671 B.R. 34
Bankr. S.D.N.Y.2025Background
- Jeffrey M. Brody, a personal injury attorney, filed for Chapter 13 bankruptcy after a malpractice suit was initiated against him by a former client, Krystal Phillips.
- Brody failed to disclose a contingent contractual right to and post-petition receipt of substantial referral fee income from cases he transferred to his employer, Finkelstein LLP, upon closing his solo practice.
- The undisclosed referral fees totaled over $426,000 between 2019 and 2024 and continued to be received during and after the bankruptcy petition was filed.
- Brody omitted his referral fees in multiple bankruptcy disclosures, including schedules and his Statement of Financial Affairs, and made misleading statements under oath.
- The Chapter 13 trustee and Phillips sought dismissal of the bankruptcy case, alleging bad faith based on Brody’s failure to disclose material assets/income.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does concealment of referral fees warrant dismissal? | Non-disclosure is bad faith, justifies dismissal. | Disclosure wasn't required; plan confirmation is res judicata. | Concealment was bad faith; warrants dismissal. |
| Is plan confirmation res judicata on good faith? | Not when confirmation obtained by fraud or concealment. | Confirmation is final and binding on good faith. | Not res judicata due to debtor’s concealment. |
| Does debtor’s receipt of post-petition income require updated disclosures? | Yes, debtor must update schedules with new income. | Trustee had some tax returns; unpredictable nature of fees. | Debtor had continuing duty to disclose; omission unjustified. |
| Does lack of creditor objection excuse non-disclosure? | No, creditors relied on debtor’s disclosures. | Creditors could have objected with due diligence. | No, creditors had no notice of hidden income. |
Key Cases Cited
- In re Froman, 566 B.R. 641 (S.D.N.Y. 2017) (bad faith is cause for dismissal under § 1307(c))
- In re Lin, 499 B.R. 430 (Bankr. S.D.N.Y. 2013) (bad faith dismissal requires totality of the circumstances)
- In re C-TC 9th Ave. P'ship, 113 F.3d 1304 (2d Cir. 1997) (multi-factor test for bad faith in bankruptcy)
- Marrama v. Citizens Bank, 549 U.S. 365 (2007) (bankruptcy protections are for honest debtors)
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (dismissal for egregious concealment or misrepresentation)
- Leavitt v. Soto (In re Leavitt), 171 F.3d 1219 (9th Cir. 1999) (dismissal affirmed where debtor concealed assets/income)