1321 also
    12   constitutes cause for dismissal.       § 1307(c)(3).    Rule 3015
    13   provides that a plan is untimely unless it is filed within
    14   fourteen days of the petition date.       Subsequent plans required
    15   by the court are also subject to § 1307(c)(3).         Ellsworth,
    
    16 455 B.R. at 916
    .
    17        Here, Debtor failed to propose another plan after the prior
    18   seven plans were denied.   Debtor only filed the eighth plan
    19   after the bankruptcy court granted dismissal at the May 1, 2014
    20   hearing.   Because Debtor failed to file a plan timely under
    21   § 1321, cause for dismissal exists under § 1307(c)(3).
    22   B.   The bankruptcy court did not err in not weighing the
    23        alternatives of conversion or dismissal where Trustee
    24        waived any request to consider conversion.
    25        The bankruptcy court has a mandatory obligation under
    26   § 1307(c) to determine whether dismissal or conversion would be
    27   in the best interests of creditors and the estate.         Nelson,
    28
    -7-
    
    1 343 B.R. at 674-75
    (noting that the decisions under § 1112(b)4
    2   informs the analysis of § 1307(c)); Sullivan v. Harnisch
    3   (In re Sullivan), 
    522 B.R. 604
    , 612 (9th Cir. BAP 2014)
    4   (reversing for abuse of discretion where the bankruptcy court
    5   failed to consider conversion when it dismissed a chapter 11
    6   case under § 1112(b)).
    7           Here, Trustee did not request conversion as an alternative
    8   to dismissal when proceeding with her motion to dismiss.     In so
    9   doing, Trustee waived consideration of conversion in her motion
    10   to dismiss.     Neither did Debtor request that the bankruptcy
    11   court consider conversion as an option, and on appeal, Debtor
    12   does not argue that conversion to chapter 7 should have been
    13   considered, thereby waiving the issue. U.S. v. Ullah, 
    976 F.2d 14
      509, 514 (9th Cir. 1992)(“We will not ordinarily consider
    15   matters on appeal that are not specifically and distinctly
    16   argued in appellant’s opening brief.”)(internal quotation marks
    17   and citation omitted).     Accordingly, the bankruptcy court did
    18   not abuse its discretion in not considering conversion as an
    19   alternative.
    20                              VI.   CONCLUSION
    21           For the reasons stated above, we AFFIRM.
    22
    23
    24
    4
    While the language in § 1307(c) parallels its chapter 11
    25 counterpart, § 1112(b), § 1307(c) differs slightly in providing
    26 that the court “may dismiss . . . or may convert” as opposed to
    § 1112(b)’s “shall convert . . . or dismiss.” This minor
    27 variation is without significance because both provisions require
    that the court decide between conversion and dismissal based on
    28 “whichever is in the best interests of creditors and the estate.”
    -8-