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In re Baker

United States District Court, E.D. Michigan, Southern Division

February 27, 2018

In re SALISHA BAKER, Debtor.
v.
WAYNE COUNTY TREASURER, Appellee. SALISHA BAKER, Appellant,

          OPINION AFFIRMING BANKRUPTCY COURT'S ORDER LIFTING THE AUTOMATIC STAY

          LAURIE J. MICHELSON U.S. DISTRICT JUDGE

         I.

         At a Wayne County tax auction, Salisha Baker purchased five houses located in Detroit. (R. 7, PID 359; R. 8, PID 391.) She wanted the houses to generate supplemental income to create a nest egg. (R. 7, PID 359.) So she started a property management business and began leasing the houses to tenants. (R. 8, PID 391.) But the tenants' rent did not cover Baker's costs. (R. 5, PID 66-70; see also R. 5, PID 137.) As a result, from 2010 to 2014, Baker did not pay property taxes and fell behind on her utility bills. (R. 5, PID 45, 51-52.)

         To reorganize her debts, Baker filed for Chapter 13 bankruptcy protection. Her biggest debt was to the Wayne County Treasurer for $49, 024.10 in unpaid property taxes. (R. 5, PID 45.) She had other debts, too, including unpaid utility bills along with student loan obligations. (R. 5, PID 51-52.)

         Baker consolidated her debts-including the delinquent property taxes-and in late 2015, the Bankruptcy Court confirmed her Chapter 13 plan. (R. 9, PID 415.) Over the objection of the bankruptcy trustee, Baker included, as part of the bankruptcy estate, the five rental properties. (R. 5, PID 207.) She insisted the rental properties generated net income essential to her ability to make plan payments. (R. 9, PID 416.)

         Baker made-and continues to make-timely and consistent plan payments. (R. 5, PID 312, 323.) But sometime in 2016 Baker fell ill and lost wages. (R. 8, PID 392.) Losing the wages, Baker says, forced her to choose between paying her 2015 and 2016 property taxes or making her plan payments. (Id.) Baker opted to make plan payments and did not pay 2015 and 2016 property taxes on any of her rental properties. (Id.)

         Initially, the Wayne County Treasurer tried to work with Baker. The Treasurer mailed Baker two letters, informing her of the delinquency and offering her a chance to structure a payment plan. (R. 12, PID 473.) Baker never responded (R. 12, PID 473), so the Treasurer foreclosed on the five properties (R. 9, PID 474). But the rental properties were part of the bankruptcy estate so the Treasurer could not immediately begin foreclosure proceedings.

         To further explain, Baker's bankruptcy petition automatically "operate[d] as a stay" of certain legal proceedings against her and properties in her bankruptcy estate. 11 U.S.C. § 362(a). Because Baker's rental properties were part of the bankruptcy estate, the stay blocks the Treasurer's attempt to foreclose on them. 11 U.S.C. § 362(a)(3), (a)(4). But the stay is not inviolable. See 11 U.S.C. § 362(d). Section 362(d) allows the Bankruptcy Court to lift the stay "(1) for cause ... or (2) with respect to a stay of an act against property ... if (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization." 11 U.S.C. § 362(d).

         As permitted by § 362(d), the Treasurer moved to lift the stay on the rental properties. (Id.) The Treasurer argued that Baker's failure to pay post-petition property taxes amounted to "cause" sufficient to lift the stay. (R. 5, PID 261-62.) Baker replied that her health concerns and timely plan payments to the trustee counseled against granting the Treasurer relief from the stay. (R. 5, PID 338.) Siding with the Treasurer, the Bankruptcy Court lifted the stay. The Bankruptcy Court reasoned that Baker's failure to pay post-petition property taxes on five commercial properties amounts to cause.

         Soon after, the Treasurer began foreclosure proceedings. (R. 5, PID 268-270.) Baker appealed. (R. 1.) Initially, she sought a stay of the Bankruptcy Judge's ruling pending appeal, (R. 8), which this Court denied (R. 13). Now, Baker argues the decision to lift the automatic stay was an abuse of discretion. (R. 9, PID 414.)

         II.

         When a bankruptcy court grants a creditor relief from the automatic stay, the Court reviews that decision for an abuse of discretion. See State Bank v. Miller (In re Miller), 513 Fed.Appx. 566, 570 (6th Cir. 2013); Laguna Assoc. Ltd. P 'ship v. Aetna Cas. & Sur. Co. (In re Laguna Assoc. Ltd. P 'ship), 30 F.3d 734, 737 (6th Cir. 1994). Abuse of discretion requires the Court to ask "whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." In re M.J. Waterman & Assocs., 227 F.3d 604, 608 (6th Cir. 2000) (citing Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081, 1087 (7th Cir. 1982)). Within the abuse of discretion framework, the Court gives fresh review to legal conclusions, and reviews factual findings for clear error. Jones v. City of Monroe, 341 F.3d 474, 476 (6th Cir. 2003).

         III.

         On appeal, Baker raises two arguments. First, Baker says the Bankruptcy Court misread § 362(d). (R. 9, PID 422.) The Bankruptcy Court's decision to lift the stay relied on § 362(d)(1), which allows relief from the stay "for cause." 11 U.S.C. § 362(d)(1). Baker says relying on the "cause" prong was error. Baker argues the Bankruptcy Court was required to rely on § 362(d)(2). Recall that § 362(d)(2) allows relief "with respect to a stay of an act against property . . . if (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization." See 11 U.S.C. § 362(d)(2). Because the Treasurer wanted relief from the stay to foreclose on property, Baker thinks the Bankruptcy Court had to apply § 362(d)(2), the "property" prong. And relying on the "property" prong would have required the Bankruptcy Court to assess whether Baker had equity in the rental properties and see if Baker needed the properties for her reorganization. Thus, says Baker, the Bankruptcy Court erred in deciding not to conduct those inquiries. In the ...


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