Summary of a Recent
Judicial
Development in
Bankruptcy
Pendency of Final Judgment at Time of Filing Does
Not Make Debt Contingent or Unliquidated
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Haarmann, Case No. 07-60207, 2008 Bankr. LEXIS 1041 (Bankr. S.D. Ill. Apr. 15, 2008), the United States Bankruptcy Court for the Southern District of Illinois held that even though a final judgment had not been rendered at the time of filing, the judgment against the Chapter 12 Debtor should be included in the Chapter 12 eligibility calculation because the issue of liability and the minimum amount of damages had already been decided pre-filing, and all that was left was to render the judgment which occurred post filing. This rendered him ineligible for Chapter 12 relief, and so the court dismissed his case.
Background
The Debtor filed his Chapter 12 petition in April 2007. Id. at *1. System Development Services, Inc. (SDS) had previously brought an action against the Debtor in state court, which was not related in any way to a farming operation. Id. at *2. The state court had issued findings of fact and conclusions of law and determined the Debtor to be liable in the amount of $481,892, but had not rendered final judgment in favor of SDS at the time the Debtor filed his petition. Id. Final judgment was rendered six months after the Debtor filed. Id. at *3. SDS objected to the confirmation of the Debtor's Chapter 12 plan. Id. at *1.
Arguments
SDS argued that the Debtor was not eligible for Chapter 12 relief because less than 50% of his aggregate noncontingent, liquidated debt was attributable to a farming operation. Id.
Debtor argued that since there was no final judgment against him at the time he filed his petition, the debt did not count when determining if he was eligible for Chapter 12 relief. Id. at *5.
Analysis and Holdings
To file for Chapter 12, an individual must be a "family farmer" (or "family fisherman") with regular annual income. Id. at *3. To qualify as a "family farmer," at least 50% of a person's aggregate, noncontingent liquidated debts at the time of filing must arise out of a farming operation which he owns, and the person must also receive at least 50% of his gross income from such operation. Id. Considering those requirements, the court found that the Debtor could not qualify as a "family farmer" because more than 50% of his aggregate, noncontingent liquidated debt did not arise from a farming operation. Id. at *4. The fact that SDS did not have a final judgment from the state court at the time the Debtor filed his petition did not mean that debt was contingent or unliquidated. Id. The court stated that "a debt is noncontingent so long as all the events giving rise to the debt occurred before commencement of the bankruptcy case, and a date is liquidated if it is susceptible to ready calculation." Id. The court also pointed out that the pendency of an appeal or the intent to prosecute an appeal does not render a debt either contingent or unliquidated. Id. at *5. Since the trial fixing the Debtor's liability to SDS occurred pre-petition and the state court had fixed the minimum amount of Debtor's obligation to SDS, the debt should have been calculated. Id. The court therefore granted SDS's motion to dismiss. Id. at *6.
The case was decided on April 15, 2008.