IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division. v. Case No FJS

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division Board of Directors of Bay Point Association and Bay Point Association, Movants, v. Case No FJS Gail Lee Schechter, Debtor. DEBTOR S BRIEF IN OPPOSITION TO BAY POINT ASSOCIATION BOARD OF DIRECTORS AND BAY POINT ASSOCIATION S MOTION FOR RELIEF FROM STAY Mark C. Leffler, Esq. Virginia bar number Attorney for Gail Lee Schechter Boleman Law Firm, P.C. 272 Bendix Road, Suite 130 Virginia Beach, Virginia Phone: Fax:

2 TABLE OF CONTENTS Page QUESTIONS PRESENTED.. 1 INTRODUCTION..1 I. FACTUAL BACKGROUND 3 II. ARGUMENT.5 A. Bay Point Association and its Board of Directors have not met their burden of proof that cause exists under 362(d) for the Court to modify the automatic stay..5 B. Post-petition condominium assessments are dischargeable under the 1328(a) superdischarge and are intended by Congress to be treated as a claim in the case..10 CONCLUSION 17 FEDERAL CASES TABLE OF AUTHORITIES Page Adams v. United States, 317 U.S. 269 (1942) 10 In re Brevard, 200 B.R. 836 (Bankr. E.D. Va. 1996).13 Butner v. United States, 440 U.S. 48 (1979)..16 In re Colon, 2011 WL (Bankr. D.Utah 2011)..13 Cook v. Montclair Property Owners Association, Inc. (In re Cook), 2010 WL (Bankr. E.D.Va. 2010).11, 13, 14 In re Curtis, 40 B.R. 795 (Bankr. D. Utah 1984)...Passim Food and Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)...16, 17 i

3 Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir. 1976) 7 Foley & Lardner v. Biondo (in re Biondo), 180 F.3d 126 (4 th Cir. 1999)...13 Gardner v. New Jersey, 329 U.S. 565 (1947)..8 Grogan v. Garner, 498 U.S. 279 (1991)...13 Hardenberg v. Commonwealth of Virginia, Department of Motor Vehicles (In re Hardenberg), 42 F.3d 986 (6 th Cir. 1994).12 In re Hawk, 314 B.R. 312 (Bankr. D.N.J. 2004)..11, 16 In re Heflin, 2010 WL (Bankr. E.D.Va. 2010).10, 11, 13 Johnson v. Home State Bank, 501 U.S. 78 (1991). 15 Kawaauhau v. Geiger, 523 U.S. 57 (1998)..17 In re Larkham, 31 B.R. 273 (Bankr. D. Vt. 1983).7 Lozada v. Old Bridge Estates Community Association, Inc., 176 F.3d 475 (4 th Cir. 1999) (per curiam)...10, 14, 15, 16 In re Mac Donald, 755 F.2d 715 (9th Cir. 1985) 6, 7 Nunnery v. Rountree (In re Rountree), 478 F.3d 215 (4 th Cir. 2007)...13 Old Bridge Estates Community Assn, Inc. v. Lozada, et al. (In re Lozada), 214 B.R. 558 (Bankr. E.D. Va. 1997).10, 14, 15 Pagels v. Pagels (In re Pagels), 2011 WL (Bankr. E.D. Va. 2011)..11, 12, 17 ii

4 In re Peterson, 116 B.R. 247 (D. Colo. 1990)..6 In re Property Technologies, Ltd., 263 B.R. 750 (Bankr. E.D. Va. 2001)..6 Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15 (2000)..16 Robbins v. Robbins (In re Robbins), 964 F.2d 342 (4th Cir. 1992) 6, 7, 9 River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4 th Cir. 1994).. Passim In re Rosteck, 899 F.2d 694 (7 th Cir. 1990)...15 In re Terry, 7 B.R. 880 (Bankr. E.D. Va. 1980)..5 United States Fidelity & Guaranty Co. v. Bray, 225 U.S. 205 (1915).9 STATUTES Bankruptcy Reform Act of U.S.C. 101(5) Passim 11 U.S.C. 101(5)(A).15, U.S.C. 362(a). 5, 6 11 U.S.C. 362(d)..5, 6 11 U.S.C. 362(d)(1)...6, U.S.C U.S.C U.S.C. 523(a)..12, U.S.C. 523(a)(5) 12 iii

5 11 U.S.C. 523(a)(15) U.S.C. 523(a)(16)..Passim 11 U.S.C U.S.C. 1328(a)..Passim 11 U.S.C. 1328(a)(2) 11, U.S.C. 1328(b) 11, 13 OTHER AUTHORITIES S. Rep. No , 95th Cong., 2d Sess. 52 (1978), 1978 U.S. Code Cong. & Admin. News, p Collier on Bankruptcy [1][c] (15th ed.1994).12 iv

6 QUESTIONS PRESENTED 1. Whether the Movants have proven that cause exists for the Court to grant relief from the automatic stay of 11 U.S.C. 362(a)? 2. Whether the post-petition condominium assessments asserted by the Movants are a dischargeable debts of the Debtor pursuant to 11 U.S.C. 1328(a)? INTRODUCTION Gail Lee Schechter ( the Debtor ) filed a voluntary petition for bankruptcy under Chapter 13 on May 5, See Stipulation of Facts 2. The Court has appointed Michael P. Cotter, Esquire ( the Trustee ) as the Standing Trustee in this case. See Stipulation of Facts 4. On May 7, 2010, the Debtor filed her Chapter 13 Plan ( the Plan ), which proposes to pay the Trustee $2, per month for the first three (3) months and then $ per month for the final 52 months of the 55-month term of the Plan, for total Plan funding of $21, See Stipulation of Facts 17. In pertinent part, the Plan provides for a mortgage purportedly held by BAC Home Loan Servicing, LP, ( Bank of America ) in the estimated claim amount of $310,383.79, and for a second mortgage purportedly held by BAC Home Loan Servicing, LP, in the estimated claim amount of $92, by surrendering the collateral securing such claims, a condominium located at 5321 Spy Glass Drive, Norfolk, Virginia ( the Real Property ). See Stipulation of Facts 13. Although Bay Point Association holds a declaration of condominium association to which the Real Property is subject, the Debtor did not originally list the Movants as creditors in her Schedules. See Stipulation of Facts 5. On October 21, 2010, the Debtor filed Amended Schedules to list the Movants as creditors in the estimated claim amount of $2, See Stipulation of Facts 6. The Debtor s Plan provides an estimated dividend of 41 percent to the class of general unsecured creditors of which the Bay Association Movants are a member. See Docket Entry Number 6, Chapter 13 Plan and Related Motions dated May 7, 2010, 4.a. 1

7 Bank of America did not object to confirmation of the Plan and has not entered any appearance in this bankruptcy with regard to the mortgages secured to the Real Property. The Court confirmed the Plan on July 9, Confirmation of the Plan terminated the automatic stay as to the Real Property and Bank of America s interest therein, but Bank of America has not moved to foreclose the deeds of trust it holds on the Real Property in the seventeen (17) months since confirmation of the Plan. See Stipulation of Facts 14. Finally, in October 2010, a fire substantially destroyed the condominium unit on the Real Property and it has not been repaired to any significant degree. See Stipulation of Facts 15. Debtor has not resided at the condominium unit since May See Docket Entry Number 11, Debtor(s) Change of Address dated May 27, On September 6, 2011, Movants filed a Motion for Relief from Automatic Stay ( the Motion ) in this Court pursuant to 11 U.S.C. 362(d), citing the Debtor s failure to make postpetition condominium association assessment payments and the disrepair to the condominium unit caused by the fire as the bases for the relief requested. On September 8, 2011, the Movants filed a Proof of Claim ( the Proof of Claim ) asserting an unsecured claim of $2, arising from delinquent assessments for the months June 2010 through October 2010 plus interest, late fees, costs, and attorney fees. See Stipulation of Facts 7. The Court designated the Proof of Claim as Claim 9-1 on the Claims Register of the case. On September 8, 2011, the Movants also filed a Motion for Leave to File a Late Proof of Claim ( the Motion for Leave ), citing a lack of notice and opportunity to file a timely claim. See Stipulation of Facts 7. On October 3, 2011, the Debtor filed a Response to the Motion for Relief from Automatic Stay, citing a lack of cause to grant the relief requested and affirmatively asserting the debt at issue is dischargeable under 11 U.S.C. 1328(a). On October 4, 2011, counsel appeared 2

8 at the Preliminary Hearing before this Court and the Court scheduled a Final Hearing on the Motion for November 22, 2011, to coincide with the date on which the Motion for Leave was scheduled for hearing. On November 8, 2011, Debtor filed a Memorandum of Points and Authorities, again arguing that the post-petition condominium assessments are dischargeable. On November 22, 2011, the parties appeared at the Final Hearing on the Motion as well as the hearing on the Motion for Leave. The Debtor and her counsel were present at the November 22, 2011, hearings. Counsel for the Movants appeared without any witnesses on behalf of the Movant. The Court granted the Motion for Leave in open court without objection by the Debtor or the Trustee and entered an Order approving the Motion for Leave on December 13, The Debtor, by counsel, reiterated her objection to the Motion for Relief from Automatic Stay, again pointing to the significance of the dischargeability of the post-petition assessments. The Court ordered the parties to enter into a Stipulation of Facts, which was filed with the Court on December 12, 2011, and to file Briefs within 21 days. I. FACTUAL BACKGROUND Ms. Schechter is retired, aged 67, and receives monthly income from the Social Security Administration of $2, plus $80.00 in alimony each month. See Stipulation of Facts 19. She has no other income. See Stipulation of Facts 19. Her monthly living expenses as shown on Schedule J Current Expenditures of Individual Debtor(s) have remained essentially unchanged since her case was filed. See Stipulation of Facts 20. She has $ in disposable income each month, which she pays the Trustee. The Debtor s original Schedule I Current Monthly Income of Individual Debtor(s) reflected certain disability income the Debtor was then receiving, but that income terminated three (3) months after the filing date. For this reason, the Chapter 13 Plan was structured to pay the Trustee $2, per month during the first three (3) 3

9 months of her case followed by a step down in payments to the Trustee to $ per month. She is current in her Plan payments to the Trustee and is presently due to complete her Plan payments in November See Stipulation of Facts 18. Although the Debtor carried relatively significant balances on her credit card accounts, as reflected on her original Schedule F Creditors Holding Unsecured Nonpriority Claims, the primary drivers of the bankruptcy case were the imminent loss of her disability income and the substantial decrease in the value of her two (2) parcels of real estate. She found herself unable to sell her two parcels of real estate despite marketing them with established local real estate brokers. With her loss of income, the Debtor could no longer service her debt, including her substantial mortgages. Following the bankruptcy filing, Debtor moved out of the Real Property to Richmond, Virginia, where she continues to live. See Docket Entry Number 11, Debtor(s) Change of Address dated May 27, She has made all of her Plan payments and has performed her Plan as confirmed, including abandoning all interest she has in the Real Property. She has not made any post-petition mortgage payments to Bank of America and has not paid the Movants any postpetition amounts for condominium assessments. See Stipulation of Facts 9. Despite the Debtor s non-payment of the mortgage and its relief from the automatic stay, Bank of America has not foreclosed on the deeds of trust. See Stipulation of Facts 14. The Debtor now finds herself in a circumstance outside of her control, being pursued by the Movants for post-petition assessments she cannot afford to pay that are attributable to a property for which she has received no benefit during the case. 4

10 II. ARGUMENT The automatic stay of 11 U.S.C. 362(a) should be enforced in this instance against the Movants to prevent the Movants from engaging in post-petition collections outside of bankruptcy. The Court is justified in denying the Motion for Relief from Stay both because Movants have failed to present evidence sufficient to meet their burden of proof that cause exists to modify the stay under 11 U.S.C. 362(d) and, further, because the post-petition condominium assessments owed to Movants are dischargeable debts pursuant to 11 U.S.C. 1328(a). A finding that the post-petition assessments are dischargeable would harmonize 101(5) together with 523(a)(16), and 1328(a) of the Bankruptcy Code so as to simultaneously provide the Debtor a fresh start and the Movants an equitable remedy by allowing them to share in the bankruptcy estate under the supervision of the Court. A. Bay Point Association and its Board of Directors have not met their burden of proof that cause exists under 362(d) for the Court to modify the automatic stay. The automatic stay is one of the fundamental debtor protections under the Bankruptcy Code. In re Curtis, 40 B.R. 795, 798 (Bankr. D. Utah 1984); In re Terry, 7 B.R. 880, 882 (Bankr. E.D. Va. 1980). Its primary purpose is to protect the debtor and its estate from creditors. S. Rep. No , 95th Cong., 2d Sess. 52 (1978), 1978 U.S. Code Cong. & Admin. News, p In pertinent part, 362(a) of the Bankruptcy Code, provides that the filing of a bankruptcy petition operates as a stay, applicable to all entities, of (1) the commencement or continuation,... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;... 5

11 (4) any act to create, perfect, or enforce any lien against proper of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title U.S.C. 362(a). The Movants Motion for Relief from the automatic stay is governed by section 362(d)(1) of the Bankruptcy Code, which provides that [o]n request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay (1) for cause U.S.C. 362(d). For motions brought pursuant to 362(d), the party seeking relief from the stay must first meet its burden by proving a prima facie case of why it is entitled to relief. In re Property Technologies, Ltd., 263 B.R. 750, 753 (Bankr. E.D. Va. 2001). The burden of proof then shifts to the party opposing relief to show why the movant is not entitled to relief, or why cause does not exist. Id. Unfortunately, Congress did not provide any definition in the Bankruptcy Code of what constitutes cause for granting relief from the stay. Therefore, bankruptcy courts, which are courts of equity, must determine when discretionary relief is appropriate on a case-by-case basis. Robbins v. Robbins (In re Robbins), 964 F.2d 342, 345 (4th Cir. 1992), citing In re Mac Donald, 755 F.2d 715, 717 (9th Cir. 1985). In doing so, the Court is duty-bound to balance the potential prejudice to the bankruptcy debtor s estate against the hardships that will be incurred by the person seeking relief from the automatic stay if relief is denied. Robbins, 964 F.2d at 345, citing In re Peterson, 116 B.R. 247, 249 (D. Colo. 1990). As Congress intended the automatic stay to have broad application, the stay should be lifted only in appropriate circumstances. Robbins at 345 (4th Cir. 1992). In the Fourth Circuit, 6

12 bankruptcy courts are to consider the following factors in determining whether cause exists to grant a party discretionary relief from the stay: (1) whether the issues in the pending litigation involve only state law, so the expertise of the bankruptcy court is unnecessary; (2) whether modifying the stay will promote judicial economy and whether there would be greater interference with the bankruptcy case if the stay were not lifted because matters would have to be litigated in bankruptcy court; and (3) whether the estate can be protected properly by a requirement that creditors seek enforcement of any judgment through the bankruptcy court. Id., citing Mac Donald, 755 F.2d at 717. The automatic stay is intended to prevent a chaotic and uncontrolled scramble for the debtor s assets in a variety of uncoordinated proceedings in different courts. Curtis at 798, quoting Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d Cir. 1976). The stay insures the debtor s affairs will be centralized, initially, in a single forum in order to prevent conflicting judgments from different courts in order to harmonize all of the creditors interests with one another. Curtis at 798. The automatic stay implements two goals. First, it prevents the diminution or dissipation of the assets of the debtor s estate during the pendency of the bankruptcy case. Id., citing In re Larkham, 31 B.R. 273, 276 (Bankr. D. Vt. 1983). Second, it enables the debtor to avoid the multiplicity of claims against the estate arising in different forums. Id. In this case, however, the prejudice to the Bay Point Movants is impossible to determine because they chose to present no evidence of what hardship, if any, that they were experiencing as a result of the automatic stay. Instead, they have simply pointed out their entitlement to assess the monthly amounts and the non-payment of the same by the Debtor, but they have presented no testimony or stipulations of fact from which the Court can ascertain the impact of the Debtor s 7

13 non-payment of the assessments on the Movants. Further, the Movants have not provided the Court with any evidence regarding the damage caused by the October 2010 fire, the impact of the damaged unit on the association, or how relief from the automatic stay would benefit the association in this regard. In short, the Movants have failed to move the needle and have failed to shift the burden of proof to the Debtor. However, the Debtor s evidence is that she is on a fixed income and is already devoting her disposable income to the payment of the Trustee. See Stipulation of Facts 19, 20. Any reduction in her disposable income from the Movants direct collection of the post-petition assessments will necessarily reduce or perhaps eliminate the funds available to the bankruptcy estate. Therefore, the prejudice to the Debtor and the estate from granting relief from the stay significantly outweighs any potential hardship to the Bay Point Movants if relief were instead denied. In applying the three-part test described supra, the Court should consider first that the cause of action and amounts owed to the Movants for post-petition condominium association assessments are easy to ascertain in amount. Further, as explained infra, the balance owed, though assessed post-petition, is a claim as defined by 101(5) of the Bankruptcy Code and the proper treatment of the claim is determined strictly by reference to bankruptcy law and, specifically, by reading 523(a)(16) together with 1328(a). Second, the Court must consider whether modifying the stay to allow these claims to be pursued outside of the Bankruptcy Court would promote judicial economy. The process of determining the allowance of claims is of basic importance to the administration of a bankruptcy estate, and this Court is in a perfect position to determine the appropriate amounts owed and to fashion an appropriate remedy for the Movants. See Curtis, 40 B.R. at , citing Gardner v. New Jersey, 329 U.S. 565, (1947) ( A bankruptcy court in which an estate is being 8

14 administered has full power to inquire into the validity of any alleged debt or obligation of the bankruptcy upon which a claim or demand against the estate is based. This is essential to the performance of the duties imposed upon it. ); United States Fidelity & Guaranty Co. v. Bray, 225 U.S. 205, 217 (1915) ( [T]he jurisdiction of the bankruptcy courts in all proceedings in bankruptcy is intended to be exclusive of all other courts, and that such proceedings include, among others, all matters of administration, such as the allowance, rejection and reconsideration of claims.... ). The Bankruptcy Code and Rules implement a speedy, efficient and economical method for the determination and allowance of claims. Curtis at 801. The debt owed to the Bay Point Movants can easily be ascertained by the Court, even for amounts that will accrue throughout the rest of the case. However, if the Movants are allowed to collect these amounts directly from the Debtor, it will be disruptive to the Debtor s disposable income and, therefore, the bankruptcy estate. The Debtor is already on a fixed income, and her monthly expenses are known to the Court, leaving only $ per month in disposable income for payment to the Trustee. See Stipulation of Facts 19, 20. If the Movants are allowed to collect against her, she will necessarily be forced to divert financial resources from her bankruptcy estate. Finally, the Court must consider whether the estate can be protected properly by a requirement that creditors seek enforcement of any judgment through the bankruptcy court. Robbins at 345. In this instance, the Court could fashion some sort of limited relief that forbade the Movants from garnishing funds from the Debtor. However, the Movants have not presented any evidence regarding this factor nor made any such request of the Court. Based on these considerations, the Court should find that the prejudice caused to the Debtor and the bankruptcy estate significantly outweighs the potential hardship to the Bay 9

15 Association Movants should relief be denied. The party seeking relief from the automatic stay must, in the first instance, establish a legally sufficient basis, i.e., cause, for such relief. See 11 U.S.C. 362(d)(1). Certainly movants are best able to present evidence of cause. Curtis at 803, n.10, citing Adams v. United States, 317 U.S. 269, 281 (1942) ( [I]t is not asking too much that the burden of showing essential unfairness be sustained by him who claims such an injustice and seeks to have the result set aside, and that it be sustained not as a matter of speculation but as a demonstrable reality. ). The Bay Association Movants have failed to carry that burden. B. Post-petition condominium assessments are dischargeable under the 1328(a) super-discharge and are intended by Congress to be treated as a claim in the case. The Movants will likely argue that, in 1994, the Fourth Circuit Court of Appeals held that post-petition assessments are not even claims and, therefore, that the assessments at issue are not dischargeable even under Chapter 13. See River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4 th Cir. 1994). However, this position ignores the fact that Rosenfeld has long since been superseded by statute, as the Fourth Circuit itself acknowledged in Lozada v. Old Bridge Estates Community Association, Inc., 176 F.3d 475 (4 th Cir. 1999) (per curiam). Shortly after Rosenfeld, Congress established a statutory framework in 523(a)(16), first enacted in 1994 and later amended in 2005, for dealing with post-petition assessments such as these. Old Bridge Estates Community Assn, Inc. v. Lozada, et al. (In re Lozada), 214 B.R. 558, 561 (Bankr. E.D. Va. 1997), aff d, Lozada v. Old Bridge Estates Community Association, Inc., 176 F.3d 475 (4 th Cir. 1999) (per curiam). Since then, numerous courts, including the Bankruptcy Court of the Eastern District of Virginia, have recognized that post-petition assessments of the type the Movants are asserting herein are dischargeable under the superdischarge provided by 1328(a) of the Bankruptcy Code. See, e.g., In re Heflin, 2010 WL 10

16 at *1 (Bankr. E.D.Va. 2010); Cook v. Montclair Property Owners Association, Inc. (In re Cook), 2010 WL at *2 (Bankr. E.D.Va. 2010); In re Hawk, 314 B.R. 312, (Bankr. D.N.J. 2004). In its current form, 523(a)(16) limits the dischargeability of post-petition association assessments as follows: (a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt- * * * (16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case[.] 11 U.S.C. 523(a)(16). Likewise 1328(a) establishes the scope of the discharge granted under the full payment Chapter 13 discharge which the Debtor is seeking. 11 U.S.C. 1328(a). In pertinent part, the full payment Chapter 13 discharge provides the debtor with a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt -... (2) of the kind specified in... paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a). 11 U.S.C. 1328(a)(2). Notably absent from the list of exceptions to the discharge under 1328(a) is paragraph (16) of section 523(a), post-petition association assessments. The broad nature of the full payment Chapter 13 discharge often leads courts to refer to the 1328(a) discharge as the super-discharge, as contrasted with the narrower discharge available under Chapter 7 or under 1328(b). See, e.g., Pagels v. Pagels (In re Pagels), 2011 WL 11

17 at *6 (Bankr. E.D. Va. 2011). Although Congress narrowed the super-discharge in 2005, the policy behind it remains the same: [T]he dischargeability of debts in chapter 13 that are not dischargeable in chapter 7 represents a policy judgment that [it] is preferable for debtors to attempt to pay such debts to the best of their abilities over three years [through Chapter 13] rather than for those debtors to have those debts hanging over their heads indefinitely, perhaps for the rest of their lives. Hardenberg v. Commonwealth of Virginia, Department of Motor Vehicles (In re Hardenberg), 42 F.3d 986, 992 (6 th Cir. 1994), quoting 5 Collier on Bankruptcy [1][c] (15th ed.1994). Judge St. John of this Court recently explained the effect of the superdischarge on debts described in 523(a)(15), which are not dischargeable in Chapter 7: The superdischarge of 1328(a) provides that a Chapter 13 debtor after successful completion of all plan payments and upon certification that the debtor is current on all domestic support obligations, if any shall receive a discharge of all debts provided in the plan or disallowed under 502, except the debtor shall not receive a discharge of debts expressly enumerated therein. The superdischarge of 1328(a) includes debts of a type described by 523(a)(15), as 523(a)(15) is not enumerated in that section's exclusive list of exceptions from discharge. Section 523(a)(5) debts, on the other hand, are nondischargeable under 1328(a). Pagels, 2011 WL at *6 (internal citations and footnotes omitted). The mechanics of the statute are such that, unless 1328(a) cites a particular paragraph in 523(a) as being excluded from the superdischarge, the debts described in 523(a) are dischargeable under the superdischarge. See Id. By failing to explicitly except 523(a)(15) debts from the scope of the 1328(a) discharge, Congress has provided debtors a means for discharging such debts through Chapter 13. Pagels at *6. In the same manner, the Court should now find that, by failing to except 523(a)(16) debts from the scope of the 1328(a) discharge, Congress has provided Chapter 13 debtors a means of discharging post-petition association assessments. Strong bankruptcy policies 12

18 favoring the debtor s fresh start compel such an interpretation. See Grogan v. Garner, 498 U.S. 279, (1991). Where an exception to discharge is alleged and argued, such exceptions must be construe[d]... narrowly to protect the purpose of providing the debtors a fresh start. Nunnery v. Rountree (In re Rountree), 478 F.3d 215, 219 (4 th Cir. 2007), quoting Foley & Lardner v. Biondo (in re Biondo), 180 F.3d 126, 130 (4 th Cir. 1999). See also In re Brevard, 200 B.R. 836, 842 (Bankr. E.D. Va. 1996). The Bankruptcy Court from the District of Utah recently had occasion to explain how 523(a)(16) interacts with the superdischarge provision of 1328(a) to provide for the discharge of post-petition association assessments in Chapter 13: The next issue is whether Hidden Valley's postpetition HOA assessments are excepted from the discharge under 1328(a) by 523(a)(16). The discharge available under 1328(a) lists exceptions to discharge and even lists several sections of 523 but not 523(a)(16). In addition, according to the plain language of 523(a), 523 does not apply to discharges granted under 1328(a). In contrast, the discharge available under 1328(b) is subject to all of the subsections of 523, so HOA assessments that become due postpetition are not dischargeable if the discharge obtained is under 1328(b). In re Colon, 2011 WL at *3 (Bankr. D.Utah 2011). Likewise, now-retired Judge Stephen S. Mitchell of the Eastern District of Virginia has written two opinions in which he specifically acknowledges the dischargeability of post-petition association assessment under 1328(a). However, 523(a)(16) does not apply in chapter 13 except in the rare instances when a debtor who is unable to complete payments under a plan is granted a socalled hardship discharge under 1328(b), Bankruptcy Code. By contrast, a chapter 13 discharge that is granted upon completion of plan payments is significantly broader than the discharge granted an individual debtor under chapter 7, 11 or 12 and does not exclude post-petition home owner association dues. See 1328(a)(2), Bankruptcy Code (listing those paragraphs of 523(a) that apply to a chapter 13 discharge). Heflin, 2010 WL at *1 (internal citations retained). See also In re Cook, 2010 WL 13

19 at *2 ( the 523(a)(16) exception to discharge does not apply in chapter 13 ). The Bay Association Movants will likely argue that the Fourth Circuit s 1994 decision in Rosenfeld is the law in this circuit on this subject. Rosenfeld was a Chapter 7 case decided before the Bankruptcy Reform Act of 1994, in which Congress enacted the original version of 523(a)(16). In re Lozada, 214 B.R. at 561, aff d, Lozada v. Old Bridge Estates Community Association, Inc., 176 F.3d 475 (4 th Cir. 1999) (per curiam). In Rosenfeld, the Court of Appeals examined whether the post-petition cooperative association dues were a claim under 101(5) of the Bankruptcy Code that was discharged under 727. Rosenfeld at 836. In the absence of any Bankruptcy Code provision detailing the treatment of such debts under federal bankruptcy law, the Fourth Circuit looked to state law and held that the association s right to payment did not arise pre-petition; rather, it arose post-petition as a result of the debtor s continued ownership of the shares in the association. Id. at 838. As such, it was not a claim subject to discharge. Id. It may be unnecessary for the Court to consider this argument because the Movants filed a claim for post-petition assessments in this case. See Stipulation of Facts 7. Indeed, it would be difficult for the Movants to make the argument that it does not hold a claim given their prior actions in filing a Proof of Claim for $2, for the post-petition assessments that accrued from June through October See Stipulation of Facts 7. In fact, this procedure is exactly the remedy the Debtor would suggest is the appropriate means for treating the Movants postpetition assessments. However, should the Court wish to explore the continued vitality of Rosenfeld, it should find Rosenfeld to have been superseded by statute and, therefore, inapplicable. Writing in 1997, Judge Mitchell explained that 523(a)(16) was enacted because Congress desired to correct the split on this issue between the Fourth and Seventh Circuits: The 14

20 amendment was intended to strike an equitable balance between courts that held that all postpetition assessments are discharged as having arisen, albeit in a contingent and unmatured state, pre-petition, with other courts finding that such post-petition assessments are not discharged because the association s right to payment did not arise until post-petition. Lozada, 214 B.R. at 561, citing In re Rosteck, 899 F.2d 694 (7 th Cir. 1990) (post-petition assessments arose prepetition and were discharged) and Rosenfeld (assessments arose from the continued post-petition ownership of the property rather than from the pre-petition contract and were not discharged). On appeal, the Fourth Circuit Court of Appeals itself stated in Lozada that it no longer recognized Rosenfeld as good law on the subject of post-petition condominium association assessments: Rosenfeld was superseded as it applied to condominium and cooperative housing association fees [by the recently enacted 523(a)(16)]. Lozada, 176 F.3d 475 (4 th Cir. 1999) (per curiam). The Bankruptcy Code defines claim under 101(5)(A) as a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured[.] 11 U.S.C. 101(5)(A). The U.S. Supreme Court explained that Congress intended by this language to adopt the broadest available definition of claim. Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). However, in the absence of any bankruptcy provision specifically referencing postpetition association assessments, the Rosenfeld court saw no indication in federal law as to when that right to payment arose. Rosenfeld at 836. Prior to the enactment of 523(a)(16), it was appropriate for the Fourth Circuit to look to state law to determine whether post-petition cooperative association assessments were claims subject to discharge, because there was no clear federal framework asserting a contrary policy. 15

21 The basic federal rule in bankruptcy is that state law governs the substance of claims, Congress having generally left the determination of property rights in the assets of a bankrupt's estate to state law. Accordingly, when the Bankruptcy Code uses the word claim - which the Code itself defines as a right to payment, 11 U.S.C. 101(5)(A) - it is usually referring to a right to payment recognized under state law. As we stated in Butner, [p]roperty interests are created and defined by state law, and [u]nless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15, 20 (2000), quoting Butner v. United States, 440 U.S. 48, 55 and 57 (1979). At the time Rosenfeld was decided, there was no 523(a)(16) and, therefore, no federal interest had been expressed that require[d] a different result. Butner at 55. That is no longer the case. After Congress enactment of 523(a)(16), which defined the treatment of certain post-petition association assessments under federal bankruptcy law, it was appropriate for the Fourth Circuit in Lozada to describe Rosenfeld as superseded. Lozada, 176 F.3d at 475. The Bankruptcy Code s various sections - 101(5), 523(a)(16), and 1328(a) now work together to form a framework under federal law for the treatment of postpetition association assessments. There is now a clear federal interest in bringing these types of debts firmly within the confines of the Bankruptcy Code, and especially within the scope of the superdischarge of 1328(a) favored by Congress. Butner at 55. The addition of 523(a)(16) requires a different result, Id., for, [b]y defining the parameters of when post-petition fees and assessments can and cannot be discharged, Congress was implicitly stating that these future assessments are claims. If they were not claims, they would not be subject to discharge. In re Hawk, 314 B.R. at (Bankr. D.N.J. 2004). Courts are instructed that the Bankruptcy Code must be read as a whole. Food and 16

22 Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000). Further, courts should not adopt interpretations of the Bankruptcy Code that render certain other provisions superfluous or without application. Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998). With the addition of 523(a)(16), the Court cannot abide by these principles of statutory construction and simultaneously apply Rosenfeld to this case. To do otherwise would render the construction of the 1328(a) superdischarge, as described by Judge St. John in Pagels, meaningless in its application to 523(a)(16) debts and would unjustifiably expand an exception to discharge rather than reading it narrowly. Pagels at *6. CONCLUSION The plummeting real estate market has left few winners and many unfortunate losers. Among those losing out is the Debtor, who was unable to sell her properties and forced to file bankruptcy. Another loser in this case is likely to be the condominium association which, although it presented no evidence of any prejudice, has not been paid for the post-petition condominium assessments. Notably absent from the scene in this case is the lienholder, Bank of America, which has relief from the automatic stay but has chosen not to foreclose and which apparently has insurance coverage but has chosen not to place a claim for the damage caused by the October 2010 fire. While the Debtor has sympathy for the Movants in that they have not been compensated for post-petition association assessments, the Debtor believes the Movants have not fully availed themselves of their opportunity to file claims in this Court for post-petition assessments. As such, the Debtor asks the Court to deny the Motion for Relief from Stay. The Movants failed to meet their burden of proof by presenting no evidence regarding the prejudice, if any, caused by the 17

23 automatic stay. Although the Debtor is left to speculate how the Movants wish to collect outside of bankruptcy, it has been inferred that they wish to seek a state court judgment and presumably execute on it by means of levy or garnishment. If the Movants are allowed to do so, it would greatly prejudice the Debtor, who is already submitting her disposable income to the Trustee. Likewise, it would deprive the bankruptcy estate of the Debtor s payments. Finally, the Movants have a claim that has already been approved by the Court and have sufficient remedies under the Bankruptcy Code. If the Court granted relief from the stay, it would allow the Movants to execute on their fully dischargeable debt to the detriment of the debtor s interest in a fresh start. This would be plainly contrary to Congress intent in creating the framework for treatment of such claims and its intent to provide Debtors who repay their debts through Chapter 13 with the means to discharge post-petition condominium assessments. For the foregoing reasons, the Debtor respectfully requests that the Court deny the Motion for Relief from the Automatic Stay. Respectfully Submitted, GAIL LEE SCHECTER By Counsel /s/ Mark C. Leffler Mark C. Leffler (VSB #40712) Boleman Law Firm, P.C. 272 Bendix Road. Suite 130 Virginia Beach, VA Phone Fax

24 CERTIFICATE OF SERVICE I hereby certify that on December 13, 2011, I transmitted the foregoing document electronically through the Court s CM/ECF system or by mail to the Debtor, Chapter 13 trustee, the United States trustee if other than by the electronic means provided for at Local Bankruptcy Rule , and to counsel for the movants via first class mail, postage prepaid to the following: Leilani A. Adams, Esquire Rodney D. Malouf, Esquire Thomas & Associates, P.C S. Plaza Trail, Suite 128 Virginia Beach, VA /s/ Mark C. Leffler Counsel for Debtor 19