570 B.R. 203
Bankr. E.D. Va.2017Background
- Debtor Henry M. Brandland filed Chapter 13 on March 28, 2016; his ex-wife Sara Odom objected to confirmation and sought dismissal/conversion. The Chapter 13 Trustee ultimately did not oppose the Third Amended Plan after agreeing on income reporting requirements.
- Pre-bankruptcy, Brandland bought a one-third interest in City Floorcoverings for $100,000 (Jan 2012), later agreed to repurchase that one-third interest back to the other owners under a Redemption Agreement that yielded him $150,000 in January 2014.
- Brandland concealed the Redemption Agreement and the $150,000 proceeds from the Fairfax Circuit Court at the equitable-distribution hearing and from Odom; the state court valued his one-third interest at $689,000 and incorporated a Term Sheet requiring payments to Odom of roughly $201,380.
- Brandland spent most of the $150,000 on business and other payments, made little or no payments to Odom, was held in contempt and briefly jailed; he later formed/owned Floor Covering Resources and sold its assets for assumption of liabilities (no cash).
- Debtor’s Third Amended Plan proposed ~$905.73 monthly for 54 months (plus $3,900 already paid) yielding ~11% to unsecured creditors and roughly $19,000 to Odom; Odom objected on multiple grounds including lack of good faith and potential fraudulent-transfer/liquidation claims relating to the $150,000 redemption.
- The bankruptcy court sustained Odom’s good-faith objection under 11 U.S.C. § 1325(a)(3) based on pre-petition concealment and conduct in the divorce proceedings, found other objections (Section 109(e), disposable income, domestic-support, liquidation) unpersuasive, and dismissed the Chapter 13 case sua sponte because the good-faith defect could not be cured by amendment.
Issues
| Issue | Odom’s Argument | Brandland’s Argument | Held |
|---|---|---|---|
| 109(e) Regular income eligibility | Debtor’s commission/short-term job means income not sufficiently stable for Chapter 13 | Debtor employed with biweekly $5,000 draw; eligibility judged at petition date | Overruled: Debtor met §109(e) regular income requirement |
| Disposable income (§1325(b)(2)) | Commission income risked hiding post-petition income and failing to devote disposable income to Plan | Trustee-required annual tax returns and agreed quarterly reporting ensure accountability; Trustee can move to modify plan if income rises | Overruled: reporting and trustee oversight satisfy disposable-income concern |
| Domestic-support obligations (§1325(a)(8)) | Debtor not current on small items (e.g., $380, $50 copay, ViaCord fees) so cannot confirm | Debtor paid $380 at hearing; $50 copay occurred day before hearing; ViaCord not "necessary" medical expense under state orders | Overruled: minor/new charges and ViaCord expense do not defeat confirmation |
| Good faith under §1325(a)(3) / liquidation-best-interests | Plan is bad-faith attempt to discharge Odom’s equitable-distribution claim and avoid state remedies; potential fraudulent-transfer claims (City Floorcoverings redemption) undermine liquidation analysis | Debtor argues arm’s-length redemption sale for $150,000, no retention of interest, and no certainty of successful avoidance claims; sale outside §548 lookback for §548 claims; Trustee satisfied with Plan funding mechanisms | Sustained: Court finds Debtor acted in bad faith by concealing the $150,000 redemption and failing to pay Odom when he had funds; denial of confirmation on good-faith grounds and case dismissed sua sponte |
Key Cases Cited
- Deans v. O’Donnell, 692 F.2d 968 (4th Cir.) (totality-of-circumstances good-faith test for Chapter 13 plans)
- Neufeld v. Freeman, 794 F.2d 149 (4th Cir.) (discharging debts nondischargeable in Chapter 7 is relevant to good-faith inquiry)
- In re Murphy, 474 F.3d 143 (4th Cir.) (trustee may seek modification under §1329 for substantial unanticipated increases in income)
- In re Meyer, 244 F.3d 352 (4th Cir.) (interpretation of "consideration deemed valuable in law" under Virginia avoidance statute)
- In re Porter, 87 B.R. 56 (Bankr. E.D. Va.) (badges-of-fraud analysis under Virginia fraudulent-transfer law)