523 B.R. 773
Bankr. W.D. Mich.2015Background
- Debtor Clarence K. Gomery filed a Chapter 13 petition after he could not post an appellate bond on adverse state-court judgments and sanctions totaling large sums in favor of creditor Fred A. Topous.
- Debtor’s schedules and SOFA omitted material items: a likely one-half ownership interest in JACCK Enterprises, LLC (two commercial properties), undisclosed bank account activity/draws from his law firm in the 30 days before filing, and at least one firearm.
- Debtor was arrested and incarcerated on solicitation-of-murder charges during the Chapter 13 case; recordings and witness testimony showed he offered money to kill Topous’s attorney.
- Trustee, Topous, and the U.S. Trustee objected to confirmation on grounds of lack of good faith and infeasibility, and moved to convert the case to Chapter 7; hearings were held with documentary and testimonial evidence.
- The court found multiple material omissions and instances of non‑veracity (tax returns and other documents showed Debtor as 50% owner of JACCK), Debtor’s inability to explain prepetition transfers, and Debtor’s incarceration with uncertain future earning capacity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petition/plan were filed in good faith under §1325(a)(3)/(7) and §1307(c) | Trustee/Topous: Debtor concealed assets, made inaccurate disclosures, and acted in bad faith to avoid creditors. | Debtor: Disputed ownership (JACCK belongs solely to wife), amended plan and proposed sale resolve issues; assertions of error on tax returns. | Court: Debtor lacked good faith; omissions and misrepresentations establish cause to convert to Chapter 7. |
| Whether the Chapter 13 plan is feasible under §1325(a)(6) | Trustee: Plan is infeasible because Debtor is incarcerated and cannot make payments. | Debtor: Proposes $100/month until employment resumes and liquidation of JACCK to fund plan later. | Court: Plan not feasible; no evidence of ability to make payments while incarcerated or any reliable future income. |
| Whether Debtor qualifies as an "individual with regular income" under §109(e) | Trustee: Debtor lacks regular income and therefore is not eligible for Chapter 13. | Debtor: Intimates future employment or liquidation will fund plan; proposes minimal payments now. | Court: Debtor lacks current regular income and has limited future earning prospects; not eligible for Chapter 13. |
| Appropriate remedy (deny confirmation vs convert/dismiss) | Trustee/UST/Topous: Conversion to Chapter 7 is necessary to investigate and preserve estate assets. | Debtor: Proposes amended/modified plans and sale of JACCK parcels to fund plan. | Court: Denied confirmation and granted Trustee’s motion to convert to Chapter 7 as best interests of creditors. |
Key Cases Cited
- In re Alt, 305 F.3d 413 (6th Cir. 2002) (good-faith standard and dismissal/ conversion for lack of good faith)
- Shaw v. Aurgroup Fin. Credit Union, 552 F.3d 447 (6th Cir. 2009) (confirmation requires §1325 compliance)
- Society Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588 (6th Cir. 1992) (totality-of-circumstances factors for Chapter 13 good faith)
- In re Love, 957 F.2d 1350 (7th Cir. 1992) (totality-of-circumstances test for good faith under Chapter 13/§1307)
- Stephenson v. Malloy, 700 F.3d 265 (6th Cir. 2012) (debtor’s duty to disclose assets to the bankruptcy court)
- Baxter v. Palmigiano, 425 U.S. 308 (1976) (civil adverse inferences permissible from invocation of Fifth Amendment)