Fighting To Get Into Subchapter V (In re Ventura)

By: Donald L Swanson

You’ve gotta admire the Debtor in In re Deirdre Ventura.

Debtor has been fighting to save a Bed and Breakfast business through bankruptcy: beginning in 2018 with a regular Chapter 11, and then struggling to get into Subchapter V.

Debtor’s is a you-can’t-make-this-stuff-up story of persistence through adversity.

Debtor has survived, for example, an inexplicably-bad appellate opinion refusing to allow Debtor’s Subchapter V election.  The appellate opinion declares:

• the harm to Creditor from electing Subchapter V is greater than the harm to Debtor from remaining in regular Chapter 11; and
• that’s because the Subchapter V plan confirmation standard of § 1191(c) will apply in regular Chapter 11.  

Say what?!

Then, Debtor dismisses the first Chapter 11 and refiles a Subchapter V case. 

Meanwhile, Creditor tries valiantly (but unsuccessfully, so far) to keep Debtor out of Subchapter V.

Here’s a chronology of Debtor’s two Chapter 11 cases, a District Court appeal, and a motion in District Court to withdraw the reference—all in the Eastern District of New York.

Bankruptcy Case No. 18-77193

10/24/2018      Debtor files a voluntary petition under Chapter 11, scheduling a “B & B Inn” asset (at a value of $850,000 and subject to a $1,500,000 lien), with all other assets having a total scheduled value of $30,500 and all other debts scheduled at $62,182 (Doc. 1).

02/19/2020      Subchapter V becomes effective.

02/26/2020      At a hearing on confirmation of Creditor’s plan, the Bankruptcy Court suggests that Debtor might consider electing to proceed under Subchapter V.

03/03/2020      Debtor amends her Chapter 11 Petition, electing to proceed under Subchapter V (Doc. 85), and a Subchapter V Trustee is appointed the next day (Doc. 88).

03/10/2020      Creditor objects to Debtor’s Subchapter V status because “applicable time periods under subchapter v have expired, and the subchapter v trustee cannot perform his statutory functions” (Doc. 92).

03/19/2020      U.S. Trustee objects to Debtor’s Subchapter V status on the same grounds: because of the year-old status of Debtor’s Chapter 11 case at the time of election, mandated timetables cannot be satisfied, and the Subchapter V Trustee’s duties cannot be fulfilled (Doc. 96).

04/10/2022      Bankruptcy Judge overrules the objections to Debtor’s Subchapter V election, in a 35-page opinion (Doc. 107 & 108).

04/24/2020      Creditor appeals the order recognizing Debtor’s Subchapter V status (Doc. 109).

District Court Appeal, Case No. 20-CV-1949 & 22-mc-01540

04/21/2022      District Court, on appeal, reverses (Doc. 9 & 10, Case No. 20-CV-1949) because:

• Debtor files the Subchapter V election within two weeks after Subchapter V’s effective date; but
• nearly sixteen months have passed, after the Petition filing and before Debtor files her Subchapter V election, during which time “considerable time and resources” are spent toward confirmation of creditor’s plan;
• “the Bankruptcy Court failed to consider properly the substantial prejudice [Creditor] faces due to the Debtor’s belated amendment”; and
• “the prejudice to the Debtor does not outweigh the prejudice to [Creditor]”; so
• “On this record, the Bankruptcy Court abused its discretion by overruling [Creditor’s] objection to the Debtor’s request to amend her petition.”

05/12/2022      Creditor asks the District Court to modify its reversal Order by removing this reference to § 1191(c) from the reversal Order: “Debtor’s interests are still protected by Chapter 11, which requires [Creditor’s] plan to be ‘fair and equitable,’ 11 U.S.C. § 1191(c).” (Doc. 11).  Creditor argues that this reference to § 1191(c):

• is a “mistake,” because such section only applies in Subchapter V; and
• “has caused confusion,” enabling the Bankruptcy Court to declare that “he did not believe the Decision was applicable to him . . . and will not be permitting [Creditor] to proceed . . . in accordance with the presumed intent of the Decision.”

05/12/2022      District Court denies Creditor’s modification request (Doc. 12).

05/17/2022      Creditor files a request with the District Court to withdraw the reference of Debtor’s case from the Bankruptcy Court on these grounds:

• Because the Bankruptcy Court suggested that Debtor “dismiss the pending Bankruptcy Case and refile under Subchapter V”;
• To promote efficiency and economy; and
• Because Creditor believes “it cannot receive fair adjudication before the Bankruptcy Court in this case” (Doc. 1, Case No. 22-mc-01540).

05/19/2022      Creditor also files a request with the District Court to stay the progression of Debtor’s bankruptcy case, until the District Court can rule upon Creditor’s request to withdraw the reference (Doc. 3, Case No. 22-mc-01540).

05/26/2022      District Court denies Creditor’s requests to withdraw the reference and for a stay. 

Debtor’s Bankruptcy Dismissal

05/24/2022      Debtor moves to dismiss her Chapter 11 case so she can re-file a new case under Subchapter V (Doc. 187).

06/03/2022      Creditor objects to dismissal because conversion to Chapter 7, not dismissal, is in the best interest of creditors under § 1112(b)(1)  (Doc. 191).

06/08/2022      Bankruptcy Court grant’s Debtor’s motion and dismisses the bankruptcy case (Doc. 193).

Debtor Refiles, Case No. 22-72433

09/14/2022      Debtor files a new Chapter 11 bankruptcy, electing to proceed under Subchapter V (Doc. 1).

09/15/2022      Debtor files a Motion to Extend Automatic Stay (Doc. 12 & 14).  Such Motion:

• references § 362(c)(3), which provides for relief from the automatic stay, after 30 days, when an individual debtor refiles bankruptcy after dismissal of a prior case, unless debtor demonstrates the new filing is “in good faith as to the creditors to be stayed”; and
• claims “good faith” because the refiling is made to “save her bed and breakfast business.”

09/22/2022      Creditor files a “Limited Reply,” consenting to the automatic stay remaining in effect, as long as Debtor provides adequate protection for Creditor’s interests (Doc. 23).

 Conclusion

Congratulations to Debtor for the persistent and successful (so far) effort to get into Subchapter V.

You’ve gotta’ wonder, however: who’s funding all these legal machinations—on both sides?

So much for the idea that Subchapter V is to be a quick and efficient process for struggling debtors.

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