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#2330 signed 6-3-97

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS


In re:

EDWARD LAWRENCE TEETS, JR.,

DEBTOR(S).





CASE NO. 96-41076-13

CHAPTER 13





MEMORANDUM OF DECISION

This case is before the Court on the motion of creditor Simmons Foods, Inc., to dismiss or convert. Simmons Foods, Inc. (Simmons), appears by counsel Brock R. Snyder. The debtor appears by counsel Lynn D. Lauver. The Court has reviewed the relevant pleadings and is now ready to rule.

Simmons contends the debtor is not eligible for chapter 13 relief because on the date he filed for bankruptcy, he owed noncontingent, liquidated, unsecured debts of $250,000 or more. See 11 U.S.C.A. §109(e). The debtor contends he is eligible because his debt to Simmons is contingent, unliquidated, or both. In his brief, the debtor also mentioned laches but cited no law to support his bare allegation that Simmons waited too long before bringing its motion.

Thus, the question before the Court is whether Simmons's claim was contingent or unliquidated on the date the debtor filed for bankruptcy. The relevant facts are not in dispute. The debtor guaranteed a debt owed to Simmons by a corporation he controlled. The corporation defaulted on the debt and filed a chapter 11 bankruptcy. A plan of reorganization for the corporation was confirmed, but the plan ultimately failed. The debtor filed his bankruptcy case after the corporation's plan was confirmed, but before the plan failed. The debtor's chapter 13 plan has not been confirmed.

The parties do not question that the debtor's guaranty of the corporation's debt was an unconditional guaranty of payment. In it, the debtor agreed to pay Simmons "on demand any sum which may become due to [Simmons] by the [corporation] whenever the [corporation] shall fail to pay the same," and "waive[d] notice of default, non-payment and notice thereof." The parties also effectively agree that the debtor is not eligible for chapter 13 if his debt to Simmons must be counted in determining whether he meets the debt limits established by §109(e). The corporation is being liquidated and has insufficient assets to reduce Simmons's claim enough to reduce the debtor's unsecured debts below the debt limits, even if Simmons were to receive all the remaining value of those assets.

Citing no supporting case law, the debtor asserts that Simmons's claim against him is unliquidated. The debt is based on a note and guaranty. The corporation the debtor controlled owed Simmons a liquidated amount under that note. To the extent the value of the corporation's assets is applied against that amount, the debtor's obligation on his guaranty will be reduced. However, Simmons has the right to try to collect the entire debt, the current balance due on the note, from the debtor without waiting for the corporate liquidation. The fact Simmons also has the right to try to collect from the corporation does not make its claim unliquidated. In re Poage, 92 B.R. 659, 665 (Bankr.N.D. Tex. 1988).

The debtor also contends that his guaranty was not due and owing when he filed his chapter 13 case because Simmons had not demanded payment from him and the corporation had not yet defaulted on its obligations under its chapter 11 plan, which included treating Simmons's claim as provided in the plan. Before filing for bankruptcy, the corporation the debtor controlled defaulted on the note to Simmons. While Simmons did not demand payment from the debtor, no demand was required to mature his obligation on the guaranty. A guarantor's liability on an unconditional guaranty matures upon the default of the party whose contract is guaranteed. Howell v. Ablah, 188 Kan. 244, 250 (1961). Although the corporation obtained confirmation of its plan, confirmation does not affect the liability of any other entity on debts dealt with by the plan. See 11 U.S.C.A. §1141(d) & §524(e). The Court concludes that the debtor's liability on the guaranty matured when the corporation defaulted on the debt before it filed for bankruptcy, and the subsequent confirmation of the corporation's plan of reorganization did not affect the debtor's liability on the guaranty.

While Simmons might have filed its motion to dismiss or convert more promptly, the debtor does not suggest that Simmons's delay has prejudiced him in any way. His chapter 13 plan has not yet been confirmed. The Court concludes laches does not bar the relief Simmons seeks.

Because the debtor's unsecured debt to Simmons is liquidated, not contingent, and exceeds $250,000, the debtor is not eligible to be a debtor under chapter 13. No one has indicated to the Court whether it would be more appropriate to dismiss the case or convert it to chapter 7. Consequently, the debtor is hereby given until Friday, June 13, to convert the case to chapter 7 or it will be dismissed without further notice.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this 3d day of June, 1997.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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