596 B.R. 34
Bankr. E.D. Va.2019Background
- Debtor Furqan Mohammad (pro se) owns residential property encumbered by a 2006 note and deed of trust; significant mortgage arrears exist and prior foreclosure attempts occurred.
- Mohammad filed multiple prior bankruptcies: a 2010 Chapter 13 (stay lifted; relief affirmed on appeal), a 2016 Chapter 13 dismissed for ineligibility/default, and the instant Chapter 11 filed day before a scheduled foreclosure.
- U.S. Bank obtained relief from the automatic stay and an equitable servitude (two years) on the property after the Court found the Chapter 11 filed in bad faith; that ruling was later affirmed on appeal.
- Mohammad filed an Amended Disclosure Statement and Chapter 11 plan proposing reduced arrears payments, monthly mortgage cure payments, and reliance on family contributions (Affidavit of Contribution) and property sale/auction.
- The U.S. Trustee and U.S. Bank objected: Trustee challenged inadequate disclosure (failure to disclose prior bankruptcies and bad-faith finding) and feasibility; Bank objected to underpayment of arrears and improper treatment of its secured claim.
- At a December 11, 2018 hearing Mohammad provided no supporting evidence for family contributions, had made no post-petition mortgage payments, and could not reconcile proposed arrears with the Bank’s allowed claim; the Court denied the disclosure statement and dismissed the case for lack of feasibility and abuse.
Issues
| Issue | Plaintiff's Argument (Mohammad) | Defendant's Argument (U.S. Trustee / U.S. Bank) | Held |
|---|---|---|---|
| Adequacy of disclosure under 11 U.S.C. §1125(a) | Amended statement and plan provide required information; Affidavit and plan explain funding and treatment | Statement omits prior bankruptcies, court’s bad-faith finding, and lacks adequate detail for creditors to make informed vote | Disclosure statement not approved; insufficient disclosure under §1125(a) |
| Feasibility of proposed plan | Plan feasible based on monthly payments, proposed family contributions, and sale/auction of property | No evidence family contributions exist or will continue; no post-petition mortgage payments; plan payments unrealistic vs arrears | Plan not feasible; debtor failed to prove feasibility by preponderance of evidence |
| Treatment and amount of secured claim (U.S. Bank) | Proposes curing arrears over long term and lists lower arrears figure | Bank’s allowed claim shows substantially higher arrears; proposed cure period (179+ months) is unreasonable and contradictory | Treatment contradicted Bank’s allowed claim; proposed cure amount and duration unreasonable; objection sustained |
| Dismissal for bad faith / abuse of process | Case filed to reorganize and preserve residence; deserves opportunity to propose plan | Repeated filings timed to impede foreclosure, prior bad-faith finding, and visionary plan constitute abuse; dismissal or other sanction appropriate | Case dismissed for lack of good faith and abuse; court exercised §105/§1112 authority to dismiss |
Key Cases Cited
- Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355 (3d Cir. 1996) (disclosure statement informs creditor voting and relies on adequate disclosure)
- In the Matter of Texas Extrusion Corp., 844 F.2d 1142 (5th Cir. 1988) (court has discretion in adequacy-of-disclosure inquiry)
- In re A.H. Robins Co., Inc., 880 F.2d 694 (4th Cir. 1989) (standards for adequate information in disclosure statements)
- Chase Manhattan Mortg. & Realty Trust v. Bergman (In re Bergman), 585 F.2d 1171 (2d Cir. 1978) (sincerity alone cannot make a plan feasible; visionary expectations insufficient)
- Heartland Fed. Sav. & Loan Ass'n v. Briscoe Enters. Ltd., II (In re Briscoe Enters., Ltd., II), 994 F.2d 1160 (5th Cir. 1993) (plan proponent bears burden to prove elements for confirmation)
- In re Kestell, 99 F.3d 146 (4th Cir. 1996) (§105 authority to prevent abuse of process)
- In re Finney, 992 F.2d 43 (4th Cir. 1993) (court may dismiss sua sponte for lack of good faith)