Morrone filed Chapter 13, without his spouse, listing as his main asset the marital residence, valued at $400,000 and owned as Tenants by the Entireties. Liens against this property consisted of first and second mortgages totaling $317,434.32, leaving $82,565.68 in equity in the property.
Additionally, John Brettell had judgment lien for a non-consumer debt against both the Morronne and his spouse for $57,000.
Morrone’s Chapter 13 plan, which was confirmed without objection, provided that he would, after his claimed $35,000 homestead exemption, avoid the judgment lien held by Brettell to the extent it impaired the debtor’s exemption, with the remaining $7500 being paid in full. (The arithmetic would seem to be 50% of $82,565.68, or $41,282.84 minus $35,000 exemption or $6,282.84, apparently adjusted upwards to $7,500.00.)
Brettell brought a motion for relief from the automatic and co-debtor stays. As the debt was agreed by all parties to be a non-consumer debt, the co-debtor stay was terminated. Brettell argued that confirmation of the plan exceeded the jurisdiction of bankruptcy court by limiting his in rem relief as to the spouse’s interest in the property, but the court held that the plan only sought to avoid and pay the claim of the Morronne’s interest in the property. This appears to be in line with In re Sisk, 2011 WL 6153277 (Bankr. W.D.N.C. 2011), but in conflict with In re Sorrow, 2012 WL 4608713 (Bankr. M.D.N.C. 2012). The court distinguished this holding first from Alvarez v. HSBC, 733 F.3d 136 (4th Cir. 2013), as Morrone was not seeking to have the court exert jurisdiction regarding his spouse’s interest in the property, and then also Phillips v. Krakower, 46 F.2d 764 (4th Cir. 1931) as Brettell already had a valid and perfected lien against both parties prior to the filing of bankruptcy by Morronne.
Lastly, the bankruptcy court held that because the plan had been confirmed, that relief from the stay would not granted absent a showing by a creditor merely by showing either that pre-confirmation events or reasons would have justified relief from the stay or that the creditor could have defeated confirmation. Instead, a secured creditor must generally show a default under the plan.
As the Debtor owns the property as Tenants by the Entirety, he is a 100% owner of the entire property and all of the equity. As he is presumably jointly and severally liable for the debt to Brettell, it would seem that instead of having equity to only 50% of the property, his equity as to Brettell is for the full $82,565.68. And while he could still claim his homestead exemption of $35,000, that would leave $47,565.68 to be paid as a secured claim.
On the other hand, while all parties agreed that this was a non-consumer debt, the bankruptcy court perhaps too quickly granted relief from the stay for Brettell to proceed against the non-filing spouse. While 11 U.S.C. § 1301 does provide for a co-debtor stay for consumer debts, that permission does not per se mean that a plan cannot, as is frequently done in Chapter 11 cases, provide for a stay as to non-consumer debts.
For a copy of the opinion, please see: