Jeanette Wellers v. Peters

Case Type:
Case Status:
BAP No. 20-040 (10th Circuit, Jul 13,2021) Not Published
BAP for 10th Cir. affirmed bankruptcy court (D. Colo.) order approving settlement between Chapter 7 trustee and creditor regarding allocation of proceeds following sale of Chapter 7 debtor's home. Debtor argued that settlement denied her her homestead exemption. Bankruptcy court noted that debtor had waived homestead exemption in agreement with creditor and liens exceeded property's value, but did not rule whether settlement denied debtor's exemption. Consequently, BAP would not consider issue on appeal. Bankruptcy court did not abuse discretion in approving settlement.
Procedural context:
Bankruptcy court (D. Colo.) granted Chapter 7 trustee's motion to approve settlement with creditor over Chapter 7 debtor's objection. Debtor appealed to BAP for 1oth Circuit.
Chapter 7 debtor (Wellers) owned contractor business (“JBE”). In 2011, surety (“GAIC”) issued performance bond in connection with a JBE construction project at the United States Air Force Academy in Colorado Springs, Colorado. Debtor signed an indemnity agreement, agreeing to indemnify GAIC for any payments made under the bond. The indemnity agreement provided the Debtor waived right to claim any property, including a homestead, exempt from levy or execution in the event GAIC sought to collect under the agreement. At the time, the Debtor lived at a home in Lakewood, Colorado. In November 2016, GAIC paid out $549,271.25 on JBE’s behalf to cover claims for flawed roof work. Being personally liable for the debt, Debtor entered into a settlement agreement with GAIC requiring her to sign a confession of judgment and a promissory note in the amount of $549,271.25. GAIC secured the promissory note with a mortgage against (1) the Debtor’s current residence (the “Residence”) and (2) a commercial property (“Park Street”). The Debtor owned the Residence with her husband. Park Street was owned by a company wholly owned by the Debtor. The Debtor filed a chapter 11 petition that was converted to chapter 7. Her husband filed a chapter 7 petition. Before conversion of her case, the Debtor filed an adversary proceeding against GAIC to set aside the confession of judgment, promissory note, and mortgages as fraudulent transfers. GAIC filed counterclaims seeking to deny the Debtor’s discharge. To facilitate the sale of the Residence and Park Street, the Debtor’s trustee sought to settle the adversary proceeding involving GAIC. Because the liens securing GAIC’s $972,000 claims in the Debtor’s and Frederick Wellers’ bankruptcy cases were cross-collateralized, obtaining any equity for distribution to unsecured creditors required the sale of both the Residence and Park Street. Therefore, the Trustees negotiated a global settlement agreement in both bankruptcy cases providing GAIC would reduce its claim from $972,000 to $650,000 in exchange for the Debtor’s estate’s release of its claims against GAIC. The Bankruptcy Court approved the global settlement allowing the Trustees to split the proceeds from the sale of the Residence and Park Street equally between Mr. and Mrs. Wellers’ estates.
Cornish, Michael, Hall

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