560 B.R. 385
Bankr. D.R.I.2016Background
- Debtor Andrew Bouchard filed Chapter 13 on March 26, 2015, proposing low payments and treating a contingent $70,000+ deficiency (arising from a joint mortgage with ex-spouse Amanda Rotella) as a dischargeable unsecured claim.
- Rotella objected and moved to convert or dismiss the case for bad faith; the Chapter 13 Trustee also objected to confirmation of various plans.
- Bouchard filed multiple amended schedules, means-test forms, and three amended plans; he repeatedly changed reported income and expenses (in ways favorable to plan confirmation) and delayed hearings to refile documents.
- The debtor failed to disclose material information (joint bank account, co-obligor on lease, fiancée’s purchase of a house, fiancée’s $300 monthly contribution, pregnancy, engagement ring loan from his father) or provided inconsistent explanations for omissions; many items were disclosed only after challenge.
- The court found Bouchard intentionally or recklessly manipulated his income/expenses and made material omissions and misrepresentations, concluding the petition was filed in bad faith under 11 U.S.C. § 1307(c).
- The court exercised discretion to dismiss (rather than convert) the case because conversion would primarily benefit Rotella and likely prejudice other unsecured creditors; dismissal was held to be in creditors’ best interests.
Issues
| Issue | Rotella's Argument | Bouchard's Argument | Held |
|---|---|---|---|
| Whether debtor filed Chapter 13 in good faith (cause under § 1307(c)) | Bouchard omitted and misrepresented material financial information and manipulated schedules to obtain confirmation; this shows bad faith | Debtor offered explanations as mistakes, oversight, or changing circumstances; asserted intent to amend and cooperate | Court: Lack of good faith; omissions and manipulations were intentional or reckless; cause established for dismissal under § 1307(c) |
| Whether debtor manipulated income/expenses to secure a confirmable plan | Manipulation of Schedules I & J and means test produced misleading projected disposable income and multiple plan revisions designed to overcome objections | Debtor claimed unsophistication and amended schedules when needed; some changes reflected foreseeable post-petition events | Court: Found pattern of manipulation to fit plans; debtor acted to advantage fiancée and avoid full exposure to ex-spouse’s contingent claim; supports bad faith finding |
| Whether debtor’s post-petition life changes (fiancée’s house purchase, pregnancy) justified schedule changes without earlier disclosure | Non-disclosures and delayed revelations were material and intended to avoid scrutiny | Debtor argued changes would take effect later and were disclosed by amendments | Court: Failure to disclose contemporaneously was material and deceptive; amendments after exposure do not cure original bad faith |
| Remedy: Dismissal vs conversion to Chapter 7 | Rotella sought conversion so her claim (equitable distribution) would be nondischargeable in Chapter 7 | Debtor opposed conversion; argued dismissal is more equitable to all creditors | Court: Exercising discretion, dismissed case rather than converted because conversion would primarily benefit Rotella and hurt other unsecured creditors; dismissal furthers parity among creditors |
Key Cases Cited
- Zizza v. Pappalardo (In re Zizza), 500 B.R. 288 (1st Cir. BAP 2013) (uses totality-of-circumstances test for good faith in Chapter 13 filings)
- Cabral v. Shamban (In re Cabral), 285 B.R. 563 (1st Cir. BAP 2002) (bad-faith and cause under § 1307(c) analyzed)
- Marrama v. Citizens Bank (In re Marrama), 430 F.3d 474 (1st Cir. 2005) (debtors cannot “play fast and loose” with assets or affairs)
- Hamilton v. Lanning (In re Lanning), 560 U.S. 505 (Sup. Ct. 2010) (court may account for known or virtually certain changes in debtor’s income/expenses when projecting disposable income)
- Premier Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1 (1st Cir. 2016) (schedules are filed under oath; duty to disclose interests in property)
- Hannon v. ABCD Holdings, LLC (In re Hannon), 839 F.3d 63 (1st Cir. 2016) (bankruptcy system requires candor; otherwise it collapses)