Appellants Arthur and Jenny Scovis ("Debtors") filed a

Chapter 13 petition in Bankruptcy. Appellee Christen Brun

Henrichsen ("Henrichsen") moved to dismiss the petition,

arguing, among other things, that Debtors' aggregate unse-

cured debts exceed the $250,000 statutory limitation for eligi-

bility. The bankruptcy court denied Henrichsen's motion to

dismiss, and confirmed the plan. The Bankruptcy Appellate

Panel ("BAP") reversed the bankruptcy court and remanded

for factual findings on two issues. See In re Scovis, 231 B.R.

336 (BAP 9th Cir. 1999). Despite the remand, Debtors have

appealed the BAP's determination.

I. Background

Debtors filed a Chapter 11 petition in February 1994. At

the time, Debtors were attorneys actively practicing law under

6107

the law partnership of Scovis and Scovis. The case was con-

verted to Chapter 7 in August of 1994, and their discharge

was granted on March 13, 1995.

During the Chapter 7 case, creditor Christen Brun Henrich-

sen obtained a judgment declaring Debtors' debt to him, on

a state court judgment obtained in 1993, non-dischargeable

under 11 U.S.C. § 523(a)(6). In an unpublished memorandum

disposition, this Court affirmed.

In September 1995, Arthur Scovis underwent quadruple

bypass surgery and was also diagnosed with severe insulin-

resistant diabetes. Soon after, Debtors filed a Chapter 13 peti-

tion. Debtors voluntarily dismissed the petition in March 1996

because they wished to resolve certain claim litigation outside

of the Chapter 13 arena, intending to re-file later if necessary.

The second and current Chapter 13 petition was filed on

October 25, 1996. An amended petition was filed on Novem-

ber 8, 1996, in which the "Nature of Debt" was changed from

"Business" to "Non-Business," the estimated number of credi-

tors was decreased, the estimated liabilities were increased,

and the signature of their attorney was added. The only sched-

ule of debts filed by Debtors are those submitted with the

amended petition.

In the "Real Property" schedule, Schedule A, Debtors val-

ued their residence at $325,000, encumbered by a first trust

deed in favor of Great Western Bank of $249,026.91 along

with the Henrichsen judgment lien of $208,000. In the "Prop-

erty Claimed As Exempt" schedule, Schedule C, Debtors

listed a $100,000 homestead exemption, allowed under Cali-

fornia law. See Cal. Civ. Proc. Code § 704.730(a)(3) (1996).

Henrichsen was listed again, this time under the"Creditors

Holding Secured Claims" schedule, Schedule D, as having

$75,973.09 secured by the residence. A priority claim of

$6,000 for IRS payroll taxes, and general unsecured claims of

$40,499.83 were listed on the "Creditors Holding Unsecured

6108

Priority Claims" and "Creditors Holding Unsecured Nonpri-

ority Claims" schedules, Schedules E and F, respectively.

In addition, Debtors, under Schedule D, listed as secured a

debt of $4,136 to Mary Scovis, Arthur Scovis's mother, for a

loan she made to Debtors for the purchase of an automobile.

However, no written security agreement was ever executed,

nor was Mary Scovis ever listed as a lienholder on the title to

the car. About a year after the petition date, while the confir-

mation was being contested before the bankruptcy court,

Debtors filed a declaration from Mary Scovis in which she

purportedly waived any claim on the loan.

Before the bankruptcy court, Henrichsen objected to confir-

mation of Debtors' Chapter 13 plan on several grounds. He

asserted that Debtors did not propose their plan in good faith;

and specifically, that Debtors were misusing the automatic

stay to avoid a non-dischargeable judgment, that their sched-

ules were inaccurate, and that their proposed payments were

inadequate. Thereafter, Debtors amended Schedule F to delete

three creditors who had been paid by insurance or other

sources, which lowered the general unsecured debt owed from

$40,499.83 to $22,919.85. According to the numbers, the

deletion of the three creditors should have resulted in an over-

all general unsecured debt reduction of $3,779.98, not

$17,579.98. A comparison of Schedule F and Amended

Schedule F show that Debtors altered the amount they owed

for 1991 Federal income taxes and penalties from $25,000

down to $11,200. Oddly, there is no indication in the record

that Debtors actually paid to the IRS the $13,800 difference.

It is the combined $13,800 and $3779.98 figures that reflect

the general unsecured debt reduction of $17,579.98. Further-

more, on Debtors' motion, Henrichsen's judgment lien

against their residence was avoided by order entered on April

23, 1997.

In September 1997, Henrichsen further objected to confir-

mation, arguing that Debtors fail to meet Chapter 13 eligibil-

6109

ity requirements. At a hearing held October 20, 1997, the

bankruptcy court confirmed Debtors' Chapter 13 plan. In

deciding that Debtors met the statutory debt limits set forth in

11 U.S.C. § 109(e), the bankruptcy court treated Henrichsen's

lien as partially secured by the value of Debtors' home in

excess of the first deed of trust, notwithstanding the home-

stead exemption. The court also concluded that Henrichsen

did not meet his burden of proof to overcome Debtors' show-

ing that their Chapter 13 plan had been proposed in good

faith. On November 14, 1997, the bankruptcy court filed a

written order reiterating its October 20, 1997 eligibility ruling.

Henrichsen moved for reconsideration, arguing that the

bankruptcy court had never ruled on his objection to Debtors'

expenses. The court agreed to entertain argument on that issue

at a continued confirmation hearing, and in January 1998 con-

ditioned confirmation on the reduction of some budget items,

but denied Henrichsen's objection to confirmation. On Febru-

ary 10, 1998, Debtors filed an amended Chapter 13 plan,

reflecting those reductions in expense items. Henrichsen again

objected to confirmation. At a hearing held March 9, 1998,

the bankruptcy court confirmed Debtors' amended plan and

entered an order to that effect on March 17, 1998.

On appeal, the BAP determined that Debtors' homestead

exemption rendered Henrichsen's claim completely unsecured

for purposes of § 109(e) eligibility. Furthermore, the BAP

found that if the $4,136 debt owed to Mary Scovis is consid-

ered unsecured, then the total unsecured debt would total

$251,903.07. See Scovis, 231 B.R. at 343. The BAP used the

following figures in arriving at this total: (1) Henrichsen Debt,

$218,847.22; (2) General Unsecured Debt, $22,919.85; (3)

Priority Unsecured Debt (IRS Payroll Taxes), $6,000; and (4)

Mary Scovis Debt, $4,136. The BAP reversed the bankruptcy

court's confirmation of the Chapter 13 plan, and remanded the

case to the bankruptcy court to make factual determinations

as to whether the Mary Scovis debt is unsecured and"for

6110

findings regarding [Debtors'] good faith if they are eligible"

under § 109(e).

II. Standard of Review

We review decisions of the BAP de novo. See In re Filter-

corp, Inc., 163 F.3d 570, 576 (9th Cir. 1998). The bankruptcy

court's findings of fact are reviewed for clear error and con-

clusions of law are reviewed de novo. Id.

III. Jurisdiction

We have jurisdiction to review final orders of the BAP

under 28 U.S.C. § 158(d). See In re Kelly , 841 F.2d 908, 911

(9th Cir. 1988). The BAP renders a final order when it affirms

or reverses a bankruptcy court's final order. Id. However, the

BAP's order is ordinarily not final when the BAP remands for

further factual findings related to a central issue raised on

appeal. Id.

Given the unique nature of bankruptcy proceedings, how-

ever, we have taken a "pragmatic" approach by balancing sev-

eral policies in determining whether a remand order may be

considered final, including: (1) the need to avoid piecemeal

litigation; (2) judicial efficiency; (3) systemic interest in pre-

serving the bankruptcy court's role as the finder of fact; and

(4) whether delaying review would cause either party irrepa-

rable harm. See Lundell v. Anchor Constr. Specialists, 223

F.3d 1035, 1038 (9th Cir. 2000).

We have acknowledged two narrow exceptions to the gen-

eral finality rule. We may assert jurisdiction even though the

BAP has remanded a matter for factual findings on a central

issue "if that issue is legal in nature and its resolution either

(1) could dispose of the case or proceedings and obviate the

need for factfinding; or (2) would materially aid the bank-

ruptcy court in reaching its disposition on remand. " Id.

6111

Debtors raise three issues on appeal. First, they contest the

BAP's determination that, due to the homestead exemption,

Henrichsen's entire claim is unsecured. Second, they argue

that the $4,136 Mary Scovis automobile loan should not be

classified as unsecured debt. Third, they contend that the IRS

payroll tax should be disregarded since it was erroneously

included in the schedules and because the tax has since been

paid.

Here, jurisdiction hinges on the Mary Scovis claim since it

is the only claim that was both remanded to the bankruptcy

court for further inquiry and appealed to this Court. Because

Debtors' unsecured debt obligation, as determined by the

BAP, barely exceeds $250,000, the bankruptcy court's find-

ings on remand as to the Mary Scovis claim could result in

Chapter 13 eligibility.

This is one of those rare instances where we may assert

jurisdiction even though the BAP has remanded a matter for

factual findings on a central issue. By appealing the Mary

Scovis debt, Debtors have implicated an important legal ques-

tion that would likely dispose of the case and obviate the need

for further factfinding. See Lundell, 223 F.3d at 1038. In

short, this legal question is: in deciding whether Debtors'

aggregated unsecured debt is within the $250,000 statutory

limit for Chapter 13 eligibility, may the bankruptcy court look

beyond the originally filed schedules in so calculating? Debt-

ors would have us believe that the Mary Scovis debt should

not enter the determination because it was withdrawn a year

after the petition was filed. To agree with this argument is to

implicitly condone looking beyond the originally filed sched-

ules to determine eligibility. This timing issue infects the

entire eligibility calculation, and will likely obviate the need

for further fact finding on the Mary Scovis debt. For instance,

although the original schedules listed $40,499.83 in general

unsecured debt, the BAP used a figure of $22,919.85 from

Amended Schedule F, reflecting the amount of general unse-

cured debt remaining after $17,579.98 had purportedly been

paid off subsequent to the filing of the schedules. Debtors also

argue that the IRS payroll taxes should be removed from con-

sideration since that debt has now been satisfied, even though

they were listed on the originally filed schedules.

Having found jurisdiction, we now proceed to examine the

issues on appeal.

IV. Chapter 13 Eligibility

A. Timing of Eligibility

11 U.S.C. § 109(e) states that "[o]nly an individual with

regular income that owes, on the date of the filing of the peti-

tion, noncontingent, liquidated, unsecured debts of less than

$250,000 . . . may be a debtor under chapter 13 of this title."

The BAP's decision purports to endorse In the Matter of

Pearson, 773 F.2d 751, 757 (6th Cir. 1985), in which the

Sixth Circuit held that "Chapter 13 eligibility should normally

be determined by the debtor's schedules checking only to see

if the schedules were made in good faith." However, the BAP

quickly qualifies its endorsement by stating that a" `bank-

ruptcy court should look past the schedules to other evidence

submitted when a good faith objection to the debtor's eligibil-

ity has been brought by a party in interest.' " Scovis, 231 B.R.

at 341 (quoting In re Quintana, 107 B.R. 234, 239 n.6 (BAP

9th Cir. 1989), aff'd, 915 F.2d 513 (9th Cir. 1990)). Although

we affirmed the BAP in Quintana, we assumed without argu-

ment that Chapter 12 eligibility should be decided using the

date of debtor's petition. See Quintana, 915 F.2d at 515 n.2

("The parties do not dispute the use of the date of Debtors'

petition for the purpose of determining Debtors' eligibility

under Chapter 12.").

In tallying up the various unsecured debt in the Scovis's

petition, however, it becomes entirely unclear what law the

BAP is applying. See Scovis, 231 B.R. at 342-43. For the

Henrichsen debt, the BAP used the debt at the time the peti-

6113

tion was filed, yet went beyond the schedules to consider

accrued interest; for the general unsecured debt, the BAP used

a figure that was nearly half that of the debt listed on the orig-

inally filed schedules; for the Mary Scovis debt, the BAP

remanded but gave no instruction as to whether Mary

Scovis's declaration, submitted a year after the initial petition,

and which purported to waive any claim to unsecured debt,

should be included in the bankruptcy court's fact finding con-

sideration on remand. See id. at 343.

In In re Slack, 187 F.3d 1070, 1073 (9th Cir. 1999), we

recently considered the timing aspect of § 109(e) for eligibil-

ity determination purposes. There, we held that a final judg-

ment entered in state court in an insurer's civil action against

debtor, after the debtor's Chapter 13 petition was filed, could

not be considered in deciding the amount of debt owed to the

insurer for purposes of determining eligibility for relief. See

id. at 1073.

Prior to filing for bankruptcy relief, Slack was a defendant

in a tort action in which a California state judge had entered

a tentative decision that Slack was jointly and severally liable

to plaintiff Wilshire in the amount of $659,971. Soon after,

Slack filed for bankruptcy under Chapter 13. Creditor Wil-

shire argued that Slack was ineligible for Chapter 13 relief

because the state court's tentative ruling established that Slack

had a noncontingent, liquidated, unsecured debt which

exceeded the $250,000 statutory limit. Slack, on the other

hand, argued that this debt was unliquidated. The parties had

stipulated to the amount of damages Wilshire actually suf-

fered before the state and the bankruptcy courts, which totaled

$255,954. Based on the stipulation of damages, the bank-

ruptcy court dismissed Slack's petition, finding that his non-

contingent, liquidated, unsecured debt exceeded the statutory

limit. See id. at 1072.

By the time Slack reached this Court on appeal, the state

court had entered final judgment in favor of Wilshire, defini-

6114

tively holding Slack jointly and severally liable for $455,480

plus interest. Wilshire, thereafter, filed a motion for this Court

to take judicial notice of the state court's judgment for pur-

poses of determining Chapter 13 eligibility. See id. We

refused to do so because the judgment was entered after the

bankruptcy petition was filed. In so deciding, we cited to and

implicitly adopted the Sixth Circuit's holding in Pearson that

the bankruptcy court should normally look to the petition to

determine the amount of debt owed, checking only to see that

the schedules were made in good faith. See Slack , 187 F.3d

at 1073. As articulated in Pearson, this rule finds its ground-

ing in both the text of § 109(e) and Congressional intent, and

is similar in nature to the subject matter jurisdiction context

for purposes of determining diversity jurisdiction. See Pear-

son, 773 F.2d at 756-57.

We now simply and explicitly state the rule for deter-

mining Chapter 13 eligibility under § 109(e) to be that eligi-

bility should normally be determined by the debtor's

originally filed schedules, checking only to see if the sched-

ules were made in good faith. Because the BAP's decision is

premised upon an incorrect application of Pearson, as well as

an incorrect interpretation of the eligibility requirements for

Chapter 13 relief, we must reverse its decision and assess eli-

gibility de novo.

B. Eligibility Calculation

1. The Henrichsen Debt

Although the bankruptcy court computed $75,973.09 of the

$208,000 Henrichsen debt as secured by the residence, Hen-

richsen argues that the entire $208,000 claim is unsecured for

eligibility purposes. We agree.

In Schedule A, Debtors valued their residence at

$325,000, encumbered by a first trust deed in favor of Great

Western Bank of $249,026.91 as well as the Henrichsen judg-

6115

ment lien of $208,000. In Schedule C, Debtors listed a

$100,000 homestead exemption, allowed under California

law. See Cal. Civ. Proc. Code § 704.730(a)(3) (1996). Hen-

richsen was listed again, this time under Schedule D, showing

$132,026.91 of the $208,000 judgment lien as unsecured.

Although Debtors clearly recognized that at least $132,026.91

of the Henrichsen judgment lien was undersecured debt,

Debtors failed to list this amount as an unsecured non-priority

claim under Schedule F.

To determine the status of Henrichsen's $132,026.91

non-priority claim, we must look to 11 U.S.C. § 506(a).

Through the inclusion of a § 506(a) analysis to define "se-

cured" and "unsecured" in the § 109(e) context, a vast major-

ity of courts, and all circuit courts that have considered the

issue, have held that the unsecured portion of undersecured

debt is counted as unsecured for § 109(e) eligibility purposes.

See, e.g., In re Balbus, 933 F.2d 246, 247 (4th Cir. 1991);

Miller v. United States, 907 F.2d 80, 81-82 (8th Cir. 1990);

In the Matter of Day, 747 F.2d 405, 407 (7th Cir. 1984);

Soderlund, 236 B.R. at 273-74 (BAP 9th Cir. 1999). Section

506(a) provides in pertinent part:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, . . . is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim.

It is true that although § 506(a) speaks in terms of an "allowed claim," applying § 506(a) to § 109(e) is necessary to prevent "raising form over substance and manipulation of the debt limits" to achieve Chapter 13 eligibility. Soderlund, 236 B.R. at 274. By merely looking at the value of Debtors' residence, the first deed trust, and the judgment lien, it is clear that Hen- richsen's judgment lien is undersecured to a significant extent. The listed value of Debtors' residence is $325,000.

6116

After considering the $249,026.91 first deed trust, only

$75,973.09 remains as possible equity to which liens could

attach. Since Henrichsen's judgment lien is for $208,000, at

least $132,026.91 of the judgment lien is undersecured. There

is no question that this undersecured debt is to be counted as

unsecured for eligibility purposes.

Likewise, a claim secured only by a lien which is avoid-

able by a declared exemption is unsecured for § 109(e) eligi-

bility purposes. Debtors argue that the $100,000 homestead

exemption listed in Schedule C does not render the remaining

$75,973.09 of Henrichsen's judgment lien unsecured for eligi-

bility purposes since eligibility must be determined as of the

petition date and Henrichsen's judgment lien was not avoided,

under 11 U.S.C. § 522(f) as impairing the homestead, until

later. We do not agree. In In re Slack, 187 F.3d at 1074-75,

we stated:

[I]f the amount of the creditor's claim at the time of the filing the petition is ascertainable with certainty, a dispute regarding liability will not necessarily ren- der a debt unliquidated. . . . Even if a debtor disputes the existence of liability, if the amount of the debt is calculable with certainty, then it is liquidated for the purposes of § 109(e). . . . [A] debt is liquidated if the amount is readily ascertainable, notwithstanding the fact that the question of liability has not been finally decided.

Although we were defining the term "liquidated " and not "se- cured," we included in the eligibility determination readily ascertainable amounts, even though liability on the debt had not been finally decided. See id. This principle of certainty carries equal force in the present context, where the home- stead exemption's effect on the status of Debtors' debt as secured or unsecured is readily ascertainable. Debtors declared the $100,000 California homestead exemption on their originally filed schedules, and at the same time listed

6117

Henrichsen's lien as secured by the exempted residence. Even

though the lien was not judicially avoided until after the

Chapter 13 petition was filed, the fact that Debtors listed both

the homestead exemption and the lien on the schedules pro-

vides the bankruptcy court with a sufficient degree of cer-

tainty to regard the judgment lien as unsecured for eligibility

purposes. Thus, the Henrichsen debt should be treated as

wholly unsecured on the petition date. 1

This view is also consistent with the Supreme Court's state-

ment that "[a]n exemption is an interest withdrawn from the

estate (and hence from the creditors) for the benefit of the

debtor." Owen v. Owen, 500 U.S. 305, 308 (1991). By listing

the homestead exemption in the originally filed schedules,

Debtors have excluded their equity interest in the house from

the reach of their creditors, absent a successful objection.

2. General Unsecured Debt

The BAP included in its eligibility calculation

$22,919.85 in general unsecured debt. The actual amount

listed by Debtors in Schedule F was $40,499.83. Subsequent

to filing their petition, Debtors decreased their general unse-

cured debt obligation to $22,919.85. Since we determine eli-

gibility from the time the petition is filed, and since ordinary

events occurring subsequent to the filing (e.g. paying down

debt) do not affect the eligibility determination, the correct

amount of general unsecured debt is $40,499.83.

_________________________________________________________________

1 The dissent takes issue with our failure to include in the calculation

accrued interest on the judgment, stating that we"undermine[ ] Slack by

failing to explain why readily ascertainable interest should be excluded

from the eligibility calculation." Whether accrued interest not listed in the

originally filed schedules is readily ascertainable is an open question, and

one we need not address since it will not affect Debtors' Chapter 13 ineli-

gibility.

6118

3. Priority Unsecured Debt (IRS Payroll Taxes)

In Schedule E, Debtors listed $6,000 in priority unsecured

debt owed to the IRS. The BAP included this amount in its

eligibility calculation. Debtors assert that this debt should not

have been included because (1) it was a business debt and (2)

it has subsequently been paid. Because Debtors did not con-

test inclusion of the IRS payroll taxes before the BAP, see

Scovis, 231 B.R. at 343, and exceptional circumstances are

lacking, we refuse to consider them now. See In re America

West Airlines, 217 F.3d 1161, 1165 (9th Cir. 2000) ("Absent

exceptional circumstances, we generally will not consider

arguments raised for the first time on appeal, although we

have discretion to do so.").

4. Mary Scovis Debt

As detailed in this opinion, the sum of the IRS priority

unsecured debt ($6,000), general unsecured debt

($40,499.83), and Henrichsen debt ($208,000) totals

$254,499.83. Since this amount exceeds the statutory limit for

unsecured debt under Chapter 13, deciding the true nature of

the Mary Scovis debt will not affect Debtors' ineligibility.

Therefore, there is no need to consider whether the Mary

Scovis debt was secured or unsecured at the time the petition

was filed for purposes of Chapter 13 eligibility.

V. Conclusion

The BAP's reliance on an incorrect legal interpretation of

§ 109(e) eligibility requires that we reverse its decision and

remand this case to the bankruptcy court for proceedings con-

sistent with this opinion.

REVERSED AND REMANDED TO THE BANK-

RUPTCY COURT FOR PROCEEDINGS CONSISTENT

WITH THIS OPINION.

D.W. NELSON, Circuit Judge, dissenting:

The BAP remanded this case to the Bankruptcy Court for

factual findings on two central issues: whether a particular

debt was secured or unsecured and whether the debt schedules

were created in good faith. Contrary to the majority's asser-

tion, this case does not present "one of those rare instances

where we may assert jurisdiction."

This court's pragmatic approach to jurisdiction allows us to

hear a bankruptcy case that has been remanded for further fac-

tual findings on a central issue if that issue " is legal in nature

and its resolution . . . could dispose of the case or proceeding

and obviate the need for factfinding . . . ." In re Bonner Mall

P'ship, 2 F.3d 899, 904 (9th Cir. 1993) (emphasis added). The

cases in which this court has exercised jurisdiction over

remands from the district court or BAP have involved unmis-

takably legal issues. Compare In re Lundell, 223 F.3d 1035,

1038-39 (9th Cir. 2000) (asserting jurisdiction where the

remand concerned whether the bankruptcy court wrongly

allocated a burden of proof); Bonner Mall P'ship , 2 F.3d at

904 (jurisdiction where the remand involved whether the

Bankruptcy Code eliminated the new value exception); In re

Kelly, 841 F.2d 908, 911 (9th Cir. 1988) (jurisdiction where

the remand involved undisputed facts), with In re Stanton,

766 F.2d 1283, 1285 & n.2, 1288 & n.8 (9th Cir. 1985) (no

jurisdiction in appeal of a remand for factual findings on a

counterclaim that the BAP deemed potentially meritorious);

In re Martinez, 721 F.2d 262, 265 (9th Cir. 1983) (no jurisdic-

tion over an appeal of a remand for a determination of the

form of tenancy in which the debtors held their residence).

By contrast, the remand in the present case involves

intensely factual questions: (1) whether the debtors gave Mary

Scovis a security interest to their car in exchange for a loan

of $4,136 and (2) whether there was any evidence of bad faith

conduct. The majority finds a basis for jurisdiction not

because the subject of the remand is legal in nature, but rather

6120

because the first factual question "implicates an important

legal question that would likely dispose of the case." In the

world of law, every factual issue implicates a legal question

that could dispose of a case. For example, the BAP's remand

on the good faith issue implicates a legal question: Can a per-

son so desperate as to seek protection under the bankruptcy

laws ever act in good faith? We could decide that all debtors

act in bad faith, giving us--by the majority's logic--a basis

for jurisdiction.

If the rule that the majority crafts to dispose of this case is

not as obviously absurd as the above example, it is neverthe-

less impractical, contrary to the aims of the bankruptcy code,

and ultimately unsupported by case law. The majority finds

the debtors ineligible for Chapter 13 relief by holding that

courts should look only to the debtor's originally filed sched-

ules in determining eligibility, "checking only to see if the

schedules were made in good faith." The majority cites two

cases in support of this rule: In re Slack, 187 F.3d 1070 (9th

Cir. 1999), and In re Pearson, 773 F.2d 751 (6th Cir. 1985).

In each case, the court refused to consider evidence that debt

had increased after the filing of the original petition. In Slack,

the court refused to consider in its Chapter 13 eligibility cal-

culation a $455,480 civil judgment entered against the debtor

in state court six months after he filed the bankruptcy petition.

Slack, 187 F.3d at 1072. In Pearson, where the debtors origi-

nally made a good-faith listing of an arbitration award as

partly secured and partly unsecured, the Sixth Circuit refused

to consider an amendment filed by the debtor that reclassified

the award as entirely unsecured. Pearson, 773 F.2d at 752.

The Pearson court found it necessary to limit the scope of its

eligibility calculation because "time is of the essence. The

resources of the debtor are almost by definition limited and

the means of determining eligibility must be efficient and

inexpensive." 773 F.2d at 757.

The Pearson court based its primary reliance upon the

debtor's schedules on the rules developed to determine

6121

whether a diversity plaintiff has pleaded the minimum amount

of controversy to fall within the district court's subject matter

jurisdiction. See id. at 757. In formulating its rule, Pearson

quoted extensively from St. Paul Indemnity Co. v. Red Cab

Co., 303 U.S. 283, 288-90 (1938)):

"The rule governing dismissal for want of jurisdic- tion in cases brought in federal court is that . . . the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. Events occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction."

Pearson, 773 F.2d at 757 (quoting St. Paul Indemnity, 303 U.S. at 288-90).

In the law of diversity jurisdiction, then, jurisdiction is not

destroyed by subsequent events that reduce the amount recov-

erable below the statutory limit. Id. More important for this

case, jurisdiction is not destroyed if the original complaint

fails to plead the requisite amount in controversy, unless it

appears "to a legal certainty that the claim is really for less

than the jurisdictional amount." Crum v. Circus-Circus

Enters., 231 F.3d 1129, 1131-32 (9th Cir. 2001) (quotations

omitted); 4 Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure §§ 1213-14 (2d ed. 1990). Where

there is no such legal certainty, courts will generally accept

amendments to the complaint correcting jurisdictional defects.

See Fed. R. Civ. P. 15(a); 28 U.S.C. § 1653.

In Slack and Pearson, events subsequent to the filing of the

petition threatened to make the debtors ineligible for bank-

ruptcy protection. In the present case, the opposite is true.

While the original complaint may reflect an amount of unse-

cured debt in excess of $250,000, the debtors filed--and the

6122

bankruptcy court accepted--an amended debt schedule that

shows a reduction in general unsecured debt from $40,499.83

to $22,919.85, potentially making the debtors eligible for

Chapter 13 protection. Deleting "three creditors who had been

paid by insurance or other sources," In re Scovis, 231 B.R.

336, 338 (9th Cir. B.A.P. 1999), the amended sum was

accepted by the bankruptcy court pursuant to Bankruptcy

Rule 1009, which allows "as a matter of course " amendments

to "[a] voluntary petition, list, schedule or statement." The

majority's holding subverts the bankruptcy code's liberal

allowance of amendments and adopts a version of the Pear-

son rule that ignores its roots in the logic of diversity law.

While fatal to the debtors in this case, the majority's hold-

ing may also harm creditors because it seems to preclude

courts from including in an eligibility calculation certain debts

that assuredly exist but were omitted without bad faith from

the original debt schedules. Although Slack followed Pearson

in its refusal to consider a state court judgment entered after

the petition was filed, the Slack court nevertheless distin-

guished Pearson and allowed the bankruptcy court to include

in its eligibility calculation debts existing at the time of filing

that are "easily calculable." Slack, 187 F.3d at 1074. The

majority purports to follow Slack by determining that the full

Henrichsen judgment was unsecured even though the petition

listed the judgment as partially secured and partially unse-

cured. But the majority inexplicably fails to include the inter-

est owed on the judgment. That interest was owed was

obvious to all parties--the debtors admitted as much in their

brief to this court--and the BAP easily calculated it to the

penny. This calculation added a not insignificant $8,847.22 to

the amount of unsecured debt. The majority undermines Slack

by failing to explain why readily ascertainable interest should

be excluded from the eligibility calculation.

Thus, the majority has devised a rule "implicated " by the

subject of the BAP remand that will dispose of this case. In

the process, the majority has contravened the liberal allow-

6123

ance of amendments at the core of Bankruptcy Rule 1009 and

has sacrificed accuracy without any efficiency gains. It is only

understandable that the appellee did not argue for anything

remotely like the rule the majority crafts. He merely sought

an affirmance of the BAP's remand order, a position that indi-

cated that this case was precisely one for which an exercise

of jurisdiction was unwarranted. I respectfully dissent.