In Re Tran
2011 U.S. Dist. LEXIS 97906
N.D. Cal.2011Background
- Appellant filed Chapter 7 bankruptcy in 2009 and received a discharge, then filed Chapter 13 in 2010.
- As of petition, Debtor had no unsecured or priority debts; owned real property in Newark encumbered by a first WAMU mortgage and a wholly unsecured second lien, and an over-encumbered San Jose property plus a vehicle loan.
- Debtor proposed a 36-month Chapter 13 plan with $375 monthly payments, intending to strip the second lien as wholly unsecured.
- Trustee objected to stripping the second lien; plan confirmation hearing followed; the bankruptcy court considered the lien-strip issue and potential bad faith.
- Bankruptcy court dismissed the case sua sponte under 11 U.S.C. § 1307(c) for bad faith, citing lack of a genuine Chapter 13 purpose.
- Appellant appealed the dismissal; the district court affirmed the bankruptcy court’s decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court could sua sponte dismiss for bad faith | Tran contends there was no objection and she wasn’t afforded a bad-faith hearing. | Bronitsky argues the court can dismiss sua sponte for bad faith under § 105(a) and Espinosa. | Yes; court may sua sponte dismiss for bad faith. |
| Whether Tran filed her Chapter 13 in good faith | Tran cites factors like employment, ability to pay, plan duration, and lack of preferential treatment. | Bronitsky argues the plan primarily served to strip the lien and evade the holding in Dewsnup. | Tran's case was not filed in good faith; dismissal affirmed. |
| Whether the lien-stripping plan supports good faith or constitutes bad faith evasion of Dewsnup | Plan included a legitimate lien-strip and repayment to unsecured creditors could follow. | Plan was designed mainly to strip a second deed of trust and avoid Chapter 7 limitations, not to benefit creditors. | Plan primarily to evade Dewsnup; supports bad-faith dismissal. |
Key Cases Cited
- In re Wegner, 839 F.2d 533 (9th Cir.1988) (standard for reviewing bankruptcy findings)
- In re Eisen, 14 F.3d 469 (9th Cir.1994) (bad faith must be determined from totality of circumstances)
- In re Leavitt, 171 F.3d 1219 (9th Cir.1999) (factors for good faith in Chapter 13)
- Warren, 89 B.R. 87 (B.A.P. 9th Cir.1988) (policy of Chapter 13 and healthy incentives to repay creditors)
- Goeb, 675 F.2d 1386 (9th Cir.1982) (nominal repayments suggest bad faith)
- Enewally, 368 F.3d 1165 (9th Cir.2004) (Dewsnup does not apply in Chapter 13 lien-stripping context)
- Zimmer, 313 F.3d 1220 (9th Cir.2002) (lien-stripping analysis in Chapter 13)