UNITED STATES’ OPPOSITION TO DEBTOR’S MOTION TO EXTEND THE AUTOMATIC STAY
For the second time, debtor Philip Hart (“Hart”) has filed a Chapter 13 bankruptcy petition days before being deposed in connection with the United States’ suit to collect his federal income tax liabilities. He voluntarily dismissed his first bankruptcy: he scheduled his federal income tax liabilities as an unsecured debt, and accordingly had too much unsecured debt to be eligible for Chapter 13 relief under 11 U.S.C. § 109(e). Hart now asks the Bankruptcy Court to extend the automatic stay even though he has not filed his schedules. The Court should decline to give Hart the benefit of the automatic stay when he has not shown he is eligible for Chapter 13 relief.
In October 2011, the United States filed suit against Hart in federal district court to collect his federal income tax liabilities. The suit also seeks to foreclose federal tax liens on Hart’s residence, a piece of real property located at 4430 E. Sarah Loop, Athol, Idaho. (Compl., United States v. Hart, No. 11-513-EJL (D. Idaho filed Oct. 27, 2011).) The United States first scheduled Hart’s deposition in that case for May 31, 2012, but Hart filed a Chapter 13 bankruptcy petition on May 29. (Petition, In re Hart, No. 12-20648-TLM (Bankr. D. Idaho) (“In re Hart I”).) Hart stipulated that he was not eligible for Chapter 13 relief. (Stip. re: Dismissal or Conversion, In re Hart I (filed Aug. 9, 2012).) Hart then moved to dismiss the case. (Mot. Dismiss, In re Hart I (filed Aug. 15, 2012).) The United States rescheduled Hart’s deposition for October 30, 2012. He filed the Chapter 13 petition in this case on October 24.
Under 11 U.S.C. § 362(c)(3), if a debtor files a second bankruptcy petition within a twelve-month period, the automatic stay presumptively terminates 30 days after the filing of the petition. See § 362(c)(3)(A). In order to extend the stay, a movant must “demonstrat[e] that the filing of the later case is in good faith as to the creditors to be stayed.” § 362(c)(3)(B). If the second case is under Chapter 13, it is presumptively not filed in good faith if “there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case . . . or any other reason to conclude that the later case will be concluded” with a confirmed Chapter 13 plan. § 362(c)(3)(C)(i)(III), (III)(bb).
Despite being given notice of the omission, Hart has failed to file his bankruptcy schedules and Chapter 13 plan. (See Deficiency Notice of Additional Missing Documents (ECF No. 15).) That information is critical to permit the Court and creditors to evaluate his eligibility for Chapter 13 relief. See, e.g., In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001) (holding that Chapter 13 “eligibility should normally be determined by the debtor's originally filed schedules”). Without Hart’s schedules, it is not possible to determine whether Hart is now eligible for a Chapter 13 bankruptcy, despite stipulating three months ago that he was not. Furthermore, the information Hart has filed does not suggest that his eligibility will have changed.
First, Hart contends that the IRS’s claim “is an unliquidated, disputed amount.” (Hart Decl. ¶ 14 (ECF No. 25). He is wrong as a matter of law. As the Ninth Circuit has explained, a debt is “liquidated . . . if the amount of the debt is readily determinable.” In re Slack, 187 F.3d 1070, 1073 (9th Cir. 1999). In turn, “[w]hether the debt is subject to ‘ready determination’ will depend on whether the amount is easily calculable or whether an extensive hearing will be needed to determine the amount of the debt, or the liability of the debtor.” Id. at 1074. Therefore, “[e]ven if a debtor disputes the existence of liability, if the amount of the debt is calculable with certainty, then it is liquidated for the purposes of § 109(e).” Id. at 1074-75. See also, e.g., In re Mazzeo, 131 F.3d 295, 304-05 (2d Cir. 1997). The United States’ federal income tax claim is easily calculable with certainty. Assessments of tax, interest, and penalty have been made against Hart; interest and penalty accrue on unpaid tax liabilities as provided by statute. Indeed, the United States filed a precise claim against Hart in his previous bankruptcy for $564,091.54. (Am. Claim 3, In re Hart I (filed July 17, 2012).) Accordingly, the Court should treat the United States’ claim against Hart as liquidated.
Because the United States has a large noncontingent, unliquidated claim for federal income taxes against Hart, whether that claim is secured affects Hart’s eligibility for a Chapter 13 bankruptcy. A Chapter 13 debtor must have “noncontingent, liquidated, unsecured debts of less than $360,475.” 11 U.S.C. § 109(e). Hart stated in his previous bankruptcy that the United States had an unsecured claim of approximately $550,000. (Am. Sched. E, In re Hart I (filed June 12, 2012).) In the Declaration accompanying his Motion to extend the automatic stay, Hart refers to the United States’ claim as secured. (Hart Decl. ¶ 6 (ECF No. 25).) The United States believes its claim is secured by Hart’s residence, the real property nominally titled in the name of the Sarah Elizabeth Hart Trust. The United States contends that the property was fraudulently conveyed to the trust, that the trust is a sham, and that Hart is the real owner. Because Hart has not filed his schedules, it is not clear whether he is admitting that he actually owns the real property, and as a result, it is not clear whether he believes the United States’ claim should be treated as secured or unsecured.
Furthermore, until Hart files his schedules, it is impossible to tell the extent to which the United States’ claim is undersecured. The United States’ claim is secured only to the extent that Hart has property to which the United States’ federal tax liens can attach. See 11 U.S.C. § 506(a). According to the Kootenai County Assessor’s Office, Hart’s residence is worth $235,426. (See Assessor Information for 4430 E. Sarah Loop, Athol, ID, Ex. A to Decl. of Adam Strait Supp. U.S. Opp. Mot. Extend Automatic Stay.) In Hart’s previous bankruptcy, the United States filed a claim for $564,092. Therefore, even if Hart lists his residence as his own property, under § 506(a), the United States would have a secured claim for $235,426 and an unsecured claim for $328,666. Thus, the United States’ claim alone puts Hart near the eligibility threshold for unsecured debt, $360,475. 11 U.S.C. § 109(e). Indeed, his Schedule E in his previous bankruptcy listed an unsecured debt to the Idaho State Tax Commission of $42,000. (Am. Sch. E, In re Hart I (filed June 12, 2012).) That debt would push him over the limit for unsecured debt in a Chapter 13.
Finally, because Hart’s federal income tax liabilities far exceed the value of his residence, it is clear that Hart has no equity in the property and that the United States’ claim is undersecured. See 11 U.S.C. § 362(d)(2)(A). Accordingly, the Court should require Hart to show that the property is necessary to an effective reorganization before staying the United States’ suit in district court. Id. § 362(d)(2)(B); In re Bonner Mall P’ship, 2 F.3d 899, 902 (9th Cir. 1993) (noting that upon showing that a secured creditor’s claim is undersecured, burden shifts to debtor to show that property is necessary to reorganization). The Court should also require Hart to show that he has a reasonable possibility of confirming a Chapter 13 plan. See In re Bonner Mall P’ship, 2 F.3d at 902.
Hart’s failure to file his schedules appears calculated: an attempt to get the Court to extend the automatic stay without adequate information. Hart bears the burden of showing that this case was filed in good faith. Without disclosing the information required by his schedules, he cannot carry that burden. The Court should deny Hart’s motion to extend the automatic stay.
Respectfully submitted this 13th day of November, 2012.
[signed, Adam Strait]
ADAM D. STRAIT
Trial Attorney, Tax Division
U.S. Department of Justice.....
--At docket entry 37, In re Philip L. Hart, case no. 12-21220-TLM, U.S. Bankr. Court for the District of Idaho.