567 B.R. 231
Bankr. D. Me.2017Background
- Debra Bradley received a $155,000 workers’ compensation lump-sum in April 2013 (with $40,000 earmarked for future medical expenses) and, pursuant to a divorce judgment, agreed to pay Richard Bradley 15% of any such lump-sum; state court later determined she owed Richard $17,250 plus attorney fees and held her in contempt for nonpayment.
- Debra used settlement funds to buy a home (~$70,000), a vehicle (~$11,000), make home improvements, and gifted $10,000 to each of her three children; the state court found she could not account for portions of the settlement and refused to obtain home-equity financing to pay Richard.
- After multiple contempt proceedings and threat of jail, Debra filed Chapter 13 on October 13, 2015; she listed the house (claimed exempt), one secured creditor (Richard, as a divorce debt), and unsecured debts on Schedule F.
- Debra proposed a 36-month Chapter 13 plan paying $130/month (base $4,680): $468 trustee fee, $1,000 attorney, $2,000 reserve, and $1,212 to unsecured creditors; plan anticipated avoidance of Richard’s lien and listed $0 liquidation value.
- Richard objected to confirmation under 11 U.S.C. §§ 1325(a)(3), (a)(4), and (a)(7) (bad faith plan and petition; best-interests test); trustee initially objected then abandoned objections.
- At evidentiary hearing the court found Debra’s pre-petition transfers (purchases and gifts) and post-petition plan resulted in an unfair, minimal payment to Richard while preserving exempt assets and gifts to children; confirmation of the Amended Plan was denied and Debra was given leave to file an amended plan.
Issues
| Issue | Plaintiff's Argument (Richard) | Defendant's Argument (Debra) | Held |
|---|---|---|---|
| Whether Debra filed the petition in good faith (11 U.S.C. §1325(a)(7)) | Debra filed solely to avoid jail and to thwart the divorce judgment; she was not in financial extremis and listed stale/nonexistent debts. | Debra filed to address all debts and creditor harassment; incarceration alone does not show bad faith. | Court: Petition itself not filed in bad faith; motive to avoid jail not dispositive. |
| Whether the plan was proposed in good faith (11 U.S.C. §1325(a)(3)) | Plan was proposed to avoid paying Richard: minimal distribution to him while preserving exempt assets and gifts to children; Debra made pre-petition transfers to hinder collection. | Plan meets statutory tests; Debra has limited disposable income and dire finances. | Court: Plan not proposed in good faith; denied confirmation. |
| Best-interests-of-creditors test (11 U.S.C. §1325(a)(4)) | Debra’s plan yields unsecured creditors (primarily Richard) less than liquidation because pre-petition transfers reduced estate value and plan pays only $1,212. | Debra listed $0 liquidation value; argued plan funds meet required minimum. | Court: Concern that pre-petition transfers (possibly recoverable) and retained exemptions may leave Richard worse off than in Chapter 7; plan fails good-faith/best-interests calculus as presented. |
| Whether pre-petition transfers were fraudulent or otherwise recoverable | Transfers (gifts to children, home equity investments) suggest intent to hinder/delay/defraud Richard; inference of avoidability not rebutted. | Debra testified some transfers were legitimate (e.g., investing medical earmark as equity); limited resources and attempts to obtain loans or sell house. | Court: Transfers give rise to an inference of fraudulent/avoidable transfers; Debra did not rebut; factor supports denying confirmation. |
Key Cases Cited
- Berliner v. Pappalardo (In re Puffer), 674 F.3d 78 (1st Cir.) (sets totality-of-the-circumstances good-faith test under §1325)
- Zizza v. Pappalardo (In re Zizza), 500 B.R. 288 (1st Cir. B.A.P.) (good-faith factors vary by case; fact-intensive inquiry)
- Sullivan v. Solimini (In re Sullivan), 326 B.R. 204 (1st Cir. B.A.P.) (dual-stage good-faith obligation: petition and plan)
- In re Wrobel, 525 B.R. 211 (Bankr. W.D. N.Y.) (good-faith standard as fundamental fairness; debtors must make sacrifices to achieve fair result)
- In re Goudreau, 530 B.R. 783 (Bankr. D. Kan.) (explaining two-step §1325(a)(4) best-interests liquidation analysis)
- Cox v. Cox (In re Cox), 247 B.R. 556 (Bankr. D. Mass.) (chapter 5 recoveries are part of liquidation analysis)
- Leblanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1 (1st Cir.) (courts may take judicial notice of their own dockets)
- In re Shafer, 393 B.R. 655 (Bankr. W.D. Wis.) (pre-petition conduct can affect §1325(a) good-faith analysis)
- In re Fleury, 294 B.R. 1 (Bankr. D. Mass.) (considering both pre- and post-petition conduct in good-faith inquiry)
- In re Scotten, 281 B.R. 147 (Bankr. D. Mass.) (non-dischargeability in Chapter 7 may inform good-faith analysis)