Source: https://law.justia.com/cases/federal/appellate-courts/F3/55/231/578917/
Timestamp: 2019-08-21 00:43:28
Document Index: 258074997

Matched Legal Cases: ['§ 109', '§ 109', '§ 109', '§ 101', '§ 101', '§ 158']

33 Collier Bankr.cas.2d 825, Bankr. L. Rep. P 76,493in the Matter of Frank E. Knight, Debtor-appellant, 55 F.3d 231 (7th Cir. 1995) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Seventh Circuit › 1995 › 33 Collier Bankr.cas.2d 825, Bankr. L. Rep. P 76,493in the Matter of Frank E. Knight, Debtor-appella...
33 Collier Bankr.cas.2d 825, Bankr. L. Rep. P 76,493in the Matter of Frank E. Knight, Debtor-appellant, 55 F.3d 231 (7th Cir. 1995)
US Court of Appeals for the Seventh Circuit - 55 F.3d 231 (7th Cir. 1995)
Argued Nov. 8, 1994. Decided May 3, 1995
The case before us concerns the eligibility of a person filing a bankruptcy petition for relief under chapter 13 of the Bankruptcy Code. An individual may qualify as a chapter 13 debtor only if he has regular income, his noncontingent and liquidated unsecured debts do not exceed $100,000, and his noncontingent and liquidated secured debts do not exceed $350,000. See 11 U.S.C. § 109(e). In this case, the bankruptcy court concluded that Frank E. Knight was not entitled to chapter 13 relief because he had more than $100,000 in unsecured debt. Mr. Knight appeals the district court's affirmance of the bankruptcy court's dismissal of his chapter 13 petition. Our review confirms that Mr. Knight's unsecured debts exceed the statutory limitation under chapter 13. We therefore affirm the district court's decision.1
After filing its proof of claim in Mr. Knight's bankruptcy proceedings, the State filed a motion to dismiss his bankruptcy petition or to convert it to a chapter 7, on the ground that his unsecured debt exceeded the allowable amount under 11 U.S.C. § 109(e). Mr. Knight conceded then, as he does before us on appeal, that the $17,449.50 amount attributable to excessive fines, alternative sentencing and contributions was based on claims in existence and enforceable at the time he filed his bankruptcy petition. However, he contested, and continues to contest, the SBA's $91,500 "penalty debt" for failure to report the 915 convictions. He submits that the claim is contingent and unliquidated because no action was brought against him by the Attorney General to recover the penalty, and therefore no civil judgment has established a duty on his part to pay that debt.
On March 4, 1994, the district court affirmed the decision of the bankruptcy court. It approved the court's application of the standards set out in In re McGovern, 122 B.R. 712 (Bankr.N.D. Ind. 1989), for analyzing Sec. 109(e) eligibility, because they "are the standards applied by the majority of courts that have addressed the issues of liquidated and noncontingent debt." Id. at 5. Accordingly, the district court then upheld the dismissal of Mr. Knight's chapter 13 petition. Mr. Knight has appealed that ruling.
On appeal Mr. Knight submits that the $91,500 penalty debt claimed by the SBA is a disputed debt, and also that the debt, if there is one, is contingent and unliquidated. Under his analysis of the SBA's claim, therefore, he meets the eligibility requirements of a chapter 13 debtor found in 11 U.S.C. § 109(e):
Section 109(e) does not mention "disputed" debts, and neither the Bankruptcy Code nor the legislative history defines "contingent" and "liquidated." 1 William I. Norton, Jr., Bankruptcy Law & Practice Sec. 18:12 (2d ed. 1994). In our consideration of each of Mr. Knight's submissions, therefore, we review de novo the conclusions of law of the bankruptcy court, later affirmed by the district court. In re C & S Grain Co., 47 F.3d 233, 236 (7th Cir. 1995); In re Love, 957 F.2d 1350, 1354 (7th Cir. 1992).
Mr. Knight first disputes altogether that he owes a "debt" to the State of Indiana. He contends that a "debt," defined in the Bankruptcy Code at 11 U.S.C. § 101(12) as a "liability on a claim," is narrower than a "claim"; it is, instead, the obligation to pay under applicable law. Mr. Knight then asserts that he is under no obligation to pay the State. Because, under Mr. Knight's plea agreement, the State prosecutor agreed to forego any additional charges, Mr. Knight contends that he is no longer liable to the State. According to Mr. Knight, therefore, the first question before the court is whether this disputed claim properly can be included in calculating Sec. 109(e) unsecured debt limitations.
S.Rep. No. 989, 95th Cong., 2d Sess. 23, reprinted in 1978 U.S.C.C.A.N. 5787, 5809; H.R.Rep. No. 595, 95th Cong., 2d Sess. 310, reprinted in 1978 U.S.C.C.A.N. 5963, 6267. The same breadth of definition is found in the Code's definition of a "claim": a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, ... disputed, undisputed,...." 11 U.S.C. § 101(5) (A) (emphasis added). Thus the Code expressly recognizes that a disputed claim is nevertheless a claim. " [B]y defining a debt as a 'liability on a claim,' Congress gave debt the same broad meaning it gave claim." In re Rosteck, 899 F.2d 694, 696 (7th Cir. 1990) (quoting In re Energy Co-op, Inc., 832 F.2d 997, 1001 (7th Cir. 1987)).
S.Rep. No. 595, 95th Cong., 2d Sess. 22, reprinted in 1978 U.S.C.C.A.N. 5787, 5808; H.R.Rep. No. 95-595, 95th Cong., 2d Sess. 309, reprinted in 1978 U.S.C.C.A.N. 5963, 6266. In light of the virtual synonymy of "debt" and "claim," therefore, we conclude that a disputed claim is a debt to be included when calculating the Sec. 109(e) requirements. See Norton, Bankruptcy Law & Practice Sec. 18:12 at 18-43 ("Most courts have concluded ... that disputed debts are included in the calculation of the amount of debt of eligibility purposes.");3 cf. Energy Co-op, 832 F.2d at 1001 (" [W]hen a creditor has a claim against a debtor--even if the claim is unliquidated, unfixed, or contingent--the debtor has incurred a debt to the creditor.").
Mr. Knight's second claim is that the $915,000 penalty debt is unliquidated because it is not capable of ready determination: It is uncertain whether he is actually liable to the State, or what the amount of liability might be, because no judgment was rendered against him before he filed his chapter 13 petition. Mr. Knight supports his position by relying on In re Hughes, 98 B.R. 784 (Bankr.S.D. Ohio 1989). In that case the debtor had been charged with violating a state law prohibiting the rolling back of odometers of cars offered for sale. The bankruptcy court held that the debtor's debt to the State was unliquidated because the amount of damages could not be determined at the time of filing bankruptcy. In the same way, Mr. Knight submits, his own liability is unliquidated and thus is not properly includable in the Sec. 109(e) debt analysis.
For two reasons we do not accept Mr. Knight's assertion that the State's claim is unliquidated. To the extent that this argument is simply a variation of his first contention that the claim is disputed, it has no merit. The fact that Mr. Knight contests this claim does not remove it as a claim under Sec. 109(e) or render it unliquidated. In re Jordan, 166 B.R. 201, 202 (Bankr.D. Me. 1994) (" [T]he vast majority of courts have held that the existence of a dispute over either the underlying liability or the amount of a debt does not automatically render the debt either contingent or unliquidated."). More fundamentally, the cases uniformly provide the method for determining whether a debt is liquidated: "If the amount of a claim has been ascertained or can readily be calculated, it is liquidated--whether contested or not." Norton, supra, Sec. 18:12 at 18-48. See In re Fostvedt, 823 F.2d 305, 306 (9th Cir. 1987) (" [T]he question whether a debt is liquidated turns on whether it is subject to 'ready determination and precision in computation of the amount due.' ") (citations omitted).4
Mr. Knight next submits that the State claim against him is a "contingent" debt, one that depends on a future event that may not even occur, to fix either its existence or its amount. In his view, a debt becomes noncontingent only when a triggering event (such as the entry of final judgment) occurs to make the claim immediately due. We cannot accept this argument. Mr. Knight's legal duty to pay and the amount of payment due were established by statute, and were easily calculable. The bankruptcy court correctly grounded its decision in the determination that a debt was noncontingent as long as all the events that gave rise to the debtor's liability had occurred prior to the filing of the bankruptcy petition. The bankruptcy court relied on In re McGovern, 122 B.R. 712 (Bankr.N.D. Ind. 1989). In that case, McGovern was the executive director of the Counsel on Aging. The SBA field examiners had determined, after an audit, that McGovern had misappropriated more than $150,000 in public funds. Litigation against him had been initiated, but judgment had not been entered prior to McGovern's filing of a chapter 13 bankruptcy petition. The bankruptcy court determined that, as of the date of the bankruptcy filing, the misappropriation debt was both liquidated (because it could "be readily ascertained either by reference to an agreement or through simple mathematics," 122 B.R. at 715), and noncontingent (because "all of the allegations upon which the fact of liability is based relate to events that have already occurred," id. at 716).
Id. at 715 (quoting In re Longhorn 1979-II Drilling Program, 32 B.R. 923, 927 (Bankr.W.D. Okla. 1983)).
This court has jurisdiction over final decisions entered by district courts reviewing final bankruptcy court orders. 28 U.S.C. § 158(d); In re Gould, 977 F.2d 1038, 1040 (7th Cir. 1992)
Excessive fines for traffic violations $ 16,118.00 Alternative sentencing 718.50 Contributions to Senior Citizens Center 613.50 ---------- SUBTOTAL $ 17,449.50 Failure to report convictions to BMV 91,500.00 ---------- TOTAL $ 108,949.50
Mr. Knight relies on In re Lambert, 43 B.R. 913 (Bankr.D. Utah 1984), which opines that "a debt whose liability or amount is disputed ... should not be included in the eligibility calculation." Id. at 915. We note that the Norton treatise identifies Lambert as the decision that does not follow the vast majority of holdings that include disputed debts in the Sec. 109(e) calculus. See Norton, supra, Sec. 18:12 at 18-43 n. 91. Our court, which has held that "debt" and "claim" are equivalents, In re Energy Co-op, 832 F.2d at 1001, is firmly with the majority. Cf. In re Pulliam, 90 B.R. 241, 244-46 (Bankr.N.D. Tex. 1988) (analyzing Lambert 's erroneous definitions of "claim" and "debt")
The case law fully supports this method of determining whether a debt is liquidated. See, e.g., McGovern, 122 B.R. at 717 (holding debtor's obligation to creditor, though disputed, was liquidated because amount of liability was readily discernible by reference to an agreement or through simple mathematics); In re Pulliam, 90 B.R. 241, 244-46 (Bankr.N.D. Tex. 1988) (finding claims liquidated because they were ascertainable from guaranty contracts and promissory notes); In re Albano, 55 B.R. 363, 368 (N.D. Ill. 1985) (holding that liquidation refers to the money value of a claim); In re Williams, 51 B.R. 249, 251 (Bankr.S.D. Ind. 1984) (concluding that noncontingent and liquidated claim "should not be excluded from Sec. 109(e) calculations merely because it is disputed")