The Debtor (Lamar) formed a private investment club, in which members could participate by purchasing units. Seven years after the club was formed, it ran out of money. The members asserted claims totalling nearly $2 million.
Lamar filed a Chapter 13 bankruptcy, which is available only if the debtor owes "noncontingent, liquidated unsecured debts of less than $250,000." Lamar contended that the club members' claims, which he considered invalid, should not be considered "debts" for eligibility purposes, and that the claims were both unliquidated and contingent.
In affirming the bankruptcy court's decision to dismiss the case, the court first determined that, under the majority rule, claims are considered "debts" even if they are disputed. Thus, Lamar was not entitled to "pry his way into Chapter 13" by listing the club members' claims at $1.00 each.
The court next found that the debts were liquidated, despite the fact that they were disputed, since they were "subject to ready determination and precision in computation of the amount due."
Finally, the court held that the debts were non-contingent, in that all of the events giving rise to Lamar's potential liability arose before he filed his petition for Chapter 13 relief. Since Lamar had liquidated, noncontingent unsecured debt of over $250,000, he was not eligible for Chapter 13 relief.
Thomas W. Lamar d/b/a Lamar Investments Group v. Chapter 13 Trustee, et al, Civil Action No. 97-70701 (November 12, 1997)(Cohn, Avern)(Docket No. 15, 17 pp.).
This article was written by Ronald S. Longhofer, a partner in our Litigation Department, and previously appeared in the March 1998 edition of the Michigan Bar Journal.