Michael R. Keenan and Ramona L. Keenan

1 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
(continued...)
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
MICHAEL KEENAN and
RAMONA KEENAN,
Debtors. 	No. 13-05-21229 SA
MEMORANDUM OPINION ON CONFIRMATION,
MOTION TO AVOID LIEN, AND MOTION TO DISMISS
This matter came on for hearing on July 20, 2006 and August
25, 2006 to consider confirmation of the Debtors’ Chapter 13 Plan
and its Motion to Avoid Lien (doc 3), and on judgment creditor
Suzanne Mallon’s Motion to Dismiss (doc 27). 	The Chapter 13
Trustee objected to confirmation (doc 11), as did Suzanne Mallon
(doc 8) and creditor Homes by Labbate, LLC (doc 9). 	Suzanne
Mallon also objected to the avoidance of her lien (doc 7). 	Homes
by Labbate objected to dismissal (doc 32). 	By agreement of the
parties, all issues were tried simultaneously. 	After trial, the
parties submitted Memoranda of Law (Debtors, doc 42; Chapter 13
Trustee, doc 45; Suzanne Mallon, doc 46; Homes by Labbate, doc
47) to which Debtors replied (docs 48 and 49). 	The Court has
reviewed the testimony and the arguments of the parties, and has
consulted relevant authorities, and now issues this Memorandum
Opinion, denying confirmation with leave to file an amended plan,
denying the motion to dismiss and partially voiding the Mallon
lien. 1
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1(...continued)
proceeding pursuant to 28 U.S.C. §157(b)(2)(A), (K), (L) and (O);
and these are findings of fact and conclusions of law as required
by Rule 7052 F.R.B.P. 	This chapter 13 case was filed prior to
the effective date of most of the provisions of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”),
Pub. L. No. 109-08, 119 Stat. 23, and therefore the changes
enacted by that legislation are not applicable to this case.
2Per Schedule D, this consists of a first mortgage of
$179,892 and a second of $24,469.
3Per Schedule D, this consists of a first mortgage of
$123,728, a second of $1,112, and a mechanics lien of $52,645.
These figures add to $177,584, which exceeds the debt listed on
Schedule A by $10,707. 	Also, at trial the attorney for the
(continued...)
Page -2-
BACKGROUND
Debtors filed their voluntary Chapter 13 proceeding on
October 15, 2005 (doc 1). 	On the petition they list a prior
bankruptcy case that was filed in New Mexico on May 24, 2004,
Case number 13-04-13880 SA. 	The docket sheet in that case, of
which the Court takes judicial notice, shows that it was
voluntarily dismissed by the Debtors on July 10, 2004.
Schedule A in the current case lists 3 parcels of real
estate: Debtors’ homestead in Albuquerque with a value of
$276,000 and secured claim of $204,361 2; vacant land in Salton
City, California with a value of $1,300 and no secured claim; and
a one-half joint tenancy interest (with their son) of a
commercial lot on Central Avenue, Albuquerque with their 50%
interest having a value of $112,500 and a secured claim of
$166,778 3.
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3(...continued)
mechanics lienholder represented that because the lien was over
two years old and a foreclosure action had not been initiated, it
would become a general unsecured claim if challenged. 	See N. M.
Stat. Ann. § 48-2-10 (“No [mechanics’ or materialmen’s] lien ...
remains valid for a longer period than two years after the claim
of lien has been filed unless proceedings have been commenced in
a court of competent jurisdiction within that time to enforce the
lien.”) Therefore, the rest of this Memorandum will treat this
claim as unsecured.
Page -3-
Schedule B lists ordinary possessions, all of which are
exempt, 4 vehicles (1999 Ford, valued at $8,630 with $8,000
exempt, and 3 other non-exempt vehicles valued at a total of
$3,843), and a non-exempt 18 foot utility trailer valued at
$1,000. 	Schedule C claims exemptions under New Mexico law. 	No
parties filed objections to the Debtors’ exemptions, so those
properties are now exempt. 	See Taylor v. Freeland & Kronz, 503
U.S. 638 (1992). 	Schedule D lists the debts mentioned in
footnotes 2 and 3, and also lists the judgment lien of Suzanne
Mallon for $145,289. 	Debtors have no unsecured priority claims
on Schedule E and $120,435 of unsecured debt owed to 18 unsecured
creditors on Schedule F. 	Schedule G lists no executory contracts
or unexpired leases. 	Schedule H lists William Keenan, Jr.
(Debtors’ son) as a co-debtor to First State Bank (mortgage on
Central property), but exhibits and testimony at trial indicated
that the loan is in the Debtors’ names only. 	Schedule I states
that Mr. Keenan is an accountant with gross income of $5,045
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4Among other deductions, Mr. Keenan claims a $505 monthly
401(k) retirement fund contribution.
5Among other deductions, Ms. Keenan claims a $200 monthly
New Mexico PERA retirement contribution.
Page -4-
monthly and net monthly income of $3,247 4. 	Schedule I also
states that Ms. Keenan is an administrative assistant at the
University of New Mexico with gross income of $2,626 monthly and
net monthly income of $1,842 5. 	Total combined net monthly income
is therefore $5,090. 	Schedule J shows a home mortgage payment of
$2,101 and, for the most part, ordinary expenses. 	Total expenses
listed are $4,056. 	Excess income over expenses is $1,033.
The Statement of Financial Affairs shows that Debtors’
income has remained stable, with some small increases, since
2003. 	It appears there were no preferential payments to
creditors. 	Suzanne Mallon obtained her “Fraud & Unfair Trade
Practices” judgment on September 9, 2005. 	The only gifts made by
the Debtors were nominal contributions to their church. 	Debtors
lost $1,200 gambling in August, 2005 while in Las Vegas, Nevada.
Mr. Keenan lists a sole proprietorship business, described as
follows: “Debtor bought and sold approximately 10 vehicles over a
3 year period as an individual. 	No dealer’s license required by
the State of N.M. because Debtor never sold more than 4 vehicles
per year. 	Debtor did report income on Schedule C of his income
tax returns.” 	The business was described as beginning in 1999
and ending in 2002.
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6Mallon objected to avoidance of her lien on 3 grounds: 1)
Debtors have not proven that the lien impairs their exemption, 2)
the lien is not within the class designated by § 522(f)(1)(B),
and 3) Debtors lack standing under Hansen v. Green Tree
Servicing, LLC (In re Hansen), 332 B.R. 8 (10 th Cir. BAP 2005).
Page -5-
Debtors’ Chapter 13 Plan (“Plan”)(doc 3) calls for 36
monthly payments of $1,033, plus federal and state income tax
returns received during that period. 	The Plan did not call for
contribution of the proceeds from the sale of any property, but
Debtors amended their Plan orally at the confirmation hearing to
provide for contribution of the proceeds of a proposed sale of
the Salton City property.
The Plan pays as follows: first, administrative expenses
including trustee’s fees and expenses; second, any priority
claims (of which there are none); no secured claims are paid by
the plan, but “[s]ecured creditors shall retain their liens until
any allowed secured claims have been paid”; and, third, unsecured
creditors will receive an estimated dividend of 14% of their
claims. 	Debtors will pay their first and second mortgage on
their residence directly. 	Debtors’ son Michael Keenan Jr. will
pay directly all claims secured by the Central Avenue property.
The Plan contains a motion to avoid the lien of Suzanne Mallon as
a judgment lien impairing Debtors’ homestead.
Mallon objected to the lien avoidance 6 . (Doc 7).
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7Specifically, Mallon claims: 1) Debtors have abused the
protection of bankruptcy in the past, 2) they misrepresented
values on Schedule A, 3) they misrepresented personal property on
Schedule B, 4) they improperly claimed exemptions on Schedule C,
5) they misrepresented income on Schedule I, 6) they
overestimated expenditures on Schedule J, and 7) they
misrepresented their income on the Statement of Financial
Affairs.
8Trustee’s specific objections are: 1) Debtors are
contributing to retirement plans, 2) any excess home equity
should be paid into the Plan, 3) tax refunds should be paid into
the Plan, 4) under the best interest of creditors test Debtors
must pay at least $30,531 into the plan, 5) Debtors should not
make any payments on the Central Avenue property or its taxes, 6)
there is an issue of whether Debtors should sell the Central
Avenue property and pay the proceeds into the estate, 7) the
Trustee questions the values of certain items of personal
property, and 8) the Trustee objects that Debtors’ son is listed
as an unsecured creditor for payments he made on the Central
Avenue property on behalf of the Debtors.
Page -6-
Mallon also objected to confirmation on the grounds that the
Plan was not proposed in good faith 7. (Doc 8). 	Homes by Labbate,
LLC objected to confirmation of the Plan on the grounds that it
does not pay its secured claim and fails to provide that
creditors retain their liens and receive the value of the claim.
(Doc 9). 	The Trustee objected to confirmation of the Plan for
several reasons: disposable income, best interest of creditors
test, and good faith 8. 	(Doc 11).
Before the Plan came up for confirmation Mallon also filed a
Motion to Dismiss the bankruptcy. 	(Doc 27). 	Homes by Labatte,
LLC filed an objection to the Motion to Dismiss. 	(Doc 32).
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Page -7-
All pending matters came on for trial on July 20, 2006 and
August 25, 2006.
ANALYSIS
The Salton City property
The Debtors testified that they have owned this property for
approximately 30 years, having received it as a wedding gift.
The area in which the property is located was subdivided in the
1950's or 1960's, but remained mainly undeveloped for many years
because the area is near a highly polluted body of water that
smells bad. 	Mr. Smith, Debtors’ expert, testified that several
lots in the area had sold for $1,500 or less in the last few
years. 	He also placed a value on the property of $8,000.
Debtors had not seen the property for many years. 	They had,
however, received offers ranging from $250 to $1,300 in the past
several years. 	They listed the property on Schedule A at the
highest offer they had received.
Mallon’s expert witness testified that the property is worth
$27,000 because the area has become more desirable as the
population in nearby counties has grown rapidly.
The Court finds the Debtors’ testimony credible and finds
that they valued the property on Schedule A in good faith. 	The
Court need not make an actual finding on the value of the
property because Debtors have now committed to putting the net
sale proceeds, whatever they are, into the Plan. 	Potential
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Page -8-
disputes about whether the property is being sold for fair market
value or about the identity of the purchaser or any other such
issue can be resolved when the Debtors seek approval of a sale.
Debtor’s Sunset Canyon residence
Debtors purchased their residence on Sunset Canyon in April
1996 for $251,000. 	Debtors introduced two appraisals into
evidence, one showing a value in March, 2005 of $276,000 and one
from October, 2005 of $280,000. 	Debtors also testified that they
had an appraisal from approximately one and a half years before
filing which showed a value of $242,000. 	Mallon’s appraiser
found that the house was worth approximately $378,500 as of July
15, 2006, nine months after the petition was filed. 	Although the
Mallon appraisal casts doubt on the accuracy of the relatively
low figure of $280,000, there is no other testimony specifically
about the value of the residence on the petition date. 	However,
that does not mean that the Court must accept the $280,000 as the
value on the petition date. 	Rather, an analysis of the
appraisals and the testimony supporting them suggests a more
accurate estimate of the value as of October 2005 would be
$325,000.
To begin with, the Court agrees that comparable sales closer
in time to the proposed valuation date are more likely to be
helpful than earlier or later sales. 	In this case, two of the
Debtors’ Whalen comparable sales (3905 and 3916 Calle Pino NE),
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9 The Mallon appraisers used Fannie Mae Form 2005 (March
2005); the Debtors’ appraisers used Fannie Mae Form 1004 (6-93).
The Mallon appraisal does not show lot sizes; there appears to be
no place for that information on the form.
Page -9-
which appear on both the April and October 2005 appraisals
(Debtors’ Exhibit 5), closed in December 2004 and January 2005,
ten and nine months earlier respectively than the filing date.
The first comparable sale from the April 2005 appraisal closed in
August 2004 (14 months), although it was replaced in the October
appraisal with one that closed in May 2005 (five months). 	The
three comparable sales used in the Mallon appraisal (Mallon
Exhibit S) use appraisals from June, May and March 2006, eight,
seven and five months away respectively.
The Debtors’ expert appraiser attributed little additional
value to the fact that the lot is approximately 6/10 of an acre,
whereas the comparable properties are all 1/4 acre or less.
Indeed, the first comparable on the October appraisal is situated
on a lot that is .15 of an acre. 9 	Similarly, the appraiser
appears to have attributed little additional value to the
location of the Debtors’ home (backing up against United States
Forest Service land at the foot of the mountains) and the
resulting additional privacy or seclusion, although he
acknowledged in his examination that those factors could or would
add value.
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10 Mr. Keenan testified that this amount was spent mostly on
deferred maintenance; some was spent on improvements. 	The work
included tree removal, landscaping, wrought iron and fence
installation, repairing the roof on the back half of the house,
replacing the garage door, installing decking, replacing carpet,
drywalling, repainting the entire house, installing new kitchen
cabinets, and three weeks’ worth of work on one of the bathrooms.
11 On cross examination Mr. Keenan also testified that in
March 2004 a potential lending institution had an appraisal done.
The appraiser valued the property at $242,000 because of deferred
maintenance. 	While this figure would appear to support the
Debtors’ appraisals, the Court is hesitant to accept it as proof
of much of anything. 	Neither the appraiser nor the appraisal
were made available to the Court, and the lending institution
might have a financial incentive to obtain a “lowball” value; for
example, a lower loan to value ratio could trigger a higher
interest rate or a special insurance provision that might
generate extra fees for the lender.
Page -10-
Also damaging to the credibility of the Debtors’ October
appraisal is that the Debtors put in approximately $47,000 -
$48,000 of improvements in June and July 2004 10 , and then, in a
rising price market (as testified to by Debtors’ expert), ended
up with a value of $276,000 and $280,000 for a property they had
paid $251,000 for in 1996. 11 	Mr. Keenan’s testimony was clear
that the money had been well spent; the improvements should have
been reflected in the value.
Finally, all three appraisals acknowledge that the work done
on the house gave it an effective age of about 25 years, even
though it was a 39 year old building. 	Debtors’ appraisals
effectively treat the building as a 39 year old building by
comparing it with buildings in a similar age range; Mallon’s
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12 Despite the foregoing analysis, there is no basis for
finding that the Debtors deliberately undervalued the Sunset
Canyon property.
13 While it seems surprising that Michael Keenan, Jr. in
particular would not understand that he was signing away the
(continued...)
Page -11-
appraisal on the other hand treats it as a 25 year old building,
which is more accurate. 12
Central Avenue Property
The uncontroverted testimony of the Debtors and their son
Michael Keenan, Jr. and the exhibits introduced into evidence,
establish that the Debtors and their son originally purchased the
Central Avenue property as joint tenants. 	The Debtors and their
son testified that they had an agreement that the Debtors and
their son each owned a one-half interest in the property. 	The
son then tried to get a construction loan for the construction of
a building on the property from which to operate his business.
Ms. Cynthia Richards from First State Bank testified that that
bank would not make a loan to the son because of his poor credit
history, but would make the loan to the Debtors. 	She also
testified that in order for the title company to issue a
mortgagee’s policy of title insurance, the title company required
that the son transfer his interest in the property to the
Debtors. 	All parties testified that they did not realize that
the son had signed a deed at closing for his one-half interest
until after the bankruptcy was filed. 13 	Michael Keenan, Jr. has
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13 (...continued)
property, the reality is that parties not familiar with real
estate transactions or legal documentation could easily (and
probably frequently do) “just sign where they are told to.”
Since the Debtors did not sign the deed, it is less surprising
that they would not have noticed the transfer at the time.
14 That section provides:
The requirement of registration, licensing or
certification shall not apply to a real estate broker
or salesperson who, in the ordinary course of business,
gives an opinion of the price or value of real estate
for the purpose of securing a listing, marketing of
real property, affecting a sale, lease or exchange,
conducting market analyses or rendering specialized
services; provided, however, this opinion of the price
or value shall not be referred to or construed as an
appraisal or appraisal report and no compensation, fee
(continued...)
Page -12-
made all the payments on the loan to First State Bank.
Furthermore, Michael Keenan, Jr. is in possession and always has
been in physical possession of the property – he operates his
business from this location.
The Court finds the value of the Central Avenue property to
be $225,000. 	This finding is based on the opinion of the
Keenans, as owners, see City of Albuquerque v. Ackerman, 82 N.M.
360, 362, 482 P.2d 63, 65 (1971)(owner of real property is
presumed to have special knowledge as to its value by reason of
ownership and therefore is competent to testify to value), and
the market value estimate of Don Nailer, see Hickey v. Griggs,
106 N.M. 27, 28-29, 738 P.2d 899, 901-02 (1987)(real estate
broker could testify as expert witness on property value; formal
appraisal is not required.) and N.M. Stat. Ann. § 61-30-10(F) 14 .
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14 (...continued)
or other consideration is expected or charged for such
opinion, other than the real estate brokerage
commission or fee for services rendered in connection
with the identified real estate or real property.
Page -13-
Although record title to this property is in the Debtors,
the Court finds that substance should control over form. 	The
Debtors and their son purchased the property jointly and always
intended that the property remain as joint property. 	New Mexico
recognizes the doctrine of resulting trusts.
A resulting trust differs from an express trust in the
manner of its creation. 	It arises when a person makes
a disposition of property under circumstances which
raise an inference that such person does not intend
that the party taking or holding the property should
also have the beneficial interest therein, and where
the inference is not rebutted and the beneficial
interest is not otherwise disposed of. 	Restatement §
404; accord Bassett v. Bassett, 110 N.M. 559, 566, 798
P.2d 160, 167 (1990). 	Since the person who holds title
to the property is not entitled to the beneficial
interest, the property “springs back or results,” to
the person who made the original disposition or to that
person's estate. 	Watson Truck & Supply Co. v. Males,
111 N.M. 57, 59, 801 P.2d 639, 641 (1990). 	In the case
of a resulting trust it is not necessary to show that
the settlor manifested any intention to create a trust.
It is necessary to show the absence of any intention to
give the beneficial interest to the transferee. 	In
that case the settlor presumably intends to retain the
beneficial interest, or it may be inferred that the
settlor would have formed such an intention had the
settlor foreseen certain future events. 	See
Restatement Ch. 12, Topic 4, Introductory Note at 392.
Aragon v. Rio Costilla Cooperative Livestock Assn., 112 N.M. 152,
155, 812 P.2d 1300, 1303 (1991). 	The Court finds that Michael
Keenan, Jr. has an equitable interest in the Central Avenue
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Page -14-
property in the form of a resulting or constructive trust. 	See
also Matter of Estate of McKim, 111 N.M. 517, 520, 807 P.2d 215,
218 (1991):
In Sargent v. Hamblin, 57 N.M. 559, 570, 260 P.2d 919,
926 (1953), we noted that it is the intention of the
parties at the time an agreement to execute a deed is
consummated that determines whether beneficial title to
the property was transferred.
...
Although the intention of the parties at the time of
the transfer is of course the relevant inquiry, we
recognized in Sargent that the parties' actions
following the transfer are often revealing of their
intent at the time of the transfer. 	In Sargent we
outlined a number of factors regarding the parties'
later actions which are useful in determining whether
the parties intended, at the time of delivery of a deed
absolute in form, that beneficial title be conveyed.
As we stated:
The subsequent conduct of the parties is often
persuasive of what they intended to accomplish by
the transaction. Among the circumstances held to
be evidence that they intended to convey title * *
* are the following: That the grantor relinquished
possession; that he allowed a long period of time
to elapse without asserting a claim to the land or
exercising any act of ownership over it; that he
paid no taxes or encumbrances; that grantee took
possession and exercised dominion over the land as
owner; that he paid taxes; that he put valuable
improvements on the land; that he contracted to
sell and convey the land as owner.
Sargent, 57 N.M. at 571, 260 P.2d at 927. 	Likewise,
and most relevant to our inquiry, the absence of these
or similar factors would tend to show that the parties
did not intend to convey beneficial title, but rather
to pass conditional ownership or “dry” legal title,
leaving beneficial ownership in the hands of the
grantor.
Debtors’ son conveyed the property (unknowingly), but never
relinquished possession. 	He paid the taxes and encumbrances. 	He
placed a valuable building on it. 	Debtors never took possession
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15 That section provides:
Property in which the debtor holds, as of the
commencement of the case, only legal title and not an
equitable interest, such as a mortgage secured by real
property, or an interest in such a mortgage, sold by
the debtor but as to which the debtor retains legal
title to service or supervise the servicing of such
mortgage or interest, becomes property of the estate
under subsection (a)(1) or (2) of this section only to
the extent of the debtor's legal title to such
property, but not to the extent of any equitable
interest in such property that the debtor does not
hold.
Page -15-
or exercised dominion over it, never paid taxes, never put
improvements on it, and never represented that they owned it
outright. 	Considering the McKim factors, it was obvious that
Debtors’ son never intended to convey beneficial ownership of the
property. 	See also McCord v. Ashbaugh, 67 N.M. 61, 65, 352 P.2d
641, 644 (1960)(“A resulting trust arises when the legal estate
in property is disposed of, conveyed, or transferred, but the
intent appears or is inferred from the terms of the disposition
or from accompanying facts and circumstances that the beneficial
interest is not to go, or to be enjoyed, with the legal title.”)
(Citations omitted.)
The Court further finds that this trust or lien is not
avoidable in the bankruptcy. 	See Section 541(d) 15 and Crowder v.
Crowder (In re Crowder), 225 B.R. 794, 797 (Bankr. D. N.M. 1998):
The statutory protection afforded bona fide purchasers
works in conjunction with common law principles of
equity or constructive notice. 	Constructive notice is
firmly embedded in New Mexico common law. 	Under
constructive notice principles, once a duty of inquiry
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16 The Court discusses below whether the lien is avoidable by
the Trustee as a preference.
Page -16-
arises, subsequent purchasers are held to have notice
of all documents a reasonable inquiry would uncover,
even if those documents are not recorded. 	A party in
possession of the property who is not the record title
holder of the property gives rise to a duty of inquiry
on the part of a subsequent purchaser, mortgagee, or
lienholder.
(Holding that Section 544(3) cannot be used to avoid an interest
of one in actual possession of a property.) (Citations omitted.)
Therefore, Debtors’ interest in the whole property, $225,000,
would be reduced by the first mortgage of $123,728 and the second
mortgage of $1,112, leaving an equity of $100,160, of which one-
half, or $50,080 is non-exempt estate property.
The Mallon lien attached to the one-half interest in the
property 16 . 	Armendaris Water Development Co. v. Rainwater, 109
N.M. 71, 75, 781 P.2d 799, 803 (Ct. App. 1989)(Liens only attach
to a debtor’s beneficial interest in a property). 	See also
McCord, 67 N.M. at 66, 352 P.2d at 644 (Judgment liens do not
attach to property for which debtor has bare legal title.)
Alternatively, the Court finds that the Central Avenue
property is owned by a partnership consisting of the Debtors and
their son. 	Under New Mexico law, a partnership is defined as “an
association of two or more persons to carry on as co-owners a
business for profit ...” 	N.M. Stat. Ann. § 54-1A-101(5). 	“[T]he
association of two or more person to carry on as co-owners a
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17 In reaching its conclusion that the Court has not relied
on the proof of claim filed by Michael Keenan, Jr.
Page -17-
business for profit forms a partnership, whether or not the
persons intend to form a partnership.” 	N.M. Stat. Ann. § 54-1A-
202(a). 	A partner’s interest in partnership property is the
partner’s share of the profits and losses of the partnership and
the partner’s right to receive distributions. 	N.M. Stat. Ann. §
54-1A-502. 	This interest is personal property. 	Id. 	Assets of
a partnership can be held in the name of one or more partners
individually. 	N.M. Stat. Ann. § 54-1A-204(c). 	When a partner
files bankruptcy, only the partner’s partnership interest (i.e.,
the personal property right to share in profits and losses and
the right to receive distributions) enters the bankruptcy estate.
Connolly v. Nuthatch Hill Assoc. (In re Manning), 831 F.2d 205,
207 (10 th Cir. 1987). 	The partnership assets themselves do not
enter the bankruptcy estate. 	Id. 	Therefore, in this case, if
the agreement is construed as a partnership venture, the only
asset in the Debtors’ estate is their personal property interest
in the partnership. 	If the partnership were dissolved, the
property would be sold for $225,000, the mortgages of $123,728
and $1,112 would be paid, and the remaining equity of $100,160
would go to the partners. 	N.M. Stat. Ann. § 54-1A-807(a). 	The
value of the Debtors’ one-half partnership interest would be
$50,080 and non-exempt. 17
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Page -18-
If the property were partnership property, Mallon’s
judicial lien would not attach to it. 	N.M. Stat. Ann. § 54-1A-
201 (Partnership is a distinct entity), §54-1A-203 (Property
acquired by partnership is partnership property, not property of
individual partners.), § 54-1A-501 (A partner is not a co-owner
of partnership property and has no interest in partnership
property that can be involuntarily transferred.)
Finally, the Court finds that the Debtors’ treatment of the
Central Avenue property on their Schedule A was done in good
faith. 	There was no indication that they were attempting to
undervalue the property or conceal it; based on the unique facts
of this case it required a judicial determination to value the
property.
Other findings
The Court found the testimony of Mr. and Ms. Keenan
credible. 	The Court also found the testimony of their son
credible.
Mallon filed her transcript of judgment on September 23,
2005. 	(Exhibit D.) 	For the purposes of this confirmation
hearing only, the Court also finds that the judgment evidences an
antecedent debt (the jury trial was on April 7, 2005); that the
filing of the transcript of judgment was a “transfer” of the
debtors’ property (see 11 U.S.C. § 101(54) (defining transfer));
the transfer was to or for the benefit of Mallon; the transfer
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Page -19-
was made within 90 days of the Debtors’ bankruptcy filing; and
the transfer enabled Mallon to receive more than she would
receive if the case were a case under chapter 7, the transfer had
not been made, and she received payment of her debt to the extent
provided by the bankruptcy code. 	In other words, the Court finds
(for the purposes of confirmation only) that Mallon’s transcript
of judgment is a preferential transfer. 	See 11 U.S.C. § 547(b).
The Debtors are not serial bankruptcy filers and have not
abused the bankruptcy process. 	Debtors both testified as to
their prior bankruptcy and the reasons for dismissing it; i.e.,
they were finally able to sell their California property and
wished to deal with creditors outside of bankruptcy. 	They also
testified as to why they refiled the case; i.e., mounting credit
card debt and the Mallon litigation. 	It is not per se improper
to file two bankruptcies. 	See, e.g., In re McKissie, 103 B.R.
189, 191 (Bankr. N.D. Ill. 1989). 	This is especially true when
there has been a change in circumstances from the first case to
the second. 	Compare, id. at 192 (bad faith if no change in
circumstances.) 	In this case, Debtors tried to work out their
financial problems with creditors and paid significant amounts of
money to them between the two bankruptcy cases. 	The Court finds
that this second filing was not improper. 	The Court also finds
it not improper that the Debtors used a large portion of the
money from the sale of another California property (the Twin
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18 Arguably the money spent increased the value of the home
thereby increasing the equity available to satisfy claims.
19 One check, for $3,500, passed through Mr. Keenan to his
son. 	This was not income to Mr. Keenan. 	This was adequately
explained at trial.
Page -20-
Peaks property) to perform deferred maintenance and some
improvements on their home. 18
The Court finds that the Debtors did not misrepresent their
real property assets or personal property assets on Schedules A
and B. 	The real property was discussed in detail above; the
Court found no intentional misrepresentations. 	Neither Mallon or
the Trustee produced any evidence that any personal property
asset was omitted from Schedule B or had its value
misrepresented.
The Court has independently reviewed the exemptions claimed
on Schedule C and finds that they are all permissible under New
Mexico law. 	Neither Mallon or the Trustee produced any evidence
that Debtors misrepresented income on their Schedule I. 	They
attempted to elucidate evidence from Mr. Keenan that he failed to
report income from sales of cars or from salary for working at
his son’s business, but were unable to do so 19 . 	In fact, the
uncontroverted testimony was that Mr. Keenan had no income from
auto sales since 2002 and had never earned a salary from his
son’s business. 	The Court has also independently reviewed the
expenses listed on Schedule J and, except for Mr. Keenan’s
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Page -21-
retirement deduction, finds them all reasonable and credible.
There was no evidence presented that the Debtors misrepresented
their historical income on the Statement of Financial Affairs.
Regarding several specific Trustee objections to
confirmation, the Court finds 1) there is no excess home equity
to contribute to the Plan because Mallon’s lien can only be
avoided to the extent that it impairs the Debtors’ exemption; to
the extent it does not impair the exemption it remains attached,
leaving no excess equity; 2) the Plan already calls for
contributions of tax returns into the Plan, see Plan ¶B(1)(a)
(doc 3); Debtors’ Plan does not call for Debtors to make any
payments or to pay taxes on the Central Avenue property; 3)
Debtors need not sell their interest in the Central Avenue
property because their Plan payments will more than cover the
non-exempt equity in this property and to confirm, the Debtors
must meet the best interest of creditors test (see discussion
below); 4) the Trustee questioned the value of certain personal
property items but offered no evidence to contradict the
schedules; and 5) the Trustee objected to the Debtors’ son being
listed as an unsecured creditor – either he is or he is not, and
the proper method of challenging his claim, at least in this
case, would be through a claims objection, not the confirmation
process.
Confirmation
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20 Section 1325 provides, in part:
(a) Except as provided in subsection (b), the court
shall confirm a plan if--
(1) the plan complies with the provisions of this
chapter and with the other applicable provisions of
this title;
(2) any fee, charge, or amount required under chapter
123 of title 28, or by the plan, to be paid before
confirmation, has been paid;
(3) the plan has been proposed in good faith and not by
any means forbidden by law;
(4) the value, as of the effective date of the plan, of
property to be distributed under the plan on account of
each allowed unsecured claim is not less than the
amount that would be paid on such claim if the estate
of the debtor were liquidated under chapter 7 of this
title on such date;
(5) with respect to each allowed secured claim provided
for by the plan--
(A) the holder of such claim has accepted the
plan;
(B)(I) the plan provides that the holder of such
claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the
plan, of property to be distributed under the plan
on account of such claim is not less than the
allowed amount of such claim; or
(C) the debtor surrenders the property securing
such claim to such holder; and
(6) the debtor will be able to make all payments under
the plan and to comply with the plan.
(b)(1) If the trustee or the holder of an allowed
unsecured claim objects to the confirmation of the
plan, then the court may not approve the plan unless,
as of the effective date of the plan--
(A) the value of the property to be distributed
under the plan on account of such claim is not
less than the amount of such claim; or
(B) the plan provides that all of the debtor's
projected disposable income to be received in the
three-year period beginning on the date that the
(continued...)
Page -22-
Confirmation of a Chapter 13 plan is governed by Section
1325 20 . 	Subsection (a) mandates plan confirmation if six
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20 (...continued)
first payment is due under the plan will be
applied to make payments under the plan.
(2) For purposes of this subsection, "disposable
income" means income which is received by the debtor
and which is not reasonably necessary to be expended--
(A) for the maintenance or support of the debtor
or a dependent of the debtor, including charitable
contributions (that meet the definition of
"charitable contribution" under section 548(d)(3))
to a qualified religious or charitable entity or
organization (as that term is defined in section
548(d)(4)) in an amount not to exceed 15 percent
of the gross income of the debtor for the year in
which the contributions are made; and
(B) if the debtor is engaged in business, for the
payment of expenditures necessary for the
continuation, preservation, and operation of such
business.
Page -23-
specified requirements are met. 	Petro v. Mishler (In re Petro),
276 F.3d 375, 378 (7 th Cir. 2002). 	Subsection (b) comes into
play when a trustee or holder of an allowed unsecured claim
objects to confirmation. 	At issue in this case are disposable
income (§ 1325(b)), the best interest of creditors test (§
1325(a)(4)), feasibility (§ 1325(a)(6)), and good faith (§
1325(a)(3)).
A. 	Disposable income
Both the Trustee and Mallon objected to confirmation,
triggering the disposable income requirements of § 1325(b). 	The
Plan does not propose to pay 100% of the claims. 	See §
1325(b)(1)(A). 	Therefore the Court cannot confirm unless the
Plan provides that all of the Debtors’ projected disposable
income to be received in the three-year period beginning on the
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Page -24-
date of the first plan payment will be applied to make payments
under the Plan. 	§ 1325(b)(1)(B). 	The Court has reviewed the
Debtors’ budget and finds it reasonable with one exception.
Authority is split on whether voluntary retirement plan
contributions represent disposable income. One school
of thought, led by the Third Circuit, appears to adopt
a per se rule that voluntary retirement plan
contributions are never reasonably necessary expenses
in a Chapter 13 proceeding. 	Another school of thought,
led by the Second Circuit, appears to allow the
confirmation of Chapter 13 plans where debtors continue
voluntary contributions to retirement plans or has
adopted “case-by-case” analysis granting deference to
bankruptcy judges to determine from the facts of each
individual case whether pension contributions qualify
as reasonably necessary expenses.
In re King, 308 B.R. 522, 530 (Bankr. D. Kan. 2004)(footnotes
collecting cases omitted). 	The Tenth Circuit has not ruled on
this issue. 	However, in ruling on the issue of substantial abuse
in the Section 707(b) context, the Tenth Circuit adopted a
“totality of the circumstances” standard. 	Stewart v. United
States Trustee (In re Stewart), 175 F.3d 796, 809 (10 th Cir.
1999). 	This Court believes that the Tenth Circuit would also
apply a flexible standard on a case by case basis to determine
whether pension fund contributions were reasonably necessary for
a debtor’s support. 	Factors that other courts have considered
using this approach include 1) the age of the debtor and the
amount of time until expected retirement, 2) the amount of the
monthly contributions and the total amount of pension
contributions, 3) the likelihood that buying back the pension
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Page -25-
after the bankruptcy would jeopardize the debtor’s fresh start,
4) the number and nature of debtor’s dependents, 5) evidence that
the debtor would suffer adverse employment conditions if the
contributions are ceased, 6) the debtor’s yearly income, 7) the
debtor’s overall budget, 8) who is challenging the pension
payments, or 9) any other constraints on the debtor that make it
likely that the pension contributions are reasonably necessary
expenses for the debtor. 	King, 308 B.R. at 531 n.18, citing New
York City Employee’s Retirement System v. Sapir (In re Taylor),
243 F.3d 124, 129-30 (2 nd Cir. 2001).
Ms. Keenan’s contributions are fixed by state law and
required as a condition of employment. 	See N.M. Stat. Ann. §§
22-11-16, 21. 	See also New Mexico Education Retirement Board,
Member Handbook, p. 1 (available at
http://www.nmerb.org/handbook.htm (Last visited March 5, 2007).)
Ms. Keenan’s job is necessary to support the Debtors and repay
the creditors, so her continued employment, including paying into
her retirement account, meets the King test.
On the other hand, the Court finds that the amounts being
contributed to Mr. Keenan’s pension plan are not “reasonably
necessary to be expended for the maintenance or support of the
debtors.” 	See 11 U.S.C. § 1325(b)(2)(A). 	The major factors that
the Court considered are: 1) Debtors currently have over $72,000
in retirement funds and insurance products, 2) the proposed $505
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Page -26-
contribution to the 401(k) plan is almost one-half the proposed
plan payment, 3) the plan is for the minimum 36 month term, 4)
the Debtors’ middle-age status, and 5) a total lack of other
evidence of why the pension plan should be continued.
Therefore, the Court cannot confirm this Plan unless the
Debtors amend the plan payment to be $1,033 plus $504, $1537,
retroactive to the date the first payment was due. 	This creates
a plan base of $55,332 over the 36 month term of the Plan. 	How
the Debtors do this should be their choice; they can choose to
pay a lump sum for back payments, increase future payments, or
lengthen the term of the plan. 	The Court would also entertain an
amendment that allowed some payment to the 401(k) plan currently,
provided that the total amount paid into the plan satisfies the
other requirements for confirmation. See In re Rigg, 13-04-11927
SA, oral ruling October 6, 2004 (Minutes, doc. 23)(Court allowed
reduced retirement funding if debtors made up difference.)
B. 	Best interest of creditors test
Section 1325(a)(4), referred to as the “best interest of
creditors test” assures that creditors will be paid, at a
minimum, the amount which they would be paid if the case were a
hypothetical chapter 7 liquidation case.
Chapter 13 is advantageous to debtors because they
retain all their assets, including non-exempt assets,
and make payments to creditors over a period of time
during which debtors enjoy the protection afforded by
bankruptcy law. 	This benefit to debtors is carefully
balanced by the best interest of creditors' test of §
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Page -27-
1325(a)(4). 	Under this statutory quid pro quo the
debtor keeps his or her assets and creditors are
assured of receiving what they would be paid in a
Chapter 7 liquidation.
In order to determine compliance with the best
interest of creditors test:
a hypothetical liquidation of the debtor's estate
under Chapter 7 on the “effective date of the
plan” must be compared to the value on “the
effective date of the plan” of what the debtor
proposes to distribute to the holders of allowed
unsecured claims. 	A mathematical calculation must
be made of the value of what would be available
for distribution to unsecured claim holders in a
Chapter 7 case. 	The debtor's proposed
distributions to unsecured claim holders must be
“present valued” (discounted) as of the effective
date of the Chapter 13 plan.
Keith M. Lundin, Chapter 13 Bankruptcy § 5.25 (1990).
In re Coonrod, 135 B.R. 375, 377 (Bankr. D. Neb. 1991). 	See also
Jensen v. Dunivent (In re Dewey), 237 B.R. 783, 788 (10 th Cir.
BAP 1999):
Section 1325(a)(4) requires two separate calculations.
First, the court must consider the value, as of the
effective date of the proposed Chapter 13 plan, of the
property to be distributed to each unsecured creditor
in Chapter 13, taking into account the Chapter 13
administrative expenses. 	Next, the court must consider
the amount that would be paid on each allowed unsecured
claim if the debtor's estate were liquidated in a
hypothetical Chapter 7 case, taking into account the
Chapter 7 administrative expenses. 	See In re Gatton,
197 B.R. 331, 332 (Bankr. D. Colo. 1996); In re Ward,
129 B.R. 664, 670 (Bankr. W.D. Okla. 1991); In re
Barth, 83 B.R. 204 (Bankr. D. Conn. 1988). 	The Chapter
13 plan will meet the best interests of creditors test
if the distribution amount determined in the first,
Chapter 13, calculation is not less than the amount in
the second, Chapter 7, calculation.
One issue that has raised considerable controversy is the
meaning of the phrase “effective date of the plan”, a term
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Page -28-
undefined by the Code. 	Forbes v. Forbes (In re Forbes), 215 B.R.
183, 189 (8 th Cir. BAP 1997). 	Compare Keith M. Lundin, Chapter
13 Bankruptcy, 3 d Ed. § 160.1 (2000 & Supp. 2004)(hereafter
Lundin)(“Without directly deciding the question, most best-
interests-of-creditors test cases perform the hypothetical
liquidation as of the date of the Chapter 13 petition.”) with,
e.g., Education Assistance Corp. V. Zellner (In re Zellner), 827
F.2d 1222, 1225 (8 th Cir. 1987)(“Of course, the effective date of
the plan cannot be antecedent to the confirmation hearing at
which the issues raised by section 1325(a)(4) are to be heard by
the court.”)(Citation omitted.); In re Musil, 99 B.R. 448, 451
(Bankr. D. Kan. 1988)(“[T]he effective date can be no earlier
than the date the first confirmable plan is heard.”) 	The Court
has reviewed numerous cases, Colliers and Lundin and finds that
the most natural meaning of the “effective date of the plan” is
the date of confirmation. 	In this instance, however, the parties
have implicitly litigated these issues as if the effective date
were the petition date. 	Since the parties have in effect agreed
on that definition, the Court has also used that definition in
arriving at its ruling.
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21 The chapter 7 trustee would avoid Mallon’s transcript of
judgment as a preferential transfer and preserve the lien for the
benefit of the estate under Section 551. 	As discussed below,
Debtors would still be entitled to avoid this lien to the extent
it impairs their homestead exemption.
22 The chapter 7 trustee would avoid Homes by Labatte’s
unperfected lien under section 544 and Mallon’s transcript of
judgment and preserve the liens for the benefit of the estate
under Section 551. 	Alternatively, if the land is partnership
property the partnership interest is not exempt. 	Debtors may
wish to provide expert testimony in any future hearing on whether
a discount should be applied to this value either because it is
jointly held property or a closely-held partnership interest.
Page -29-
The Court makes the following calculations:
Asset 	Value 	Exemption &
unavoidable
liens
Available for
Chapter 7
trustee
Homestead 	$325,000 	$264,361 	$60,639 21
Salton City 	unknown 	$0 	unknown
Central Avenue
property
$50,080 	$0 	$50,080 22
Cash &
checking
$247 	$247 	$0
Personal
effects
$7,700 	$7,700 	$0
Retirement &
insurance
$71,900 	$71,900 	$0
Vehicles 	$13,473 	$8,000 	$5,473
Total available for Chapter 7 Trustee 	116,192 plus
Salton value
Less:
Estimated closing costs on
residence at 9%
$29,250
Capital gains taxes 23 	$6,713
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23 Calculated on the residence as follows: Selling price
$325,000 less closing costs of $29,250 gives a net sales price of
$295,750; the house cost $251,000; profit is $44,750. 	Capital
gains tax, at 15%, see Internal Revenue Service Publication 17,
Your Federal Income Tax, p. 106, Table 16-1 (2006)(available at
www.irs.gov), is $6,713. 	It appears to the Court that there
would not be a gain on the sale of the Central Avenue property,
so no capital gains taxes would be due on the property. 	And, any
taxes from sale of the Salton City property would taken into
account in the net amount to be received from the sale.
24 Section 326 limits chapter 7 trustee fees to 25% of the
first $5,000; 10% of amounts from $5,000 to $50,000; and 5% of
amounts in excess of $50,000. 	There are further reductions at
higher levels, but they are not relevant to this case.
25 See http://www.timevalue.com/tools.aspx (Follow “What is
my future value worth today?” hyperlink)(Last visited March 26,
2007).
Page -30-
Statutory trustee fees 24 	$9,060
Estimated trustee attorney
fees and costs
$1,000
Estimated trustee accountant
fees and costs
$1,000
Total deductions 	$47,023
Amount available for distribution to creditors
in a hypothetical chapter 7 liquidation
$69,169 plus
Salton value
In the Court’s experience, in this jurisdiction it takes
approximately two years for a Chapter 7 trustee to liquidate
assets, file tax returns, and be ready to close a case.
Therefore, the $69,169 should be discounted back to a present
value. 	Applying a 4% rate for inflation, the present value of
this $69,169 would be $63,951. 25 	Therefore, the Court cannot
confirm a plan that calls for net payments to unsecured creditors
(after trustee fees) of less than a present value of $63,951 plus
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26 Capital gains taxes shall be considered a cost of sale of
the Salton City property and the Chapter 13 Trustee shall pay
them as an administrative expense of the estate.
27 $63,951 ÷ .9 = $71,057.
28 See http://www.timevalue.com/tools.aspx (Follow “How long
will it take to pay off my loan?” hyperlink).
Page -31-
the net 26 value of the Salton City property. 	Confirmation will
be denied with leave to amend the plan.
C. 	Feasibility
Because the Court has denied confirmation of this Plan,
technically it need not address the Plan’s feasibility.
Nevertheless, because the Court has suggested what amendments
will result in a confirmable plan, the Court will make such a
finding. 	The Debtors schedules show a budget surplus of $1,537.
The best interests of creditors test requires Debtors to pay a
present valued sum of $63,951 (together with the net proceeds of
the Salton City property). 	Together with Trustee fees, the
amount paid under the plan must have a present value of
$71,057 27 . 	At $1,537 per month, it will take the Debtors 51
months to pay the $71,057. 28 	Nothing in the record suggests the
Debtors cannot make those payments. 	Debtors also have some
exempt assets they could apply to the Plan.
D. 	Good Faith
The Court has denied confirmation of this Plan, but Debtors
have leave to file an amended plan. 	The issue of good faith will
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Page -32-
undoubtedly be an issue with an amended plan, so the Court will
rule on the good faith of this plan to aid the parties in
negotiating or litigating the amended plan.
As a general matter, a determination of good faith must
be made on a case by case basis, looking at the
totality of the circumstances. 	See Pioneer Bank v.
Rasmussen (In re Rasmussen), 888 F.2d 703, 704 (10th
Cir. 1989). 	“In evaluating whether a debtor has filed
in good faith, courts should be guided by the eleven
factors set forth in Flygare v. Boulden, 709 F.2d 1344,
1347-48 (10th Cir.1983), as well as any other relevant
circumstances.” 	Robinson v. Tenantry (In re Robinson),
987 F.2d 665, 668 (10th Cir. 1993) (footnote omitted).
The eleven Flygare factors are:
(1) the amount of proposed payments and the
amount of the debtor's surplus; 	(2) the
debtor's employment history, ability to earn
and likelihood of future increases in income;
(3) the probable or expected duration of the
plan; 	(4) the accuracy of the plan's
statements of the debts, expenses and
percentage repayment of unsecured debt and
whether any inaccuracies are an attempt to
mislead the court; 	(5) the extent of
preferential treatment between classes of
creditors; 	(6) the extent to which secured
claims are modified; 	(7) the type of debt
sought to be discharged and whether any such
debt is non-dischargeable in Chapter 7; 	(8)
the existence of special circumstances such
as inordinate medical expenses; 	(9) the
frequency with which the debtor has sought
relief under the Bankruptcy Reform Act; 	(10)
the motivation and sincerity of the debtor in
seeking Chapter 13 relief; 	and (11) the
burden which the plan's administration would
place upon the trustee.
Flygare, 709 F.2d at 1347-48 (quoting In re Estus, 695
F.2d 311, 317 (8th Cir. 1982)). 	But “the weight given
each factor will necessarily vary with the facts and
circumstances of each case.” 	Id. at 1348.
Mason v. Young (In re Young), 237 F.3d 1168, 1174-75 (10 th Cir.
2001). 	And, “a Chapter 13 plan may be confirmed despite even the
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Page -33-
most egregious pre-filing conduct where other factors suggest
that the plan nevertheless represents a good faith effort by the
debtor to satisfy his creditors’ claims.” 	Id. at 1177 (quoting
Neufeld v. Freeman, 794 F.2d 149, 153 (4 th Cir. 1986)).
The Court will now analyze each factor:
1) 	To be confirmable, the Court has ruled that Debtors must
adjust their plan payment to $1,537. 	This is exactly the
amount of the Debtors’ surplus.
2) 	The Debtors have had a stable employment history. 	No
evidence was presented one way or the other regarding future
increases in income, but it seems likely that they will
receive at least cost of living raises. 	The Plan does not
contemplate increases in Plan payments, however, so this
factor is not that important.
3) 	The Plan duration is a minimum of three years, which is one
form of the disposable income/best efforts test specified by
§ 1325(b)(1)(B). 	In these circumstances this does not
indicate either good faith or bad faith. 	However, it is
likely that to propose a confirmable plan, debtors will need
to extend the length of the plan to meet the best interests
of creditors test.
4) 	The Plan’s statements were accurate; there was no attempt to
mislead the Court.
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Page -34-
5) 	There is no preferential treatment of any class of creditors
except as authorized by the Code (e.g., attorney fees).
6) 	Secured claims are not modified. 	In fact, the Plan has no
provision for payment of secured claims. 	Debtors may wish
to amend their plan to pay the portion of the judicial lien
on their homestead that they are unable to avoid (see
below).
7) 	The unsecured debt is mostly consumer debt owed to 18
different creditors. 	Mallon has a judgment which the
parties stipulated (for the purposes of confirmation only)
would be a nondischargeable debt in Chapter 7. 	This debt
represents about half the total debt. 	Since chapter 13 was
written to permit the discharge of otherwise
nondischargeable debt, it is not bad faith per se to use the
Bankruptcy Code to do so. 	In re Schaitz, 913 F.2d 452, 454
(7 th Cir. 1990); In re Wilcox, 251 B.R. 59, 67 (Bankr. E.D.
Ark. 2000). 	Overall, the Court does not consider this to be
a major factor in this case.
8) 	There are no exigent circumstances.
9) 	Debtors have filed one other bankruptcy. 	This was discussed
above, and the Court does not find that it indicates bad
faith.
10) 	The Court finds that the Debtors’ motivation in filing this
case was to deal with Mallon’s collection efforts, but also
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29 Section 1307 provides, in part:
(c) Except as provided in subsection (e) of this
section, on request of a party in interest or the
United States trustee and after notice and a hearing,
the court may convert a case under this chapter to a
case under chapter 7 of this title, or may dismiss a
case under this chapter, whichever is in the best
interests of creditors and the estate, for cause,
including--
(1) unreasonable delay by the debtor that is
prejudicial to creditors;
(2) nonpayment of any fees and charges required under
chapter 123 of title 28;
(3) failure to file a plan timely under section 1321 of
this title;
(4) failure to commence making timely payments under
section 1326 of this title;
(5) denial of confirmation of a plan under section 1325
of this title and denial of a request made for
additional time for filing another plan or a
modification of a plan;
(6) material default by the debtor with respect to a
term of a confirmed plan;
(7) revocation of the order of confirmation under
(continued...)
Page -35-
to deal with all of their debts. 	Since this also is the
purpose of filing a bankruptcy petition, it cannot be said
to be bad faith.
11) 	There would be no burden on the Trustee to administer this
case beyond the resources required to administer any other
case.
In sum, the Court finds that overall the Plan was proposed in
good faith.
Dismissal
Dismissal of a Chapter 13 case is governed by Section
1307 29 . 	Mallon’s Motion to Dismiss asserts the following
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29 (...continued)
section 1330 of this title, and denial of confirmation
of a modified plan under section 1329 of this
title;[or]
(8) termination of a confirmed plan by reason of the
occurrence of a condition specified in the plan other
than completion of payments under the plan[.]
Page -36-
grounds: bad faith, intentional misstatement of the value of the
Salton City property on Schedule A, the Debtors’ failure to
include the full value of the Central Avenue property on Schedule
A because it was determined that title to the property rests only
in the Debtors, the Debtors’ intentional misstatement of the
value of their residence, Mr. Keenan’s failure to list income he
receives from his son for working at his son’s auto dealership,
and the Debtors’ use of proceeds they received from the sale of a
California property between the first bankruptcy and the current
one. 	None of these allegations support the statutory
requirements for dismissal. 	They are relevant to the good faith
inquiry that the Court conducted above. 	Consequently, the case
will not be dismissed.
Lien Avoidance
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30 Section 522(f) provides, in relevant part:
(f)(1) ... the debtor may avoid the fixing of a lien on
an interest of the debtor in property to the extent
that such lien impairs an exemption to which the debtor
would have been entitled under subsection (b) of this
section, if such lien is--
(A) a judicial lien...; or
(B) a nonpossessory, nonpurchase-money security
interest in any--
(I) household furnishings, household goods, wearing
apparel, appliances, books, animals, crops, musical
instruments, or jewelry that are held primarily for the
personal, family, or household use of the debtor or a
dependent of the debtor;
(ii) implements, professional books, or tools, of the
trade of the debtor or the trade of a dependent of the
debtor; or
(iii) professionally prescribed health aids for the
debtor or a dependent of the debtor.
(2)(A) For the purposes of this subsection, a lien
shall be considered to impair an exemption to the
extent that the sum of--
(I) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could
claim if there were no liens on the property;
exceeds the value that the debtor's interest in the
property would have in the absence of any liens.
Page -37-
Lien avoidance is governed by Section 522(f) 30 . 	The Court
finds that Debtors can avoid the judicial lien of Suzanne Mallon
and that her objections are not well taken. 	Mallon objected to
avoidance of her lien on 3 grounds: 1) Debtors have not proven
that the lien impairs their exemption, 2) the lien is not within
the class designated by § 522(f)(1)(B), and 3) Debtors lack
standing under Hansen v. Green Tree Servicing, LLC (In re
Hansen), 332 B.R. 8 (10 th Cir. BAP 2005). (Doc 7).
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31 Unlike the calculations for the best interests of
creditors test, closing costs and transaction fees are not
deducted when computing Section 522(f) impairment. 	Sheth v.
Affiliated Realty & Management Co. (In re Sheth), 225 B.R. 913,
918-19 (Bankr. N.D. Ill. 1998).
32 Section 101(36) provides: “‘judicial lien’ means lien
obtained by judgment, levy, sequestration, or other legal or
equitable process of proceeding.
Page -38-
First, the Court found that the Debtors’ residence was worth
$325,000. 	The two consensual mortgages on the residence total
$204,361. 	Debtors claimed, and are entitled to, a New Mexico
homestead exemption of $60,000. 	N.M. Stat. Ann. 42-10-9. 	Under
the formula set out in Section 522(f)(2) the judicial lien is
deemed to impair the exemption in the following amount:
Mallon lien 	$145,289.00
Consensual mortgages 	$204,361.00
Homestead 	$60,000.00
Subtotal 	$409,650.00
Value of property 31 	$325,000.00
Amount of impairment 	$84,650.00
Second, Debtors are not avoiding the lien under Section
522(f)(1)(B); they seek to avoid it under Section 522(f)(1)(A) as
a judicial lien 32 .
Third, In re Hansen does not prevent the Debtors from
avoiding this lien under Section 522(f). 	The rule of Hansen is
that Chapter 13 debtors may not use a trustee’s strong arm powers
under § 544 to avoid improperly perfected liens. 	Hansen, 332
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33 The effect on the Debtors and the unsecured creditors
would be considerable. 	If Mallon’s lien is avoided only in part
pursuant to § 522(f), Mallon will continue to have a lien on the
property for $60,639, but the unsecured creditors (other than
Mallon) would receive less. 	On the other hand, if the Trustee
entirely voids the lien pursuant to § 547(b), the Debtors will
own their home free and clear of Mallon’s lien, and the unsecured
creditors other than Mallon will receive a larger dividend.
34 The Debtors may effectively amend their plan by means of
a confirmation order that reflects the conclusions of this
memorandum opinion. 	The form of any such confirmation order must
(continued...)
Page -39-
B.R. at 12-13. 	In fact, Hansen acknowledges Section 522 as one
of the Bankruptcy Code’s limited provisions that allow debtors to
bring avoidance actions. 	Id. at 13.
Therefore, Debtors can partially avoid the judicial lien.
For the purposes of this Memorandum, the Court has also
assumed that the judicial lien is a preferential transfer. 	In
general, Chapter 13 debtors lack standing to pursue preferential
transfer actions. 	See Wood v. Mize (In re Wood), 301 B.R. 558,
561, 562 (Bankr. W.D. Mo. 2003). 	Therefore, the Trustee should
consider whether she has a duty to pursue a preferential transfer
in this case to allow maximum relief to unsecured creditors. 	See
id. at 562. 33
CONCLUSION
The Court will enter an Order in accordance with this
Memorandum Opinion. 	Confirmation will be denied on the basis of
the best interest of creditors test. 	Leave will be granted to
amend the Plan. 34
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34 (...continued)
of course be approved by opposing counsel.
Page -40-
Honorable James S. Starzynski
United States Bankruptcy Judge
copies to:
James A Askew
PO Box 1888
Albuquerque, NM 87103-1888
Christopher L Trammell
3900 Juan Tabo NE
Albuquerque, NM 87111-3984
David N Hernandez
2221 Rio Grande Blvd. NW, #100
Albuquerque, NM 87104
Rob Treinen
Ste 2000 E
300 Central Ave SW
Albuquerque, NM 87102
Kelley L Skehen
625 Silver Avenue SW
Albuquerque, NM 87102-3111
United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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