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In re Miloszar

July 27, 1999

IN THE MATTER OF:
JOSEPH MILOSZAR, DEBTOR/APPELLANT



The opinion of the court was delivered by: Irenas, District Judge:

HONORABLE JOSEPH E. IRENAS

OPINION

Presently before this Court is an appeal from the Bankruptcy Court's dismissal of a Chapter 13 petition. The Bankruptcy Court ruled that a default judgment should be included in the calculation of allowable debts under § 109(e) of Title 11 of the United States Bankruptcy Code ("Bankruptcy Code"). Having so determined, the Bankruptcy Court dismissed the proceedings because the accumulated debts exceeded this statutory limitation.

This Court finds that: 1) a default judgment entered in a State Court proceeding is a final judgment governed by the "Full Faith and Credit Act" and is binding on the Bankruptcy Court; and 2) a disputed claim based on a default judgment is non-contingent and liquidated within the meaning of § 109(e). The decision of the Bankruptcy Court is affirmed.

I. BACKGROUND

Charlotte Miloszar, the mother of John Miloszar ("Appellee" or "Plaintiff"), Charlotte DellaPolla ("Appellee" or "Plaintiff"), and Joseph Miloszar ("Debtor" or "Appellant") died on April 21, 1997. Charlotte Miloszar's will designated her three children as co-executors and the sole beneficiaries of her estate. Prior to Charlotte Miloszar's death, the Debtor was responsible for the financial affairs of his blind and disabled mother.

On May 23, 1997, the Appellees sued the Debtor in the Superior Court of New Jersey, Camden County, Chancery Division. The suit charged that the Debtor mismanaged the affairs of his mother and misappropriated funds for his own benefit. At a deposition in the State Court matter, the Debtor invoked his Fifth Amendment right to avoid self- incrimination. Due to his failure to respond to certain questions pertaining to his answer to the complaint, the State Court granted Appellees motion for a default judgment.

On June 9, 1998, a proof of damages hearing was held which the counsel for the Debtor did not attend. The reason for his absence is unclear, but the Debtor's counsel alleges that he was never notified of the hearing. On June 17, 1998, a $125,000,000 judgment for damages was awarded against the Debtor.

On September 1, 1998, the Debtor filed a voluntary Chapter 13 petition under Title 11 of the Bankruptcy Code. The petition did not list the default judgment among the Debtor's claims because, at the time of filing, the debtor maintains that he was unaware that a judgment had been awarded against him in State Court. He scheduled only two debts, Advanta for $8,070.52 and MBNA America for $2,181.50. On October 29, 1998, counsel to the Chapter 13 Standing Trustee ("Trustee") held a meeting of the Debtor's creditors pursuant to 11 U.S.C. § 341(a). At this meeting, the Appellees produced the judgment by the State Court awarding damages.

On November 12, 1998, the Trustee filed an Objection to Jurisdiction to the Debtor's eligibility to enter into a Chapter 13 bankruptcy proceeding. The Trustee's motion stated that the $1.25 million dollar judgment against the Debtor exceeded the $269,250 limit imposed by 11 U.S.C. § 109(e). Section 109(e) precludes a debtor from filing for Chapter 13 relief if their cumulative non-contingent liquidated unsecured debts exceed $269,250. The Debtor argued that the State Court judgment was not a liquidated debt and should not be included in the limit section 109(e) places on a Chapter 13 petition.

A hearing was conducted in the United States Bankruptcy Court on February 24, 1999. On March 17, 1999, an Order was entered dismissing the Debtor's bankruptcy petition for lack of jurisdiction. On May 11, 1999, the Debtor filed the instant appeal.

II. STANDARD OF REVIEW

The standard of review applied by a district court when reviewing the ruling of a bankruptcy court is determined by the nature of the issues presented on appeal. Finding of fact are not to be set aside unless they are "clearly erroneous." See Fed. R. of Bankr. P. 8013; In re Indian Palms Ass'n., Ltd., 61 F.3d 197, 203 (3d Cir. 1995); J.P. Fyfe, Inc. v. Bradco Supply Corp., 891 F.2d 66, 69 (3d Cir. 1989). Questions of law are ...


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