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Ex-wife gets benefit of higher value of property

The court dismissed most of the objections to an ex-husband’s bankruptcy plan that were made by his former spouse, although it did hold the current, higher value of real property should be used, rather than the assessment that was made at the time the petition was filed.

Background

Stanislav Ilyev, the debtor, was formerly married to Tsvetelina Ilyev.  That marriage ended in divorce in May 2010.

On Oct. 1, 2015, the debtor and Ms. Ilyev signed the amendment to their marital settlement agreement. The amendment provided that Mr. Ilyev would convey his interest in their jointly held real property located in Sterling and Reston (the Iron Horse and the Royal Fern properties) to Ms. Ilyev for the sum of $35,000.

Mr. Ilyev was also formerly married to Svetlana Kharlamova. Ms. Kharlamova and the debtor entered into a property settlement agreement on Sept. 1, 2015. It provided that Ms. Kharlamova would transfer her interest in the marital residence located at 45476 Baggett Terrace, Sterling, Virginia, to the debtor in exchange for $52,000. Prior to filing this case, Mr. Ilyev paid $35,000 of that obligation to Ms. Kharlamova. The remaining balance shall be paid through this bankruptcy as a non-priority unsecured claim.

Prior to the entry of the divorce decree, Ms. Kharlamova wanted to be relieved of responsibility for the mortgage lien on the property, but Mr. Ilyev did not qualify to refinance the property in his name alone. Rather than selling the property at a loss, John Hus, an associate of the debtor, agreed to be a co-signer with Mr. Ilyev on the loan to refinance in exchange for an ownership interest in the property. To consummate the agreement, Mr. Ilyev and Ms. Kharlamova signed a deed transferring a one-half interest in the property to Mr. Hus on April 3, 2015.

Mr. Ilyev filed his petition on September 2017. The current plan was filed on Aug.  28, 2018, and is the third plan proposed by the debtor.

Ms. Kharlamova filed an objection to the current plan.

Analysis

Ms. Kharlamova argues that Mr. Ilyev’s gross monthly income should be increased to include a raise he received in October 2018. The court acknowledges that the phrase “projected” in § 1325(b)(1)(B) requires courts to consider at confirmation the debtor’s actual income; however, it does not concede that it must include as disposable income, a raise the debtor began receiving one year after the “applicable commitment period” began in September 2017 and two months after the current plan was filed. The court is not willing to burden a chapter 13 trustee with the task of tracking the raises of all debtors during the life of a plan. Moreover, in this case, the raise is not substantial and is merely designed to cover a wager earner’s increased cost of living. The court finds that Mr. Ilyev’s estimation of his projected monthly income from wages as stated on Schedule J is appropriate.

Ms. Kharlamova also argues that Mr. Ilyev’s gross monthly income should be increased to include overtime wages commiserate with the amounts of overtime he received in 2017. Based on the debtor’s testimony that his employer has reduced overtime hours, the court will not attribute overtime pay to his gross income that he may not receive over the life of the plan.

When this case was filed, the debtor listed the value of the Baggett Terrace property as $350,000. The parties stipulated the value of the property as of the effective date of the plan is $385,000. The debtor argued at the hearing that, regardless of the current market value, the property value to use for purposes of the liquidation test is $350,000. However, the plain language of § 1325(a)(4) states that the value of the property at the time of liquidation is the appropriate value. If a chapter 7 trustee sold the property today, the value to the estate would be the net proceeds of a sale at today’s price. It stands to reason that the liquidation test, if applied today would require the use of the current market price; therefore, the property must be valued at $385,000 for purposes of the liquidation test.

Finally, Ms. Kharlamova contends that Mr. Ilyev’s petition was not filed in good faith and therefore his plan cannot be confirmed and his chapter 13 case should be dismissed or converted to a case under chapter 7 of the Bankruptcy Code. Although she carries the burden of proving bad faith, she presented no evidence to support this position.

Objection sustained in part, overruled in part.

In re Ilyev, No. 17-12987, Dec. 10, 2018. EDVA Bankr. at Alexandria (Kindred). VLW No. 018-4-017, 11 pp.

VLW 018-4-017

Virginia Lawyers Weekly