Malloy v. SchelinMalloy v. Schelin
This matter comes before the Court on pro se1 Appellant Karl Linard Malloy‘s appeal from the United States Bankruptcy Court for the Eastern District of Virginia‘s (the “Bankruptcy Court“)2 order denying Mr. Malloy‘s third proposed Chapter 13 plan and converting Mr. Malloy‘s Bankruptcy Case (“the Bankruptcy Case“) from one under Chapter 13 of Title 11 of the United States Code to one under Chapter 7 of Title 11 of the United States Code (the “Conversion Order“). (ECF No. 1-1.)3
The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. Accordingly, the matter is ripe for disposition. The Court exercises jurisdiction pursuant to
I. Background
A. Factual Background
1. The Property Dispute and Resulting State Court Litigation
Appellees and Mr. Malloy entered into a Central Virginia Multiple Listing Services Purchase Agreement dated February 25, 2022, and ratified February 26, 2022 (the “Agreement“). (Ad. Pro. ECF No. 1, at 2.) In the Agreement, Mr. Malloy agreed to convey, and Appellees agreed to purchase, certain real property located in Powhatan County, Virginia (the “Property“). (Ad. Pro. ECF No. 1, at 2.) After the parties executed the Agreement, a dispute arose between
On October 5, 2023, the day before trial in the State Court Litigation was scheduled to begin, Mr. Malloy filed a voluntary petition under Chapter 13, thereby initiating the Bankruptcy Case and staying the State Court Litigation by operation of
On November 11, 2023, Mr. Malloy removed the State Court Litigation to the Bankruptcy Court. (Ad. Pro. ECF No. 1.) On December 8, 2023, Appellees moved to remand the State Court Litigation. (Ad. Pro. ECF No. 8.) On December 20, 2023, the Bankruptcy Court granted Appellees’ request to remand and remanded the State Court Litigation back to the Circuit Court for the County of Powhatan. (Ad. Pro. ECF No. 16.)
On October 20, 2024, the Circuit Court for the County of Powhatan entered Final Judgment in the State Court Litigation (the “Final Judgment“) in favor of Appellees and awarded declaratory and injunctive relief, compensatory damages, and specific performance requiring Mr. Malloy to comply with the terms of the Agreemеnt. (Bankr. ECF No. 332-1.) In relevant part, the Final Judgment ordered Mr. Malloy
to specifically perform and comply with all of his obligations pursuant to the terms of the Contract, except as specifically ordered herein, in connection with the Settlement, and ... to promptly proceed to closing and Settlement of the Contract for the sale and purchase of the Property for a Sales Price of Nine Hundred and
Thirty Thousand Dollars ($930,000.00), subject to the prorations, credits and adjustments at Settlement per the terms of the Contract and this Final Judgment, including without limitation [Mr. Malloy‘s] conveyance of title to the Property to [Appellees] in conformity with the requirements of the Contract by general warranty deed with English covenants of title in form and upon terms reasonably acceptable to [Appellees] and their legal counsel as required in Standard Provision B of the Contract. [Mr. Malloy] shall have no right to terminate the Contract, and shall specifically perform all obligations, conditions, and requirements of [Mr. Malloy] to promptly transfer good, clear, marketable and insurable title to the Property [Appellees] pursuant to the [Agreement].
(Bankr. ECF No. 332-1, at 3 (emphasis added).)
On November 19, 2024, Mr. Malloy appealed the Final Judgment to the Court of Appeals of Virginia. See Malloy v. Schelin, No. 191124 (Va. Ct. App. 2024). The Court of Appeals of Virginia stayed Mr. Malloy‘s appeal pending disposition of the Bankruptcy Case. See Malloy v. Schelin, No. 191124 (Va. Ct. App. 2024).6
2. The Bankruрtcy Court Rejects Mr. Malloy‘s First and Second Proposed Chapter 13 Plans
On November 4, 2024, the Bankruptcy Court adopted the findings of fact in the Final Judgment. (Bankr. ECF No. 481, at 6.) Based on those factual findings, the Bankruptcy Court found that the Agreement merged into the Final Judgment, meaning that the Agreement was no longer executory and could not be rejected under
More than two months later, on January 13, 2025, Mr. Malloy filed an amended Chapter 13 plan (the “Second Plan“). (Bankr. ECF No. 632.) Because the Second Plan also contemplated that Mr. Malloy could retain the Property, the Bankruptcy Court found that the Second Plan was facially unconfirmable. (Bankr. ECF No. 723, at 1.) The Bankruptcy Court again permitted Mr. Malloy to file a proposed plan in compliance with the Final Judgment. (Bankr. ECF No. 723, at 1.)
3. Mr. Malloy‘s Third Plan
Again, after more than two months had passed, on April 4, 2025, Mr. Malloy filed a second amended Chapter 13 plan (the “Third Plan“). (Bankr. ECF No. 736.) The Third Plan included the following nonstandard plan provision:
Regarding [Mr. Malloy‘s] principal residence ... the “Property,” and the proof of claim of [Appellees], [Mr. Malloy] will follow the Bаnkruptcy Court‘s Order, entered April 1, 20257 in this case[, which required Mr. Malloy to comply with the terms of the Final Judgment] . . . until such time as a stay pending appeal is issued after any appeal of the Order or the Order is reversed on appeal or the Final Judgment entered in Powhatan County Circuit Court is deemed null or void or unenforceable by a court of competent jurisdiction. Any sale of the Property shall be on an as-is basis, in current condition, with no guarantees or warranties from [Mr. Malloy] or [Mr. Malloy‘s] Estate. Any buyer of the Property cannot seek legal recourse against [Mr. Malloy] or [Mr. Malloy‘s] Estate for any defects or issues regarding the Property.
(Bankr. ECF No. 736, at 7 (emphasis added).)
ambiguous as to whether [Mr. Malloy] w[ould] or c[ould] comply with the Bankruptcy Court‘s Order entered on April 1, 2025, Ordering the debtor to cooperate in all respects in connection with the enforcement of the State Court Final Judgement, specifically as it relates to the specific performance provisions of the Final Judgement.
(Bankr. ECF No. 742, at 1.) The Chapter 13 Trustee “suggest[ed] that if [Mr. Malloy] [was] unwilling or unable to comply with the specific performance provisions of the Final Judgement then this [chapter 13] case should be either dismissed or converted tо a case under chapter 7, whichever is in the best interests of creditors and the estate.” (ECF No. 742, at 1.)
Appellees likewise objected to the non-standard term in Paragraph 12, explaining that its terms contradicted those in the parties’ Agreement and the Final Judgment. (Bankr. ECF No. 743, at 2-4.) Appellees also specifically explained that they had been unable to secure title insurance due to Mr. Malloy‘s pending state appeal, meaning that Mr. Malloy‘s state appeal prevented Mr. Malloy from conveying to Appellees “insurable title” as required by the Agreement. (Bankr. ECF No. 743, at 3-4; see also Bankr. ECF No. 743-1 (Commitment for Title Insurance).)8 Appellees requested that the Bankruptcy Court find that Mr. Malloy
On May 15, 2025, the Bankruptcy Court held a hearing (the “Hearing“) on Mr. Malloy‘s Third Plan. (ECF No. 10.) During the Hearing, Mr. Malloy asked the Bankruptcy Court to either confirm his Third Plan “as filed or with clarifying language” or dismiss the Bankruptcy Case. (ECF No. 10, at 9:11-16.) Mr. Malloy argued that the Court should deny Appellees’ and the Chapter 13 Trustee‘s recommendation to convert the case to Chapter 7. (ECF No. 10, at 9:15-16.)
Counsel for Appellees argued that, in light of Mr. Malloy‘s bad faith during the pendency of the Bankruptcy Case, conversion to Chapter 7 was necessary and appropriate. Counsel explained that since entering into the Agreement with Appellees in February 2022, Mr. Malloy had “attempt[ed] to avoid his obligations under that” Agreement in various ways, including by “dragging” Appellees into the Bankruptcy Court “on the literal eve” of trial in the State Court Litigation. (ECF No. 10, at 22:16-25.) Appellees also reiterated arguments raised in their written objection, including that the language in Paragraph 12 directly contradicted various terms in the Agreement, and that Mr. Malloy‘s pending state appeal prevented him from conveying insurable title. (ECF No. 10, at 26:9-30:25.)
The Chapter 13 Trustee similarly said at the Hearing that he “just [didn‘t] think confirmation” of a Chapter 13 plan was “an option” because Mr. Malloy‘s pending state appeal meant that Mr. Malloy would be unable to convey insurable title. (ECF No. 10, at 31:11-21, 32:15-19.) Indeed, in response to questioning by Mr. Malloy, the Chapter 13 Trustee stated that there was “[n]othing” he could do “within the confines of Chapter 13” to effectuate the Final
At the conclusion of the Hearing, the Bankruptcy Court took Mr. Malloy‘s Third Plan under advisement. (ECF No. 10, at 96:24-25.) On May 20, 2025, the Bankruptcy Court issued the Conversion Order. (ECF No. 1-1, at 5-11.)
4. The Bankruptcy Court Enters the Conversion Order, Rejecting Mr. Malloy‘s Third Proposed Chapter 13 Plan and Converting the Case to Chapter 7
In the Conversion Order, the Bankruptcy Court rejected as facially unconfirmablе Mr. Malloy‘s Third Plan and converted Mr. Malloy‘s Bankruptcy Case from one under Chapter 13 to one under Chapter 7.9 (ECF No. 1-1, at 5-11.)
In rejecting Mr. Malloy‘s Third Plan, the Bankruptcy Court noted that, unlike the First and Second Plans, the Third Plan “no longer attempted to reject the [Agreement] or to permit [Mr. Malloy] to retain the Property.” (ECF No. 1-1, at 8.) However, the Bankruptcy Court explained that the non-standard provision in Paragraph 12 was “inherently contradictory to the orders entered by [the Bankruptcy Court] and the State Court and render[ed] the Third Plan facially unconfirmable.” (ECF No. 1-1, at 9.) Specifically, the Bankruptcy Court noted that
[t]he Final Judgment required [Mr. Malloy] to specifically perform the [Agreement], including (1) conveying the Reаl Property by general warranty deed with English covenants of title in form and upon terms reasonably acceptable to the Creditors; and (2) promptly transfer good, clear, marketable, and insurable title to the Real Property. The
inclusion of language in paragraph 12 that the sale will be on as-is basis, in current condition, with no guarantees or warranties directly contradicts this language.
(ECF No. 1-1, at 9.)
The Bankruptcy Court also noted that Appellees had been “unable to obtain title insurance while [Mr. Malloy] continue[d] to appeal the Final Judgment,” despite the Final Judgment requiring Mr. Malloy to “promptly transfer good, clear, marketable, and insurable title to the Real Property.” (ECF No. 1-1, at 9.) The Bаnkruptcy Court added that it had “ordered [Mr. Malloy] to cooperate with the [Appellees in] their enforcement of the Judgment,” and explained that Mr. Malloy‘s inclusion of the non-standard terms in “Paragraph 12 [was] not simply a failure to comply with the Final Judgment; it evince[d] willful refusal by [Mr. Malloy] to convey the Property in accordance with the terms of the [Agreement] and the Final Judgment.” (ECF No. 1-1, at 9 (internal citations omitted).)
The Bankruptcy Court also found that Mr. Malloy acted in bad faith, not only in filing his Third Plan, but throughout the Bankruptcy Case. The Bankruptcy Court stated:
The Court further finds that [Mr. Malloy] proposed the Third Plan in bad faith, as evidenced by his willful refusal to abide by orders of this Court. The Court also finds that [Mr. Malloy] filed this Bankruptcy Case in bad faith and has proceeded in bad faith in this Bankruptcy Case. Every action that [Mr. Malloy] has taken in this Bankruptcy Case, from filing the petition to date, has been an attempt to evade his obligations under the [Agreement], devoid of any support in law or fact.
(ECF No. 1-1, at 9-10.)
Ultimately, the Bankruptcy Court concluded that “[c]onversion [would] stop the endless frivolous litigation and allow for enforcement of [the Bankruptcy Court‘s] Orders and the execution of the Final Judgment” because a “trustee appointed under Chapter 7 of Title 11
B. Procedural Background
On June 2, 2025, Mr. Malloy appealed to this Court the Bankruptcy Court‘s Conversion Order. (ECF No. 1, 1-1.) On September 2, 2025, Mr. Malloy filed his appeal brief. (ECF No. 11.) On October 30, 2025, Appellees filed their appeal brief. (ECF No. 13.) On November 13, 2025, Mr. Malloy replied. (ECF No. 16.) At the Court‘s direction, (ECF No. 14), both parties filed supplemental briefing on the Court‘s jurisdiction to hear the instant appeal. (ECF Nos. 15, 17.)
II. Standard of Review
“When reviewing a decision of the bankruptcy court, a district court functions as an appellate court and applies the standards of review generally applied in fedеral courts of appeal.” Paramount Home Entm‘t Inc. v. Circuit City Stores, Inc., 445 B.R. 521, 526-27 (E.D. Va. 2010) (citing Webb v. Reserve Life Ins. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992)). The district court reviews the bankruptcy court‘s legal conclusions de novo and its factual findings for clear error. Stancill v. Harford Sands, Inc. (In re Harford Sands Inc.), 372 F.3d 637, 639 (4th Cir. 2004). A finding of fact is clearly erroneous if a court reviewing it, considering all of the evidence, “is left with the definite and firm conviction that a mistake has
“Decisions committed to the discretion of the bankruptcy court are reviewed for abuse of discretion.” In re Mitrano, 409 B.R. 812, 815 (E.D. Va. 2009). “A bankruptcy court abuses its discretion ‘when it acts in an arbitrary manner, when it fails to consider judicially-recognized factors limiting its discretion, or when it relies on erroneous factual or legal premises.‘” Schultz v. Cheney, No. 1:25-cv-322 (LMB), 2025 WL 2722657, at *5 (E.D. Va. Sept. 24, 2025) (quoting United States v. Henry, 673 F.3d 285, 291 (4th Cir. 2012)).
A court reviews for clear error a bankruptcy court‘s finding that a debtor proceeded in bad faith. Goddard v. Burnett, 173 F.4th 550, 560 (4th Cir. 2026). A court reviews for abuse of discretion the bankruptcy court‘s decisions to deny a request for dismissal of a Chapter 13 case under
Mr. Malloy argues that the Bankruptcy Court‘s Conversion Order should be reversed for three reasons: (1) the Bankruptcy Court‘s denial of Mr. Malloy‘s Third Plan without further leave to amend violates his statutory right under
A. The Court Will Affirm the Conversion Order
1. Legal Standard: Conversion from Chapter 13 to Chapter 7 Under 11 U.S.C. § 1307(c) Based on a Debtor‘s Bad Faith
To determine whether bad faith exists under
the nature of the debt; whether the debt would be non-dischargeable in a chapter 7 proceeding; the timing of the petition; how the debt arose; the debtor‘s motive in filing the petition; how the debtor‘s actions affected creditors; the debtor‘s
treatment of creditors before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors.
In re Mitrano, 472 B.R. at 710.
“Where cause has been established, the Court must then determine whether conversion or dismissal ‘is in the best interest of creditors and the estate.‘” In re Brown, 671 B.R. at 465 (quoting
2. The Court Will Affirm the Conversion Order Because the Bankruptcy Court Neither Erred in Finding that Mr. Malloy Acted in Bad faith Nor Abused its Discretion in Converting the Bankruptcy Case to Chapter 7
The Bankruptcy Court did not err in converting the Bankruptcy Case from one under Chapter 13 to one under Chapter 7. The record amply supports the Bankruptcy Court‘s finding that Mr. Malloy acted in bad faith, both in initiating the Bankruptcy Case in an effort to avoid his obligations under the Agreement, and throughout the Bankruptcy Case. Mr. Malloy signed the Agreement in 2022—over four years ago now, and over three years prior to the Hearing. Since that day, the record indicates that Mr. Malloy has attempted to avoid his obligatiоns under the Agreement, including filing the Bankruptcy Case “on the literal eve” of trial in the State Court Litigation, and repeatedly refusing to comply with the Final Judgment‘s specific performance
At bottom, Mr. Malloy‘s repeatеd efforts to evade his obligations under the Agreement, including his submission of three facially unconfirmable Chapter 13 plans, fully support the Bankruptcy Court‘s findings that Mr. Malloy acted in bad faith. In re Brown, 671 B.R. at 471 (“Given the Debtors’ history of filing unconfirmable plans that do not adequately treat specific claims or satisfy the chapter 7 liquidation test ... the Court finds that none of the Debtors’ plans were proposed in good faith.“); In re Mitrano, 472 B.R. at 711 (finding debtors engaged in bad faith where it was “absolutely clear that [the debtor] ha[d] no intention of paying his creditors” and instead “abused the bankruptcy system by using it as an ‘alternative forum to litigate the claims‘“); Cody v. Micale, No. 7:19-cv-00433, 2019 WL 5967962, at *3-4 (W.D. Va. Nov. 13, 2019) (finding that the bankruptcy court did not abuse its discretion in dismissing debtor‘s Chapter 13 case for bad faith whеre it was evident that the case was part of a “continued effort to thwart the City of Roanoke from exercising its rights in connection with [the debtor‘s] condemned and unoccupied property“) (alterations and quotation omitted). Accordingly, the Court finds that the Bankruptcy Court did not clearly err in determining that Mr. Malloy acted in bad faith.14
The Final Judgment requires Mr. Malloy to “promptly transfer [to Appellees] good, clear, marketable and insurable title to the Property.” (Bankr. ECF No. 332-1, at 3 (emphasis added).) But as Appellees explained in their objection and through argument and testimony at the Hearing, Mr. Malloy‘s pending state appeal of the Final Judgment renderеd him unable to convey marketable and insurable title, and thus unable to propose a facially confirmable Chapter 13 plan that complied with the terms of the Final Judgment.15 (Bankr. ECF No. 743, at 3-4; see
Moreover, contrary to Mr. Malloy‘s assertions, bankruptcy litigants are not afforded endless opportunities to amend their proposed plans. Courts within the Fourth Circuit have routinely found that where, as here, the Bankruptcy Court provides a debtor multiple opportunities to submit a confirmable plan, but he or she fails to do so, denial of a plan without leave to amend is appropriate. Costley v. Herr, No. 22-CV-3265-LKG, 2024 WL 1140679, at *5 (D. Md. Mar. 14, 2024) (“Given this, the record before the Court shows that Appellant has been afforded ample opportunity to propose a Chapter 13 Plan that would meet the requirements of Section 1325(a)(6). Nonetheless, Appellant has twice failed to do so. And so, the Bankruptcy Court appropriately denied confirmation of Appellant‘s Amended Plan without leave to further amend the proposal.“) (internal citations omitted); Akers v. Micale, 609 B.R. 175, 183-84 (W.D. Va. 2019) (bankruptcy court did not abuse its discretion in denying leave to amend to allow
VI. Admonishment
This is the second dismissal of Mr. Malloy‘s appeals on the merits. Malloy v. Schelin, No. 3:24-cv-2 (MHL), ECF No. 37 (E.D. Va. 2025), aff‘d Schelin v. Malloy, No. 24-2271, 2025 WL 3443443 (4th Cir. Dec. 1, 2025), cert. denied, — S. Ct. —, 2026 WL 1780201 (June 22, 2026). Especially given that the Court has not sustained any issue raised in Mr. Malloy‘s prolix appeals, including the 29 reviewed by the Court so far, Mr. Malloy is admonished that a third decision by this Court dismissing Mr. Malloy‘s аppeal on the merits may result in the Court‘s imposition of a pre-filing injunction against him. See Cromer v. Kraft Foods N. Am., Inc., 390 F.3d 812, 819 (4th Cir. 2004).
For the reasons articulated above, the Bankruptcy Court appropriately found that Mr. Malloy acted in bad faith, that conversion from Chapter 13 to Chapter 7 was the only way to stop Mr. Malloy‘s “endless frivolous litigation” and facilitate enforcement of the Final Judgment, and that conversion would therefore be in Appellees’ best interests.
Accordingly, the Court will affirm the Bankruptcy Court‘s Conversion Order and dismiss the appeal.
An appropriate Final Order shall issue
Date: 9/1/2026
Richmond, Virginia
M. Hannah Lauck
Chief United States District Judge
Notes
The parties correctly argue that the Conversion Order is a “final judgment, order, [or] decree[]” over which the Court has jurisdiction. (ECF No. 11, at 3; ECF No. 13, at 4; ECF No. 15, at 1-2; ECF No. 17, at 3-4); Goddard v. Burnett, 173 F.4th 550, 556 (4th Cir. 2026) (considering on the merits an order denying a Chapter 13 debtor‘s proposed plan); see Askri v. Fitzgerald, 612 B.R. 500, 503 (E.D. Va. 2020) (reviewing appeal of conversion order from Chapter 11 to Chapter 7 and explaining that “[t]he Conversion Order is a final order that Debtor has appealed as of right“) (citations omitted).
Appellees attached to their objection a Commitment for Title Insurance, which included eighteen requirements before the insurance could be issued, including:
Receipt of a Final, Non-Appealable Court Order entered in connection with the final judgment dated October 20, 2024 entered in Case No: CL22-242 in the Powhatan Circuit Court and/or dismissal of the pending appeal in the Court of Appeals of Virginia as Record No. 1911-24-2 with prejudice, and expiration of all stays, rights of appeal, and rights of rehearing.
(Bankr. ECF No. 743-1, at 2-4.)
The debtor may modify the plan at any time before confirmation, but may not modify the plan so that the plan as modified fails to meet the requirements of section 1322 of this title.
Mr. Malloy‘s appeal brief also includes a “Statement of the Issues” that identifies 19 “issues” before the Court. Many of the 19 “issues” are unrelated to the instant appeal rendering them frivolous. (See e.g., ECF No. 11, at 5 (Issue 10: “Whether the conversion to Chapter 7 was procedurally and ethically improper due to the repeated appointment of conflicted fiduciaries ... each of whom had longstanding ties to Creditors’ counsel and other parties with adverse interests.“).) Other enumerated issues are subsumed within Mr. Malloy‘s three main arguments. (See, e.g., ECF No. 11, at 8 (Issue 8: “Whether the Bankruptcy Court erred in finding bad faith by [Mr. Malloy] in proposing his Third Amended Chapter 13 Plan, where the plan complied with prior court rulings, including the determination that the contract was not executory and that specific performance was required.“).)
In considering the appeal, the Court addresses the three arguments Mr. Malloy raises with respect to the Cоnversion Order and disposes of the “issues” only as necessary to do so as part of its central inquiry. See Malbon v. Penn. Millers Mut. Ins. Co., 636 F.2d 936, 939 n.8 (4th Cir. 1980) (explaining that it it is not “absolutely necessary” that a court specifically recite and discuss each argument advanced by the parties). While the “better practice” would be to address all of his arguments, id., it would likely be impossible to address every issue Mr. Malloy raises in his prolix 42 appeals.
In his appeal brief, Mr. Malloy also contends that the Bankruptcy Court erred in converting the case to Chapter 7 while “pending motions remain unresolved, including [Mr. Malloy‘s] request for Chapter 13 dismissal in lieu of conversion to Chapter 7.” (ECF No. 11, at 10.) Mr. Malloy does not include a citation to the motion to dismiss he contends the Bankruptcy Court failed to consider. A review of the Bankruptcy Court docket reveals that Mr. Malloy filed a voluntary motion to dismiss in February 2025, (Bankr. ECF No. 690), and that he withdrew the motion to dismiss less than two weeks later, (Bankr. ECF No. 704).
Mr. Malloy also argues, without citation to authority, that the Bankruptcy Court improperly applied