13-12642 Vanlandingham (Doc. # 56)

In Re Vanlandingham, 13-12642 (Bankr. D. Kan. Oct. 1, 2014) Doc. # 56

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SIGNED this 30th day of September, 2014.



IN RE: )
) Chapter 13
Debtor. )



Chapter 13 provides an orderly means for debtors to resolve financial
difficulties by repaying their unsecured creditors, at least in part, over the life of their
plans. Under 11 U.S.C. § 1325(b)(1)(B), (b)(2) and (b)(3), above-median-income
debtors must pay their projected disposable income, as calculated under 11 U.S.C. §
707(b)(2)(A) and (B), to the unsecured pool during the applicable commitment period
which is usually five years. The question presented here is whether a debtor’s


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voluntary contributions to a 401(k) plan that first began after debtor filed her
bankruptcy petition may be excluded from the calculation of disposable income.
Contributions for 401(k) or other defined contribution retirement plans are not among
the enumerated deductions in § 707(b)(2)(A), but § 541(b)(7) excludes wages withheld
for that purpose from property of the estate and further provides that these
withholdings “shall not constitute disposable income” as it is defined in § 1325(b)(2).

Shortly before she filed this chapter 13 bankruptcy, Johanna Vanlandingham
submitted paperwork to enroll in her employer’s 401(k) plan, but her 401(k)
contributions via payroll deduction did not actually commence until after she filed
her case. She had not previously participated in her employer’s plan. On Official Form
22C, she deducted those 401(k) contributions from her disposable income as Line 55
invites her to do. The trustee objects to confirmation of her plan and contends that
the § 541(b)(7) safe harbor only applies to retirement contributions that were
established before the petition date; as a result, debtor is not entitled to exclude the
401(k) contributions from the calculation of disposable income and she is not
contributing all of her projected disposable income to the plan. I conclude that, while
the § 541(b)(7) exclusion from disposable income is oddly placed, nothing in the Code
requires that a debtor have established 401(k) contributions prior to filing a chapter
13 case. Consistent with the “forward looking approach” of projected disposable
income articulated by the Supreme Court in Lanning and in the absence of a lack of


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good faith objection under § 1325(a)(3), the debtor’s plan should be confirmed.1


On the same date that Ms. Vanlandingham filed her chapter 13 bankruptcy
and chapter 13 plan, her prepetition enrollment in her employer’s 401(k) retirement
plan was confirmed.2 She elected to contribute $68.13 to her 401(k) plan by payroll
deduction each paycheck, or 4%. Ms. Vanlandingham was paid on a bi-weekly basis
and the first payroll deduction for her 401(k) contribution covered the post-petition
pay period of October 12-25, 2013. She has been employed by Cox Communications
since 2003, but had not been enrolled in Cox’s 401(k) plan prior to October 10, 2013.
Ms. Vanlandingham is an above-median-income debtor, divorced, and has no

On Form 22C – the Chapter 13 Statement of Current Monthly Income and
Calculation of Commitment Period and Disposable Income, Ms. Vanlandingham
deducted on Line 55 her monthly 401(k) contribution of $151.67 from her disposable
income calculation.3 This exclusion, along with the allowed expense deductions from
current monthly income [CMI] under § 707(b)(2), yields negative projected disposable
income of <$45.25> on Line 59 of Form 22C, resulting in no distribution to unsecured

1 The debtor Johanna Vanlandingham appears in person and by her attorney William Fields.
The chapter 13 trustee Laurie B. Williams appears by her attorney Karin Amyx.
2 Ex. 1.
3 Ex. A. Extrapolating the amount of debtor’s bi-weekly 401(k) contribution to a monthly
amount yields $147.62. Debtor has overstated her monthly 401(k) contribution on Form 22C
by $4.00.


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Ms. Vanlandingham originally proposed to pay $320 for 60 months. 5 Plan
payments would be applied to her attorney’s fees of $2,783, tax claims of about $7,500,
and a 910-car loan creditor. Unsecured creditors would receive nothing. The plan
provided that her home mortgage loan would be paid outside the plan. The chapter
13 trustee objected to confirmation of this plan on grounds of feasibility and that
debtor was not committing all of her projected disposable income to paying unsecured
creditors under § 1325(b)(1)(B). The trustee objected to debtor’s deduction of her
401(k) contribution from the calculation of disposable income.

Ms. Vanlandingham filed an amended plan in April 2014.6 This plan proposed
to make $320 monthly payments for 6 months and $218 payments for the remaining
54 months. This was prompted by the debtor’s post-petition surrender of a vehicle
and purchase of a 2010 Mustang with borrowed money. The new car loan (approved
by the trustee) would be paid outside the plan at $380 per month. 7 The trustee
reiterated her objections to confirmation. Under either plan, the unsecured creditors,
who hold claims totaling $71,347 would receive no distribution.

4 Because Ms. Vanlandingham is an above median income debtor, her reasonably necessary
expenses for purposes of calculating her disposable income are determined by reference to
the means test in § 707(b)(2)(A) and (B). See § 1325(b)(3).
5 Ex. B.
6 Ex. D.
7 Contemporaneous with the amended plan, debtor filed an amended Schedule J which
reflected the Mustang loan payment amount and increased debtor’s monthly expenses from
$2,484 to $2,592. See Dkt. 34.


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With respect to feasibility, the trustee demonstrated that the amended plan
was short approximately $1,100 of paying the administrative expenses and tax claims
in full.8 However, debtor is willing to pay an additional $20 per month to cover the
shortfall and make the plan feasible. Thus, confirmation of Ms. Vanlandingham’s
amended plan turns on the disposable income objection – whether the 401(k)
contribution should be excluded from the disposable income calculation. The chapter
13 trustee completed an adjusted Form 22C – removing the deduction for debtor’s
401(k) contribution on Line 55 (i.e. including it in disposable income), together with
other unspecified minor adjustments, and arrived at monthly projected disposable
income of $145.65 rather than <$45.25>.9 This change in disposable income yields
payment of $5,956 on unsecured claims, or an 8.348% dividend. 10 Thus, if the
trustee’s legal objection is sustained and her disposable income calculation is correct,
Ms. Vanlandingham’s amended plan cannot be confirmed.


Determining whether voluntary retirement contributions may be excluded
from a chapter 13 above-median-income debtor’s projected disposable income

8 Ex. G.
9 Ex. H. The Court observes that the trustee’s version of Form 22C does not take into account
the future secured debt payments on the 2010 Ford Mustang on Line 28 or 47. The monthlycar loan payment is $380, compared with the average monthly payment of $105.19 listed bythe trustee. As noted previously, the 910-car securing the previous car loan payment wassurrendered under the amended plan and replaced with the post-petition purchase of the2010 Mustang.
10 Ex. I.


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calculation starts with the statutory language. Section 1325(b)(1)(B) requires that a
debtor’s plan pay all of her projected disposable income received during the applicable
commitment period to unsecured creditors. As pertinent here, § 1325(b)(2)(A) defines
‘disposable income’ as “current monthly income received by the debtor . . . less
amounts reasonably necessary to be expended” for the maintenance or support of the
debtor or debtor’s dependents that first becomes payable after the date the petition
is filed. The expense side of the disposable income equation—“amounts reasonably
necessary to be expended for the maintenance or support of the debtor”—is not a
defined phrase, but when the debtor is an above-median-income debtor as here, §
1325(b)(3) requires that those deductions or expenses be determined in accordance
with certain of the means test components, § 707(b)(2)(A) and (B). That statute
enumerates a number of allowed deductions or expenses from current monthly
income and how the amount is determined. 11 Some expenses such as housing,
transportation, and food are standardized amounts determined by reference to IRS
tables given the debtor’s locale and household size (i.e. applicable monthly
expenses). 12 Other allowed deductions for “Other Necessary Expenses” such as
health insurance expense are not standardized amounts but are determined by the

11 § 707(b)(2)(A)(ii)-(iv). Section 707(b)(2)(B) covers additional necessary and reasonable
expenses that qualify as “special circumstances.” The debtor does not contend that her
voluntary 401(k) contributions are allowable deductions under the special circumstances
12 § 707(b)(2)(A)(ii)(I).


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actual monthly expense incurred by the debtor.13 There is no specific allowance for

voluntary retirement contributions in § 707(b)(2)(A) or (B) and the only provision

possibly covering such contributions is the category of “Other Necessary Expenses”

in § 707(b)(2)(A)(ii)(I). But the case law interpreting this category consistently

disallows voluntary payroll deductions for retirement plan contributions as an Other

Necessary Expense. 14 In short, nothing in § 1325(b)(2) or by incorporation, §

707(b)(2)(A) and (B), explicitly authorizes voluntary retirement contributions as an

allowable expense or deduction in calculating disposable income in a chapter 13 case.

If this were the only statute in play, my analysis would end and the trustee would

13 Id.
14 In re Maura, 491 B.R. 493, 507 (Bankr. E.D. Mich. 2013) (chapter 7 case; voluntary 403B
retirement contributions are like voluntary 401(k) contributions, not required by employer
and not deductible); In re Prigge, 441 B.R. 667, 677 (Bankr. D. Mont. 2010) (chapter 13 case;
voluntary 401(k) contributions are not allowable expenses in disposable income calculation);
In re Parks, 475 B.R. 703 (9th Cir. B.A.P. 2012) (chapter 13 above-median income debtor;
deduction for voluntary postpetition 401(k) contributions not allowed in calculating
disposable income); In re Scarafiotti, 375 B.R. 618, 635 (Bankr. D. Colo 2007) (chapter 7 case;
for purposes of bankruptcy statute, other necessary expenses specified by IRS are exclusive
and retirement plan contributions do not qualify). The IRS guidelines listing “Other
Necessary Expenses” are nonexclusive but do not include voluntary deductions for retirementcontributions. See Internal Revenue Manual (“Manual”), Financial Analysis Handbook § (Oct. 2, 2012) at http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1954. If the
claimed expense is not encompassed by one of the listed categories, it must meet the
necessary expense test: the expense is necessary to provide for the health and welfare of the
taxpayer and his family or the production of income. See Manual § Further, the
IRS guidelines expressly state that voluntary contributions to retirement plans are not
necessary expenses. See Manual § In a chapter 13 case, line 31 of Official Form22C is the line for deducting Other Necessary Expenses under § 707(b)(2)(A)(ii)(I) and it
allows “deductions that are required for your employment, such as mandatory retirement
contributions, union dues, and uniform costs. Do not include discretionary amounts,
such as voluntary 401(k) contributions.”

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prevail on her objection to confirmation. But it isn’t.

In what has been described as an “oddly-worded ‘hanging paragraph,’” 15
“awkward,”16 and a “Gordian knot,”17 Congress amended § 541 in 2005 with the
enactment of BAPCPA and directly spoke to voluntary retirement contributions when
determining disposable income under § 1325(b)(2). Much of the interpretative dispute
results from the placement of the chapter 13 “disposable income” concept in a statute
that defines what constitutes “property of the estate.” Section 541(a) defines, in part,
property of the estate in a chapter 13 case; it includes all legal or equitable interests
of debtor in property as of the commencement of the case, unless excluded by §
541(b).18 In a chapter 13 case property of the estate is supplemented by § 1306(a).
Specifically, § 1306 also includes as property of the estate § 541 property that is
acquired postpetition and postpetition earnings. Section 541(b) describes property
that is excluded from property of the estate. Section 541(b)(7) provides in part:

(b) Property of the estate does not include –
. . .
(7) any amount –
(A) withheld by an employer from the wages of employees for payment
as contributions –
(i) to –
(I) an employee benefit plan that is subject to title I of theEmployee Retirement Income Security Act [ERISA] of 1974 or under an
15 In re Drapeau, 485 B.R. 29, 34 (Bankr. D. Mass. 2013).
16 Id. at 36.
17 In re Jensen, 496 B.R. 615, 620 (Bankr. D. Utah 2013) (noting the cumbersome grammar
courts have sought to unweave).
18 Section 541(a)(1).


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employee benefit plan which is a governmental plan under section
414(d) of the Internal Revenue Code of 1986;

(II) a deferred compensation plan under section 457 of the
Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the
Internal Revenue Code of 1986;
except that such amount under this subparagraph shall not
constitute disposable income as defined in section 1325(b)(2); . . .19

The courts are divided on the meaning of § 541(b)(7)’s hanging paragraph and

its interplay with § 1325(b)(2)’s calculation of disposable income in a chapter 13 case.

Three lines of cases have developed, though the fact patterns in each differ. The first,

articulated in In re Johnson20 concludes that both prepetition and postpetition 401(k)

contributions are excluded from the calculation of disposable income, whether or not

debtor was making contributions at commencement of the case.21 This view purports

19 11 U.S.C. § 541(b)(7)(A). Emphasis added.
20 346 B.R. 256 (Bankr. S.D. Ga. 2006).
21 Cases following Johnson view: In re Drapeau, 485 B.R. 29 (Bankr. D. Mass. 2013) (lack of
plan contributions on petition date will not necessarily bar debtor, on good faith grounds,
from deducting retirement contribution from disposable income); In re Hall, 2013 WL
6234613 (Bankr. N.D. Ill. Oct. 22, 2013) (agreeing with the Seafort dissent; case involved
continuing prepetition 401(k) contributions); In re Egan, 458 B.R. 836 (Bankr. E.D. Pa. 2011)
(no reference in § 541(b)(7) to petition date being determinative; post-petition retirement
contributions may exceed prepetition contributions and are excluded); In re Devilliers, 358

B.R. 849 (Bankr. E.D. La. 2007) (retirement contributions excluded from calculation of
disposable income and are not modified by necessary and reasonable limitation); In re
Njuguna, 357 B.R. 689 (Bankr. D. N.H. 2006) (below-median income case); In re Leahy, 370
B.R. 620 (Bankr. D. Vt. 2007) (chapter 7 case; § 541(b)(7) exclusion from property of estatenot limited to “gap” period amounts, but applied to all amounts withheld from debtor’s wagesas contributions to retirement annuity without regard to the timing of the contributions); In
re Garrett, 2008 WL 6049236 (Bankr. M.D. Fla. 2008) (401(k) contributions not included in
disposable income without regard to whether a debtor is below- or above-median income); In
re Glisson, 430 B.R. 920 (Bankr. D. Ga. 2009); In re Melander, 506 B.R. 855 (Bankr. D. Minn.
2014) (post-petition continuation of voluntary retirement contributions that debtor had made
for the last 14 years allowable expense excluded from disposable income where no suggestion
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to look to the plain meaning of § 541(b)(7)’s hanging paragraph to find that “Congress

has placed retirement contributions outside the purview of a Chapter 13 plan,”

subject only to nonbankruptcy law limitations on allowable contribution amounts and

the Code’s good faith requirement for confirmation. 22 These courts reason that

because debtors are not required to contribute income withheld for qualified

retirement contributions to their chapter 13 plans under § 541(b)(7), they may

commence or increase those contributions postpetition as the Johnsons sought to do.

A second view was expressed by the Sixth Circuit Court of Appeals in In re

Seafort23 where it held that if chapter 13 debtors repaid their 401(k) loans before

completing their plan, the resulting surplus income was disposable income that could

not be used to make voluntary retirement contributions to their 401(k) plans. Instead,

that surplus was to be committed to the distribution to unsecured creditors. In

Seafort, the debtors filed their bankruptcy petitions while repaying 401(k) loans but

that debtor was motivated by bad faith); In re Gibson, 2009 WL 2868445 (Bankr. D. Idaho
Aug. 31, 2009) (debtors had decided prepetition to begin contributions to their employer-
sponsored 401(k) plan but first contribution withheld from paycheck occurred 10 days after
petition filed; whether debtor had been making contributions prepetition “is of no moment”
in the disposable income analysis because the Code expressly excepts them).
22 In re Johnson, 346 B.R. at 263 (quoted language). Section 1325(a)(3) requires that the plan
be proposed in good faith and not by any means forbidden by law. In this Circuit, the test ofgood faith as set forth in Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) (adopting Eighth
Circuit Estus factors) generally governs. But see In re Cranmer, 697 F.3d 1314 (10th Cir. 2012)
(because Bankruptcy Code § 101(10A)(B) excludes social security income benefits from
“current monthly income” and the calculation of disposable income in chapter 13 plan, theirexclusion by debtor cannot constitute lack of good faith); In re Shelton, 370 B.R. 861, 866
(Bankr. N.D. Ga. 2007) (excluded income could be considered in determining whether chapter
13 plan was proposed in good faith).
23 Seafort v. Burden (In re Seafort), 669 F.3d 662 (6th Cir. 2012).


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not making contributions to their 401(k) plans. They proposed to complete their loan
payments and then resume contributing to the retirement plan. The Sixth Circuit
concluded that the surplus created after their loans were repaid was disposable
income and not covered by § 541(b)(7)’s hanging paragraph and that only those 401(k)
payments or contributions being made on the petition date were excluded from
projected disposable income.24 Under the Seafort view, a debtor may not exclude
401(k) contributions that began after commencement of the case, nor can a debtor
increase the amount of prepetition contributions after filing. Instead, debtors must
“step up” their plan payments to account for the funds realized after the 401(k) loan


A third view expressed in In re Prigge,26 holds that no voluntary post-petition
contributions to debtor’s 401(k) plan, whatever the amount, are excluded from
disposable income.27 Had Congress intended to exclude postpetition voluntary 401(k)
contributions from disposable income, it would have placed the provision within the

24 Cases following Seafort view: In re Read, __ B.R. __, 2014 WL 4104736 (Bankr. E.D. Wis.
Aug. 19, 2014) (because debtor was not making retirement contributions at the time she filed
her case, retirement contributions started post-petition not excluded from disposable
income); In re Melander, 506 B.R. 855 (Bankr. D. Minn. 2014) (post-petition retirement
contributions protected and not included in projected disposable income where debtor had
voluntarily contributed same amount prepetition for past 14 years).
25 Seafort, 669 F. 3d at 673; In re Afko, 501 B.R. 202, 206-07 (Bankr. S.D. N.Y. 2013) (debtors
sought to use retirement loan repayment savings as a cushion for unanticipated living
26 441 B.R. 667 (Bankr. D. Mont. 2010).
27 Cases following Prigge view: In re Parks, 475 B.R. 703 (9th Cir. BAP 2012); In re McCullers,
451 B.R. 498 (Bankr. N.D. Cal. 2011).


Case 13-12642 Doc# 56 Filed 09/30/14 Page 11 of 19

confines of chapter 13 itself, as it did for retirement loan repayments in § 1322(f). The

fact that it didn’t was deliberate. The Prigge court focuses on 401(k) contributions as

an “allowable necessary expense” under § 707(b)(2)(A) of the disposable income test.28

Only in a footnote does the court cite § 541(b)(7) and conclude that its intent was to

protect prepetition retirement withholding in the hands of employer’s at the time of

filing, by excluding them from property of the estate and post-petition disposable


My examination of the case law on this issue suggests that the majority of

courts follow Johnson. While the Tenth Circuit Court of Appeals has yet to consider

this issue, two bankruptcy courts in this District have concluded that 401(k)

contributions do not constitute disposable income or satisfy the good faith

requirement for confirmation, though several other bankruptcy courts in the Circuit

have held to the contrary.29 I conclude that the Johnson view, as explained and

28 Prigge predates Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed 2d 23 (2010)
and its forward-looking approach in calculating disposable income.
29 In re Puetz 370 B.R. 386, 387, 392-93 (Bankr. D. Kan. 2007) (chapter 13 debtors’
contributions to their employee retirement plans were not disposable income that debtorswere required to contribute to plan); In re Jensen, 496 B.R. 615 (Bankr. D. Utah 2013)
(adopting the Seafort BAP view in part; retirement contributions being made as of the
petition date do not constitute disposable income and debtor may continue making thecontributions; debtor’s plan was proposed in good faith even though contributions started less
than three months before petition filed); In re Rodriguez, 487 B.R. 275 (Bankr. D. N.M. 2013)
(considering debtor’s voluntary retirement contributions in the context of good faith
requirement); In re Jones, No. 07-10902, 2008 WL 4447041 (Bankr. D. Kan. Sept. 26, 2008)
(postpetition commencement of retirement contributions viewed under good faith test; court
states that contributions not disposable income).


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articulated in Drapeau 30 and Hall, 31 is the better reasoned rule excluding
postpetition voluntary 401(k) or other qualified retirement contributions from the
calculation of disposable income and adopt it here.

Statutory Interpretation

Statutory interpretation requires that the plain language of a statute be given
effect. 32 Section 541(b)(7)’s hanging paragraph language does not distinguish
between prepetition and postpetition amounts withheld for 401(k) contributions.
Section 541(b)(7) explicitly excludes these contributions from disposable income.
Section 1306 says that property of the chapter 13 estate consists of § 541 property “as
of” and after commencement of the case, plus postpetition earnings. Contending that
only prepetition retirement withholdings from earnings can be excluded from the
property of a chapter 13 estate seems inconsistent with the forward- and backward-
reaching scope of §1306.

It is much more congruent to read the § 541(b)(7) hanging paragraph as
applying to 401(k) withholding from postpetition wages because the § 541(b)(7)
exclusion from property of the estate refers to “any amount withheld,” without any

30 485 B.R. 29 (Bankr. D. Mass. 2013).
31 2013 WL 6234613 (Bankr. N.D. Ill. Oct. 22, 2013).
32 In re Puetz, 370 B.R. 386, 389-90 (Bankr. D. Kan. 2007) (citing United States v. Ron Pair
Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), when language of
statute is plain, court’s function is to enforce it according to its terms). See also, Kelly v.
Robinson, 479 U.S. 36, 43, 107 S.Ct. 353, 93 L.Ed. 2d 216 (1986) (the court looks not only to
a single sentence or part of a sentence, but to the provisions of the whole law as to its object
and policy).


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temporal limitation. Moreover, § 1306 incorporates all of § 541, not just § 541(a),
reading into the former section all of §541(b)’s inclusions and exclusions from
property of the estate including the hanging paragraph of § 541(b)(7). Similarly, the
term “projected disposable income” is a postpetition concept in the sense that §
1325(b)(1)(B) requires that all of debtor’s disposable income “to be received” be
devoted to the payment of creditors under the confirmed plan.33 Amounts withheld
from prepetition income for retirement contributions and paid to the retirement plan
can never be “disposable income” under § 1325(b)(1)(B). Nothing in either § 541(b)(7)
or § 1325(b) expressly conditions these exclusions on the debtor having begun to
contribute before filing. Limiting the effect of the § 541(b)(7) exclusion to prepetition
contributions or conditioning the exclusion of postpetition contributions upon the
existence of pre-existing contributions would effectively nullify the exclusion in
chapter 13 cases.

Legislative History

Prior to 2005, voluntary 401(k) contributions were part of “disposable
income.”34 BAPCPA added two related exclusions from disposable income as it is
defined in § 1325(b)(2), although neither exclusion was located within that

33 Section 1325(b)(1)(B).
34 Behlke v. Eisen (In re Behlke), 358 F.3d 429, 435-36 (6th Cir. 2004); Taylor v. United States,
212 F.3d 395, 396 (8th Cir. 2000); In re Puetz, 370 B.R. 386, 392-93 (Bankr. D. Kan. 2007)
(noting that § 541(b)(7) was a new BAPCPA provision that changed the law; qualified
retirement plan contributions are no longer included in calculating disposable income and
are not required to be contributed toward their chapter 13 plan).


Case 13-12642 Doc# 56 Filed 09/30/14 Page 14 of 19

subsection. First, § 541(b)(7) excluded 401(k) and other qualified retirement
contributions from “disposable income as defined in § 1325(b)(2)” and, second, §
1322(f) excluded 401(k) loan repayments as “disposable income under section 1325.”
Official Form 22C recognizes and implements these two exclusions as allowable
deductions from disposable income at line 55.

When Congress enacted BAPCPA, it sought to protect debtors’ retirement
resources and to encourage them to voluntarily save for retirement. 35 Other
provisions enacted at the same time demonstrate this. Section 362(b)(19) excepts
withholding of income for loan repayments to a qualified retirement plan from the
automatic stay. Generous exemptions of retirement funds may be claimed under §
522(b)(3)(C) and § 522(d)(12). And, as noted above, certain retirement loan
repayments are excluded from disposable income by § 1322(f). The fact that
Congress’s exclusion of qualified retirement contributions appears in § 541 rather
than § 1325(b)(2) may best be explained by the fact that as excluded income, the
contributions were never included in disposable income in the first instance.36 This
also explains why the “exclusion” from disposable income appears at the end of Form
22C on line 55, rather than along with all of the allowed expense “deductions” from

35 In re Jensen, 496 B.R. 615, 621 (Bankr. D. Utah 2013) (Congress sought to strike a balance
between protecting chapter 13 debtors’ ability to save for their retirement and requiring
debtors to pay their creditors the maximum amount they can afford to pay).
36 See In re Devilliers, 358 B.R. 849, 864-65 (Bankr. E.D. La. 2007) (noting that unlike other
expense deductions allowed by §§ 707(b)(2) and 1325(b)(2), there is no requirement that
retirement contributions be reasonable or necessary; they are so by their very nature.).


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disposable income at Part IV, lines 24A-52 of Form 22C. 37 In short, Johnson’s

interpretation of § 541(b)(7)’s hanging paragraph is most consistent with promoting

the legislative policy of protecting and encouraging retirement savings. There is no

reason to protect postpetition 401(k) loan repayments, but not postpetition 401(k)

contributions in chapter 13.

In its report on BAPCPA, the House Judiciary Committee made its intentions

concerning employee retirement contributions very clear--

Sec. 323 Excluding Employee Benefit Plan ParticipantContributions and Other Property from the Estate

Section 323 of the Act amends section 541(b) of the Bankruptcy Code
to exclude as property of the estate funds withheld or received by an
employer from its employees' wages for payment as contributions tospecified employee retirement plans, deferred compensation plans,
and tax-deferred annuities. Such contributions do not constitute
disposable income as defined in section 1325(b)(2) of the Bankruptcy
Code. Section 323 also excludes as property of the estate funds
withheld by an employer from the wages of its employees for
payment as contributions to health insurance plans regulated by
State law.38 [emphasis added].

Like the statute itself, there are no temporal or other limitations made on retirement

contributions. This House Report’s direct statement is further support for concluding

37 See In re Johnson, 346 B.R. at 266 (Instructions for completion of Form 22C are entitled
to considerable deference as the practical means by which above-median income debtorscompute disposable income.).
38 H.R. Rep. No. 109-31, Pt. 1, 109th Cong., 1st Sess., 2005 WL 832198 at *82, 2005

U.S.C.C.A.N. 88, 149 (Apr. 8, 2005). See also, H.R. Rep. No. 109-31, 2005 WL 832198 at *2(BAPCPA allows debtors to shelter from the claims of creditors certain education IRA plansand retirement pension funds).

Case 13-12642 Doc# 56 Filed 09/30/14 Page 16 of 19

that Congress sought to foster a policy of protecting and encouraging retirement
savings over the competing policy of making debtors pay their creditors the maximum
they can afford to pay.39


The Johnson view is also consistent with the Supreme Court’s “forward looking
approach” to the definition of “projected disposable income” as announced in
Hamilton v. Lanning.40 The Supreme Court held that when calculating an above-
median-income debtor’s projected disposable income under § 1325(b)(1)(B), the
bankruptcy court could allow for changes in the debtor’s income or expenses that are
known or virtually certain at the time of confirmation. 41 Excluding known or
ascertainable employee retirement contributions or loan repayments from disposable
income is entirely consistent with Lanning’s reasoning even when the debtor first
commences 401(k) withholding postpetition after not having participated in her
employer’s 401(k) plan prior to filing. Ms. Vanlandingham’s contribution to her 401(k)

39 Cf. § 541(b)(7) with § 541(b)(6). Like (b)(7), § 541(b)(6) excludes contributions to 529
accounts (college tuition savings) from property of the estate. But unlike (b)(7), those 529
contributions are not excluded from the calculation of disposable income. Moreover, unlike
(b)(7), § 541(b)(6) does have a temporal limitation on the exclusion from property of the estate.
It only excludes contributions made in the 365 days before the bankruptcy petition date.
40 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed 2d 23 (2010).
41 130 S. Ct. at 2478. See also, Ransom v. FIA Card Services, N.A., 562 U.S. 61, 131 S. Ct.
716, 178 L.Ed. 2d 603 (2011) (applying Lanning to the expense side and disallowing autoownership expense deduction where debtor did not own a car at the petition date); Morris v.
Quigley (In re Quigley), 673 F.3d 269, 273 (4th Cir. 2012) (even though Lanning involved
known changes in debtor’ income, the Lanning reasoning also applies to known changes in
debtor’s expenses).


Case 13-12642 Doc# 56 Filed 09/30/14 Page 17 of 19

plan through wage withholding was fully disclosed prior to confirmation.

Preventing Abuse

No doubt some debtors might try to distort their projected disposable income
calculation by starting or substantially increasing their retirement contributions or
loan repayments after filing at the expense of their creditors. But Ms.
Vanlandingham is not one of them. She seeks to contribute a modest 4% of her
income, well below what she could lawfully withhold for tax purposes. She testified
that with the rearrangement of her debts through her chapter 13 bankruptcy, she
could participate in her company’s 401(k) plan for the first time in her 10-year
employment with Cox Communications. Saving or providing for eventual retirement
is a laudable step toward financial security and is part of an honest debtor’s fresh

And when an “abusive” case presents itself, the trustee and unsecured
creditors are well-armed with the ability to object to confirmation for lack of good
faith under §1325(a)(3).43 Indeed, lack of good faith permeates many of the cases
interpreting § 541(b)(7).44 The trustee did not make that objection here and based on

42 Devilliers, 358 B.R. at 865.
43 Section 1325(a)(3). See In re Jensen, 496 B.R. 615, 622-24 (Bankr. D. Utah 2013)
(discussing continued vitality of good faith inquiry of debtor’s voluntary retirement
contributions); In re Hall, 2013 WL 6234613 at *11 (Bankr. N.D. Ill. Oct. 22, 2013) (fear ofabuse not well-grounded due to § 1325(a)(3) good faith requirement).
44 Indeed, in both Prigge and Johnson, objections to confirmation were made both on the
basis of the disposable income calculation and lack of good faith. See also In re Jensen, 496

B.R. 615 (Bankr. D. Utah 2013); In re Rodriguez, 487 B.R. 275 (Bankr. D. N.M. 2013).
Case 13-12642 Doc# 56 Filed 09/30/14 Page 18 of 19

the debtor’s demeanor at trial and the motivation and sincerity she demonstrated, I
doubt that such an objection would have been sustained. There likely are
circumstances in which the voluntary postpetition commencement of 401(k)
contributions may constitute a lack of good faith, but none is present in this case.


The exclusion of debtor’s voluntary postpetition 401(k) contributions from
disposable income on Form 22C at line 55 is proper and provided for by the hanging
paragraph of § 541(b)(7). The trustee’s disposable income objection to confirmation is
OVERRULED. The plan, as modified to make it feasible, is CONFIRMED.

# # #


Case 13-12642 Doc# 56 Filed 09/30/14 Page 19 of 19

12-10635 Bowling (Doc. # 90)

In Re Bowling, 12-10635 (Bankr. D. Kan. Aug. 28, 2014) Doc. # 90

PDFClick here for the pdf document.

SIGNED this 28th day of August, 2014.



Case No. 12-10635Chapter 13



A chapter 13 debtor’s lawyer may be granted reasonable fees for representing
the debtor in the case, but the lawyer’s work must be necessary and beneficial to the
case’s completion and not duplicative. The reasonableness of the fees requested must
be measured against the provisions of 11 U.S.C. § 330(a)(3)(A)–(F). In this small
case,1 Eron Law Office (the “Firm”), applied for fees of $11,855, nearly quadrupling
the presumptive chapter 13 attorney’s fee of $3,000 that is customarily awarded in

1 The debtor listed assets of $4,140 and debts of $38,094. Filed claims totaled $21,473.


Case 12-10635 Doc# 90 Filed 08/28/14 Page 1 of 13

this division.2 I independently reviewed the Firm’s fee application and its itemized
billing statements and applied the various provisions of § 330(a)(3), taking particular
notice of how much time the Firm’s members spent on various activities, the necessity
and benefit of the services at the time they were rendered, and lack of complexity this
case presented. Based on that review, I allow the application in part and deny the


Charles Timothy Bowling filed this case after the Kansas Department of
Revenue (KDOR) seized personal property associated with his operation of a gift shop
pursuant to tax warrants on March 19, 2012.3 He owed KDOR unpaid sales taxes in
excess of $20,000. The following day, after consultation with David Eron, Bowling
filed a pro se chapter 13 petition. Eron began acting on Bowling’s behalf on March 21
and entered his appearance on March 23. Bowling agreed to pay the Firm $3,350 for
representation in the chapter 13 over 12 months. The Firm’s Fed. R. Bankr. P. 2016(b)
disclosure referred to the $3,000 fee as the “base fee – additional charges may apply”
as governed by the retainer agreement. The retainer agreement is not in the record.
In return for the $3,000 base fee, Eron agreed to render legal service “for all aspects

2 Of the $11,855 total, all was attributable to attorney fees save $30 in expenses for which
reimbursement is sought.
3 According to the statement of financial affairs (SOFA), item 18, the gift shop ceased operation
December 31, 2011. But item 1 of the SOFA reflects that debtor ran the gift shop as a sole
proprietorship in 2012 (generating income of about $3,400) until the KDOR executed its tax
warrants on the personal property at the gift shop. The billing statements suggest that debtor
continued to operate the gift shop during the pendency of the bankruptcy, at least through July of
2012 when it appears he vacated the leased premises at Chisholm Trail. See Dkt. 77-1, p. 6.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 2 of 13

of the bankruptcy case,” including “preparation and filing of any petition, schedules,
statements of affairs and plan which may be required” and “representation of the
debtor at the meeting of creditors and confirmation hearing, and any adjourned
hearings thereof.”4

The schedules filed in this case reflect assets of $4,140.50 and debts of
$38,094.12. Bowling is a conductor/engineer for the Union Pacific railroad, is married,
and has three dependent children.

Within days of the bankruptcy filing, Eron negotiated an agreed adequate
protection order with the KDOR which provided that the pre-confirmation adequate
protection payments would be paid to the chapter 13 trustee upon confirmation of
Bowling’s plan.5 Eron’s associate Justin Leck then completed and filed the remaining
bankruptcy schedules and Bowling’s chapter 13 plan on June 13, 2012.6 The plan
proposed to pay $450 for 60 months for a total of $27,000 and provided for payment
of the KDOR’s tax claim in full. Debtor’s disposable income calculation on Form 22C
yielded a negative $27.87.7 Bowling had no other debts secured by real estate or a
principal residence. He had no debts secured by vehicles or other personal property.
Only one objection to confirmation of the chapter 13 plan was filed – that of the
chapter 13 trustee. 8 She asserted feasibility, disposable income, and bad faith

4 Dkt. 17.
5 Dkt. 11.
6 Dkt. 18.
7 Dkt. 17, p. 41, line 59.
8 Dkt. 26.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 3 of 13

objections as well as debtor’s failure to provide his 2011 tax returns.

Six months later, in late 2012, the trustee filed a motion to compel under local
rule seeking debtor’s compliance with the trustee’s request for information and
documentation supporting his claimed transportation expense and charitable
contributions, information that was relevant to the trustee’s disposable income
objection.9 The trustee had requested this information from debtor at the § 341
meeting and followed up with written requests to the debtor or debtor’s counsel on at
least five more occasions after the § 341 meeting. After numerous continuances of the
confirmation hearing, Bowling’s chapter 13 plan and the trustee’s objection were
announced as resolved at the March 19, 2013 confirmation hearing and an order
confirming the plan as modified was entered on April 25, 2013.10 The confirmed plan,
as modified, provided for an increase of $145 in the monthly plan payment to pay
disposable income of $8,373.11

On April 17, 2014, the Firm filed this First Application for Compensation for
the period March 1, 2012 to March 31, 2014 in the amount of $11,855 (which included
$30 of expenses), together with the itemized monthly billing statements generated
during the period.12 Bowling objected to the Application and requested a hearing, but

9 Dkt. 48. See D. Kan. L.B.R. 4002.2(a) requiring compliance with the trustee’s requests for
information within 14 days.
10 Dkt. 70. Those continuances of the confirmation hearing were due in large part to debtor’s failure
or lengthy delay in responding to the trustee’s requests for information and documentation. Two of
the continuances were due to the terminal illness of debtor’s wife.
11 An amended confirmation order entered on July 15, 2013, specified that the Firm’s attorney fees
paid through the plan were $3,000, plus an additional $350 closing fee. Dkt. 72.
12 Dkt. 77.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 4 of 13

did not specify the nature of his objection.13 He appeared at the hearing held on July
9, 2014. His chief complaint was that the fees are unreasonable because he
continually dealt with a different person in the Firm and he had to bring them “up to
speed” when he communicated with them. He believes that a standard fee in a
chapter 13 case should be around $4,000.


Bankruptcy courts independently evaluate the propriety of fees requested by
debtor’s counsel.14 Section 330(a)(4)(B) of the Code authorizes the court to allow
“reasonable compensation” to a debtor’s attorney for “representing the interests of
the debtor in connection with the bankruptcy case.” To determine whether the fees
requested are indeed “reasonable,” we consider the benefit and necessity of the
services rendered along with the nonexclusive factors listed in § 330(a)(3).15 The
applicant bears the burden of establishing the reasonableness of the compensation
sought.16 Section 330(a)(3)(C) requires that we consider not only whether the services
were “necessary,” but whether they were necessary or beneficial to completion of the
case at the time they were rendered. The factors listed in §330(a)(3) are substantially
similar to those applied to attorney fee applications in every other forum. They are –

(A) the time spent on such services;
(B) the rates charged for such services;
13 Dkt. 79.
14 In re Tahah, 330 B.R. 777, 780-81 (10th Cir. BAP 2005).
15 In re Rogers, 401 B.R. 490, 492-93 (10th Cir. BAP 2009).
16 Id. at 493-94.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 5 of 13

(C) whether the services were necessary to the administration of, or beneficial
at the time at which the service was rendered toward the completion of, a case
under this title;
(D) whether the services were performed within a reasonable amount of time
commensurate with the complexity, importance, and nature of the problem,
issue, or task addressed;
(E) with respect to a professional person, whether the person is board certifiedor otherwise has demonstrated skill and experience in the bankruptcy field;
(F) whether the compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases other than
cases under this title.17
Contested chapter 13 fee applications are rare in this court because, in 2009, I

increased the presumptive fee in a chapter 13 case in this Division from $2,500 to

$3,000.18 As I noted then, the presumptive fee is the maximum allowable fee a

debtor’s lawyer can receive without submitting a detailed fee application. It is

intended to cover routine legal services in chapter 13 cases from initial consultation

and preparation of the petition through plan confirmation. Never have I barred

counsel who believe they are entitled to more than the presumptive fee from seeking

further fee allowance provided a proper fee application is submitted.19

All but $200 of the requested fees were billed before confirmation of the plan

over a year ago. Other than the instant Application, there have been no other

17 11 U.S.C. § 330(a)(3). See also In re Permian Anchor Services, Inc., 649 F.2d 763 (10th Cir.
1981)(adopting the lodestar analysis and twelve Johnson factors set forth in Johnson v. Georgia
Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974) for determining the reasonableness of
fees); In re Lederman Enterprises, Inc., 997 F.2d 1321, 1323 (10th Cir. 1993).
18 See In re Hueser, No. 09-10601, 2009 WL 2849607 (Bankr. D. Kan. Aug. 31, 2009) (three
companion cases involving consumer chapter 13 cases).
19 In Rogers, supra, the BAP held that once the attorney files a fee application, they are no longer
entitled to the “standard fee.” 401 B.R. at 494 (noting that the presumptive fee is designed to be the
maximum fee allowed without a detailed fee application and not a minimum fee to be awarded in all

Case 12-10635 Doc# 90 Filed 08/28/14 Page 6 of 13

substantive post-confirmation proceedings or motions in the case. The itemized
statements do not contain a recapitulation of time spent and fees billed for each
timekeeper that contributed to the total fee. The Court’s own summary allocates the
time and fees among the attorneys and law Firm staff as follows:

Attorney or Legal Assistant Hours Fees
Attorney DPE 8.80 1,850.00
Attorney EKW 4.50 900.00
Attorney JRL 22 2,800.00
Attorney JWR 25.40 5,120.00
Legal Assistant ECD 12.10 907.50
Legal Assistant BAM 2.8 210.00
Legal Assistant AB .50 37.50
Total Fees Billed $11,825.00

The hourly rates charged are not excessive. They compare favorably to what
attorneys in this area charge for work done outside of bankruptcy. Both Mr. Eron and
Mr. Rockett have considerable experience in this court and, while neither Mr. Leck
nor Ms. Wilson is as experienced, they both could handle a routine chapter 13 case
like this one.

This case calls for the application of subparagraphs (a)(3)(C), (a)(3)(D), and
(a)(4). Section 330(a)(4)(A) disallows compensation for unnecessary duplication of
services or services that were neither likely to benefit the estate or necessary to its
administration. Subparagraph (a)(3)(C) requires that the work done must have been
necessary or beneficial to the completion of the case at the time it was done.
Subparagraph (a)(3)(D) requires that the time spent be reasonable “commensurate
with the complexity, importance, and nature of the problem.”

What made this case so expensive? There are some general causes. The Firm’s

Case 12-10635 Doc# 90 Filed 08/28/14 Page 7 of 13

minimum billing increment appears to be .2, or 12 minutes, potentially inflating fees
for routine work like leaving a phone message on the recipient’s phone or sending a
brief e-mail to the intended recipient. There are a few instances of “batched entries”
that I ordinarily disallow, but, in general, the vast majority of time entries are less
than .4 hours and when describing multiple tasks within a single time entry, those
tasks tend to be closely related.20 There are instances of duplication of services that
are attributable to two or three lawyers and/or staff participating in intraoffice
conferences or reporting case status or progress to one another. Indeed, all of the
attorneys and three legal assistants in the Firm touched the Bowling case at various
times.21 While these communications may have been expedient, they increased the
bill. That said, the Firm exercised billing judgment by reducing or deleting charges
for some services, including several of the types of entries just noted, writing off
$3,127.50 in fees before submitting this Application.22

This is neither a big nor a complex case. Mr. Eron worked out the KDOR issues
without formally seeking court relief from the seizure or the turnover of the
property.23 Bowling hoped to halt further enforcement of the KDOR’s claim against

20 See In re Recycling Industries, Inc., 243 B.R. 396, 406 (Bankr. D. Colo. 2000) (practice of “lumping”
[or batching] tasks into a single time entry is “universally disapproved” by bankruptcy courts.)
21 Attorney Leck’s involvement in the case ended in December of 2012 and Attorney Rockett’s
participation began in January of 2013. Attorney Wilson’s involvement in the case was fairly limited
to court appearances for continuing the hearing on confirmation and for attending the § 341 meeting
of creditors.
22 This figure is comprised of services that were “no charge” and fees that were written off or
reduced. The bulk of the write-offs were attributable to attorneys Leck ($1,137.50) and Rockett
23 As noted previously, debtor apparently continued operation of the gift shop as a sole
proprietorship to some degree until the end of July, 2012. At that point, he vacated the leased

Case 12-10635 Doc# 90 Filed 08/28/14 Page 8 of 13

him and to enable him to repay the liquidated tax claim over a 5-year period. The
KDOR’s claim against debtor was resolved and its treatment in the bankruptcy was
negotiated three days after the petition date by a joint motion for adequate protection
providing for monthly payments of $362.44.24 The total charge for this work was
$440.25 There were no continuing operating issues.

After the adequate protection agreement was reached with KDOR, the Firm
proceeded to prepare the schedules, statement of financial affairs, creditor matrix,
and the plan. Time entries related to these tasks from April to early July, 2012 total
approximately 17 hours and $1,955. 26 Some of the time entries involve office
conferences between multiple law office staff and unnecessarily increased the time
and costs. Time and fees related to the § 341 meeting are approximately 3.3 hours for
$597.50.27 Some of the time entries on June 20, 2012 appear to be duplicative and
one time entry of attorney Leck is a batched entry of 1.5 hours. By September 30,
2012, the Firm had billed Bowling $5,732 even though the plan had never been

Much additional time was spent on responding to informational requests made
by the trustee in addressing her feasibility, disposable income, and good faith

premises. See note 3, supra.
24 As the joint motion represented, the monthly payment “represents full payment of KDOR’s claim
over 60 months with interest at 3% per annum.” Dkt. 6, p. 2, ¶ 7.
25 Per the March 2012 fee statement, the agreed upon treatment of the KDOR’s tax claim was
accomplished in 2.20 hours and $440 in attorney fees. Dkt. 7-1, p. 1.
26 Dkt. 77-1, pp. 2-6. The figure for total fees takes into account the reductions made by counsel
exercising billing judgment. See Dkt. 77-1, p. 6.
27 Dkt. 77-1, pp. 2, 4.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 9 of 13

objections. Because she received no responses to her informal requests for
information, the trustee filed a motion to compel the delivery of the information, most
of which related to transportation expenses claimed by Bowling and charitable
contributions. It’s worth noting that the Bowlings have previously filed jointly for
chapter 13 relief in this court and Mr. Bowling should have some level of expectation
about what he would be required to tell the trustee about their expenses.28 Counsel
was certainly obligated to remind them of that obligation.

The Firm’s statements for the period from late September of 2012 through
February of 2013 reflect one lawyer’s attending the initial confirmation hearing on
September 12, 2012, followed by several months of the Firm’s attempts to secure
transportation expense information from Bowling in order to satisfy the trustee’s
requests. Then, in February, the Firm expended some $1,762 in time in further
dealing with the trustee’s eminently reasonable request for income tax returns and
expense information supporting the debtor’s claimed transportation and charitable
contribution expenses. The Firm also sought and twice secured a continuance of the
evidentiary hearing on confirmation because Mrs. Bowling was ill with cancer. It is
unclear whether the trustee got the information she sought in February.

The final push to confirmation occurred in March. I set an evidentiary hearing
for March 19 and the Firm, principally Mr. Rockett, geared up for trial, billing more
than $2,500 for that work. The trial did not happen, though, because the parties

28 See Case No. 07-11205, filed in May of 2007 and converted to chapter 7 in May of 2008. The
debtors received a chapter 7 discharge in 2010.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 10 of 13

reached an agreement that they announced on trial day. In April, the trustee
withdrew the Motion to Compel.

The nearly year-long passage of time between filing the chapter 13 plan and
confirming the plan was largely due to Mrs. Bowling’s illness and the debtor’s delay
in responding to the trustee’s request for information and documentation that
supported the debtor’s projected disposable income calculation. After she filed a
motion to compel, the trustee either got what she sought or Bowling was unable to
substantiate his expenses, and the parties quickly settled the trustee’s confirmation
objection by the debtor increasing his plan payment $145 per month.

As noted, there were no formal proceedings begun to cause KDOR to turn over
the seized business assets – that was accomplished without Court intervention. But
considerable time appears to have been spent on the trustee’s document requests, due
in large part to the debtor’s failure to provide them timely. And, once the matter was
finally set for trial, counsel certainly had to prepare for trial and, to the extent that
time was commensurate with the complexity and novelty of the tasks at hand, it
should be compensated. Only three claims were filed in the case and debtor made no
claims objections. The trustee objected to debtor’s claim of exemption in two vehicles
but debtor amended Schedule C the same date as the trustee’s objection to delete one
of the vehicles, and the trustee withdrew her objection. Debtor was not required to
defend any motions for relief from the automatic stay nor motions to dismiss for
nonpayment of plan payments. In short, the anticipated trial boiled down to the
amount of Bowling’s disposable income, the issue that the trustee had raised from

Case 12-10635 Doc# 90 Filed 08/28/14 Page 11 of 13

the outset.

The Firm charged for a total of 45 hours and $5,922 from October of 2012
through April of 2013.29 Not much was accomplished compared to the time spent;
there were several appearances at confirmation hearings and continuances. Some of
the delay was attributable to debtor’s failure to provide information. Numerous
attorneys billed time regarding confirmation and much time was devoted to
interoffice conferences and requests to the debtor. Given the primary issue driving
confirmation of the plan and the lone objection to confirmation filed by the trustee,
the time incurred on confirmation is simply not reasonable.30


The Firm spent more time than was necessary to complete this case. Some of
this is due to the inefficiencies and inevitable duplication of services that occurs when
four lawyers and several staff members “touch” a file. Some of it is due to Bowling’s
failure or inability to respond timely to the trustee’s information requests. Some of it
is simply duplicative. In the absence of any other evidence justifying these charges
individually, I am left to balance the Firm’s right to recover reasonable compensation
for the benefit it conferred on the debtor and the estate with the debtor’s right to be
assessed a fair fee, consistent with the Bankruptcy Code.31 In striking that balance,

29 Dkt. 77-1, pp. 4, 6, 8-19.

30 The Court notes that approximately one-fourth of attorney Rockett’s time was attributable to
preparation of the evidentiary hearing on confirmation, which hearing of course, was never held.
31 In applying the Code’s fee provisions, I take no notice that (1) the trustee believes the allowance of

the application in full would render the plan unfeasible; or (2) that the Firm has since moved towithdraw. Neither point bears on the reasonableness, necessity or benefit of the Firm’s services

Case 12-10635 Doc# 90 Filed 08/28/14 Page 12 of 13

I am mindful that some of the fees here were caused by the debtor’s circumstances in
being unable, for whatever reason, to provide the information the trustee requested.
Considering what §330(a)(3) requires me to consider, I conclude that the $5,732
charged from the outset of the case through September of 2012 should be reduced by
50%, or $2,866, because of duplication of services and excessive time spent
assembling the schedules and the plan, viewed in light of the lack of complexity of
the case. Likewise, I reduce the fees claimed from October of 2012 through April of
2013 of $5,922 by 50%, or $2,961, for the same reasons. These reductions total $5,827.
The remainder of the fees charged, $5,998, and the $30 filing fee for an amended
creditor matrix, are approved. The Firm’s fee and expense application is therefore
allowed in the amount of $6,028; the balance of the application is denied.

# # #

under § 330.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 13 of 13

13-05196 Morris v. GreenPoint Credit LLC et al (Doc. # 75)

Morris v. GreenPoint Credit LLC et al, 13-05196 (Bankr. D. Kan. Jul. 2, 2014) Doc. # 75

PDFClick here for the pdf document.


SIGNED this 2nd day of July, 2014.





MARK ROBERT KOLARIK, ) Case No. 13-11985

Debtors. )

Plaintiff, )
vs. ) Adv. No. 13-5196

Defendants. )


Case 13-05196 Doc# 75 Filed 07/02/14 Page 1 of 10


Green Tree Servicing moves for dismissal of the chapter 7 trustee’s complaint
under 11 U.S.C. § 544(a) to avoid and preserve an alleged unperfected lien of
GreenPoint Credit, L.L.C. in a manufactured home that defendant sellers St. Clair
sold to the debtors Kolarik in 2004 under an installment contract.1 Green Tree’s
motion is brought under Fed. R. Civ. P. 12(b)(6), or alternatively, Fed. R. Civ. P. 12(c)
as incorporated by Fed. R. Bankr. P. 7012(b).2

The Complaint

The trustee alleges that the Kolariks entered into a prepetition contract of
purchase and sale with the St. Clairs in July 2004 for the purchase of a 1997 Skyline
mobile home. The trustee further alleges that the mobile home is believed to be
subject to a lien in favor of GreenPoint Credit, LLC that the St. Clairs gave to secure
their purchase money loan from GreenPoint. Because that lien was not perfected on
the date of the Kolariks’ bankruptcy filing, July 31, 2013, he seeks to avoid it,
exercising his strong-arm powers as a hypothetical lien creditor under § 544(a).

The Applicable Legal Standard

1 Green Tree Servicing LLC appears by its attorney John F. Michaels. The chapter 7
trustee J. Michael Morris personally appears.
2 When a party files a Rule 12(b)(6) motion to dismiss for failure to state a claim after
having filed an answer to the complaint, as Green Tree has done in this case, the motion is
treated as a motion for judgment on the pleadings under Rule 12(c). Jacobsen v. Deseret
Book Co., 287 F.3d 936, 941 n. 2 (10th Cir. 2002). The same legal standard applies to Rule
12(b)(6) and Rule 12(c) motions. Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d
1138, 1170 (10th Cir. 2000).

Case 13-05196 Doc# 75 Filed 07/02/14 Page 2 of 10

Motions to dismiss or for judgment on the pleadings under Rule 12 are
ordinarily subject to the facial plausibility standard enunciated in the Supreme
Court’s Twombly and Iqbal decisions and are confined to the allegations contained in
the complaint.3 But where the litigants have presented exhibits and materials
outside the complaint in their motion papers, the Court may treat the motion as one
for summary judgment.4 Here the parties each attached a Kansas Department of
Revenue (KDR) motor vehicle title search on the subject mobile home to their papers.5
The trustee added a copy of the Contract of Purchase and Sale (the “Contract”)
between the St. Clairs and Kolariks.6 I therefore treat Green Tree’s motion as one for
summary judgment, requiring that I determine whether material facts remain in
dispute and whether the undisputed facts entitle Green Tree to judgment as a matter
of law on the trustee’s complaint. Neither party challenges the authenticity of the
documents attached to the motion papers.


Sometime before 2004, the St. Clairs purchased a manufactured home with
purchase money borrowed from GreenPoint and granted GreenPoint a security
interest in the home. In 2004, the Kolariks purchased the home from the St. Clairs
for $23,884 under the Contract.7 The Contract provides that the debtors were to pay

3 Fisher v. Lynch, 531 F. Supp. 2d 1253, 1260 (D. Kan. 2008); Wagner Equip. Co. v. Wood,
893 F. Supp. 2d 1157, 1159-60 (D. N.M. 2012).
4 Fed. R. Civ. P. 12(d).
5 Adv. Dkt. 35, p. 7 and 38, p. 13.
6 Adv. Dkt. 38, pp. 9-12

7 Id.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 3 of 10

the St. Clairs’ monthly loan payments (including insurance) to GreenPoint and
annually try to assume the GreenPoint loan.8 The GreenPoint loan would remain in
the St. Clairs’ name. If the home were destroyed or damaged, the St. Clairs could
elect to repair it or cancel the contract. If the debtors paid off or assumed the
GreenPoint loan, the St. Clairs were obligated to pass title to them. All other duties
were delegated to the buyers – pay the taxes and insurance and maintain the mobile
home in good and clean condition. The debtors reside in the mobile home that is
situated in a mobile home community on a rented lot. The Kolariks filed their chapter
7 bankruptcy petition on July 31, 2013. They claim the mobile home exempt as their

Both the trustee and Green Tree rely on a second document, a motor vehicle
search report from the KDR on the mobile home.9 This document shows that title
number N0056133 to the mobile home was issued March 11, 2004 and the St. Clairs
are the title owners of record.10 No lien holder is shown on this report; instead, it
states “Not Found.” While this report suggests that either no lien exists on the mobile
home or that a lien may exist but be unperfected, the certificate of title is not in the
summary judgment record and the Court cannot tell whether GreenPoint’s lien is
noted on it as Kansas law requires.11

8 Adv. Dkt. 38, pp. 9-12.
9 Adv. Dkt. 35, Ex. A, p. 7 and Adv. Dkt. 38, p. 13.
10 Id. Although not entirely clear, it appears that this motor vehicle search report was
generated or printed on September 3, 2013 from the KDR division of motor vehicles
11 KAN. STAT. ANN. § 84-9-311(a)(2), (b) (2013 Supp.) and § 58-4204(g) (2013 Supp.).

Case 13-05196 Doc# 75 Filed 07/02/14 Page 4 of 10

Green Tree Servicing, LLC, the St. Clairs, and the trustee stipulate that Green
Tree is the loan servicer for Bank of America, N.A. (BOA) which is the successor in
interest to “BankAmerica Housing Services, a Division of Bank of America, FSB” and
is the real party in interest.12 Nothing in the stipulation or record establishes the
relationship between BOA and GreenPoint Credit, or whether BOA is the successor
to GreenPoint with respect to the mobile home loan and lien.13 The trustee amended
his complaint on June 23, 2014 to add BOA as a party defendant but the substantive
allegations of the original complaint remained unchanged.14 GreenPoint Credit has
not answered or otherwise responded to the trustee’s complaint, and the trustee has
not pursued GreenPoint’s default.15 As discussed below, Green Tree’s motion should
be denied.


Green Tree makes several arguments why the trustee’s claim must fail as a
matter of law. First, Green Tree argues that because there was no “transfer” of
property by the debtors (the lien being granted by the St. Clairs), there is nothing for
the trustee to avoid.16 But, as the trustee correctly points out, the language of § 544(a)
does not limit its reach to transfers by the debtor; rather, it grants the trustee the

12 Adv. Dkt. 59.
13 GreenPoint Credit may have been acquired or absorbed by BOA at some point during the
financial crisis of 2008, but the Court’s knowledge of this is off-record and cannot be relied
on in deciding these motions.
14 Adv. Dkt. 67.
15 It appears to the Court that GreenPoint Credit, LLC has not been properly served with
summons and the complaint. See Fed. R. Bankr. P. 7004(b)(3).
16 See Adv. Dkt. 19.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 5 of 10

same “rights and powers” that a hypothetical judgment lien creditor, executing
creditor, or bona fide purchaser would have as of the date of the debtors’ petition.17
Because § 544(a) is not limited in the way Green Tree claims, a trustee may avoid
any unperfected lien that encumbers property of the estate without regard to whether
the debtors granted it.18 Green Tree’s argument to the contrary must fail.

Second, Green Tree argues that the mobile home is not property of the estate.19
To reach this conclusion, Green Tree reasons that the Contract is an executory
contract and that, because the Contract was neither assumed or rejected, it must be
deemed rejected under § 365(d)(1). Once an executory contract is rejected, it is no
longer property of the estate per § 365(p)(1).20 Green Tree bases this argument on
the fact that the debtors scheduled the Contract in Schedule G – Executory Contracts
and Unexpired Leases and described the Contract as a “residential lease/rent to own.”
The Contract says nothing about being a “residential lease/rent to own” agreement.
It is not executory.

In this Circuit, the courts apply the Countryman test in determining whether

17 In re Silver, 303 B.R. 849, 863 (10th Cir. BAP 2004) (emphasizing the use of the
disjunctive language “or” in § 544(a)). See also, Morris v. Hicks, et al (In re Hicks), 491 F.3rd
1136, 1140 (10th Cir. 2007) (the rights of a bankruptcy trustee as a hypothetical lien
creditor are determined under state law); KAN. STAT. ANN. § 84-9-317(a)(2) (2013 Supp.)
(subordinating an unperfected security interest to the rights of a trustee who became a lien
creditor as of the date of the petition).
18 In re Sheets, 277 B.R. 298, 307 (Bankr. N.D. Tex. 2002) (transfer is not a prerequisite to
trustee exercising his strong-arm powers under § 544(a)).
19 Adv. Dkt. 35.
20 Section 365(p)(1) speaks to rejected leases of personal property and does not address
rejected executory contracts.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 6 of 10

a contract is an executory contract.21 Under that test, if: (1) the contract has not been
fully completed or performed; (2) future obligations and performance remain due from
both parties to the contract; and (3) failure to perform those obligations would
constitute a material breach, the contract is executory.22 Most courts conclude that
installment land contracts or motor retail vehicle retail sales contracts (including
those for mobile homes) are not executory if the only duty the seller retains is the
duty to convey title when the buyer’s payments are complete and the buyer is
obligated from the beginning of the contract to pay taxes, insurance, and

This Contract is not a lease nor is it a rent-to-own agreement. Rather, it
documents the sale and purchase of the mobile home “as is” without any
representations as to condition by the St. Clairs. The debtors were not only obligated
to make the monthly loan payments to GreenPoint, they were also obligated to pay
taxes on the mobile home, to insure it, and to maintain it. Apart from conveying title
to the debtors upon completion of monthly payments, the St. Clairs had no other
duties or obligations beyond retaining the right to elect to repair the home in the

21 The test is named for Professor Vern Countryman. See Olah v. Baird (In re Baird), 567
F.3d 1207, 1211 (10th Cir. 2009)(adopting Countryman test of an executory contract).

22 Id.
23 Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1174 (10th Cir. 2007) (Debtors’
obligation to tender installment payments and the seller-dealer’s obligation to release the
lien when handing over the vehicle title are insufficient to classify the sales contract as
executory.). See also In re Drahn, 405 B.R. 470, 475 (Bankr. D. Ia. 2009) (contract for sale of
mobile home is not executory when the only remaining duty is the transfer of title after
debtor has completed payments); In re Martinez, 476 B.R. 627, 632 n.2 (Bankr. D. N.M.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 7 of 10

event of a total loss or cancel the Contract. That right will not ripen until a casualty
loss is sustained on the mobile home. The Contract is not executory, and therefore
not subject to assumption or rejection under § 365(d)(1). To the extent it is not exempt,
the debtors’ equitable interest in the mobile home is property of the estate.24

The Contract here differs from the contract at issue in In re Reasor in which
this Court concluded the contract was an executory one.25 In that case the sellers
retained legal title to the trailer but also remained obligated to maintain insurance
coverage on the travel trailer that was being purchased by the debtors under an
unsecured installment purchase agreement. It contained no provisions allocating
responsibility for taxes, repairs and maintenance to either party. The sellers
continuously insured the trailer during the 56-month term of the purchase
agreement, even while the debtors were in default. In contrast here, all of the usual
attributes of ownership were allocated to the Kolariks – responsibility for taxes,
insurance, and maintenance of the mobile home; the ability to deduct any interest
paid to GreenPoint; and possession. Upon the completion of the monthly payments or
the successful assumption of the St. Clairs’ GreenPoint loan, the St. Clairs were
obligated to transfer title to the Kolariks. Reasor is distinguishable on its facts and
the terms of the contract. This Contract is not executory.

24 On this record the court is unable to determine the extent of the debtors’ equitable
interest in the mobile home and such determination remains for trial, as does a
determination of the rights of the St. Clairs, GreenPoint, BOA, and Green Tree in the
mobile home based upon a fully developed factual record.
25 In re Reasor, 2014 WL 1647142 (Bankr. D. Kan. Apr. 23, 2014).

Case 13-05196 Doc# 75 Filed 07/02/14 Page 8 of 10

Next, Green Tree asserts that substantial compliance with Kansas certificate
of title statutes suffices to perfect the lien in the mobile home and therefore,
GreenPoint’s (or BOA) lien is deemed perfected, defeating the trustee’s avoidance
action.26 Green Tree cites the Charles case for authority suggesting that the KDR’s
motor vehicle search report that shows the St. Clairs as the owner of the mobile home
is analogous to the certificate of title that the lender was relied on in Charles.27 But
the facts here are distinguishable and do not warrant an extension of the substantial
compliance standard applied in Charles. In that case, the creditor was identified on
certificates of title to trucks as the owner thereof, rather than the lienholder. The
Tenth Circuit held that this met the substantial compliance standard for perfection
because a search of the certificate of title records would give notice to potential
secured creditors that the creditor was claiming an interest in the trucks.28 Here, the
document presented by Green Tree is only a KDR title search report.29 It identifies
the title holders as the St. Clairs (the actual owners), not as lienholders. There is no
mention of either GreenPoint, BOA, or any other creditor in the search report. It
cannot impart notice to anyone that either creditor was claiming an interest in the
mobile home.30 Green Tree’s substantial compliance argument must fail on this

26 Adv. Dkt. 35.
27 Morris v. The CIT Group/Equip. Financing, Inc. (In re Charles), 323 F.3d 841 (10th Cir.
28 Id. at 845.
29 Adv. Dkt. 35, Ex. A.
30 Cf. Morris v. 21st Mortgage Corp. (In re Jewell), 2006 WL 3512926 at *3 (Bankr. D. Kan.
Dec. 4, 2006) (In distinguishing In re Charles, this Court noted: “One viewing a title that
recited someone other than the seller or borrower as an “owner” would absolutely be placed

Case 13-05196 Doc# 75 Filed 07/02/14 Page 9 of 10

record and at this stage of the proceedings.

Finally, Green Tree claims that because GreenPoint did not extend credit to

the debtors, its lien cannot be avoided under § 544(a)(1) and (2).31 As the trustee

correctly notes, Green Tree misapprehends § 544. When exercising “strong-arm

powers” under § 544(a), the trustee stands in the shoes of a hypothetical lien creditor;

he is clothed with the rights and powers of a judicial lien creditor whether or not such

a creditor actually exists.32 This argument is also without merit.


Based upon the pleadings and the limited record before the Court, Green Tree’s

converted motion to dismiss or for judgment on the pleadings, treated as one for

summary judgment, is DENIED for the reasons set forth above.33

# # #

on notice of the named party’s interest in the property.”).
31 Adv. Dkt. 35.
32 In re Silver, 303 B.R. 849, 863. See also, Zilkha Energy Co. v. Leighton, 920 F.2d 1520,
1523 (10th Cir. 1990) (Under § 544 the trustee may stand in the shoes of a hypothetical
judgment lien creditor of the debtor; it is a legal fiction that permits the trustee to assume
the guise of a creditor with a judgment against the debtor.); In re Brouillette, 389 B.R. 214,
218 (Bankr. D. Kan. 2008) (“Under § 544(a)(1), upon commencement of a bankruptcy case,
the trustee has the status of a creditor with a judicial lien on all property on which a
creditor could have obtained a judicial lien, whether or not such creditor actually exists,”
quoting 5 Collier on Bankruptcy ¶ 544.05.).
33 I note the lack of any evidence in the record that identifies which creditor (GreenPoint,
BOA, or Green Tree) held a lien in the mobile home on the date of the Kolariks’ bankruptcy
petition or whether that lien was properly perfected. Nor is there evidence sufficient to
establish the relationship, if any, among GreenPoint, BOA and Green Tree, or what the
Kolariks have paid under the Contract -- evidence that is essential for the Court to
determine the interests and rights of the parties in the mobile home.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 10 of 10

13-05196 Morris v. GreenPoint Credit LLC et al (Doc. # 77)

Morris v. GreenPoint Credit LLC et al, 13-05196 (Bankr. D. Kan. Jul. 8, 2014) Doc. # 77

PDFClick here for the pdf document.


SIGNED this 7th day of July, 2014.





MARK ROBERT KOLARIK, ) Case No. 13-11985

Debtors. )

Plaintiff, )
vs. ) Adv. No. 13-5196

Defendants. )


Case 13-05196 Doc# 77 Filed 07/07/14 Page 1 of 7


The defendants Robert and Anne St. Clair have filed their separate cross
motion to dismiss the chapter 7 trustee’s strong arm complaint to avoid GreenPoint
Credit, L.L.C.’s allegedly unperfected lien on a manufactured home that the St. Clairs
sold to the debtors Mark and Kelly Kolarik under a 2004 installment contract.1 The
St. Clairs move for relief under Fed. R. Civ. P. 12(b)(6), but proffer material outside
the complaint which allows the court to consider their motion as one for summary

The Complaint

Exercising his strong-arm powers as a hypothetical lien creditor under §
544(a), the trustee alleges that the Kolariks entered into a prepetition contract of
purchase and sale with the St. Clairs in July 2004 for the purchase of a 1997 Skyline
mobile home. He further alleges that GreenPoint may claim a lien on the mobile
home that was granted by the St. Clairs’ to secure their purchase money indebtedness
to GreenPoint and that this lien was unperfected on the date of the Kolariks’
bankruptcy filing, July 31, 2013.

The Applicable Legal Standard

1 On March 18, 2014 Green Tree Servicing, LLC previously filed a motion to dismiss or
alternatively for judgment on the pleadings under Fed. R. Civ. P. 12(b)(6) and (c). See Adv.
Dkt. 19. The Court issued its Order Denying Green Tree’s motion (Green Tree Order) on
July 2, 2014 at Dkt. 75.
2 Adv. Dkt. 53 and 54. The St. Clairs appear by their attorney Samantha M.H. Woods. The
chapter 7 trustee J. Michael Morris personally appears.

Case 13-05196 Doc# 77 Filed 07/07/14 Page 2 of 7

As the Court explained in the Green Tree Order, a Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which relief may be granted is generally
governed by the facial plausibility standard enunciated in the Supreme Court’s
Twombly and Iqbal decisions and is confined to the allegations contained in the
complaint.3 But where, as here, the litigants have presented exhibits and materials
outside the complaint in their motion papers, the Court may treat the motion as one
for summary judgment.4 The St. Clairs attached the Contract of Purchase and Sale
between them and the Kolariks bankruptcy Schedules C and G, and a Title and
Registration Receipt for the subject mobile home. As with the Green Tree Order, we
consider these additional documents and treat the motion as one for summary
judgment. That requires me to determine whether material facts are in dispute and
whether the undisputed facts entitle the St. Clairs to judgment as a matter of law on
the trustee’s complaint.


Most of the undisputed facts in this matter are set forth in the Green Tree
Order and need not be repeated here. In support of their motion, and in addition to
the documents I’ve already considered in the Green Tree Order, the St. Clairs offer a
copy of a Title and Registration Receipt dated January 22, 2004 and related title
documents that refer to the manufactured home. These are found at Exhibit C to their

3 Fisher v. Lynch, 531 F. Supp. 2d 1253, 1260 (D. Kan. 2008); Wagner Equip. Co. v. Wood,
893 F. Supp. 2d 1157, 1159-60 (D. N.M. 2012).
4 Fed. R. Civ. P. 12(d).

Case 13-05196 Doc# 77 Filed 07/07/14 Page 3 of 7

motion.5 The trustee presumably joined the St. Clairs as party defendants because
they claim an interest in the subject mobile home as owners of legal title, a fact which
is not disputed by any party. As such, their interest must be adjudicated relative to
the other parties in this action who claim an interest in the mobile home. The St.
Clairs have not pleaded any cross claims against their purchasers, the Kolariks, or
any other defendants. Based upon their bankruptcy schedules, the Kolariks remain
in possession of the mobile home, but the record is silent on the status of the Kolariks’
payments under the Contract of Purchase and Sale.


As did Green Tree Servicing, the St. Clairs assert that the mobile home in
question is not property of the estate because the Contract of Purchase and Sale for
the mobile home between them and the Kolariks is an executory contract that was
not timely assumed or rejected and is therefore deemed rejected by operation of §
365(d)(1) and that, as a consequence of that, the mobile home is no longer property of
the estate under § 365(p). Thus the trustee has no avoidance rights. I rejected this
argument in the Green Tree Order because I concluded that the Contract of Purchase
and Sale is neither a lease nor an executory contract, but is instead an installment
sales contract that falls outside of § 365(d)(1). I reached this conclusion because,
under the Contract, the Kolariks, as buyers, received the right to possess the mobile
home and incurred the attendant burdens of ownership including being responsible

5 Adv. Dkt. 54-3, Ex. C.

Case 13-05196 Doc# 77 Filed 07/07/14 Page 4 of 7

for paying property taxes and insurance premiums, and for maintaining the property.
In describing the terms and effect of the Contract between the St. Clairs and the
Kolariks in his brief on this motion, the trustee correctly notes that “the [Kolariks]
acquired all the ‘beneficial incidents of ownership’ upon entering into the Contract,
and were clearly the ‘equitable owners,” with the St. Clairs being the ‘legal owners.’”6
Thus, the Kolariks’ equitable ownership interest became property of the estate upon
their bankruptcy filing. A more thorough treatment of this issue can be found in the
Green Tree Order and need not be repeated here.

Likewise, in the Green Tree Order, I also addressed whether GreenPoint’s or
Bank of America’s purported lien on the mobile home was properly perfected. I
rejected Green Tree’s attempt to extend the substantial compliance doctrine to perfect
a lien described by the Tenth Circuit in In re Charles7 because neither GreenPoint
nor Bank of America is identified anywhere on the Kansas Department of Revenue
title search report for the mobile home, making this case factually different from

But with the St. Clairs’ submission of Exhibit C -- a Title and Registration
Receipt on the mobile home, I must consider whether its content should change my

6 Adv. Dkt. 60, p. 9. See also Roberts v. Osburn, 3 Kan. App.2d 90, 94-589 P.2d 985 (1979),
rev. denied 225 Kan. 845 (discussing effect of 15-year contract for sale of real estate where
deed placed in escrow and legal title remained in the sellers).
7 Morris v. The CIT Group/Equip. Financing, Inc. (In re Charles), 323 F.3d 841 (10th Cir.

Case 13-05196 Doc# 77 Filed 07/07/14 Page 5 of 7

prior conclusion.8 The St. Clairs do not attempt to authenticate the documents in
Exhibit C or explain their meaning. The exhibit contains one title and registration
receipt that indicates it is a “reissue title” dated January 22, 2004 upon which the St.
Clairs are identified as the owners and “BAHS Bank of America FSB” is the
lienholder. The document does not provide a registration expiration date but instead
notes: “DISPOSED VEHICLE.” Another title and registration receipt contained in
Exhibit C is a duplicate title dated March 22, 2002 again showing the St. Clairs as
owners and “BAHS Bank of America FSB” as lienholder. Exhibit C also contains what
appear to be inquiry or search reports from the KDOR on the mobile home. These
reports reflect different title numbers and issuance dates. All refer to the St. Clairs
as owners but not all refer to “BAHS Bank of America FSB” as the lien holder. None
of these documents comprising Exhibit C necessarily show that GreenPoint or BAHS
Bank of America FSB was the lienholder as of the date of the Kolariks’ bankruptcy
filing, July 31, 2013.9 Indeed one of the KDOR search reports dated January 10, 2014
shows no lien on the mobile home.10 And the trustee’s search report on the mobile
home appears to show no lienholder as of September 3, 2013.11 In short, whether
Bank of America’s lien was perfected by notation on the mobile home’s title as of the
date of the bankruptcy remains a factual dispute that cannot be resolved by summary

8 Adv. Dkt. 54-3.
9 The Contract of Sale and Purchase between the St. Clairs and the Kolariks was entered
into on July 20, 2004.
10 Adv. Dkt. 54-3, p. 3.
11 Adv. Dkt. 60-1 (Ex. 1).

Case 13-05196 Doc# 77 Filed 07/07/14 Page 6 of 7


Finally, the St. Clairs argue that if their sale to the Kolariks is secured, their
lien is also perfected by applying the In re Charles substantial compliance doctrine.
But the trustee in this avoidance action is not seeking to avoid a lien on the mobile
home held by the St. Clairs to secure the Kolariks’ purchase. As between the St.
Clairs and the Kolariks, that sale and purchase is an unsecured transaction. There
is no factual dispute that the St. Clairs hold legal title to the mobile home. The mobile
home, however, is subject to the purported lien of GreenPoint (or Bank of America)
granted by the St. Clairs. The trustee is seeking to avoid the alleged unperfected lien
of GreenPoint (or Bank of America), the lien that secured the St. Clairs’ original
purchase of the mobile home from the dealer.


Because material facts remain in dispute regarding the existence of a lien on
the mobile home and its perfection as of the date of the Kolariks’ bankruptcy filing,
the St. Clairs’ motion must be DENIED.

# # #

Case 13-05196 Doc# 77 Filed 07/07/14 Page 7 of 7

13-05204 Nielsen et al v. Pollan (Doc. # 35)

Nielsen et al v. Pollan, 13-05204 (Bankr. D. Kan. Jun. 17, 2014) Doc. # 35

PDFClick here for the pdf document.







IN RE: )


MARY DONNA POLLAN, ) Case No. 13-12513

) Chapter 13

Debtor. )






Plaintiffs, )

vs. ) Adv. No. 13-5204




Defendant. )





 Mary Pollan offered to help Sheri Nielsen acquire a more reliable car by
purchasing a Kia Soul in her name and signing the purchase money loan as the sole
borrower so that Sheri could take advantage of the lower interest rate offered by the
dealer. Both the car and the loan would be in Mary’s name, but Sheri would make the
payments and once the loan was repaid and the lien released, Mary would transfer
the vehicle’s title to Sheri. As long as Sheri made the payments, she would enjoy the
exclusive use of the vehicle.1 But, according to Sheri, after Mary convinced Sheri’s
mother, Jackie, to refinance the car loan at the bank Jackie used, Mary refused to
transfer the certificate of title to Sheri so the new bank could perfect its lien. Instead,
Mary got a duplicate key, took the car, sold it, and kept the money.

1 All of these agreements were oral.

 Sheri’s and Jackie’s complaint states an exception to discharge claim based on
common law fraud under 11 U.S.C. § 523(a)(2)(A). They successfully pled that Mary
schemed to get Sheri and Jackie to pay for a car that she intended to keep. Jackie
successfully pled a companion fraud claim that Mary tricked her into paying off
Mary’s purchase money loan. But, while Mary’s refusal to assign the certificate of
title to Sheri is a part of her alleged scheme, that refusal is not sufficient by itself to
support a fraud exception to her discharge that is based solely on KAN. STAT. ANN. §
8-135(c)(7) (2013 Supp.). To that extent, Sheri and Jackie’s complaint fails to state a

claim under Fed. R. Bankr. P. 7012 and Fed. R. Civ. P. 12(b)(6). The balance of Mary’s
motion is denied.2
An action to determine the dischargeability of a debt is a core proceeding over
which the bankruptcy court has subject matter jurisdiction and may enter a final
order and judgment.3
Rule 12(b)(6) Standards—Failure to State a Claim
For the Nielsens’ complaint to survive Mary Pollan’s motion to dismiss, the
facts they pled must be sufficient to state a claim for relief excepting from Pollan’s
discharge a debt incurred by fraud under § 523(a)(2)(A) and § 1328(a)(2). I review the
sufficiency of the complaint to do that, not whether plaintiffs will ultimately prevail
on the claims they alleged.4 Plaintiffs must have alleged enough facts to support a
claim that is plausible on its face.5 The plausibility standard is less than a probability
but more than a sheer possibility that plaintiffs are entitled to the relief requested.6
2 The Nielsens appear by their attorney Barry Arbuckle. Mary Pollan appears by her
attorney Carl B. Davis.
3 28 U.S.C. § 157(b)(1) and (b)(2)(I) and § 1334.
4 Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (In ruling on a motion to
dismiss the judge must accept all allegations as true and may not dismiss on the basis that
it appears unlikely the allegations can be proven.).
5 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) (enough facts must be alleged to
nudge the claim across the line from conceivable to plausible).
6 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Case 13-05204 Doc# 35 Filed 06/16/14 Page 3 of 14

For purposes of this motion, we take the facts pled in the complaint as true.7
In their complaint, Sheri and Jackie Nielsen allege that in the spring of 2011,
Mary Pollan agreed to help Sheri acquire a more reliable used car.8 They visited a
dealer and were told that, as a lone buyer and borrower, Mary could qualify for a
lower interest rate than Mary and Sheri would be charged if they purchased and
financed the car together. Mary and Sheri agreed to Mary’s “straw purchase” of the
car. Sheri selected a 2010 Kia. Mary advanced the $2,000 down payment and signed
the secured car loan in her name only.9 The car dealer assigned the loan to T.D. Auto
Finance. According to the complaint, Mary and Sheri agreed that Sheri would have
exclusive use of the car so long as she made payments to Mary to repay the down
payment as well as making the monthly car loan payments to T.D. Auto. When both
obligations were paid in full, Mary would assign the certificate of title to Sheri.
Sheri took delivery of the Soul in July of 2011 and began making monthly loan
7 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (In
reviewing the sufficiency of the complaint, the court assumes the truth of the plaintiff’s
well-pleaded factual allegations and views them in the light most favorable to the
plaintiff.); Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994) (A Rule 12(b)(6) motion
tests the sufficiency of the allegations within the four corners of the complaint after
accepting as true all well-pleaded factual allegations.).
8 The nature of the relationship between Sheri Nielsen and Mary Pollan is not described in
the complaint.
9 None of the car sale, title, or loan documents specifying the details of the transaction are
attached to the complaint.
Case 13-05204 Doc# 35 Filed 06/16/14 Page 4 of 14

payments to Mary and T.D. Auto. Sometime in 2012, Sheri repaid the $2,000 down
payment. In early 2012, Sheri became delinquent on the loan payments to T.D. Auto
and voluntarily surrendered the car to Mary for one day, apparently to prevent its
being repossessed. Mary returned the car after Sheri cured the arrearage. After
this, Mary began to urge Sheri to refinance the car loan in her own name immediately
rather than continue with the monthly payments for the remainder of the four year
term. Sheri could not assume the T.D. Auto loan.

In the spring of 2012, Mary approached Sheri’s mother, Jackie Nielsen, and
asked to help refinance the loan in Sheri’s name so that Mary’s liability could be
eliminated. Jackie had other banking business at Citizens Bank of Kansas. She
applied there and, in April, Citizens approved a loan of $18.000 to Sheri and Jackie.
That loan closed on April 30 and the Bank sent the $17,709 payoff amount to T.D.
Auto. Sheri and/or Jackie began making loan payments to Citizens. On May 29, the
Bank received the lien release from T.D. Auto. Then, the Kansas Department of
Revenue issued a clean Kansas title in Mary’s name. She received it on June 5.
Despite repeated requests, Mary refused to assign the title to the Nielsens or to
deliver it to the Bank. She claimed that, while Sheri had repaid the down payment
loan, she still owed Mary an unrelated debt. One day in September of 2012, Mary
dropped the unassigned title off at the Bank and left. When the Bank called her,
asking that she return and sign the title over to the Nielsens, she returned to the

Bank but refused to sign the title. She took it and left, walking out of the Bank
president’s office with it. On or about September 28, 2012, the Bank made demand
on Mary for assignment of the title or repayment of the $17,709 pay-off that the Bank
had funded.

Mary then had the car dealership make a duplicate key to the Kia and on
October 2, 2012, took it from Sheri’s workplace. She sold Sheri’s Soul to Carmax that
very day for $8,000 and kept the proceeds for her use. In state court litigation that
followed, Mary admitted in discovery that she “never actually intended” for Sheri to
be the car’s owner, even if Sheri made all of the car payments. Sheri and Jackie
stopped paying the bank loan in October of 2012 and Citizens sued. Sheri and Jackie
sued Mary in state court. Mary filed this chapter 13 case on September 27, 2013 and
obtained confirmation of her chapter 13 plan on January 10, 2014.


While plaintiffs’ complaint does not identify these claims as arising under §
523(a)(2)(A), the fraud exception to discharge, it does request a determination that
Mary’s debt was incurred by common law and statutory fraud and is therefore
excepted from any chapter 13 discharge that Mary might receive under § 1328(a)(2).

Section 1328(a)(2) incorporates the § 523(a)(2) discharge exception by reference. A


fair reading of the complaint suggests that plaintiffs seek to invoke § 523(a)(2)(A).10

10 The only other discharge exception incorporated by § 1328(a)(2) that could be in play is §
523(a)(4) – fraud while acting in a fiduciary capacity. I conclude that plaintiffs’ claims are
not asserted under § 523(a)(4) because there is no allegation that Pollan was acting in a
fiduciary capacity in her dealings with the plaintiffs nor any allegations that can be
construed as creating a technical trust.

11 § 523(a)(2)(A) (Emphasis added).

12 Diamond v. Vickery (In re Vickery), 488 B.R. 680, 691 (10th Cir. BAP 2013) (agreeing with
cases decided by the Seventh Circuit Court of Appeals and the Sixth Circuit Bankruptcy
Appellate Panel).

13 Id. at 687; McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir. 2000) (by distinguishing
between a false representation and actual fraud, § 523(a)(2)(A) makes clear that actual
fraud is broader than misrepresentation).

14 Diamond v. Vickery, 488 B.R. at 690; McClellan v. Cantrell, 217 F.3d at 894.

15 Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215, 222 (10th Cir. BAP 2013).

This subsection excepts from a debtor’s discharge any debt “for money or
property obtained” by “false pretenses, a false representation, or actual fraud.”11
Some courts, including this Circuit’s bankruptcy appellate panel, have held that a
false representation is not a necessary element of actual fraud under § 523(a)(2)(A)
and that actual fraud supplies a separate basis for excepting a debt from discharge
that is independent from false pretenses or false representation.12 These courts say
that Congress’s use of the disjunctive “or” in the statute forces the conclusion that the
three categories of conduct named in (a)(2)(A) are distinct.13 Intent to deceive
distinguishes actual fraud from constructive or implied fraud14 and the tortfeasor’s
intent can be inferred from the factual circumstances.15 A debtor commits actual
fraud when she “intentionally engages in a scheme to deprive or cheat another of

property or a legal right.” 16 The plaintiffs assert that Mary made affirmative
misrepresentations to them upon which they relied to induce them to participate in
the transaction.17 Their complaint can also be read to allege that Mary engaged in
conduct that fostered a false impression, implicating the presence of false pretenses.18
Even though the plaintiffs style their claims as fraud, because they allege an
exception to discharge that is based on §1328(a)(2), and by reference, § 523(a)(2), we
consider whether the complaint states a claim for relief based on any of the three
prongs of § 523(a)(2)(A).
Plaintiffs have pled common law fraud with sufficient
particularity and have stated a claim under § 523(a)(2)(A).
Mary seeks dismissal of Sheri and Jackie’s common law fraud claim because
they have not pled the factual circumstances of the alleged fraud with sufficient
particularity under Fed. R. Civ. P. 9(b) and that this deficiency warrants dismissal of
the claim. She bases this position on the plaintiffs’ alleged failure to plead a particular
misrepresentation by her. But, as noted above, because actual fraud is a basis for
nondischargeability that is distinct from misrepresentation, and because
16 Diamond v. Vickery, 488 B.R. at 690, quoting Mellon Bank, N.A. v. Vitanovich (In re
Vitanovich), 259 B.R. 873, 877 (6th Cir. BAP 2001). See also McClellan v. Cantrell, 217 F.3d
at 893 (quoting Collier on Bankruptcy, actual fraud means any deceit, artifice, trick, or
design involving direct and active operation of the mind, used to circumvent and cheat
17 See Adv. Dkt. 1, ¶s 4 and 17.
18 See In re Sturgeon, 496 B.R. at 223 (distinguishing a false representation claim and a
false pretense claim under the discharge exception).
Case 13-05204 Doc# 35 Filed 06/16/14 Page 8 of 14

demonstrating actual fraud in this context does not require either a showing of
misrepresentation or reliance, the alleged lack of a misrepresentation, even if correct,
does not settle the issue. Instead, the test is whether the plaintiffs allege a scheme,
deceit, artifice, trick, or design intended to cheat another and whether the facts as
alleged are sufficient to state a claim that is plausible on its face. In their complaint,
Sheri and Jackie set out a detailed factual statement that, taken as true, plainly
supports a plausible claim that Mary schemed to get a car at plaintiffs’ expense and
that she carried out that scheme. The complaint contains the “who, what, when,
where, and how” of the alleged fraudulent scheme and specifically alleges Mary’s
fraudulent intent at paragraph 5:

In 2013, in written responses to legal counsel for the plaintiff Sheri
Nielsen, the debtor admitted [that she] never actually intended for
Sheri Nielsen to be the auto’s owner . . . but that debtor would always
be, and remain the vehicle’s owner, even after the vehicle was fully
paid for.19

19 Adv. Dkt. 1. Emphasis added. Fraudulent intent may be shown if debtor enters into a
contract or makes a promise without intending to comply or perform. See In re Schmidt, 70
B.R. 634, 640 (Bankr. N.D. Ind. 1986).

20 The plaintiffs refer to a lawsuit brought by Citizens Bank against them to collect the
loan balance. Adv. Dkt. 1, Complaint, ¶ 28. It is unclear if Pollan is a party to that lawsuit
or whether plaintiffs have brought separate suit against Pollan in state court as result of
this vehicle transaction. The status of the state court suit(s) is not apparent from the record
before this Court.

The written responses referred to by plaintiffs were supplied in response to discovery
in a state court lawsuit.20 This allegation, taken with the further allegations that

after the car had been paid for, Mary not only refused to assign the certificate of title
to Sheri or Jackie, but instead obtained a duplicate key to the vehicle and
“surreptitiously removed the auto from Sheri Nielsen’s employment,” sold it, and kept
the proceeds, could allow a court to infer that she intended to defraud the Nielsens.
Indeed, the disposal of the vehicle followed shortly after the Bank made demand on
Mary for the assigned certificate of title or repayment of the take out loan.

Jackie also sufficiently alleges actual fraud against Mary. Mary approached
Jackie to enlist her aid in getting the take-out loan from Citizens, Jackie’s bank, to
pay off Mary’s loan with T.D. Auto. Mary never revealed that she intended to retain
the car.21 Why would Sheri and Jackie have agreed to this cleverly contrived
transaction or have borrowed in order to pay for the car if they knew that Mary
intended to keep it? Their allegations are detailed, specific, and particular. They state
a plausible claim for actual fraud. Therefore, Pollan’s motion to dismiss the common
law fraud claim should be DENIED.

21 Complaint, ¶s 12-14, 16-18. In paragraph 17, plaintiffs also allege a misrepresentation
by Pollan: “In reliance on debtor’s representation she wanted to be rid of that loan’s liability
[T.D. Auto Finance] and auto, the plaintiffs’ loan [sic] actually closed the Citizens’ loan on
April 30, 2012 . . .”

In addition to actual fraud, the plaintiffs also state a claim for
misrepresentation and false pretenses under the other prongs of § 523(a)(2)(A). As
alleged in the complaint, Sheri relied on Mary’s representation that she [Sheri] would

have exclusive use and ownership of the vehicle by repaying the down payment to
Mary and making the monthly loan payments to T.D. Auto.22 Later, in 2012, the
Nielsens allege their reliance on Mary’s representation that she wanted to rid herself
of liability on the original car loan and the auto, in procuring the take out loan from
Citizens Bank and paying off T.D. Auto.23 Mary’s alleged intent to defraud or deceive
could be inferred from her statement that she never intended to part with ownership
of the vehicle.
Finally, the plaintiffs’ allegations also state a claim for false pretenses under §
523(a)(2)(A). False pretenses differ from false representations in that the former are
implied misrepresentations, conduct, or omissions intended to create and foster a
false impression.24 Here, if not explicitly misrepresented, Mary’s alleged conduct and
statements created the false impression that Sheri would become the title owner of
the Kia upon repayment of Mary’s car loan. Mary never disclosed her secret intent to
retain ownership of the vehicle at any point in the transaction or their dealings,
including when she solicited the Nielsens to pay off her loan early. The Nielsens
clearly were led to believe the car would be theirs. The plaintiffs’ complaint supports
a claim for false pretenses and misrepresentation under § 523(a)(2)(A). Pollan’s
22 Complaint, ¶4.
23 Complaint, ¶ 17.
24 Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215, 223 (10th Cir. BAP 2013).
Case 13-05204 Doc# 35 Filed 06/16/14 Page 11 of 14

motion to dismiss for failure to state a claim should be DENIED on this additional

Violation of KAN. STAT. ANN. § 8-135(c)(7) does not constitute
actual fraud.

 Sheri and Jackie’s complaint appears to allege a claim that Mary’s failure to
transfer and assign a certificate of title to the Kia is a separate act of fraud that
would support an exception from discharge under §523(a)(2)(A). They base that part
of their claim on KAN. STAT. ANN. § 8-135(c)(7), a provision in the Kansas vehicle
code that provides:

It shall be unlawful for any person to buy or sell in this state any
vehicle required to be registered, unless, at the time of delivery thereof
or at a time agreed upon by the parties, not to exceed 60 days . . . after
the time of delivery, there shall pass between the parties a certificate
of title with an assignment thereof. The sale of a vehicle required to
be registered under the laws of this state, without assignment of the
certificate of title, is fraudulent and void, unless the parties shall
agree that the certificate of title with assignment thereof shall pass
between them at a time other than the time of delivery, but within 60
days thereof.25

25 KAN. STAT. ANN. § 8-135(c)(7) (2013 Supp.), emphasis added.

26 Without the certificate of title, the lender was prevented from perfecting a security
interest in the vehicle by noting its lien on the certificate of title and could not secure its
loan to Sheri and her mother. Because she never received a properly assigned title, Sheri

The plaintiffs contend that Mary’s failure to assign the title to Sheri after her lender
financed the payoff of Pollan’s loan in late April-early May of 2012 is, by itself, a
sufficient basis to find that Mary committed actual fraud.26 This resulted in Mary

did not become the owner of the vehicle even though she paid for it.

27 Constructive fraud is a breach of a legal duty which, irrespective of moral guilt, the law
declares fraudulent; neither actual dishonesty of purpose or intent to deceive is necessary.
Actual fraud, on the other hand, is an intentional fraud and the intent to deceive is an
essential element thereof. Andres v. Claassen, 238 Kan. 732, 741-42, 714 P.2d 963 (1986).

28 Actual fraud requires proof that (1) a fraud occurred, (2) debtor intended to defraud, and
(3) the fraud gave rise to the debt that is the subject of the discharge dispute. In re
Philopulos, 313 B.R. 271 (Bankr. N.D. Ill. 2004).

29 See In re Hanson, 432 B.R. 758, 772 (Bankr. N.D. Ill. 2010) (Fraud exception under §
523(a)(2)(A) does not reach constructive frauds); In re Alvarez, 13 B.R. 571, 574 (Bankr.
S.D. Fla. 1981) (commission of statutory fraud [sale of unregistered securities by an
unregistered dealer] does not, of itself, constitute actual fraud for purposes of
nondischargeability under § 523(a)(2)(A)); In re Parker, 264 B.R. 685, 699 (10th Cir. BAP
2001), aff’d 313 F.3d 1267 (10th Cir. 2002) (the fraud discharge exception of § 523(a)(2)(A)
means actual or positive fraud, rather than fraud implied by law; it includes those frauds
involving moral turpitude or intentional wrong.); In re Johnson, 477 B.R. 156, 169 (10th Cir.

remaining the owner of record when she took the Kia back from Sheri five months
later and sold it. Even assuming that the statute applies to the transaction between
Mary and the Nielsens, that alone is not enough to support a plausible claim for relief
under the actual fraud prong of § 523(a)(2)(A).

 The Kansas statute voids a sale as “fraudulent” when the title isn’t assigned,
but nothing in it requires a showing that the seller actually intended to defraud the
buyer. If there is any common law fraud involved, it is likely to be constructive fraud
at worst, fraud that requires neither intent nor moral guilt, but can instead be shown
to have occurred as a result of the tortfeasor’s legal duty.27 A violation of § 8-135(c)(7)
is a constructive or implied fraud, but, standing alone, it is not actual fraud28 and
does not support excepting a debt from discharge under the actual fraud prong of
§523(a)(2)(A).29 While Mary’s alleged refusal to assign and transfer the certificate of

BAP 2012) (Fraud implied in law that may arise in the absence of bad faith or immorality is
insufficient for § 523(a)(2)(A).).

title may be more factual support for the Nielsens’ common law fraud claim, it does
not stand alone as a claim upon which relief may be granted here. To that extent,
Pollan’s motion to dismiss the “statutory fraud” claim based solely on KAN. STAT. ANN.
§ 8-135(c)(7) should be GRANTED.

 With the denial of Mary’s motion to dismiss the common law fraud exception
to discharge pled by these plaintiffs, she is granted 14 days from the date of the entry
of this Order to serve and file her answer to the plaintiffs’ complaint. A scheduling
conference in this proceeding will be scheduled shortly thereafter.

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