5 ABR 137

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re:	)
	)
FRANK RUDOLPH PLUID,	)	Case No. A97-00848-DMD
	)	Chapter 13
Debtor.	)
____________________________	)

ORDER CONDITIONALLY GRANTING MOTION TO DISMISS,
DEFERRING RULING ON MOTION TO AVOID LIEN, ALLOWING
SECURED CLAIMS, DENYING MOTION FOR RELIEF FROM STAY,
AND GRANTING MOTION FOR SANCTIONS, IN PART

The following motions came before the court for hearing on November 13, 1997 and November 25, 1997:

Gary Sleeper appeared on behalf of the debtor. Tom Yerbich appeared on behalf of Bonnie Knudsen and Susan Richmond. Yale Metzger appeared on behalf of Bonnie Knudsen, Susan Richmond and Alaska Diversified Electric. After hearing the arguments of counsel, and reviewing their briefs, IT IS ORDERED:

5 ABR 138

1. Knudsen and Richmond's motion to dismiss or convert will be granted and an order dismissing this case will be entered on December 12, 1997, unless the debtor withdraws his motion to avoid lien, with prejudice, on or before that date. If the debtor does not withdraw his motion to avoid lien, it will also be granted concurrently with dismissal of this case.

2. The secured claim of Susan Richmond is allowed in the sum of $35,046.00 and the secured claim of Bonnie Knudsen is allowed in the sum of $124,166.11, subject to the provisions of paragraph 1 above;

3. Richmond's motion to excuse compliance with 11 U.S.C. ї 543(b) is denied as moot;

4. Richmond's motion for relief from stay is denied; and

5. The debtor's request for sanctions is granted and the debtor is awarded reasonable attorney's fees and costs for violations of the automatic stay by Metzger and Richmond. The debtor's counsel shall submit an itemized statement detailing all attorney's fees and costs incurred in connection with the bringing of the motion for sanctions and the related adversary proceeding no later than DECEMBER 19, 1997. Objections to the fees should be filed by DECEMBER 30, 1997, and at that time the matter will be deemed submitted without further notice or hearing.

Analysis

11 U.S.C. ї 109(e) provides:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, 5 ABR 139 liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.

There are different views regarding the measurement of debt in Chapter 13 cases. The first view, endorsed by the debtor, is that "events occurring after the filing should not be used to affect the amount of debt for eligibility purposes." Lundin, 1 Chapter 13 Bankruptcy І 1.62, p. 1-56 (2d. ed. 1994). The second view, found in In re Toronto, 165 B.R. 746 (Bankr. D. Conn. 1994) allows the court to look beyond the schedules in determining eligibility. In Toronto, the court found that unsecured debts arising from the post-petition invalidation of a creditor's secured status should be included within the ї 109(e) debt limitation.

The biggest argument against the Toronto view is that the determination of eligibility in a chapter 13 case will be delayed by post-petition litigation. While this may be a worthy concern, particularly in large districts, in this particular case it does not override a countervailing concern that utilization of the liberal discharge provisions of chapter 13 be limited to those who truly qualify. In this instance, to deny the motion to dismiss on the one hand, while granting the motion to avoid the creditor's lien on the other, creates an unwanted and unneeded inconsistency in the administration of the Bankruptcy Code. Lien invalidation under 11 U.S.C. ї 522(f) of the Code is commonplace. To ignore the effects of lien invalidation for purposes of determining chapter 13 eligibility makes no more sense than 5 ABR 140

ignoring the provisions of 11 U.S.C. ї 506(a) in determining a creditor's secured status. If the debtor truly desires lien invalidation, he should be bound by its consequences, including the creation of unsecured claims. In this case, the impact of granting the debtor's motion to avoid lien would be that the debtor will become ineligible for chapter 13 relief.⁽¹⁾

If the debtor were to withdraw the motion to avoid liens, however, he may qualify for chapter 13 relief. Knudsen and Richmond contend the debtor's unsecured claims exceed the $250,000 limit of ї 109(e) in any event, arguing that even under a "best case scenario" his unsecured debt would be $258,818.00. I disagree with their calculation. First, it includes $24,000.00 in unliquidated attorney's fees claimed by Richmond. Unliquidated claims cannot be included in the eligibility computation. The total amount of unsecured debt should be further reduced by the following amounts: 1) $1,400.00, for funds garnished by Knudsen and being held by the state court (the garnished funds have reduced the unsecured portion of Knudsen's claim and commensurately increased the secured portion), 2) $1,872.00 for an agreed-upon reduction in a realtor's commission, and 3) $5,827.50 for pre-judgment interest claimed by Knudsen. With regard to the pre-judgment interest, this sum was not included in the state court judgment and is, thus, an unliquidated claim at this point. After making the foregoing adjustments to the creditors' "best case" figure, I find the unsecured debt in this case totals 5 ABR 141

$224,686.50, prior to any lien invalidation by the debtor.⁽²⁾ Accordingly, if the debtor withdraws his motion to avoid lien, he will qualify for chapter 13 relief under ї 109(e).

The parties have briefed and argued the merits of the debtor's motion for order to show cause, which I will treat as a motion for sanctions for possible violation of the automatic stay by Susan Richmond and her attorney, Yale Metzger. The debtor alleges that Richmond and Metzger have refused to turnover the debtor's residence and personal property and refused to replace locks on the real property. Additionally, he alleges Richmond and Metzger threatened his friend, Kathy Hastings, with arrest when she was at the real property. There are a number of issues involved here. First, who was entitled to possession of the real property prepetition? After reviewing the applicable authorities, I find that the debtor was entitled to possession. While Richmond's process server, Aaron Parker, posted the debtor's homestead on July 2, 1997, under A.S. 09.35.110 and Rule 89(f)(1), Alaska Rules of Civil Procedure, the simple act of posting did not give Richmond the right to possession of the realty.

At the time of a levy of execution, a judgment creditor has a mere lien upon the property with only the potential of ripening it to title following a judicial sale. As a result, the levy of execution only gives rise to an expectation of title in the judgment creditor, giving him no greater interest than that already possessed.

30 Am. Jur. 2d., Executions and Enforcement of Judgments, І 225 (2d ed. 5 ABR 142

1994)(footnotes omitted).

A levy of execution on real estate does not, in the absence of a statute or rule of court to the contrary, give the executing officer any right of possession. Rather, the execution debtor has a right to keep possession of land subjected to an execution, not only until the day of sale, but under some statutes, until the time allowed by law to redeem has expired.

Id., І 261 (footnotes omitted).

Metzger and Richmond contend that the definition of "levy" contained in A.S. 09.38.500(8) allows their agent to possess the property. Levy is defined in that subsection as "the seizure of property under a writ of attachment, garnishment, execution, or any similar legal or equitable process issued for the purpose of collecting an unsecured debt." A levy on real property does not entitle the judgment creditor to immediate possession, however. Levy is simply the first step in the execution process. A.S. 09.35.110 provides that property is not affected by execution until a levy occurs. After the levy, the property must be sold on execution. A.S. 09.35.140, 09.35.150. In Alaska, execution sales of real property are subject to a right of redemption, unless the sale is for an estate of "less than a leasehold of two years unexpired term," in which case the sale is absolute. A.S. 09.35.210. Civil Rule 89 also gives no support to Richmond's position. In sum, there is no provision in the Alaska Statutes or Civil Rules which allows a judgment creditor to assume possession and control of a debtor's homestead simply by posting it.

Richmond has also filed a motion to be excused from compliance with ї 543(b). Section 543(b) requires a custodian of estate property to deliver the 5 ABR 143

property in its possession to the trustee (in this case, the chapter 13 debtor), and file an accounting. However, ї 543(d)(1) permits the bankruptcy court to excuse the custodian from this requirement if the interests of creditors would thus be better served. The debtor contends that neither Parker or Richmond's attorney, Metzger, constitute a "custodian" within the meaning of 11 U.S.C. ї 101(11). I concur with the debtor's authorities and the Montana case of In re Reilly, 105 B.R. 59, 61-62 (Bankr. D. Mont. 1989).

Because Parker and Metzger are not custodians, 11 U.S.C. ї 543 is inapplicable to them, and their motion to excuse compliance with that statute will be denied as moot. Both the real and personal property on which they have levied are property of the estate. 11 U.S.C. ї 542 requires turnover of property to the trustee. Here, the trustee means the debtor. As noted by Epstein, Nichols and White:

Moreover, ї 542 obligates any entity in possession of estate property to turn it over so that the trustee can make use of it. "[ P] roperty of the debtor repossessed by a secured creditor falls within this rule . . ." The turnover duty is "not contingent upon any predicate violation of the stay, any order of the bankruptcy court or any demand . . . ." The duty arises automatically as soon as bankruptcy is filed.

1 Epstein, Nichols & White, Bankruptcy, І 3-14, at 164 (1992)(footnotes omitted). Here, Richmond has violated 11 U.S.C. ї 362(a)(2)-(a)(6). Her violations as well as those of Metzger have been willful.

Although the stay has been willfully violated, damages here will be limited to reasonable attorney's fees and costs incurred by the debtor for bringing the current motion for sanctions and the related adversary proceeding. No further 5 ABR 144

damages are appropriate given the convoluted factual and legal proceedings herein. Damages are awarded in accordance with 11 U.S.C. її 105 and 362(h). No punitive damages are awarded.

1. ¹ 5 ABR 140 Bonnie Knudsen has raised numerous defenses to the proposed invalidation of her lien under ї 522(f). I find those defenses meritless. Frank Pluid did not abandon his homestead at any time, even though he was absent from the premises.
2. ² 5 ABR 141 The debtor argues that his contingent liability on a house owned by Richmond should not be included as an unsecured debt. I reject his argument and concur with Alaska Diversified Electric's position. This claim is unsecured under 11 U.S.C. ї 506(a) because the estate has no interest in the real property given as security for the debt.