In re Amireh, Case No. 05-12358, January 2nd, 2008
Treatment of codebtor claims
In this case, the debtor originally filed a Chapter 13 which was denied confirmation and then was converted to a Chapter 7. The Codebtor then purchased Debtors interest in the property, believing the case had been dismissed after the denial of confirmation. In exchange for payments towards certain liens, the debtor gave the codebtors a quitclaim deed.
Once the Chapter 7 Trustee became involved, he avoided the postpetition transfer. Chase then foreclosed and there was a surplus of approximately $13,000. The codebtors filed a proof of claim for the following: Secured – 1.) $13,655.98 paid to Chase by codebtor, 2.) $15,000 paid to judgment lienholder, 3.) $10,813 for judgment held by codebtor against debtor, and 4.) $940/mo debtor was living in property as “rent” payment; Unsecured – $6,500.00 unsecured.
When debtor converted case to a chapter 7 case, all property held in debtor’s possession or under his control became property of the chapter 7 estate to be administered by the Trustee. See 11 U.S.C. § 348(f)(1). A co-tenant receiving more than his proportionate share of rent or income must account to other co-tenant. Because Trustee never received any rent for debtor living in property, does not owe codebtor and therefore, objection to claim for rent sustained.
Codebtors claimed that a payment of $6,500 to the debtor should actually be treated as administrative expense. However, under controlling Fourth Circuit precedent, a §503(b)(1)(A) claim must arise from a postpetition transaction between the creditor and the DIP. This payment did not involve the Trustee nor is it clear it benefitted the estate.
The codebtors also filed a secured claim by way of §549(c), but because they knew of commencement of case, the court decided not to expand §549 beyond its written scope. But, because the Trustee avoided the transfer of the Property, the codebtors are entitled to recover any funds paid to the debtor.
Codebtors also argued that they should be subrogated to the rights of the creditors they paid off, thereby giving them a secured claim. The Court, citing §509(a)(1) decided that, with respect to the judgment lien paid off, because the codebtors were not liable with the debtor in this debt, they are not entitled to a claim against the debtor. As to the payment to Chase, the Court cited §509(b)(2), which says that an entity is not subrogated to the rights of such creditor to the extend that as between the debtor and such entity, such entity received consideration for the claim held by such creditor.” Because they were co-liable on the note, the codebtors also received consideration, the original loan, and therefore were unable to maintain a claim for subrogation.
