ANGEL LUIS COLON MARTINEZ

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE:
ANGEL LUIS COLON MARTINEZ,
Debtor(s).
Case No. 10-09746 (MCF)
Chapter 11
DECISION AND ORDER
Upon 	review 	of 	Allied 	Management 	Group, 	Inc.’s 	(hereafter
"Allied") 	motion 	to 	convert 	(Docket 	No. 	77), 	Debtor's 	opposition
thereto 	(Docket 	No. 	79), 	Debtor's 	supplement 	to 	his 	opposition
(Docket 	No. 	88), 	Allied's 	reply 	(Docket 	No. 	89), 	as 	well 	as 	the
averments 	made 	in 	open 	Court 	on 	July 	14, 	2011 	(Docket 	No. 	90),
the 	Court 	hereby 	DENIES 	Allied's 	motion 	to 	convert 	the 	case 	to
Chapter 7 for the reasons herein stated.
I. PROCEDURAL HISTORY
Debtor, 	Angel 	Luis 	Colon 	Martinez, 	a 	retired 	physician 	who
owns 	various 	real 	estate 	properties 	in 	Santurce, 	Hato 	Rey,
Guanica 	and 	Caguas, 	filed 	the 	instant 	case 	as 	a 	pro 	se 	voluntary
petition 	under 	Chapter 	11 	of 	the 	Bankruptcy 	Code 	(the 	"Code") 	on
October 	18, 	2010 	(Docket 	No. 	1). 1 At 	the 	time 	of 	the 	bankruptcy
filing, 	Allied 	was 	Debtor's 	largest 	secured 	creditor, 	whose
collateral 	covers 	three 	out 	of 	Debtor's 	four 	real 	estate
properties (Proof of Claim No. 2).
1 	This 	is 	Debtor's 	second 	bankruptcy 	filing 	within 	a 	one 	year 	period. 	The
first case, Case No. 08-02394 (MCF), was dismissed on February 5, 2010.
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On 	June 	22, 	2011, 	Allied 	filed 	a 	motion 	to 	convert 	this
case 	to 	a 	proceeding 	under 	Chapter 	7, 	pursuant 	to 	11 	U.S.C. 	§
1112(b)(4)(A) 	(Docket 	No. 	77). 	Allied's 	request 	is 	premised 	on
the 	argument 	that 	there 	is 	a 	continuing 	loss 	or 	diminution 	of
Debtor's 	estate 	and 	the 	absence 	of 	a 	reasonable 	likelihood 	that
Debtor 	can 	be 	rehabilitated. 	Allied 	based 	its 	position 	on
Debtor’s 	lack 	of 	post-petition 	payment 	towards 	Allied’s
indebtedness, 	as 	well 	as 	a 	decline 	in 	value 	of 	Debtor’s 	real
estate properties, among other things.
Debtor 	opposed 	Allied's 	assertions 	on 	July 	5, 	2011 	(Docket
No. 	79), 	whereby 	Debtor 	argued 	that 	he 	had 	previously 	proffered
to 	turn 	over 	to 	Allied 	the 	monthly 	rental 	income 	of 	one 	of 	his
real 	estate 	properties 	as 	payment 	to 	Allied's 	debt 	(an 	offer
that 	Allied 	allegedly 	refused, 	and 	continues 	to 	refuse 	to 	date).
See 	Docket 	No. 	79 	at 	2. 	Debtor 	also 	contested 	Allied’s
contention 	that 	the 	real 	estate 	properties 	were 	declining 	in
value. 	Moreover, 	Debtor 	filed 	the 	outstanding 	Monthly 	Operating
Reports for the months of April, May and June, 20112 (Dockets No.
80, 81 and 82).
Debtor 	filed 	a 	supplemental 	opposition 	to 	Allied's 	motion
to 	convert 	on 	July 	20, 	2011 	(Docket 	No. 	88). 	In 	said 	supplement,
2 Debtor 	was 	briefly 	represented 	by 	counsel 	during 	the 	period 	from 	December
20, 2010 to June 1, 2011 (Dockets No. 19, 24, 66, 69, and 73). 	According to
Debtor, the Monthly Operating Reports for April, May and June were not timely
filed 	as 	a 	result 	of 	his 	legal 	counsel's 	resignation; 	as 	such 	they 	were
prepared and filed by Debtor himself (Docket No. 79).
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Debtor 	once 	again 	reinstated 	his 	offer 	to 	tender 	over 	the
monthly 	rental 	income 	of 	one 	of 	his 	real 	properties 	as 	payment
to 	Allied's 	debt, 	as 	well 	as 	filed 	a 	proposed 	Chapter 	11 	Plan 	of
Reorganization.
Allied 	filed 	a 	reply 	to 	Debtor's 	oppositions 	on 	July 	22,
2011, 	wherein 	it 	provided 	complementary 	documentation 	to 	support
conversion of the case (Docket No. 89).
II. DISCUSSION
Section 	1112(b)(1) 	of 	the 	Bankruptcy 	Code 	contains 	the
legal 	provision 	by 	which 	a 	party 	in 	interest 	may 	request 	the
conversion 	of 	a 	Chapter 	11 	case 	to 	a 	Chapter 	7 	case. 	The 	same
provides in relevant parts:
...on 	request 	of 	a 	party 	in 	interest, 	and 	after
notice 	and 	a 	hearing, 	the 	court 	shall 	convert 	a
case 	under 	this 	chapter 	to 	a 	case 	under 	chapter 	7
or 	dismiss 	a 	case 	under 	this 	chapter, 	whichever
is 	in 	the 	best 	interests 	of 	creditors 	and 	the
estate, for cause...
11 U.S.C. § 1112(b)(1).
"Cause" 	for 	purposes 	of 	conversion 	is 	not 	defined 	in 	the
Code. 	However, 	Section 	1112(b)(4) 	provides 	sixteen 	examples 	of
what 	is 	considered 	"cause" 	for 	conversion. 3 Allied 	argues
3 The sixteen examples are as follows:
For purposes of this subsection, the term "cause" includes-
(A) 	substantial 	or 	continuing 	loss 	to 	or 	diminution 	of
the 	estate 	and 	the 	absence 	of 	a 	reasonable 	likelihood 	of
rehabilitation;
(B) 	gross mismanagement of the estate;
(C) 	failure 	to 	maintain 	appropriate 	insurance 	that 	poses
a risk to the estate or to the public;
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"cause" 	in 	the 	instant 	case 	under 	the 	first 	example 	of 	11 	U.S.C.
§ 	1112(b)(4)(A), 	that 	is 	under 	the 	prong 	of 	substantial 	or
continuing 	loss 	to 	or 	diminution 	of 	the 	bankruptcy 	estate 	and
the 	absence 	of 	a 	reasonable 	likelihood 	of 	rehabilitation 	by 	the
Debtor.
According to Colliers,
[the] 	movant 	bears 	the 	initial 	burden 	of
demonstrating 	that 	cause 	exists 	to 	convert 	the
chapter 	11 	case 	to 	chapter 	7,… 	whichever 	is 	in
the 	best 	interest 	of 	creditors 	and 	the
(D) 	unauthorized 	use 	of 	cash 	collateral 	substantially
harmful to 1 or more creditors;
(E) 	failure to comply with an order of the court;
(F) 	unexcused 	failure 	to 	satisfy 	timely 	any 	filing 	or
reporting 	requirement 	established 	by 	this 	title 	or 	by 	any 	rule
applicable to a case under this chapter;
(G) 	failure 	to 	attend 	the 	meeting 	of 	creditors 	convened
under section 341(a) or an examination ordered under rule 2004 of
the 	Federal 	Rules 	of 	Bankruptcy 	Procedure 	without 	good 	cause
shown by the debtor;
(H) 	failure 	timely 	to 	provide 	information 	or 	attend
meetings 	reasonably 	requested 	by 	the 	United 	States 	trustee 	(or
the bankruptcy administrator, if any);
(I) 	failure 	timely 	to 	pay 	taxes 	owed 	after 	the 	date 	of
the order for relief or to file tax returns due after the date of
the order for relief;
(J) 	failure to file a disclosure statement, or to file or
confirm a plan, within the time fixed by this title or by order
of the court;
(K) 	failure 	to 	pay 	any 	fees 	or 	charges 	required 	under
chapter 123 of title 28;
(L) 	revocation 	of 	an 	order 	of 	confirmation 	under 	section
1144;
(M) 	inability to effectuate substantial consummation of a
confirmed plan;
(N) 	material 	default 	by 	the 	debtor 	with 	respect 	to 	a
confirmed plan;
(O) 	termination 	of 	a 	confirmed 	plan 	by 	reason 	of 	the
occurrence of a condition specified in the plan; and
(P) 	failure 	of 	the 	debtor 	to 	pay 	any 	domestic 	support
obligation 	that 	first 	becomes 	payable 	after 	the 	date 	of 	the
filing of the petition.
11 U.S.C. § 1112(b)(4).
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estate...Thus, 	until 	the 	movant 	carries 	this
burden, 	the 	statutory 	direction 	that 	the 	court
‘shall 	convert 	the 	case 	to 	a 	case 	under 	chapter 	7
or dismiss the case' is not operative.
7-1112 COLLIERS ON BANKRUPTCY ¶ 1112.04.
It 	is 	a 	well-settled 	axiom 	that, 	for 	purposes 	of 	conversion
under 	Section 	1112(b), 	"cause" 	shall 	be 	demonstrated 	through 	the
preponderance 	of 	evidence 	standard. 	Keven, 	A. 	McKenna, 	P.C. 	v.
Official 	Comm. 	of 	Unsecured 	Creditors 	(In 	re 	Keven, 	A. 	McKenna,
P.C.), 	2011 	U.S. 	Dist. 	LEXIS 	57985 	(D.R.I 	2011); 	In 	re 	El
Legado, 	2010 	Bankr. 	LEXIS 	1676, 	2010 	WL 	1924439 	(Bankr. 	D.P.R.
2010); 	In 	re 	Woodbrook 	Assoc., 	19 	F.3d 	312 	(7th 	Cir. 	1994);
Colonial 	Daytona 	Ltd. 	Partnership 	v. 	American 	Sav. 	of 	Fla, 	152
B.R. 996, 1001-1002 (M.D. Fla. 1993).
Based 	on 	the 	aforementioned 	framework, 	and 	considering 	that
Allied 	is 	requesting 	conversion 	under 	sub-section 	(A) 	of 	Section
1112(b)(4), 	Allied 	bears 	the 	burden 	of 	demonstrating 	before 	this
Court, 	through 	preponderance 	of 	evidence, 	a 	loss 	or 	diminution
to 	the 	bankruptcy 	estate 	as 	well 	as 	an 	absence 	of 	rehabilitation
by Debtor.
Allied 	asserts 	the 	following 	four 	factors 	in 	favor 	of 	its
position 	for 	conversion: 	(1) 	the 	decline 	in 	value 	of 	Debtor's
real 	estate 	properties; 	(2) 	Debtor's 	lack 	of 	post-petition
payments 	to 	Allied; 	(3) 	Debtor's 	inability 	to 	fund 	a 	plan 	of
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reorganization; 	and 	(4) 	Debtor's 	failure 	to 	file 	a 	Chapter 	11
Plan of Reorganization (Docket No. 77).
With 	regards 	to 	Allied’s 	contention 	that 	Debtor’s 	real
estate 	properties 	have 	been 	declining 	in 	value, 	Allied 	is 	basing
the 	same 	on 	the 	appraisals 	performed 	on 	said 	properties 	in 	2006
(Docket 	No. 	77, 	Attachments 	II, 	III, 	and 	IV); 	"common 	knowledge
based 	on 	the 	current 	depreciation 	of 	the 	real 	estate 	properties
in 	Puerto 	Rico" 	(Docket 	No. 	89 	at 	2); 	and 	a 	statement 	issued 	by
Debtor's 	former 	accountant 	as 	to 	the 	"issues 	concerning 	the
feasibility 	of 	the 	plan 	of 	reorganization 	in 	this 	case, 	based 	on
the 	recent 	appraisal 	report 	over 	Debtor’s 	Real 	Estate 	Property"
(Docket No. 89 at 3, citing from Docket No. 65 at ¶ 3). 4
While 	the 	2006 	appraisals 	are 	persuasive 	in 	this 	matter, 	it
must 	be 	noted 	that 	the 	same 	were 	performed 	five 	(5) 	years 	ago.
Much 	could 	have 	happened 	between 	2006 	and 	2011. 	In 	fact,
Debtor’s 	properties 	may 	have 	depreciated, 	or 	even 	appreciated,
during 	this 	period 	of 	time. 	Given 	the 	age 	of 	these 	appraisals,
and 	the 	uncertainty 	of 	the 	current 	real 	estate 	market, 	these
2006 	values 	are 	not 	a 	reliable 	measure 	for 	which 	to 	determine
the 	value 	of 	Debtor’s 	real 	properties 	as 	of 	today's 	date 	and
much 	less 	a 	substantial 	or 	continuing 	loss 	to 	or 	diminution 	of
the estate.
4 Debtor had also briefly retained an accountant from the period of December
20, 2010 to July 27, 2011 (Dockets No. 20, 25, 65, and 91).
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In 	addition, 	the 	difference 	between 	the 	amount 	of 	Debtor’s
indebtedness 	and 	the 	2006 	appraisals 	range 	from 	$2,400 	to
$94,000 	approximately, 	which 	are 	close 	margins. 	On 	the 	other
hand, 	Debtor’s 	Amended 	Schedules 	suggest 	that 	Allied 	is 	an
oversecured 	creditor 	on 	all 	of 	its 	collateral 	security. 	Docket
No. 	29 	at 	5. 	With 	this 	discrepancy 	and 	the 	age 	of 	the
appraisals, 	this 	Court 	has 	not 	been 	placed 	in 	a 	position 	to 	make
a 	factual 	finding 	that 	there 	has 	been 	loss 	or 	a 	diminution 	of
the estate.
As 	to 	the 	allegation 	of 	"common 	knowledge 	based 	on 	the
current 	depreciation 	of 	the 	real 	estate 	properties 	in 	Puerto
Rico" 	is 	concerned, 	the 	Court 	cannot 	use 	this 	blanket 	statement
as 	a 	conclusive 	finding 	of 	fact 	absent 	any 	other 	evidence
reflecting 	the 	value 	of 	Debtor's 	real 	estate 	properties 	in 	the
Island's 	current 	real 	estate 	market, 	such 	as 	more 	recent
property appraisals.
Furthermore, 	Allied’s 	reliance 	on 	a 	statement 	issued 	by
Debtor's 	former 	accountant 	(Docket 	No. 	65 	at 	¶ 	3) 	cannot 	be
considered 	by 	this 	Court 	as 	a 	proffer 	of 	proof, 	nor 	does 	it
qualify 	as 	either 	a 	finding 	of 	fact 	or 	a 	qualitative 	statement
as 	to 	the 	value 	of 	Debtor's 	real 	estate 	properties, 	for 	said
comments 	were 	issued 	in 	the 	context 	of 	the 	accountant 	indicating
to 	the 	Court 	the 	scope 	of 	his 	engagement 	towards 	Debtor, 	as 	well
as 	the 	work 	that 	was 	performed 	by 	him 	up 	until 	his 	resignation
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as 	a 	professional 	for 	the 	estate. 	Furthermore, 	Debtor’s 	former
accountant 	was 	not 	engaged 	or 	qualified 	as 	an 	expert 	in 	real
estate 	values, 	and 	the 	Court 	was 	not 	provided 	with 	the 	alleged
recent appraisals referred to by Debtor’s former accountant.
With 	regards 	to 	Allied’s 	second 	argument 	in 	favor 	of
conversion, 	the 	lack 	of 	post-petition 	payments, 	Allied 	has 	not
presented 	any 	evidence 	to 	this 	Court 	as 	to 	how 	Debtor's 	lack 	of
payment 	to 	Allied 	has 	contributed 	to 	a 	loss 	or 	diminution 	of 	the
bankruptcy 	estate 	and/or 	to 	a 	lack 	of 	rehabilitation 	by 	Debtor,
especially 	when 	considering 	Debtor's 	assertion 	that 	it 	has
offered 	(and 	continues 	to 	offer) 	to 	Allied 	the 	monthly 	rental
income 	of 	one 	of 	his 	real 	properties 	as 	payment 	for 	their 	post-
petition 	debt 	(Dockets 	No. 	79 	and 	88). 	In 	fact, 	one 	of 	Debtor's
specific 	provisions 	of 	his 	proposed 	Chapter 	11 	Plan 	includes 	the
tendering 	over 	of 	said 	rental 	income 	to 	Allied 	to 	be 	applied 	to
their debt. See Docket No. 88 at 2 - 4.
Allied's 	third 	argument 	for 	conversion 	(that 	Debtor 	is
unable 	to 	fund 	a 	Chapter 	11 	plan 	of 	reorganization) 	is 	premised
almost 	exclusively 	on 	the 	information, 	or 	lack 	hereof, 	contained
at 	Debtor's 	Monthly 	Operating 	Reports. 	As 	far 	as 	the 	information
included 	in 	said 	reports 	is 	concerned, 	it 	must 	be 	noted 	that 	the
majority 	of 	these 	reports 	were 	prepared 	and 	filed 	by 	Debtor
himself 	in 	a 	pro 	se 	capacity. 	Notwithstanding 	this, 	Allied 	did
not 	take 	into 	account 	other 	information 	concerning 	Debtor's
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assets 	and 	income 	to 	determine 	a 	likelihood 	of 	reorganization,
such 	as 	the 	apparently 	unencumbered 	real 	estate 	property 	located
at 	Floral 	Park 	in 	Hato 	Rey 	(as 	per 	Debtor's 	Schedule 	A) 	and 	how
this 	equity 	of 	approximately 	$650,000 	may 	be 	applied 	to 	a
possible 	plan 	of 	reorganization, 	if 	any. 	See 	Docket 	No. 	1 	at 	9;
Docket No. 29 at 5 and 6.
According 	to 	the 	Summary 	of 	Schedules 	and 	its 	amendments,
Debtor 	allegedly 	reports 	more 	assets 	than 	liabilities, 	possibly
indicating 	that 	Debtor 	is 	able 	to 	pay 	his 	creditors 	in 	full.
Docket 	No. 	1 	at 	7 	and 	Docket 	No. 	29 	at 	3. 	Therefore, 	Allied 	has
not 	demonstrated 	to 	this 	Court 	a 	lack 	by 	Debtor 	to 	fund 	and/or
propose a plan of reorganization.
Allied's 	final 	contention 	in 	support 	of 	conversion,
regarding 	Debtor's 	failure 	to 	file 	a 	plan 	of 	reorganization, 	has
become 	moot 	in 	view 	of 	the 	recent 	filing 	of 	a 	proposed 	Chapter
11 Plan by Debtor on July 20, 2011 (Docket No. 88). 5
Based 	on 	the 	record, 	Allied 	has 	not 	complied 	with 	its
burden 	of 	demonstrating 	through 	preponderance 	of 	evidence 	the
existence 	of 	a 	substantial 	or 	continuing 	loss 	to 	or 	diminution
of 	the 	bankruptcy 	estate 	and 	the 	absence 	of 	a 	reasonable
likelihood 	of 	rehabilitation 	by 	the 	Debtor. 	Consequently,
5 The Court realizes that this pro se Debtor will have to amend his plan, for
the 	same, 	as 	filed, 	does 	not 	comply 	with 	11 	U.S.C. 	§ 	1129; 	however, 	Debtor
has 	shown 	initiative 	to 	comply 	with 	his 	duties 	under 	the 	Bankruptcy 	Code.
The 	Court 	again 	urges 	the 	Debtor 	to 	obtain 	legal 	representation 	and/or
financial advisor.
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Allied's 	motion 	for 	conversion 	to 	Chapter 	7 	(Docket 	No. 	77) 	is
denied without prejudice.
ORDER
WHEREFORE, 	Allied's 	motion 	for 	conversion 	of 	the 	instant
case 	to 	a 	proceeding 	under 	Chapter 	7 	(Docket 	No. 	77) 	shall 	be,
and hereby is, DENIED without prejudice.
SO ORDERED.
San Juan, Puerto Rico, this 29th day of July, 2011.
BY THE COURT:
/S/MILDRED CABAN FLORES
U.S. Bankruptcy Judge
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