KSB

15-06108 First National Bank of Omaha v. Thill (Doc. # 12)

First National Bank of Omaha v. Thill, 15-06108 (Bankr. D. Kan. May 3, 2016) Doc. # 12

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 The relief described hereinbelow is SO ORDERED. SIGNED this 3rd day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS
In re: Tanner Ray Thill Case No. 15-21670-13 Amanda Sue Thill, Debtors.
First National Bank of Omaha, Plaintiff,
v. Adv. No. 15-6108
Tanner Ray Thill, Defendant.

Order Granting in Part and Denying in Part
Defendant’s Motion to Dismiss

This matter is before the Court on Defendant Tanner Thill’s motion to dismiss1 the
adversary complaint filed against him by Plaintiff First National Bank of Omaha. The adversary

1 Doc. 6.
complaint seeks the denial of discharge of up to $5424.27 in credit card charges under 11 U.S.C.
§§ 523(a)(2)(A) and (a)(2)(C),2 which excepts from an individual’s Chapter 13 discharge debts “for money . . . obtained by . . . false pretenses, a false representation, or actual fraud” and creates a presumption of nondischargeability for “consumer debts . . . aggregating more than $[650] for luxury goods or services incurred by an individual debtor on or within 90 days” of filing a bankruptcy petition. Defendant has moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6),3 arguing that the allegations made fail to support § 523(a)(2) claims.
The Court finds that Plaintiff’s complaint states a legally cognizable claim under             § 523(a)(2)(A), but that Plaintiff has not properly stated a claim under § 523(a)(2)(C). The Court therefore grants in part and denies in part Defendant’s motion to dismiss.

I. Background and Findings of Fact
The following allegations are made in Plaintiff’s complaint, or are found by combing the attachment incorporated thereto.4 Defendant opened a credit account with Plaintiff on February 20, 2015. When Defendant accepted and opened the credit card, he agreed to abide by the terms of the account agreement, and represented that he had the intention to repay the debt pursuant to the account agreement terms. Each time Defendant incurred charges on the account, he
2  All future statutory references are to title 11 of the United States Code, unless otherwise specified.
3  Rule 12(b) is made applicable to bankruptcy through Federal Rule of Bankruptcy Procedure 7012(b).
4 See Robbins v. Okla., 519 F.3d 1242, 1247 (10th Cir. 2008) (stating the “bedrock principle” that the allegations in the complaint must be accepted as true when assessing a motion to dismiss).
represented that he agreed to abide by the account agreement’s terms.
Over a month passed before Defendant used his new credit card for the first time. No charges were made on the credit card until March 31, 2015, at which time Defendant charged $1821.21 to “Mustangs Unlimited.” About a week later, on April 8 and 9, Defendant charged another $219.90 to this same entity. A few days after that, on April 13, Defendant charged $457.50 to “Kuiken Auction.” Throughout the month of April, Defendant used the credit card every day or every other day, sometimes a couple of times a day. He paid bills (e.g., $125.63 on April 13 to “AT&T Bill Payment” and $91.14 on April 14 to “Dish Network”) and used the card at restaurants and gas stations (e.g., $35.19 to a Mexican restaurant on April 18 and $20 at a gas station on April 20). Larger purchases were made at Wal-Mart ($79.47 on April 16, $174.84 and $193.79 on April 19), but after his initial large purchases at Mustangs Unlimited and Kuiken Auction, most other purchases ranged from a few dollars to forty dollars.
The charges made during May 2015 followed much the same pattern. There were occasional larger purchases (e.g., $205.90 charged to “Vivid Seats LTD” on May 16 and $150.82 charged to “Jim Carter Truck Parts” on May 18) but the majority of purchases made were at restaurants and gas stations. A significant pattern change occurred in June 2015, however. The credit card was used one time, on June 1 for $25 at “Short Stop 23,” but it was not used the rest of the month. At that point, the balance on the card had reached $5400.99, exceeding the $5350 credit limit. The credit card was used one more time, on July 16, 2015, at Wal-Mart, for $51.03. Ultimately, between March 31 and July 16, 2015, Defendant made purchases on the credit card totaling $5424.27. It appears one payment of $100 was made on May 13, 2015.
Shortly after the conduct described above, on August 3, 2015, Defendant (and his wife,
who is not a party to this adversary proceeding) filed for Chapter 13 bankruptcy protection. Plaintiff is listed as an unsecured creditor. According to Defendant’s Schedule I filed with his bankruptcy petition, Defendant has been employed by Wal-Mart for thirteen years, and at the time of filing his petition he listed his position as “Order Filler.” According to his Statement of Financial Affairs, Defendant may also earn income from purchasing old/vintage cars and reselling them, but it is unclear how much or when this has happened. Defendant stated his net monthly household income as $3587.93: of this, Defendant earns $2887.96 per month from his employment at Wal-Mart and his wife earns $700 per month from self-employment. According to Defendant’s Schedule J filed with his bankruptcy petition, Defendant stated his monthly household expenses as $2816, leaving a net of $771.93 to make a proposed plan payment of $771 per month.5 Based on minimum monthly payments estimated at between 2 and 3 percent of the outstanding principal balances on the unsecured debt listed in Defendant’s petition (totaling $72,695), the minimum monthly payments on this debt would be between $1454 and $2181 per month. Based on Defendant’s monthly income, expenses, and debt load, at the time Defendant incurred the $5424.27 in charges on the credit card, his monthly disposable income was nowhere near sufficient to pay the minimum monthly payments on his unsecured debts.
Plaintiff timely filed its adversary complaint against Defendant stating two causes of action. First, Plaintiff states a claim under § 523(a)(2)(C)(i)(I), alleging that Defendant made $1230.69 in charges in the ninety day period prior to filing his Chapter 13 petition (beginning
5  The majority of this plan payment is presumably going toward the significant tax debt owed by Defendant and his joint-debtor wife. Per the filed proofs of claim, they owe $34,264 to the Internal Revenue Service and $5670.64 to the Kansas Department of Revenue.
May 5, 2015), and that these charges were for luxury goods or services. Plaintiff seeks a finding
that the purchases exceeding the statutory limit of $650 are nondischargeable.6 Second, Plaintiff states a claim under § 523(a)(2)(A), alleging that Plaintiff justifiably relied on Defendant’s representation that he intended to repay his credit card debt under the terms of their account agreement. Plaintiff alleges the charges made were incurred at a time when Defendant was unable to meet his existing financial obligations, and that Defendant intended to deceive Plaintiff because he knew or should have known that he had no ability to repay his debt. As a result, Plaintiff seeks a finding that the total amount charged to the credit card ($5424.27) should be nondischargeable because it was obtained by false pretenses, a false representation, or actual fraud under § 523(a)(2)(A).
Defendant seeks dismissal of the adversary proceeding in its entirety under Rule 12(b)(6). He argues that Plaintiff’s complaint does not allege sufficient facts to create an inference that the purchases made were of luxury goods to support the § 523(a)(2)(C) claim or to create an inference of intent to defraud to support the § 523(a)(2)(A) claim.
II. Analysis
A. Legal Standard for Assessing a Motion to Dismiss
An adversary proceeding to determine the dischargeability of particular debts is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this Court may exercise subject matter
6  At the time the complaint was filed, the statutory limit was $650, and under § 104(c), that limit continues to apply despite being adjusted upward to $675 on April 1, 2016. See § 104(c) (stating that adjustments to dollar amounts in the Code do not apply “to cases commenced before the date of such adjustments”).
jurisdiction.7
Defendant’s motion to dismiss is filed under Federal Rule of Civil Procedure 12(b)(6), which permits a motion for “failure to state a claim upon which relief can be granted.” The requirements for a legally sufficient claim stem from Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.”8 To survive a motion to dismiss, a complaint must present factual allegations that, when assumed to be true, “raise a right to relief above the speculative level.”9 The complaint must contain “enough facts to state a claim to relief that is plausible on its face.”10 “[T]he complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.”11
The plausibility standard does not require a showing of probability that a defendant has acted unlawfully, but requires more than “a sheer possibility.”12 “[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim.”13 Finally, the Court must accept the nonmoving party’s factual allegations as true and may not dismiss on the ground that
7 28 U.S.C. § 157(b)(1) and § 1334(b).
8  Rule 8 is made applicable to adversary proceedings via Federal Rule of Bankruptcy
Procedure 7008(a).
9 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
10 Id. at 570.
11 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).
12 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
13 Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting
Twombly, 550 U.S. at 555). -6­
it appears unlikely the allegations can be proven.14
Where, as here, a party alleges fraud, Federal Rule of Civil Procedure 9(b) requires the party to “state with particularity the circumstances constituting fraud,” with general allegations only allowed for “malice, intent, knowledge, and other conditions of a person's mind.”15 To survive a motion to dismiss, the party alleging fraud must “‘set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof.’”16 In other words, the alleging party must specify the “who, what, where, and when of the alleged fraud.”17

B. Legal Sufficiency of Plaintiff’s § 523(a)(2) Claims
Section 523(a)(2)(A) states: “A discharge . . . does not discharge any individual debtor from any debt– (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by– (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” Section 523(a)(2)(C)(i)(I) then offers creditors an avenue to raise a presumption of fraud in the               § 523(a)(2)(A) context. That subsection states: “[F]or purposes of subparagraph (A)– (I) consumer debts owed to a single creditor and aggregating more than $[650] for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under
14 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). 15  Rule 9 is made applicable to adversary proceedings via Federal Rule of Bankruptcy Procedure 7009. 16 Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir. 1991). 17 Plastic Packaging Corp. v. Sun Chem. Corp., 136 F. Supp. 2d 1201, 1203 (D. Kan. 2001). -7­
this title are presumed to be nondischargeable[.]” In summary, a creditor can argue a debt is
nondischargeable either directly under § 523(a)(2)(A), in which case the creditor bears the burden of establishing false pretenses, a false representation, or actual fraud, or through              § 523(a)(2)(C)(i)(I), which raises a rebuttable presumption of nondischargeability once the creditor shows that the elements of the luxury goods subsection are met.18
This Court takes each of Plaintiff’s claims under § 523(a)(2) separately. First, the luxury goods claim: to state a claim under § 523(a)(2)(C)(i)(I), a creditor must allege facts showing: “(1) a consumer debt; (2) owed to a single creditor; (3) aggregating more than $[650]; (4) for luxury goods or services; (5) incurred by an individual debtor; and (6) on or within 90 days before the filing of the petition.”19 Defendant challenges the fourth prong of this test, arguing that Plaintiff has not pleaded sufficient facts to show his purchases within 90 days of filing bankruptcy were for “luxury goods or services.”
The phrase “luxury goods or services” is not defined by the Bankruptcy Code, but the Code states what it does not mean. Section 523(a)(2)(C)(ii) states that luxury goods or services do not include “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” No circuit courts have addressed the definition of “luxury” in this context, but several bankruptcy courts have loosely defined the term, and “have considered whether the items are extravagant, indulgent, or nonessential or alternatively whether the items purchased served any important family function and evidence some fiscal
18 Discover Bank v. Hankins (In re Hankins), No. 12-5114, 2012 WL 5409629, at *3 (Bankr. D. Kan. Nov. 5, 2012).
19 Id.
responsibility.”20
What is a luxury good depends on the facts of each case.21 And although at this stage of the adversary proceeding a plaintiff need only state a plausible claim, the case law shows plaintiffs must do more than merely say: “everything purchased within 90 days of bankruptcy was a luxury item.” They must state facts to support that claim. The Court in Discovery Bank v. Hankins (In re Hankins),22 held that alleging luxury purchases, but then supporting that allegation in the complaint only by reference to a credit card statement that showed the identity of the merchant, was insufficient to survive a motion to dismiss.23 This was especially true when the identity of the merchants alleged to have sold the luxury items were “discount or low-end retailers and restaurants,” as this was not enough to raise the presumption of luxury goods for nondischargeability under § 523(a)(2)(C)(i)(I).24 The Court in Hankins concluded: “At the pleading stage, it was incumbent upon [the creditor] to allege the credit card charges were for luxury goods, coupled with factual allegations from which the ‘luxury’ characterization could be inferred. . . .[I]t has done neither and this is fatal to maintaining its presumptive nondischargeability claim.”25
20 Cong. Fed. Credit Union v. Pusateri (In re Pusateri), 432 B.R. 181, 202 (Bankr.
W.D.N.C. 2010). 21 Sears Roebuck & Co. v. Faulk (In re Faulk), 69 B.R. 743, 751 (Bankr. N.D. Ind.
1986).
22  No. 12-10884, 2012 WL 5409629 (Bankr. D. Kan. Nov. 5, 2012).
23 Id. at *4.
24 Id.; see also In re Pusateri, 432 B.R. at 203 (concluding that small dollar restaurant
charges of approximately $12 to $30 are clearly not luxury goods or services). 25 In re Hankins, 2012 WL 5409629, at *5. -9­
In this case, like in Hankins, Plaintiff’s complaint fails to do anything other than make a
blanket charge of luxury goods. Without discrimination, Plaintiff alleges every purchase made by Defendant from May 5, 2015 to filing was for a luxury item or service. But in the complaint, Plaintiff does not even give an example, let alone any facts that this Court could view to support the claim. Instead, Plaintiff leaves it to Defendant and the Court to comb through the attached credit card statement to determine what purchases were made and the identity of the merchant. After doing so, the Court notes that most purchases are small dollar amounts at what appear to be vending machines, gas stations, and low-end restaurants. There are purchases at Walmart, but no facts alleged that what was purchased there was anything other than typical, everyday household items. And while Defendant charged a significant amount on the credit card in April 2015, he charged less in May 2015, and almost nothing in June and July 2015.26 There is nothing in the facts alleged for the Court to see how Plaintiff’s claim of luxury goods is anything but speculative.
As stated above, the plausibility standard for assessing a complaint under Rule 12(b)(6) does not require a showing of probability that a defendant has acted unlawfully, but it requires more than “a sheer possibility.”27 Yes, it is possible that a charge for $51.03 at Wal-Mart on July 16 was for luxury items, but there are no facts showing that it is probable. It is just as possible
26  In his first month of using the credit card, Debtor charged $3627.97, and the remaining approximately $2300 was charged on his card over the next three months. While some of the items charged by Defendant in that first month may have been for luxury items, specifically those at Mustangs Unlimited for $1821.21 and $219.90, and $457.50 to Kuiken Auction, these purchases are outside the relevant window for the presumption to arise under § 523(a)(2)(C)(i)(I), and are therefore irrelevant to the “luxury goods” discussion. See Chase Bank
v. Hampson (In re Hampson), 429 B.R. 360, 362–63 (Bankr. N.D. Ga. 2009) (concluding that cash advances obtained outside the presumption period “are irrelevant.”).
27  Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
-10­
that the $51.03 was spent on “goods or services reasonably necessary for the support or
maintenance of the debtor or a dependent of the debtor.”28
Finding Plaintiff is not entitled to a presumption of nondischargeability in this case under § 523(a)(2)(C)(i)(I), the Court next assesses whether Plaintiff has stated a viable claim under     § 523(a)(2)(A). Under § 523(a)(2)(A), a creditor may state a claim by alleging facts that meet the following elements: “(1) the debtor made a representation; (2) at the time of the representation, the debtor knew it to be false; (3) the debtor made the representation with the intent to deceive the creditor; (4) the creditor justifiably relied on the representation; and (5) the creditor sustained damage as a proximate result of the debtor making the representation.”29 Defendant argues Plaintiff has not alleged facts that could satisfy the third factor to create an inference of intent to defraud.
The Tenth Circuit BAP has addressed credit card use in the context of § 523(a)(2)(A) in Chevy Chase Bank FSB v. Kukuk (In re Kukuk).30 The BAP held that “for purposes of dischargeability under § 523(a)(2)(A), the use of a credit card creates an implied representation that the debtor intends to repay the debt incurred thereby, but does not create any representation
28  § 523(a)(2)(C)(ii). The only items in the relevant time period with names that lend themselves to a guess for this Court that they are entertainment purchases are: “Redbox DVD Rental” on 5/29/2015 for $6.53, “Netflix” on 5/23/2016 for $11.99, two charges at “AMC Studio KC” on 5/17/2015 for $10 and $20.88, “Aramark Kauffman Stadium” on 5/17/2015 for $21.50, “Vivid Seats Ltd.” on 5/16/2015 for $205.90, and “AMC Studio KC” on 5/10/2015 for $32.72. Even if Plaintiff had alleged some facts by which the Court could know anything at all about these purchases—and it did not—the purchases total only $309.52, far below the monetary limit established in § 523(a)(2)(C)(i)(I).
29 See Barenberg v. Burton (In re Burton), No. CO-10-022, 2010 WL 3422584, at *4 (10th Cir. BAP Aug. 31, 2010).
30 225 B.R. 778 (10th Cir. BAP 1998).
regarding the debtor’s ability to repay the debt.”31 Because of this, the ultimate question is
whether the implied representation regarding a debtor’s intent to repay is fraudulent.32 The BAP stated: This issue requires a determination as to whether the debtor subjectively intended to repay the debt when he or she made the implied representation that in fact he or she intended to do so, i.e., when the credit card was used to incur the debt subject to discharge. An implied representation of intent to repay will be fraudulent if the credit card issuer demonstrates that at the time the debtor used a credit card he or she had
no intent to repay the debt incurred.33 According to the BAP, the “debtor’s intent cannot be inferred solely by the fact that the debtor does not repay the credit card used and seeks bankruptcy protection. Rather, since a debtor will rarely admit a lack of intention to repay, such intent must be inferred by the totality of the circumstances of the case at hand.”34
A nonexclusive, totality of the circumstances list of factors was provided by the Kukuk court to assist in this analysis. Those factors are:
(1)
 the length of time between the charges made and the filing of bankruptcy;

(2)
 whether the debtor consulted an attorney regarding bankruptcy prior to the charges being made;

(3)
 the number of charges made;

(4)
 the amount of the charges;

(5)
 the financial condition of the debtor at the time the charges were made;

(6)
 whether the charges were above the credit limit of the account;

(7)
 whether the debtor made multiple charges on any given day;

(8)
 whether or not the debtor was employed;

(9)
 the debtor's employment prospects;

(10)
 the debtor’s financial sophistication;

31 Id. at 785.
32 Id. at 785–86.
33 Id. at 786.
34 Id. (internal citations omitted).


(11)
 whether there was a sudden change in the debtor's buying habits; and


(12) whether the purchases were made for luxuries or necessities.35 The BAP emphasized that no one factor should be determinative, and that an inability to pay the debt incurred or make minimum monthly payments thereon should not, standing alone, be dispositive.36
In this case, there are several allegations that could support factors for finding Defendant’s alleged fraudulent intent. Plaintiff alleges that the credit card was opened and then maxed out within months of Defendant filing bankruptcy. In addition, Plaintiff alleges a significant number of charges in a short time period: between his first purchase on March 31, 2015, and his last purchase on July 16, 2015—a period of 108 days, Debtor made 111 purchases. Most of these purchases were made in the first two months of using the account, with some days having multiple charges. Many charges—in fact, most charges—were small: Defendant regularly charged items at vending machines, gas stations, and low-end restaurants. But there are several large purchases as well, at the beginning of his use of the credit account. For example, within about a ten day time period when he first started using his card, Defendant charged $2041.11 to Mustangs Unlimited. In addition, the small charges certainly added up, as Defendant ultimately exceeded his credit limit on the account.
Although Defendant has been gainfully employed by the same employer for thirteen years and has steady employment, he was apparently living beyond his means and had been doing so for some time. Plaintiff has alleged that Defendant’s household unsecured debt limit was so high, totaling $72,695, that based on minimum monthly payments estimated at between 2
35 Id.
36 Id. at 787.
and 3 percent of the outstanding principal balances, Defendant would have needed to make minimum monthly payments of between $1454 and $2181. As a result, Plaintiff alleges, based on Defendant’s monthly income, expenses, and debt load, at the time Defendant incurred the $5424.27 in charges on the credit card held by Plaintiff, Defendant’s monthly disposable income was nowhere near sufficient to pay the minimum monthly payments on his unsecured debts.
Admittedly, Plaintiff’s complaint is not a model pleading. But the complaint alleges false representations, known by Defendant to be false. It alleges many of the Kukuk factors that could imply fraudulent intent. The complaint alleges justifiable reliance, and damages. And although the facts of this claim will ultimately need to be resolved via an evidentiary hearing, where the specific dynamics can be ascertained, Plaintiff’s complaint states a sufficiently viable claim under § 523(a)(2)(A) to survive dismissal of that claim.

III. Conclusion
For the reasons set forth above, the Court finds that Plaintiff’s complaint states a legally cognizable claim under § 523(a)(2)(A), and Defendant’s motion to dismiss this claim must be denied. However, Plaintiff has failed to state claim under § 523(a)(2)(C), and Defendant’s motion to dismiss that claim is granted.
It is, therefore, by the Court ordered that Defendant’s motion to dismiss37 is GRANTED in part and DENIED in part, as stated more fully herein.  IT IS SO ORDERED. ###
37 Doc. 6.
ROBERT D. BERGER
U.S. BANKRUPTCY JUDGE DISTRICT OF KANSAS
-15­
Case 15-06108 Doc# 12 Filed 05/03/16 Page 15 of 15



12-22932 Asset Resolution Corp (Doc. # 212)

In Re Asset Resolution Corp, 12-22932 (Bankr. D. Kan. May 13, 2016) Doc. # 212

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 12th day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Asset Resolution Corp., Case No. 12-22932
Debtor. Chapter 7

MEMORANDUM OPINION AND ORDER DISMISSING CASE

The matter before the Court arises from this Court’s issuance of an order to show cause1

why Asset Resolution Corp.’s case should not be dismissed for cause under 11 U.S.C. § 707(a)2

or certain claims abandoned under § 554.3 The parties filed pleadings and oral arguments were

held on April 17, 2015.4 The parties have not shown why the case should not be dismissed for

cause under § 707(a). The Court finds that the objectives of the Code are not met by continuing

the case and the interests of the creditors are best served through dismissal.

1 Doc. 196.
2 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
3 Trustee, Eric C. Rajala, appears in person. Combat Brands LLC, Exemplar Holdings, and Greg Orman appear by
their attorney, Mark A. Shaiken. Everlast World’s Boxing Headquarters Corporation appears by its attorneys, Alan

M. Feld and Jed R. Schlacter.
4 The Court heard oral arguments addressing the Trustee’s motion for an intended compromise and § 105(a) injunction
and considered the parties’ pleadings in response to this Court’s show cause order.
16.05.12 Order Dismissing Case
Case 12-22932 Doc# 212 Filed 05/12/16 Page 1 of 11


VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.
§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by 28 U.S.C.
§ 157(a) to refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and
all proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.5 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The parties do not object to venue or
jurisdiction.

BACKGROUND6

John Brown (Brown) founded Ringside, Inc. (Asset Resolution Corp.), in 1977. Ringside
manufactured and sold boxing and fitness equipment for several decades.

In 2009 and 2010, Ringside and Everlast World’s Boxing Headquarters Corporation7
(Everlast) entered into several licensing agreements. Ringside agreed to make royalty payments
to Everlast in exchange for use of Everlast trademarks. In early 2012, Ringside defaulted on
multiple obligations, including royalty payments to Everlast. As a result, Everlast terminated the
licensing agreements on June 14, 2012.

In late 2010 or early 2011, Brown hired Greg Orman (Orman) of Exemplar as a business
consultant to help find purchasers or investors for Ringside. Orman formed Combat on June 19,
2012, and Brown formed RAL, LLC (RAL) on June 21, 2012. On June 25, 2012, Ringside sold
the bulk of its assets to Combat, including inventory, intellectual property, and the ringside.com
website (the Sale).

5 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
6 The material facts are not disputed.
7 Everlast designs, manufactures, licenses, and markets boxing, mixed martial arts, and fitness related sporting goods.


16.05.12 Order Dismissing Case
Case 12-22932 Doc# 212 Filed 05/12/16 Page 2 of 11


On July 9, 2012, Everlast filed a complaint against Ringside, Combat, and RAL in the
United States District Court for the Southern District of New York8 (the District Court Action),
alleging that the Sale was not made in good faith or for reasonably equivalent value and that
Combat continued selling licensed products in violation of Everlast’s trademarks and licensing
agreements. Everlast asserted numerous causes of action against defendants, ranging from
breach of contract to trademark infringement, including claims against Combat and RAL based
on alter-ego, successor liability, and de facto merger. The District Court Action was transferred
to the United States District Court for the District of Kansas in July 2012.9

On October 29, 2012, Ringside filed a Chapter 11 petition as Asset Resolution Corp. The
case was converted to Chapter 7 on May 7, 2013. Eric C. Rajala was appointed as the Chapter 7
Trustee (Trustee) and the Law Office of Eric C. Rajala was appointed as counsel for the Trustee
on July 11, 2013. The Trustee engaged Vincent F. O’Flaherty (O’Flaherty) to investigate the
circumstances surrounding the Sale and to determine whether the Trustee had any claims against
Combat Brands, LLC (Combat), Exemplar Holdings, LLC (Exemplar), Orman (collectively, the
Combat Parties), Ringside, and RAL. The Trustee and O’Flaherty investigated whether:

(i) Premier Bank [Debtor’s main prepetition secured lender] and its successor
failed to perfect and continue its perfection in the personal property assets of
Ringside; (ii) Combat was the alter ego of Ringside and therefore had liability for
the debts of Ringside; (iii) the [] Sale could be avoided pursuant to §§ 544–550 of
the [] Code; (iv) the Combat Parties were successors to Ringside and therefore
had liability for the debts of Ringside; (v) the Combat Parties violated duties they
owed to Ringside and its creditors when they pursued the [] Sale after they had
consulted for and provided advice to Ringside; (vi) the Combat Parties were liable
for some or all of the debts or contractual obligations of Ringside; and (vii) any
other claims the Trustee could make against the Combat Parties (collectively, the
“Claims”).10
8 Case No. 12-cv-5297-PAE.
9 Everlast World’s Boxing Headquarters Corporation v. Ringside, Inc. et al., Case No. 13-cv-2150.
10 Doc. 203, at 1–2.


16.05.12 Order Dismissing Case
Case 12-22932 Doc# 212 Filed 05/12/16 Page 3 of 11


The Trustee and O’Flaherty determined the estate could not pursue the Claims and
entered into a settlement agreement. On January 16, 2015, the Trustee filed a motion for
approval of a proposed agreement with the Combat Parties and entry of a permanent injunction.11
The proposed agreement provided that in exchange for $30,000, the Trustee would release all
Claims he could make against the Combat Parties and it enjoined all creditors and parties in
interest from pursuing the same. Everlast objected to the motion. At the hearing on the motion,
the Trustee reported that he did not have any credible claims against Ringside, Combat, or RAL,
and that the Claims have no value.

On August 5, 2015, this Court denied the Trustee’s motion to approve the settlement and
directed the Trustee and parties in interest to show cause why the Claims that the Trustee asserts
are valueless, should not be abandoned, or why the bankruptcy case should not be dismissed (the
Denial Order).12

On August 10, 2015, the Trustee and the Combat Parties (collectively, the Appellants)
jointly appealed the Denial Order to the United States Tenth Circuit Bankruptcy Appellate Panel
(the BAP). That same day, the BAP issued an order to show cause why the appeal should not be
dismissed as interlocutory. On August 24, 2015, Appellants filed a response to the BAP’s show
cause order and a contemporaneous Fed. R. Bankr. P. 8004 motion for leave to appeal. On
August 31, 2015, Appellee filed a reply to the BAP’s show cause order and elected to have the
appeal heard by the United States District Court for the District of Kansas. The BAP transferred
the appeal on September 9, 2015, to the United States District Court for the District of Kansas,
leaving the interlocutory issue untouched.

11 Doc. 177.
12 Doc. 196.

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On January 21, 2016, the United States District Court for the District of Kansas denied
the Combat Parties and the Trustee’s motion for leave to appeal an interlocutory order and
dismissed the appeal as interlocutory.13 The District Court stated that the Denial Order

. . . sets out alternative, further steps needed to conclude the bankruptcy case. The

Trustee admits that his claims against the Combat Parties are meritless and

valueless. Thus, they will eventually be abandoned, whether compelled under

§ 554(b) or naturally at the time of the closing under § 554(c). The show cause

order simply hastens the administration and liquidation of the estate.14

Pending resolution of the Denial Order’s appeal, the Trustee filed a response to this
Court’s show cause order requesting the Court refrain from entering an order abandoning the
Claims or dismissing the case.15 The Trustee noted that he was “still pursuing administration of
the Claims to yield value to the estate” and that “[a]t the time of the Denial Order, there was and
is neither a pending motion to dismiss the bankruptcy case under § 707(a) . . . nor a motion to
abandon the Claims under § 554(a) . . . .”16 The Trustee argued that he “has located no published
cases in which a bankruptcy court has ordered, sua sponte, the abandonment of an asset, let alone
an asset that the Trustee is pursuing”17 and “only two published cases in which the court
dismissed, sua sponte.”18 The Trustee also alleged that “the Court appears to be of the view that
the Claims are worth more than $30,000.00. . . . [and] contends that, if in fact the Claims are
worth more than $30,000.00, they are neither valueless nor burdensome.”19 This argument
misconstrues this Court’s prior ruling; this Court was and remains of the opinion that the Claims
are worthless. What the Trustee proposed was in effect to sell a third-party injunction. The

13 United States District Court for the District of Kansas, Case No. 15-cv-09255-JTM, Doc. 3.
14 Doc. 207, at 5.
15 Doc. 203.
16 Id. at 2 ¶ 8.
17 Id. at 2 ¶ 9.
18 Id. at 3 ¶ 10.
19 Id. at 3 ¶ 11.


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Combat Parties joined the Trustee’s response to the Court’s show cause order, requesting the
Court refrain from entering an order abandoning the Claims or dismissing the case.20

Everlast filed a reply to the Trustee’s response, requesting that the Claims be deemed
abandoned, or the case dismissed.21 Everlast contends that the Trustee’s argument that he is still
pursuing administration of the Claims contradicts his prior position that the Claims were
worthless.22 Everlast asserts that “[t]he Trustee’s own actions and positions demonstrate that he
believes the subject claims to be both burdensome to the estate and of inconsequential or no
value.”23 Everlast takes the position that the Court has the ability to sua sponte raise
abandonment and dismissal, stating that “this response also serve[s] as an informal motion by
Everlast (i) for an order deeming the subject claims abandoned or in the alternative, (ii) for
dismissal of the Bankruptcy case for cause.”24

This Court has considered extensive pleadings and oral arguments in this case, including,
the Trustee’s motion to approve a proposed compromise and a § 105(a) injunction.25 This Court
denied the Trustee’s motion and ordered the parties to show cause why abandonment or
dismissal was not appropriate.26 Contrary to the Trustee’s argument, this Court did not sua
sponte dismiss this case, but provided the parties an opportunity to show cause why dismissal is
not appropriate. The parties have filed their responses, and an additional hearing was not
requested. This Court has afforded the parties sufficient due process in a case that is well into its
fourth year.

20 Doc. 204.
21 Doc. 205.
22 Id. at 1.
23 Id. at 2 (emphasis in original).
24 Id. at 2–3.
25 Doc. 177.
26 Doc. 196.


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On March 16, 2016, the Trustee filed a supplemental response to the Court’s show cause

order, stating that he is holding estate property consisting of a $2,416.67 bank deposit that

represents the net proceeds of the former debtor-in-possession’s DIP account.27 The Trustee

requests use of the funds to pay his duly appointed accountant for preparing the estate’s federal

and Kansas income tax returns. The Trustee asserts these funds are sufficient to compensate the

accountant and they should not be abandoned.

LAW

Section 105(a) provides:

The court may issue any order, process, or judgment that is necessary or appropriate
to carry out the provisions of this title. No provision of this title providing for the
raising of an issue by a party in interest shall be construed to preclude the court
from, sua sponte, taking any action or making any determination necessary or
appropriate to enforce or implement court orders or rules, or to prevent an abuse of
process.

 Section 330 provides:

(a)(1) After notice to the parties in interest and the United States Trustee and a
hearing, and subject to sections 326, 328, and 329, the court may award to a trustee
. . . or a professional person employed under section 327 or 1103—

(A) reasonable compensation for actual, necessary services rendered by the
trustee, . . . professional person . . . ; and
(B) reimbursement for actual, necessary expenses.
Section 554(c) provides:

Unless the court orders otherwise, any property scheduled under section 521(a)(1)
of this title not otherwise administered at the time of the closing of a case is
abandoned to the debtor . . . .

 Section 707 provides:

(a) The court may dismiss a case under this chapter only after notice and a hearing
and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28;
and
27 Doc. 209.

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(3) failure of the debtor in a voluntary case to file, within fifteen days or such
additional time as the court may allow after the filing of the petition
commencing such case, the information required by paragraph (1) of section
521(a), but only on a motion by the United States trustee.
Chapter 7 of the Code permits the Court to dismiss a case “for cause” under § 707(a).

Further, § 105(a) allows the Court to sua sponte dismiss a case “for cause” under § 707(a).28 The

Court may dismiss a case under Chapter 7 “only after notice and a hearing and only for

cause . . . .”29 Cause is not defined under the Code, but courts considering dismissal agree that

cause minimally requires a debtor’s creditors not be prejudiced.30 “[L]egislative history makes it

clear that the three subsections of § 707(a) are merely illustrative, rather than exclusive,

examples of cause.”31 To decide whether cause exists for dismissal, the Court must analyze

. . . all of the facts and circumstances leading up to the filing of this case to
include the debtor’s motive in filing the case, the purposes which will be achieved
in this case, and whether the debtor’s motive and purposes are consistent with the
purpose of chapter 7, that is, to provide an honest debtor with a fresh start in
exchange for the debtor’s handing over to a trustee all of the debtor’s non-exempt
assets for liquidation for the benefit of the debtor’s creditors.32

The determination of “cause” under “for cause” dismissal turns on the totality of the

circumstances.33 “A Chapter 7 case may also be dismissed for other reasons which constitute

cause.”34 However, even if cause exists, the Court should not dismiss the case if there is a

showing of prejudice to creditors.35 The inquiry must consider “all parties in interest, not just

28 In re Jakovljevic-Ostojic, 517 B.R. 119, 125 (Bankr. N.D. Ill. 2014). See also Matter of Jones, 1990 WL 300922,
at * 1 (Bankr. N.D. Ind. Sept. 13, 1990) (finding that pursuant to § 105(a), “the bankruptcy court may dismiss cases
sua sponte where to do [so] perpetuates the proper use of the bankruptcy mechanism” quoting In re Ray, 46 B.R. 424,
426 (S.D. Ga. 1984)); Tennant v. Rojas (In re Tennant), 318 B.R. 860, 869 (B.A.P. 9th Cir. 2004) (“The court can
dismiss a case sua sponte under Section 105(a).”).
29 11 U.S.C. § 707(a).
30 In re Stairs, 307 B.R. 698, 702 (Bankr. D. Colo. 2004).
31 In re Cleland, 150 B.R. 63, 64–65 (Bankr. D. Kan. 1992) (citations omitted).
32 In re Bilzerian, 258 B.R. 850, 857 (Bankr. M.D. Fla. 2001), aff’d, 276 B.R. 285 (M.D. Fla. 2002), aff’d sub nom.
Bilzerian v. SEC, 82 F. App’x 213 (11th Cir. 2003).
33 In re Kaur, 510 B.R. 281 (Bankr. E.D. Cal. 2014).
34 Cleland, 150 B.R. at 65 (citing In re Campbell, 124 B.R. 462, 464 (Bankr. W.D. Pa. 1991)).
35 In re Maixner, 288 B.R. 815 (B.A.P. 8th Cir. 2003); In re Foster, 316 B.R. 718 (Bankr. W.D. Mo. 2004).


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one creditor constituency . . . . [T]he pool of interested parties must also include the estate
itself.”36 “[A] debtor’s lack of good faith is a valid cause for dismissal.”37 The Court may
dismiss the Chapter 7 case “if judicial economy would be furthered with no substantial detriment
to the debtor or creditors.”38 “Ultimately, the decision to dismiss a Chapter 7 case for cause rests
within the sound discretion of the bankruptcy court.”39

ANALYSIS

Here, there is no reason for Asset Resolution to remain in Chapter 7. This is not a
Chapter 7 case filed to maximize value for creditors, corporations do not receive a discharge,40
the Debtor has no business to reorganize, and there are no assets for the Trustee to liquidate. The
circumstances of this case suggest Asset Resolution is employing the instant bankruptcy case as
a litigation tactic to delay adjudication of the District Court Action, for the benefit of not only the
Debtor, but also the Combat Parties. Debtor is not pursuing a fundamental Chapter 7 bankruptcy
purpose—liquidating assets for the benefit of creditors. Thus, dismissing the instant case does
not prejudice estate creditors.

The Trustee argues that he is still pursing administration of the Claims to yield value to
the estate. However, the facts do not support this finding. The Trustee previously admitted that
the “he had no credible Claims he could pursue against the Combat Parties . . .”41 Further, “[t]he
Trustee has determined that it would not be in the best interests of the estate or its creditors to

36 Kaur, 510 B.R. at 286 (emphasis in original). Notably, this would include the estate’s administrative expenses.
37 6 COLLIER ON BANKRUPTCY ¶ 707.03[2], at 707-19 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2016).
38 Id. at 707-18.
39 Kaur, 510 B.R. at 286. See also Cleland, 150 B.R. at 65 (quoting Matter of Atlas Supply Corp., 857 F.2d 1061,
1063 (5th Cir. 1988)).
40 § 727(a)(1). See also In re CCR Fin. Planning, Ltd., 199 B.R. 347, 349 (Bankr. E.D. Va. 1996) (“corporate debtors
do not receive a discharge under § 727”).
41 Doc. 177, at 3 ¶ 10.


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pursue Claims against the Combat Parties . . . .”42 In fact, this admission was the basis for the
proposed settlement agreement.

As set out in the Court’s Denial Order,43 a § 105(a) injunction is not an asset of the
bankruptcy estate that can be sold. Section 105(a) third-party injunctions are issued only in the
rare circumstance that there is an extraordinary benefit to the estate and unsecured claimants.
Some courts allow nonconsensual third-party releases when “the recipient was making a
substantial contribution to the debtor’s case.”44 A $30,000 settlement in exchange for a global
injunction does not produce an extraordinary or substantial benefit to the estate and unsecured
claimants.

Finally, courts may dismiss Chapter 7 cases contingent on the debtor paying outstanding
administrative claims.45 The Trustee’s accountant acted properly for the estate and should not be
compelled to absorb the related unpaid expenses of that administration. Filing federal and
Kansas income tax returns was necessary to the administration of the estate and payment of the
accountant does not discriminate against the estate’s creditors. The Trustee asserts he is holding
$2,416.67 in estate funds that are sufficient to compensate his accountant. Thus, the Trustee
shall pay his accountant $2,416.67 as an administrative claim pursuant to § 330(a)(1) within 30
days of the entry of this order. To the extent necessary, the Trustee should coordinate payment
to the accountant with the United States Trustee; however, such payment need not be approved
by this Court.46

CONCLUSIONS OF LAW

42 Doc. 177, at 4 ¶ 16.
43 Doc. 196.
44 Matt Chiappardi, Bankruptcy Judges Beginning To Sour On Third-Party Releases,
http://www.law360.com/articles/778601/bankruptcy-judges-beginning-to-sour-on-third-party-releases.
45 Cleland, 150 B.R. at 65; Kaur, 510 B.R. at 289; In re Chavez, 157 B.R. 30, 32 (D. Colo. 1993) (permitting dismissal
subject to the payment of the trustee’s administrative expenses); In re Bancroft Laundry Ctr., Inc., 164 B.R. 586
(Bankr. N.D. Ohio 1994); In re Todd, 2015 WL 5042116, at *5 (Bankr. N.D. Ga. Aug. 6, 2015).
46 Kaur, 510 B.R. at 289.


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The Court finds that these circumstances furnish sufficient cause to justify dismissal of
this case under § 707(a). The Trustee shall pay $2,416.67 as administrative fees and expenses of
the estate to his accountant within 30 days of the entry of this order. Upon expiration of 30 days
from the date of entry of this order, this case shall be deemed dismissed.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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15-21340 Dunson (Doc. # 52)

In Re Dunson, 15-21340 (Banr. D. Kan. May 3, 2016) Doc. # 52

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 3rd day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Stevie Nicole Dunson, Case No. 15-21340
Debtor. Chapter 13

MEMORANDUM OPINION AND ORDER OVERRULING THE
CHAPTER 13 TRUSTEE’S OBJECTION TO CONFIRMATION UNDER
11 U.S.C. §§ 1325(a)(3) AND (a)(7) AND DENYING THE MOTION TO
DISMISS OR CONVERT DEBTOR’S CASE TO CHAPTER 7

The Chapter 13 Trustee (the Trustee) objects to confirmation and moves to dismiss or
convert Debtor’s case to Chapter 7.1 At issue is whether the Bankruptcy Code permits Debtor to
file under Chapter 13 and propose confirmation of a plan that pays only the filing fee, the
Debtor’s attorney’s fees, and the Trustee’s commission.2 The matters are submitted on the
pleadings for this Court’s consideration. Here, the Court finds the Debtor filed her case and
Chapter 13 Plan in good faith, not by any means forbidden by law.

1 Doc. 25. Debtor, Stevie Nicole Dunson, appears by her attorney, Chris W. Steffens, Topeka, KS. Trustee, William

H. Griffin, appears pro se.
2 The Trustee receives a percentage fee in accordance with 28 U.S.C. § 586(e)(1)(B). This percentage fee is assessed
on all payments the Trustee receives under a Chapter 13 Plan. 11 U.S.C. § 1326(b)(2).
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VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.
§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by 28 U.S.C.
§ 157(a) to refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and
all proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.3 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The parties do not object to venue or
jurisdiction.

FINDINGS OF FACT

On June 24, 2015, Debtor Stevie Nicole Dunson (Stevie) filed her bankruptcy petition4
and Chapter 13 Plan (the Plan).5 On June 25, 2015, the Court granted Stevie’s application to pay
her filing fees in installments.6 Stevie has no bankruptcy filings within the past eight years7 and
certified she has completed pre-petition credit counseling.8 Stevie’s income is below median9
and at the time of filing, she supported her one-year-old son and seven-year-old daughter.10
Stevie paid Envista Credit Union $1,125 within 90 days of her petition and paid her father $300
within one year of her petition.11 Stevie’s Plan proposes at least 36 monthly payments of $100.12

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
4 Doc. 1.
5 Doc. 3.
6 Doc. 6. FED.R.BANKR. P. 1006(b) allows paying the 28 U.S.C. § 1930(a)(1) Chapter 13 filing fee in installments.
7 Doc. 1, at 2.
8 Id. at 12–13.
9 Id. at 57–59.
10 Id. at 43.
11 Id. at 5 ¶ 3.
12 Doc. 3, at 1. Stevie does not specifically list the duration of her plan, but her applicable commitment period is not
less than three years.


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The Plan indicates payments will be made through an employer pay order.13 Plan payments will
pay $3,100 to attorney’s fees,14 $310 to filing fees,15 and $0.00 to unsecured creditors.16

Stevie’s employment income for 2013, 2014, and 2015 year to petition date was $6,000,
$8,072, and $12,857, respectively.17 Stevie works at Kansas Gas Service as a customer service
representative in Overland Park, Kansas.18 As of her petition date, Stevie had worked at Kansas
Gas Service for six months.19 Stevie lists her current monthly gross income from wages as
$3,627.20 Stevie also lists monthly income of $1,200 in family support payments and $400 in
roommate contributions.21 Stevie’s Schedule I monthly net income is $4,551.01.22

Stevie does not own any real property,23 lists zero creditors holding secured claims,24 and
only lists the Internal Revenue Service (IRS) and Kansas Department of Revenue (KDOR) on
Schedule E for noticing purposes.25 Stevie lists $22,038 of personal property of which $21,838
is exempt.26 Stevie’s 2013 Kia Optima accounts for all but $2,200 of her personal property.27
Stevie’s nonexempt property is $45 cash and $155 across three Bank of America checking and
savings accounts.28 A Chapter 7 trustee would likely abandon Stevie’s nonexempt assets in a
Chapter 7 case as they are not worth liquidating. Stevie’s exempt property is: (a) $750 deposit
with her landlord and utilities; (b) $1,000 in miscellaneous household goods; (c) $20 in

13 Doc. 13, at 1.
14 Doc. 3, at 2, ¶ 3.
15 Id. at 2, ¶ 4.
16 Id. at 10, ¶ 14.
17 Doc. 1, at 4. Stevie estimated her 2013 employment income.
18 Id. at 41.


19 Id.
20 Id.
21 Id. at 42.


22 Id.
23 Id. at 14.
24 Id. at 20.
25 Id. at 22.
26 Id. at 15–19.
27 Id. at 17.
28 Id. at 15.


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miscellaneous children’s books and posters; (d) $200 in miscellaneous clothing; (e) $30 in
miscellaneous jewelry; and (f) $19,838 in the 2013 Kia Optima with 48,000 miles.29 Schedule F
lists $71,143 in unsecured nonpriority claims consisting of $43,085, or over 60 percent, in
healthcare debt, and $26,752, or over 37 percent, in student loan debt. Thus, $69,837, or 98
percent of Stevie’s unsecured nonpriority debt is healthcare and student loan related. Only
$1,306, or 2 percent in unsecured nonpriority claims relates to general consumer debts. Stevie’s
bankruptcy filing did not result from abusing credit for general consumer needs.

Stevie asserts she does not have the upfront assets to fund a Chapter 7 filing and may
never be able to accumulate enough savings to do so. 30 Since 2010, Stevie has faced at least five
garnishment cases in Shawnee County, Kansas, District Court that all involve healthcare
creditors. 31 The instant bankruptcy stayed three active garnishment orders and two active
garnishment-related bench warrants.32

On August 17, 2015, the Trustee objected to confirmation under §§ 1325(a)(3) and
(a)(7)33 and moved to dismiss or convert Stevie’s case to Chapter 7.34 The Trustee asserts that
Stevie stated at the First Meeting of Creditors that she filed in Kansas City instead of Topeka
because of Kansas City’s lower Trustee fees.35 The Trustee admits “the debtor appears to need
relief” but asserts that “this is an attorney fee only case that does not demonstrate ‘special
circumstances’ to justify a Chapter 13.”36 The Trustee urges the Court to find that the “inability
to pay attorneys fees for the filing of a Chapter 7, does not constitute ‘special circumstances’

29 Id. at 19. The 2013 Optima is titled in an ex-boyfriend’s name, but Stevie makes direct payments to the bank.
30 Doc. 34, at 2 ¶ e (emphasis in original).
31 Id. at 2–3 ¶ e. 1.
32 Id. at 3.
33 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
34 Doc. 25.
35 Id. at 1 ¶ 3.
36 Id. at 2 ¶ 6.


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permitting the case to proceed as a Chapter 13.”37 Thus, the Trustee requests the Court deny

confirmation, dismiss the case, or convert the case to Chapter 7.38

Of note, the Trustee did not specifically object to feasibility or challenge the

reasonableness of the Debtor’s attorney’s fees of $3,100.

LAW

Chapter 13 contains two good faith requirements. Debtors must propose plans and file

petitions in good faith. Section 1325(a)(3) and (a)(7) provide:

(a) . . . [T]he court shall confirm a plan if—
. . .
(3) the plan has been proposed in good faith and not by any means forbidden
by law; . . .
(7) the action of the debtor in filing the petition was in good faith.39
Congress did not define good faith in subsections (a)(3) and (a)(7).40 The Tenth Circuit

has developed several non-exhaustive factors to examine good faith challenges. Included among

those factors are:

(1)
the amount of the proposed payments and the amount of the debtor’s surplus;
(2)
the debtor’s employment history, ability to earn and likelihood of future increases in
income;
(3) the probable or expected duration of the plan;
(4)
the accuracy of the plan’s statements of the debts, expenses, and percentage
repayment of unsecured debt and whether any inaccuracies are an attempt to
mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6)
the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable
in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform
Act;
(10) the motivation and sincerity of the debtor in seeking Chapter 13 relief; and
(11) the burden which the plan’s administration would place upon the trustee.41
37 Id. at 9 ¶ 15.
38 Id. at 9 ¶ 16.
39 BAPCPA added § 1325(a)(7) in 2005.
40 WILLIAM J. MCLEOD, CHAPTER 13 IN 13 CHAPTERS 69 (M. Regina Thomas ed., 2009).
41 Flygare v. Boulden, 709 F.2d 1344, 1347–48 (10th Cir. 1983) (quoting United States v. Estus (In re Estus), 695
F.2d 311, 317 (8th Cir. 1982)) (defining good faith under § 1325(a)(3)). Notably, Congress amended the Code in


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The Trustee relies on In re Puffer42 to justify Stevie’s need to show special
circumstances. However, as discussed infra,43 this is not required under the Code. The Tenth
Circuit and at least one Kansas Bankruptcy Court “look[] to the totality of the circumstances
surrounding each debtor’s filing to determine whether . . . [they] have filed their Chapter 13
bankruptcy plan in good faith, as required by 11 U.S.C. § 1325(a)(3).”44 “No one factor is
determinative, but it is the totality of the various factors and the facts of the particular case that
are considered.”45 Thus, Stevie need not show special circumstances justifying the filing of a
Chapter 13 plan over a Chapter 7 liquidation. “Only if there has been a showing of serious
debtor misconduct or abuse should a chapter 13 plan be found lacking in good faith.”46

The Court examines §§ 1325(a)(3) and (a)(7) simultaneously because the good faith
analysis under each subsection is the same—the totality of the circumstances.47

ANALYSIS

A. Stevie Filed Her Chapter 13 Petition and Chapter 13 Plan in Good Faith.
“The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest
but unfortunate debtor.’”48 However, the fresh start is not absolute. “The statutory provisions
governing nondischargeability reflect a congressional decision to exclude from the general
policy of discharge certain categories of debts—such as child support, alimony, and certain

1984 to include the ability-to-pay test under § 1325(b). 8 COLLIER ON BANKRUPTCY ¶ 1325.11[1], at 1325-54 (Alan

N. Resnick & Henry J. Sommer, eds., 16th ed. 2016) “[T]he good faith inquiry now ‘has a more narrow focus.’” In re
Cranmer, 697 F.3d 1314, 1319 n.5 (10th Cir. 2012) (quoting Educ. Assistance Corp. v. Zellner, 827 F.2d 1222, 1227
(8th Cir. 1987)).
42 674 F.3d 78 (1st Cir. 2012).
43 Note 92.
44 In re Wark, 542 B.R. 522, 527 (Bankr. D. Kan. 2015). See MCLEOD, supra note 40, at 68 (stating that “[g]ood faith
is determined by considering the totality of the circumstances surrounding the filing of both the petition and the plan”).
45 See MCLEOD, supra note 40, at 69 (emphasis added). See also In re Dicey, 312 B.R. 456, 459 (Bankr. D.N.H. 2004).
46 COLLIER, supra note 41, ¶ 1325.04[1], at 1325-17 (citations omitted).
47 Wark, 542 B.R. at 533 n.35.
48 Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (quoting Grogan v. Garner, 498 U.S. 279, 286, 287
(1991)).
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unpaid educational loans and taxes, as well as liabilities for fraud.”49 Whether Stevie qualifies
for a fresh start is not at issue as the Trustee admits she needs relief.50 Thus, the Court must
decide whether Chapter 13 relief is appropriate under the Code.

Chapter 13, commonly referred to as the wage earner chapter, is conceptually a personal
or individual reorganization. Individuals with regular income obtain a discharge of most prepetition
debt after successfully completing a court-approved payment plan.51 Debtors make plan
payments from “future earnings or other future income.”52 Conversely, under Chapter 7, “the
debtor’s assets are immediately liquidated and the proceeds [are] distributed to creditors.”53
Chapter 13 allows the honest but unfortunate debtor time to reorganize her financial matters,
including curing pre-petition defaults on secured debt,54 curing defaulted leases,55 paying priority
claims over three to five years,56 and frequently—but not always—to provide a distribution to
general unsecured claimants who ordinarily receive little or nothing under Chapter 7. An
individual may not be forced into Chapter 1357 and she is at liberty to seek dismissal of her case
at any time.58 From its inception, Congress preferred Chapter 13 over Chapter 7.59

An important distinction lies between Chapters 13 and 7 in counsel’s ability to collect
attorney’s fees for debtors seeking competent representation. In Chapter 13, debtors may pay

49 Grogan v. Garner, 498 U.S. 279, 287 (1991).
50 Supra note 36.
51 Marrama, 549 U.S. at 367.
52 Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).
53 Id. at 1834. Of course, the Chapter 7 trustee does not ordinarily liquidate exempt assets.
54 § 1325(b)(5). See also In re Taddeo, 685 F.2d 24, 29 (2d Cir. 1982) (stating that “‘curing a default’ in Chapter 11
means the same thing as it does in Chapters 7 or 13: the event of default is remedied and the consequences are
nullified.”).
55 § 365.
56 §§ 507 and 1326(b)(1).
57 § 303. See also In re Harper-Elder, 184 B.R. 403, 408 (Bankr. D.D.C. 1995) (“Chapter 13 was intended to be purely
voluntary. . . .”).
58 § 1307(b).
59 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)). See
also In re Jackson, 2006 Bankr. LEXIS 4327, at *3 (Bankr. N.D. Ga. Mar. 16, 2006) (“Congress wanted more debtors
to file for relief under Chapter 13, rather than Chapter 7.”).


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their attorney’s fees through their plan over three to five years. In Chapter 7, debtors must pay
their attorney up front before filing and counsel cannot advise debtors to incur debt to pay for
representation.60 The reality is many debtors cannot afford Chapter 7’s upfront costs.

Most debtors that are contemplating chapter 7 are on the brink of economic
disaster. They have creditors harassing them, calling them nonstop, garnishing
wages and income tax returns, and seizing their vehicles to satisfy judgments.
These hardworking individuals simply do not have the extra funds to pay a
bankruptcy attorney up front in full to file a bankruptcy case to stop the
creditors.61

In Chapter 13 cases, “the court does not approve the employment of a chapter 13 debtor’s
counsel.”62 Thus, “[a] chapter 13 debtor may generally employ bankruptcy counsel without
filing an application to employ.”63 If the debtor’s case is converted to Chapter 7, debtor’s
counsel must seek employment by the Chapter 7 estate pursuant to § 327(e) if she wishes to be
paid by assets of the estate. Without such application, compensation may not be awarded.64

Unlike other bankruptcy attorneys, a Chapter 7 attorney has no right to compensation
under § 330.65 In Lamie, 66 the Supreme Court held that debtor’s Chapter 11 counsel could not
receive compensation post-conversion from chapter 7 estate funds unless she is employed by the
Chapter 7 estate. The result from Lamie67 is “that § 330(a)(1) does not authorize compensation
to a Chapter 7 debtor’s attorney from estate funds unless the attorney is employed by the trustee

60 Wark, 542 B.R. at 531 n.27.
61 Amanda A. Page, Chapter 7 Attorneys’ Fees: Protecting Debtors While Ensuring Attorneys Get Paid, AM.BANKR.
INST. (Feb. 2, 2015-15:07), http://www.abi.org/committee-post/chapter-7-attorneys%E2%80%99-fees-protectingdebtors-
while-ensuring-attorneys-get-paid.
62 In re Bell, 212 B.R. 654, 657 (Bankr. E.D. Cal. 1997) (citing In re Fricker, 131 B.R. 932, 939–41 (Bankr. E.D. Pa.
1991)).
63 In re Arnold, 2008 WL 2224932, *1 (Bankr. S.D.Tex. 2008).
64 In re French, 111 B.R. 391, 393 (Bankr. N.D.N.Y. 1989).
65 William F. Stone, Jr., & Bryan A. Stark, The Treatment of Attorneys’ Fee Retainers in Chapter 7 Bankruptcy and
the Problem of Denying Compensation to Debtors’ Attorneys for Post-Petition Legal Services They Are Obliged to
Render, 82 AM.BANKR. L.J. 551, 552 (2008).
66 Lamie v. United States Trustee, 540 U.S. 526 (2004).
67 Id. at 538–39.


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under § 327.”68 This “creates severe problems for the debtor’s attorney.”69 Attorneys filing
chapter 7 petitions must collect fees pre-petition or risk a discharge of pre-petition fees.
However, Wagers70 found that retainers paid as an advancement on post-petition services must
be placed in a trust account and are not deemed earned until counsel performs those services.
The irony is that if debtor’s counsel procures a sufficient retainer, to the extent it is not used as of
the petition date, the balance is property of the estate subject to turnover to the trustee.71 On the
other hand, if an attorney in a Chapter 7 case does not receive a pre-filing retainer, then the
unpaid fees associated with her pre-petition work are dischargeable.72 This disincentive to
competent bankruptcy counsel is profound. Further, it is also difficult and sometimes forbidden
for attorneys to solve Lamie73 issues by unbundling or limiting their scope of representation to
pre-petition or post-petition services for a Chapter 7 client.74

Under Chapter 13, attorney’s fees are allowed pursuant to § 330(a) as an administrative
expense described in § 503(b)(2). With the enactment of § 330, “Congress intended to provide
adequate compensation, on a par with that available in other areas of practice, to attract
competent counsel to the bankruptcy specialty.”75 The bankruptcy practice needs competent
attorneys as

[i]t is absolutely imperative that competent counsel be motivated to seek, accept
and ably handle Chapter 13 cases. That motivation starts with being fairly
compensated for the work they perform. The complexity and importance of the
work, alone, justify such compensation, but there are other reasons able counsel
are vital to the system. The most important reason is that this Court rather

68 See Stone, supra note 65, at 554.
69 Richard I. Aaron, 1 BANKRUPTCY LAW FUNDAMENTALS § 15:51.
70 In re Wagers, 514 F.3d 1021 (10th Cir. 2007).
71 Id., In re Mansfield, 394 B.R. 783 (Bankr. E.D. Pa. 2008).
72 Wagers, 514 F.3d at 1029–30; Rittenhouse v. Eisen, 404 F.3d 395 (6th Cir. 2005).
73 Lamie, 540 U.S. 526.
74 See e.g. DeLuca v. Seare (In re Seare), 515 B.R. 599 (B.A.P. 9th Cir. 2014) (unbundling or limited scope
representation must comply with the rules of ethics and the Bankruptcy Code based on a qualitative analysis of each
individual debtor’s case completed at intake to ensure that debtor’s reasonable goals and needs are being met); In re
Ruiz, 515 B.R. 362 (Bankr. M.D. Fla. 2014) (attorneys cannot pick and choose the services they provide to Chapter 7
debtors).
75 In re Commercial Consortium of California, 135 B.R. 120, 126 (Bankr. C.D. Cal. 1991).


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routinely sees pro se debtors “give away” rights or property that they would

otherwise be legally entitled to retain because of their ignorance of the law.76
“[S]tudies show that debtors with legal representation tend to have a much higher success rate in
bankruptcy proceedings than pro se filers.”77 In one study, only 0.8 percent of post-BAPCPA
pro se debtors received a discharge.78 The same study found that “[n]ot one of the post-
BAPCPA cases filed with the assistance of a petition preparer ended in the debtor receiving a
discharge.”79 This Court also notes that even experienced non-bankruptcy attorneys who
themselves file for bankruptcy relief frequently hire bankruptcy counsel to navigate the Code’s
unique parameters. Fairly compensated counsel is beneficial to both debtors and the bankruptcy
bar because “attorneys must be zealous advocates for their clients while attempting to keep their
lights on in their own offices.”80 “[P]reserving the integrity of the bankruptcy system includes
encouraging, not discouraging, excellence in legal representation of consumer debtors.”81 “A
requirement that attorneys provide pre-petition representation for free or that debtors find family
members or friends to bankroll their case runs contrary to the priority structure outlined in
§§ 330, 503, and 507 and to the notion that debtors are entitled to competent and properly
compensated representation.”82

At issue is whether the Code permits Stevie to file under Chapter 13 in good faith when
allegedly the only reason she elected Chapter 13 is because she does not have the ability to pay
up front for representation in Chapter 7.83 Bankruptcy courts are divided on this issue. Courts in

76 In re Beck, 2007 Bankr. LEXIS 517, at *9 (Bankr. D. Kan. Feb. 21, 2007) (internal footnotes omitted).
77 Alexander F. Clamon, Per Se Bad Faith? An Empirical Analysis of Good Faith in Chapter 13 Fee-Only Plans, 30
EMORY BANKR.DEV. J. 473, 481 (2014).
78 Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, 20 AM.BANKR.INST.L.REV. 17, 81 (2012).
79 Id.
80 See Page, supra note 61 (emphasis in original).
81 Morgan D. King, Between the Charybdis of Biggar and the Scylla of Lamie: How Can a Debtor’s Lawyer Get
Paid?, 2004 No. 6 NORTON BANKR.L.ADVISER 2.
82 In re Busetta-Silvia, 314 B.R. 218, 228 (B.A.P. 10th Cir. 2004).
83 Of course, there are myriad benefits to filing a chapter 13 case, such as the super discharge, § 1303 powers, retention
of non-exempt property, and the binding effect of a confirmed Chapter 13 plan.


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New York, New Hampshire, and Massachusetts have rejected attorney-fee-only plans as contrary
to the spirit and purpose of the Code.84 However, three circuit courts have found that attorneyfee-
only Chapter 13 plans are not per se bad faith.85 Courts in North Carolina, New Mexico,
Wisconsin, Illinois, and Kansas have also upheld attorney-fee-only Chapter 13 plans.86

The Trustee cites three circuit cases—Puffer,87 Brown,88 and Crager89—and one Western
District of Missouri case—Arlen90—addressing good faith in attorney-fee-only Chapter 13 plans.
The First Circuit in Puffer determined that attorney-fee-only Chapter 13 plans are not per se bad
faith. Puffer noted that good faith under § 1325(a)(3) is analyzed based on the totality of the
circumstances and the debtor “carries a heavy burden of demonstrating special circumstances”
justifying their plan.91 Notably, the last component of this court-made rule is not found in the
Code and is not the law in the Tenth Circuit.92 Further, Law v. Siegel93 does not authorize this
Court “to recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”94
Thus, the court-created heightened confirmation standard in Puffer requiring ‘special
circumstances’ violates Law v. Siegel—bankruptcy courts do not legislate. “[C]ourts should not

84 In re Paley, 390 B.R. 53, 59 (Bankr. N.D.N.Y. 2008); In re Dicey, 312 B.R. 456, 459–60 (Bankr. D.N.H. 2004); In
re Buck, 432 B.R. 13, 21–22 (Bankr. D. Mass. 2010).
85 In re Brown, 742 F.3d 1309 (11th Cir. 2014); In re Puffer, 674 F.3d 78 (1st Cir. 2012); Matter of Crager, 691 F.3d
671 (5th Cir. 2012).
86 See In re Banks, 545 B.R. 241 (Bankr. N.D. Ill. 2016) (finding special circumstances allowing debtor to file an
attorney fee-only Chapter 13 instead of a Chapter 7); In re Wark, 542 B.R. 522 (Bankr. D. Kan. 2015); In re Elkins,
2010 WL 1490585, at *3 (Bankr. E.D.N.C. Apr. 13, 2010) (stating that a Chapter 13 trustee should not summarily
object to the presumptive fees in a Chapter 13 case solely because the case is an attorney-fee-only case); In re Molina,
420 B.R. 825, 829–33 (Bankr. D.N.M. 2009); In re Guzman, 345 B.R. 640 (Bankr. E.D. Wis. 2006) (confirming
debtors’ plan showing no disposable income); In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006) (debtors acted
in good faith proposing a no projected disposable income plan).
87 In re Puffer, 674 F.3d 78 (1st Cir. 2012).
88 In re Brown, 742 F.3d 1309 (11th Cir. 2014).
89 Matter of Crager, 691 F.3d 671 (5th Cir. 2012).
90 In re Arlen, 461 B.R. 550 (Bankr. W.D. Mo. 2011). The Arlen Court found the record devoid of evidence supporting
confirmation of an attorney-fee-only plan.
91 674 F.3d at 83.
92 Wark, 542 B.R. at 527.
93 134 S. Ct. 1188 (2014).
94 Daniel J. Sheffner, The Chapter 13 Debtor’s Absolute Right to Dismiss, 63 CLEV.ST.L.REV. 833, 863 (2015).


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overhaul the traditional good faith analysis when dealing with fee-only plans.”95 In assessing
good faith under §§ 1325(a)(3) and (a)(7), the Court need only apply a totality-of-thecircumstances
test.

The Eleventh Circuit in Brown96 affirmed the bankruptcy court’s denial of an attorneyfee-
only plan, applying a totality-of-the-circumstances approach. The Eleventh Circuit noted
that “the bankruptcy court did not apply a categorical rule prohibiting attorney-fee-centric or
attorney-fee-only chapter 13 plans.”97 Additionally, “[a] few months after denying Brown’s
Chapter 13 plan, the same bankruptcy judge confirmed an attorney-fee-centric Chapter 13
plan . . . .”98

 In Crager, the Fifth Circuit found that “[t]here is no rule in this circuit that a Chapter 13
plan that results in the debtor’s counsel receiving almost the entire amount paid to the Trustee,
leaving other unsecured creditors unpaid, is a per se violation of the ‘good faith’
requirement . . . .”99 The Crager bankruptcy court also noted “that it would ‘border on
malpractice’ for Crager’s attorney to advise her to file a Chapter 7.”100 Ultimately, applying the
totality-of-the-circumstances test, the court found the debtor’s filing responsible, given the
debtor’s circumstances.101

 In Missouri, Arlen102 held that “[a] Chapter 13 plan which pays only the administrative
expenses of the proceeding, primarily debtors’ counsel’s fees, and makes no payment to any
creditor, secured or unsecured, violates the spirit and purpose of Chapter 13 and is not proposed

95 See Clamon, supra note 77, at 473.
96 742 F.3d 1309.
97 Id. at 1318.
98 Id. at 1318 n.7.
99 691 F.3d at 675–76.
100 Id. at 675.


101 Id.

102 461 B.R. 550.

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in good faith.”103 This Court does not find Arlen persuasive. Instead, the Court finds Molina104

and Wark105 persuasive. In 2009, Molina found that a debtor in economic straits may file an

attorney-fee-only plan.106 Recently in Wark, another bankruptcy judge in this District confirmed

several attorney-fee-only plans, finding that the totality-of-the-circumstances test applies to

determine good faith under § 1325—specifically rejecting special circumstances as a piece of the

§ 1325 good faith inquiry.107 Further, “the ‘primary purpose of the good faith inquiry is to

determine under the totality of the circumstances of a case whether there has been an abuse of

the provisions, purpose, or spirit of Chapter 13.’”108 In referencing attorney-fee-only Chapter 13

cases, Wark noted:

Yes, there may be no distribution to unsecured creditors. Again, in a
perfect world, all debtors would file Chapter 13 plans and repay all their
debts, and no creditor would walk away empty handed. But we do not live
in that world.


Instead, this is a world where debtors are harassed by daily collection
calls for admittedly delinquent debts. Where they are repeatedly required
to miss work to attend a cattle call docket to explain why they haven’t paid
old medical bills. Where they cannot afford to keep the gas on, and feel
compelled to incur title or payday loans at exorbitant rates to feed their
families. Where their meager wages are reduced even further by
garnishments. Where they opt not to seek necessary medical care or take
prescribed medication because they cannot afford it. This is the world
these Debtors live in, and this real world sometimes requires bankruptcy,
even if the debtor cannot save enough to pay the up front [sic] attorney’s
fees required to file a Chapter 7.109

Courts rejecting attorney-fee-only Chapter 13 plans express concern that the filing itself

solely benefits the attorney—not the debtor. In Kansas, and in general, attorney’s fees in

103 Id. at 558.
104 420 B.R. 825.
105 542 B.R. at 530.
106 420 B.R. at 830–33.
107 542 B.R. 522, 527.
108 Id. at 577–78 (citing In re Sandberg, 433 B.R. 837, 845 (Bankr. D. Kan. 2010)).
109 Id. at 578.


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Chapter 13 reorganizations are higher than Chapter 7 liquidations.110 Courts fear attorneys
choose Chapter 13 instead of Chapter 7 to secure higher fees and win the client when they cannot
otherwise afford Chapter 7’s upfront costs. This view is misplaced for two reasons. First, under
an attorney-fee-only plan, that attorney foregoes compensation should the debtor’s plan not be
confirmed. Additionally, confirmation does not mean that same attorney is off to the bank. That
attorney may not be fully compensated should the debtor’s plan collapse down the road.
Attorneys filing Chapter 7s do not face this risk. This is an important distinction as much of an
attorney’s time and effort is spent pre-petition and pre-confirmation driving a debtor’s plan to
confirmation. The reality is that lower income debtor’s cases are time consuming. Second,
money is worth more the sooner it is received—the time value of money.111 Securing a fixed fee
over three to five years is different than receiving that same guaranteed fee today. An attorney
solely out for herself would prefer receiving her fee up front. This is different than waiting to
see if a debtor’s three-to five-year payment plan comes to fruition. Allowing an attorney-feeonly
Chapter 13 plan gives debtors access to the automatic stay and fresh start “while fairly
compensating the attorney for the risk of nonpayment.”112

Chapter 13 cases are more work to prepare, are more involved, and expose a debtor’s
attorney to nonpayment. Frequently, a Chapter 13 bankruptcy is financially a losing proposition
for a debtor’s attorney. Most of an attorney’s work in the majority of Chapter 7 cases is
completed up front during the early stages of a case that generally closes within six months.
However, a Chapter 13 debtor’s attorney is obligated to her clients for three to five years during
which much can happen requiring additional attorney time. Chapter 13 debtors’ attorneys often

110 Id. at 531–33.
111 The time value of money is the idea that money today is worth more than the same amount of money in the future
due to its present earning capacity.
112 See Clamon, supra note 77, at 483.


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help their clients through payment defaults, repair or replacement of essential property such as
vehicles and household appliances, unemployment or underemployment, and medical bills. All
of this occurs after the debtor’s attorney successfully navigates plan confirmation but before the
attorney receives full payment through the plan.

Some believe that “success in chapter 13 can be looked at by the percentage of cases in
which a repayment plan is completed. With only a little over one-third of chapter 13 debtors
achieving plan completion, some may conclude that chapter 13 is a failure.”113 However, this is
not true in Kansas. Although it would not change the Court’s analysis, the Court notes that the
Chapter 13 process in Kansas works well.114 In Kansas, the Chapter 13 confirmation rate is more
than 90 percent, compared to the national average of 70 percent from 2007–13.115 The Kansas
Chapter 13 plan completion rate exceeded 60 percent for the same time period.116 In 2013, 71
percent of Kansas Chapter 13 cases were closed by discharge compared with 45 percent
nationally.117 Nationally, only 36 percent of Chapter 13 debtors complete their plans.118 At less
than one percent, Kansas also posts one of the lowest refiling after dismissal rates in the
country.119

Under the totality of the circumstances, Stevie filed her petition and Plan in good faith in
accordance with §§ 1325(a)(3) and (a)(7). Section 1325(b)(1) also provides for plan
confirmation if the debtor commits all projected disposable income to the plan during the
commitment period. This suggests “that the percentage of repayment to general unsecured

113 Ed Flynn, Chapter 13 Case Outcomes by State, 33 AUG.AM.BANKR.INST. J. 40, 78 (2014).
114 See Wark, 542 B.R. at 578.
115 Flynn, supra note 113, at 41.
116 Id. at 76.
117 The United States Department of Justice, Chapter 13 Trustee Data and Statistics,
https://www.justice.gov/ust/private-trustee-data-statistics/chapter-13-trustee-data-and-statistics.
118 Flynn, supra note 113, at 76.
119 Id. at 76.


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creditors [is] not an issue of good faith.”120 Thus, the Code does not require a minimum
distribution to unsecured creditors as part of the §§ 1325(a)(3) and (a)(7) analysis as long as
debtors comply with §§ 1325(b)(1) and 1325(a)(4).

There is no doubt Stevie needs financial relief and her circumstances demonstrate she
qualifies for Chapter 13. Stevie has faced numerous healthcare-related garnishments resulting in
at least two bench warrants. Stevie is living day-to-day on the financial outskirts of the economy
and Chapter 13 affords her immediate relief. Stevie chose Chapter 13 after consulting with
bankruptcy counsel because she could not afford Chapter 7’s upfront filing costs. Stevie has no
previous bankruptcy filings within the past eight years, there are no inaccuracies on her
schedules, and no other statutory provisions prevent Chapter 13 relief. The Court does not find
any evidence that Stevie’s petition or Plan are an attempt to abuse or game the provisions,
purpose, or spirit of Chapter 13. The Court does not find the treatment of Stevie’s unsecured
creditors unfair as those creditors would receive the same under Chapter 7 because Stevie does
not hold any nonexempt property that a Chapter 7 trustee would liquidate.

Importantly, the Code does not require a minimum distribution to general unsecured
creditors.121 Section 1325(a)(4) only requires general unsecured creditors to receive at least as
much as they would under a hypothetical liquidation. Additionally, unsecured creditors may fare
better in a Chapter 13 because Stevie must devote at least the next three years of income to fund
her Plan, and unsecured creditors may participate in any increased future earnings. Under
Chapter 7, unsecured creditors would not share in any increased earnings or post-petition
windfalls. Thus, unsecured creditors are not disadvantaged, and Stevie has shown her petition
and Plan comply with the good faith provisions of §§ 1325(a)(3) and (a)(7).

120 See Clamon, supra note 77, at 489–90.
121 § 1325(a)(4). See also Clamon, supra note 77, at 476 (“[T]he Code doesn’t necessarily require any repayment to
unsecured creditors in chapter 13.”).


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“[C]ourts have ‘repeatedly emphasized Congress’s preference that individual debtors use
Chapter 13 instead of Chapter 7.’”122 The Supreme Court has held that bankruptcy courts may
not “recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”123 It is
ethical for attorneys to provide relief to their clients now and receive payment over time. Read
together with the aforementioned analysis, the Code does not prevent qualified debtors from
filing attorney-fee-only Chapter 13 plans.

B. Stevie’s Chapter 13 Attorney’s Fees Are Reasonable.
Under § 330, the Court finds that Stevie’s attorney’s fees of $3,100 are reasonable based
on the Court’s experience adjudicating Chapter 13 filings in the District of Kansas.124 Further,
the Trustee did not object to the reasonableness of Stevie’s attorney’s fees.

CONCLUSIONS OF LAW

Based on a totality of the circumstances, Stevie’s Chapter 13 petition and Plan were filed
in good faith in accordance with §§ 1325(a)(3) and (a)(7). Stevie need not make a showing of
special circumstances and nothing in the Code forbids attorney-fee-only Chapter 13 plans.

IT IS ORDERED that the Chapter 13 Trustee’s objection to confirmation is overruled
and his motion to convert or dismiss is denied.

IT IS SO ORDERED.

###

122 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)).
123 See Sheffner, supra note 94, at 863. See also Law v. Siegel, 134 S. Ct. at 1194–97.
124 While the Kansas City Division has not established a baseline “no-look” Chapter 13 fee, the Topeka division in In
re Beck set the fee for an average Chapter 13 below-median income debtor case at $2,800 “unless the debtor is an
‘above-median debtor,’ . . . and unless counsel is required to file, for a repeat filer, a Motion to Extend the Automatic
Stay.” 2007 Bankr. LEXIS 517, at *22–28 (Bankr. D. Kan. Feb. 21, 2007). See also Judge Janice Miller Karlin,
Professional Fee and Expense Guidelines (January 7, 2010), http://www.ksb.uscourts.gov/index.php/chambers/judgekarlin/
312-professional-fee-and-expense-guidelines (last visited Apr. 21, 2016) (the presumptively reasonable fee for
an average Chapter 13 case for a below-median income debtor is $3,100, which includes $300 for end of the case
work).

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ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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15-21531 Doucet (Doc. # 47)

In Re Doucet, 15-21531 (Bankr. D. Kan. May 3, 2016) Doc. # 47

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 3rd day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Jennifer Jo Doucet, Case No. 15-21531
Debtor. Chapter 13

MEMORANDUM OPINION AND ORDER OVERRULING THE
CHAPTER 13 TRUSTEE’S OBJECTION TO CONFIRMATION UNDER
11 U.S.C. §§ 1325(a)(3) AND (a)(7) AND DENYING THE MOTION TO
DISMISS OR CONVERT DEBTOR’S CASE TO CHAPTER 7

The Chapter 13 Trustee (the Trustee) objects to confirmation and moves to dismiss or
convert Debtor’s case to Chapter 7.1 At issue is whether the Bankruptcy Code permits Debtor to
file under Chapter 13 and propose confirmation of a plan that pays only the filing fee, the
Debtor’s attorney’s fees, and the Trustee’s commission.2 The matters are submitted on the
pleadings for this Court’s consideration. Here, the Court finds the Debtor filed her case and
Chapter 13 Plan in good faith, not by any means forbidden by law.

1 Doc. 18. Debtor, Jennifer Jo Doucet, appears by her attorney, Chris W. Steffens, Topeka, KS. Trustee, William H.
Griffin, appears pro se.
2 The Trustee receives a percentage fee in accordance with 28 U.S.C. § 586(e)(1)(B). This percentage fee is assessed
on all payments the Trustee receives under a Chapter 13 Plan. 11 U.S.C. § 1326(b)(2).


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VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.
§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by 28 U.S.C.
§ 157(a) to refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and
all proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.3 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The parties do not object to venue or
jurisdiction.

FINDINGS OF FACT

On July 17, 2015, Debtor Jennifer Jo Doucet (Jennifer) filed her bankruptcy petition4 and
an initial Chapter 13 Plan (the Initial Plan).5 On July 20, 2015, the Court granted Jennifer’s
application to pay her filing fees in installments.6 Jennifer does not have any previous
bankruptcy filings within the past eight years7 and completed pre-petition credit counseling.8
Jennifer’s income is below median.9 At the time of filing, Jennifer supported three dependents:

(a) 2 year-old grandson; (b) 14 year-old granddaughter; and (c) 31 year-old daughter.10 Jennifer
paid Fed Loan Serv $660 within 90 days of her petition.11
3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
4 Doc. 1.
5 Doc. 2.
6 Doc. 6. FED.R.BANKR. P. 1006(b) allows paying the 28 U.S.C. § 1930(a)(1) Chapter 13 filing fee in installments.
7 Doc. 1, at 2.
8 Id. at 12–13.
9 Id. at 45–47.
10 Id. at 32.
11 Id. at 5 ¶ 3.


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On August 11, 2015, Jennifer filed an amended Chapter 13 Plan (the Plan).12 Jennifer’s
Plan proposes at least 36 monthly payments of $90.13 Plan payments will be made through an
employer pay order,14 paying $2,900 to attorney’s fees,15 $310 to filing fees,16 and $0.00 to
unsecured creditors.17

Jennifer’s employment income for 2013, 2014, and 2015 year to petition date was
$43,000, $54,046, and $22,674, respectively.18 Jennifer works as a registered nurse at Genesis
HealthCare in Rossville, Kansas.19 As of her petition date, Jennifer had been employed at
Genesis HealthCare for two and one-half years. Jennifer also lists a prorated tax refund of
$100.20 Jennifer’s Schedule I monthly net income is $2,840.90.21

Jennifer does not own any real property,22 lists zero creditors holding secured claims,23
and lists the Internal Revenue Service and Kansas Department of Revenue on Schedule E for
noticing purposes only.24 Jennifer only lists $4,490.35 of personal property of which $4,470 is
exempt.25 Jennifer’s nonexempt property is: (a) $10 in cash; (b) a $10 Insight prepaid debit card;
and (c) a $0.35 Walmart prepaid debit card.26 A Chapter 7 trustee would likely abandon these
nonexempt assets in a Chapter 7 case because they are not worth liquidating. Jennifer’s exempt
property is: (a) $700 deposit with her landlord and utilities; (b) $1,000 in miscellaneous

12 Doc. 13.
13 Id. at 1. Jennifer does not specifically list the duration of her plan, but her applicable commitment period is not less
than three years.


14 Id.
15 Id. at 2, ¶ 3.
16 Id. at 2, ¶ 4.
17 Doc. 2.
18 Doc. 1, at 4. Jennifer estimated her 2013 employment income.
19 Id. at 30.


20 Id. at 31.
21 Id.
22 Id. at 14.


23 Id. at 19.
24 Id. at 21.
25 Id. at 15–18.


26 Id.

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household goods; (c) $500 in miscellaneous clothing; (d) $60 in miscellaneous jewelry; (e) $50
in books; (f) $500 Kirby Sentria; (g) $160 Dremel and electric sander; and (h) $1,500 for a
model year 2000 Ford F-150 4x4 with 250,000 miles in fair condition.27

Jennifer asserts she does not have the upfront assets to fund a Chapter 7 filing and may
never be able to accumulate enough savings to do so. 28 Jennifer further stresses that she “does
not enjoy the collective strength, or safety net that most members of society possess from
friends, family and other loved ones.”29 Since 2006, Jennifer has faced at least 17 garnishment
cases in Shawnee County, Kansas, District Court. 30 Topeka Rentals LLC brought 10 of the
garnishment cases against Jennifer, seeking eviction intermittently over three years from 2008–
2011.31 Schedule F indicates creditors have repossessed at least three of Jennifer’s vehicles,
resulting in deficiently claims of $11,052.

On August 28, 2015, the Trustee objected to confirmation under 11 U.S.C. §§ 1325(a)(3)
and (a)(7)32 and moved to dismiss or convert Jennifer’s case to Chapter 7.33 As of August 28,
2015, the Trustee had not received Jennifer’s first Plan payment that was due within 30 days of
filing.34 The Trustee states that at the First Meeting of Creditors, Jennifer advised him that she
filed in Kansas City instead of Topeka because of Kansas City’s lower Trustee fees.35

The Trustee admits “the debtor appears to need relief” but asserts that “this is an attorney
fee only case that does not demonstrate ‘special circumstances’ to justify a Chapter 13.”36 The
Trustee urges the Court to find that the “inability to pay attorneys fees for the filing of a Chapter

27 Id. at 18.
28 Doc. 22, at 3 ¶ e.
29 Id.
30 Id. at 3 ¶ e. 1.


31 Id.
32 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
33 Doc. 18.
34 Id. at 1 ¶ 1.
35 Id. at 1 ¶ 2.
36 Id. at 2 ¶ 6.


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7, does not constitute ‘special circumstances’ permitting the case to proceed as a Chapter 13.”37

Thus, the Trustee requests the Court deny confirmation, dismiss the case, or convert the case to

Chapter 7.38

Of note, the Trustee did not specifically object to feasibility or challenge the

reasonableness of Jennifer’s attorney’s fees of $2,900.

LAW

Chapter 13 contains two good faith requirements. Debtors must propose plans and file

petitions in good faith. Section 1325(a)(3) and (a)(7) provide:

(a) . . . [T]he court shall confirm a plan if—
. . .
(3) the plan has been proposed in good faith and not by any means forbidden
by law; . . .
(7) the action of the debtor in filing the petition was in good faith.39
Congress did not define good faith in subsections (a)(3) and (a)(7).40 The Tenth Circuit

has developed several non-exhaustive factors to examine good faith challenges. Included among

those factors are:

(1)
the amount of the proposed payments and the amount of the debtor’s surplus;
(2)
the debtor’s employment history, ability to earn and likelihood of future increases in
income;
(3) the probable or expected duration of the plan;
(4)
the accuracy of the plan’s statements of the debts, expenses, and percentage
repayment of unsecured debt and whether any inaccuracies are an attempt to
mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6)
the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable
in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform
Act;
(10) the motivation and sincerity of the debtor in seeking Chapter 13 relief; and
37 Id. at 9 ¶ 15.
38 Id. at 10 ¶ 16.
39 BAPCPA added § 1325(a)(7) in 2005.
40 WILLIAM J. MCLEOD, CHAPTER 13 IN 13 CHAPTERS 69 (M. Regina Thomas ed., 2009).


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(11) the burden which the plan’s administration would place upon the trustee.41
The Trustee relies on In re Puffer42 to justify Jennifer’s need to show special
circumstances. However, as discussed infra,43 this is not required under the Code. The Tenth
Circuit and at least one Kansas Bankruptcy Court “look[] to the totality of the circumstances
surrounding each debtor’s filing to determine whether . . . [they] have filed their Chapter 13
bankruptcy plan in good faith, as required by 11 U.S.C. § 1325(a)(3).”44 “No one factor is
determinative, but it is the totality of the various factors and the facts of the particular case that
are considered.”45 Thus, Jennifer need not show special circumstances justifying her filing of a
Chapter 13 plan over a Chapter 7 liquidation. “Only if there has been a showing of serious
debtor misconduct or abuse should a chapter 13 plan be found lacking in good faith.”46

The Court examines §§ 1325(a)(3) and (a)(7) simultaneously because the good faith
analysis under each subsection is the same—the totality of the circumstances.47

ANALYSIS

A. Jennifer Filed Her Chapter 13 Petition and Chapter 13 Plan in Good Faith.
“The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest
but unfortunate debtor.’”48 However, the fresh start is not absolute. “The statutory provisions
governing nondischargeability reflect a congressional decision to exclude from the general

41 Flygare v. Boulden, 709 F.2d 1344, 1347–48 (10th Cir. 1983) (quoting United States v. Estus (In re Estus), 695
F.2d 311, 317 (8th Cir. 1982)) (defining good faith under § 1325(a)(3)). Notably, Congress amended the Code in 1984
to include the ability-to-pay test under § 1325(b). 8 COLLIER ON BANKRUPTCY ¶ 1325.11[1], at 1325-54 (Alan N.
Resnick & Henry J. Sommer, eds. 16th ed. 2016). “[T]he good faith inquiry now ‘has a more narrow focus.’” In re
Cranmer, 697 F.3d 1314, 1319 n.5 (10th Cir. 2012) (quoting Educ. Assistance Corp. v. Zellner, 827 F.2d 1222, 1227
(8th Cir. 1987)).
42 674 F.3d 78 (1st Cir. 2012).
43 Note 92.
44 In re Wark, 542 B.R. 522, 527 (Bankr. D. Kan. 2015). See MCLEOD, supra note 39, at 68 (stating that “[g]ood faith
is determined by considering the totality of the circumstances surrounding the filing of both the petition and the plan”).
45 See MCLEOD, supra note 40, at 69 (emphasis added). See also In re Dicey, 312 B.R. 456, 459 (Bankr. D.N.H. 2004).
46 COLLIER, supra note 41, ¶ 1325.04[1], at 1325-17 (citations omitted).
47 Wark, 542 B.R. at 533 n.35.
48 Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (quoting Grogan v. Garner, 498 U.S. 279, 286, 287
(1991)).


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policy of discharge certain categories of debts—such as child support, alimony, and certain
unpaid educational loans and taxes, as well as liabilities for fraud.”49 Whether Jennifer qualifies
for a fresh start is not at issue as the Trustee admits she needs relief.50 Thus, the Court must
decide whether Chapter 13 relief is appropriate under the Code.

Chapter 13, commonly referred to as the wage earner chapter, is conceptually a personal
or individual reorganization. Individuals with regular income obtain a discharge of most prepetition
debt after successfully completing a court-approved payment plan.51 Debtors make plan
payments from “future earnings or other future income.”52 Conversely, under Chapter 7, “the
debtor’s assets are immediately liquidated and the proceeds [are] distributed to creditors.”53
Chapter 13 allows the honest but unfortunate debtor time to reorganize her financial matters,
including curing pre-petition defaults on secured debt,54 curing defaulted leases,55 paying priority
claims over three to five years,56 and frequently—but not always—to provide a distribution to
general unsecured claimants who ordinarily receive little or nothing under Chapter 7. An
individual may not be forced into Chapter 1357 and she is at liberty to seek dismissal of her case
at any time.58 From its inception, Congress preferred Chapter 13 over Chapter 7.59

49 Grogan v. Garner, 498 U.S. 279, 287 (1991).
50 Supra note 36.
51 Marrama, 549 U.S. at 367.
52 Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).
53 Id. at 1834. Of course, the Chapter 7 trustee does not ordinarily liquidate exempt assets.
54 § 1325(b)(5). See also In re Taddeo, 685 F.2d 24, 29 (2d Cir. 1982) (stating that “‘curing a default’ in Chapter 11
means the same thing as it does in Chapters 7 or 13: the event of default is remedied and the consequences are
nullified.”).
55 § 365.
56 §§ 507 and 1326(b)(1).
57 § 303. See also In re Harper-Elder, 184 B.R. 403, 408 (Bankr. D.D.C. 1995) (“Chapter 13 was intended to be purely
voluntary. . . .”).
58 § 1307(b).
59 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)). See
also In re Jackson, 2006 Bankr. LEXIS 4327, at *3 (Bankr. N.D. Ga. Mar. 16, 2006) (“Congress wanted more debtors
to file for relief under Chapter 13, rather than Chapter 7.”).


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An important distinction lies between Chapters 13 and 7 in counsel’s ability to collect
attorney’s fees for debtors seeking competent representation. In Chapter 13, debtors may pay
their attorney’s fees through their plan over three to five years. In Chapter 7, debtors must pay
their attorney up front before filing and counsel cannot advise debtors to incur debt to pay for
representation.60 The reality is many debtors cannot afford Chapter 7’s upfront costs.

Most debtors that are contemplating chapter 7 are on the brink of economic
disaster. They have creditors harassing them, calling them nonstop, garnishing
wages and income tax returns, and seizing their vehicles to satisfy judgments.
These hardworking individuals simply do not have the extra funds to pay a
bankruptcy attorney up front in full to file a bankruptcy case to stop the
creditors.61

In Chapter 13 cases, “the court does not approve the employment of a chapter 13 debtor’s
counsel.”62 Thus, “[a] chapter 13 debtor may generally employ bankruptcy counsel without
filing an application to employ.”63 If the debtor’s case is converted to Chapter 7, debtor’s
counsel must seek employment by the Chapter 7 estate pursuant to § 327(e) if she wishes to be
paid by assets of the estate. Without such application, compensation may not be awarded.64

Unlike other bankruptcy attorneys, a Chapter 7 attorney has no right to compensation
under § 330.65 In Lamie, 66 the Supreme Court held that debtor’s Chapter 11 counsel could not
receive compensation post-conversion from chapter 7 estate funds unless she is employed by the
Chapter 7 estate. The result from Lamie67 is “that § 330(a)(1) does not authorize compensation

60 Wark, 542 B.R. at 531 n.27.
61 Amanda A. Page, Chapter 7 Attorneys’ Fees: Protecting Debtors While Ensuring Attorneys Get Paid,
http://www.abi.org/committee-post/chapter-7-attorneys%E2%80%99-fees-protecting-debtors-while-ensuringattorneys-
get-paid, AM.BANKR.INST. (Feb. 2, 2015-15:07).
62 In re Bell, 212 B.R. 654, 657 (Bankr. E.D. Cal. 1997) (citing In re Fricker, 131 B.R. 932, 939–41 (Bankr. E.D. Pa.
1991)).
63 In re Arnold, 2008 WL 2224932, *1 (Bankr. S.D.Tex. 2008).
64 In re French, 111 B.R. 391, 393 (Bankr. N.D.N.Y. 1989).
65 William F. Stone, Jr., & Bryan A. Stark, The Treatment of Attorneys’ Fee Retainers in Chapter 7 Bankruptcy and
the Problem of Denying Compensation to Debtors’ Attorneys for Post-Petition Legal Services They Are Obliged to
Render, 82 AM.BANKR. L.J. 551, 552 (2008).
66 Lamie v. United States Trustee, 540 U.S. 526 (2004).
67 Id. at 538–39.


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to a Chapter 7 debtor’s attorney from estate funds unless the attorney is employed by the trustee
under § 327.”68 This “creates severe problems for the debtor’s attorney.”69 Attorneys filing
chapter 7 petitions must collect fees pre-petition or risk a discharge of pre-petition fees.
However, Wagers70 found that retainers paid as an advancement on post-petition services must
be placed in a trust account and are not deemed earned until counsel performs those services.
The irony is that if debtor’s counsel procures a sufficient retainer, to the extent it is not used as of
the petition date, the balance is property of the estate subject to turnover to the trustee.71 On the
other hand, if an attorney in a Chapter 7 case does not receive a pre-filing retainer, then the
unpaid fees associated with her pre-petition work are dischargeable.72 This disincentive to
competent bankruptcy counsel is profound. Further, it is also difficult and sometimes forbidden
for attorneys to solve Lamie73 issues by unbundling or limiting their scope of representation to
pre-petition or post-petition services for a Chapter 7 client.74

Under Chapter 13, attorney’s fees are allowed pursuant to § 330(a) as an administrative
expense described in § 503(b)(2). With the enactment of § 330, “Congress intended to provide
adequate compensation, on a par with that available in other areas of practice, to attract
competent counsel to the bankruptcy specialty.”75 The bankruptcy practice needs competent
attorneys as

[i]t is absolutely imperative that competent counsel be motivated to seek, accept

and ably handle Chapter 13 cases. That motivation starts with being fairly

compensated for the work they perform. The complexity and importance of the

68 See Stone, supra note 65, at 554.
69 Richard I. Aaron, 1 BANKRUPTCY LAW FUNDAMENTALS § 15:51.
70 In re Wagers, 514 F.3d 1021 (10th Cir. 2007).
71 Id., In re Mansfield, 394 B.R. 783 (Bankr. E.D. Pa. 2008).
72 Wagers, 514 F.3d at 1029–30; Rittenhouse v. Eisen, 404 F.3d 395 (6th Cir. 2005).
73 Lamie, 540 U.S. 526.
74 See e.g. DeLuca v. Seare (In re Seare), 515 B.R. 599 (B.A.P. 9th Cir. 2014) (unbundling or limited scope
representation must comply with the rules of ethics and the Bankruptcy Code based on a qualitative analysis of each
individual debtor’s case completed at intake to ensure that debtor’s reasonable goals and needs are being met); In re
Ruiz, 515 B.R. 362 (Bankr. M.D. Fla. 2014) (attorneys cannot pick and choose the services they provide to Chapter 7
debtors).
75 In re Commercial Consortium of California, 135 B.R. 120, 126 (Bankr. C.D. Cal. 1991).


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work, alone, justify such compensation, but there are other reasons able counsel
are vital to the system. The most important reason is that this Court rather
routinely sees pro se debtors “give away” rights or property that they would
otherwise be legally entitled to retain because of their ignorance of the law.76

“[S]tudies show that debtors with legal representation tend to have a much higher success rate in
bankruptcy proceedings than pro se filers.”77 In one study, only 0.8 percent of post-BAPCPA
pro se debtors received a discharge.78 The same study found that “[n]ot one of the post-
BAPCPA cases filed with the assistance of a petition preparer ended in the debtor receiving a
discharge.”79 This Court also notes that even experienced non-bankruptcy attorneys who
themselves file for bankruptcy relief frequently hire bankruptcy counsel to navigate the Code’s
unique parameters. Fairly compensated counsel is beneficial to both debtors and the bankruptcy
bar because “attorneys must be zealous advocates for their clients while attempting to keep their
lights on in their own offices.”80 “[P]reserving the integrity of the bankruptcy system includes
encouraging, not discouraging, excellence in legal representation of consumer debtors.”81 “A
requirement that attorneys provide pre-petition representation for free or that debtors find family
members or friends to bankroll their case runs contrary to the priority structure outlined in
§§ 330, 503, and 507 and to the notion that debtors are entitled to competent and properly
compensated representation.”82

At issue is whether the Code permits Jennifer to file under Chapter 13 in good faith when
allegedly the only reason she elected Chapter 13 is because she does not have the ability to pay

76 In re Beck, 2007 Bankr. LEXIS 517, at *9 (Bankr. D. Kan. Feb. 21, 2007) (internal footnotes omitted).
77 Alexander F. Clamon, Per Se Bad Faith? An Empirical Analysis of Good Faith in Chapter 13 Fee-Only Plans, 30
EMORY BANKR.DEV. J. 473, 481 (2014).
78 Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, 20 AM.BANKR.INST.L.REV. 17, 81 (2012).
79 Id.
80 See Page, supra note 61 (emphasis in original).
81 Morgan D. King, Between the Charybdis of Biggar and the Scylla of Lamie: How Can a Debtor’s Lawyer Get
Paid?, 2004 No. 6 NORTON BANKR.L.ADVISER 2.
82 In re Busetta-Silvia, 314 B.R. 218, 228 (B.A.P. 10th Cir. 2004).


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up front for representation in Chapter 7.83 Bankruptcy courts are divided on this issue. Courts in

New York, New Hampshire, and Massachusetts have rejected attorney-fee-only plans as contrary

to the spirit and purpose of the Code.84 However, three circuit courts have found that attorney


fee-only Chapter 13 plans are not per se bad faith.85 Courts in North Carolina, New Mexico,

Wisconsin, Illinois, and Kansas have also upheld attorney-fee-only Chapter 13 plans.86

The Trustee cites three circuit cases—Puffer,87 Brown,88 and Crager89—and one Western

District of Missouri case—Arlen90—addressing good faith in attorney-fee-only Chapter 13 plans.

The First Circuit in Puffer determined that attorney-fee-only Chapter 13 plans are not per se bad

faith. Puffer noted that good faith under § 1325(a)(3) is analyzed based on the totality of the

circumstances and the debtor “carries a heavy burden of demonstrating special circumstances”

justifying their plan.91 Notably, the last component of this court-made rule is not found in the

Code and is not the law in the Tenth Circuit.92 Further, Law v. Siegel93 does not authorize this

Court “to recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”94

Thus, the court-created heightened confirmation standard in Puffer requiring ‘special

83 Of course, there are myriad benefits to filing a chapter 13 case, such as the super discharge, § 1303 powers, retention
of non-exempt property, and the binding effect of a confirmed Chapter 13 plan.
84 In re Paley, 390 B.R. 53, 59 (Bankr. N.D.N.Y. 2008); In re Dicey, 312 B.R. 456, 459–60 (Bankr. D.N.H. 2004); In
re Buck, 432 B.R. 13, 21–22 (Bankr. D. Mass. 2010).
85 In re Brown, 742 F.3d 1309 (11th Cir. 2014); In re Puffer, 674 F.3d 78 (1st Cir. 2012); Matter of Crager, 691 F.3d
671 (5th Cir. 2012).
86 See In re Banks, 545 B.R. 241 (Bankr. N.D. Ill. 2016) (finding special circumstances allowing debtor to file an
attorney fee-only Chapter 13 instead of a Chapter 7); In re Wark, 542 B.R. 522 (Bankr. D. Kan. 2015); In re Elkins,
2010 WL 1490585, at *3 (Bankr. E.D.N.C. Apr. 13, 2010) (stating that a Chapter 13 trustee should not summarily
object to the presumptive fees in a Chapter 13 case solely because the case is an attorney-fee-only case); In re Molina,
420 B.R. 825, 829–33 (Bankr. D.N.M. 2009); In re Guzman, 345 B.R. 640 (Bankr. E.D. Wis. 2006) (confirming
debtors’ plan showing no disposable income); In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006) (debtors acted
in good faith proposing a no projected disposable income plan).
87 In re Puffer, 674 F.3d 78 (1st Cir. 2012).
88 In re Brown, 742 F.3d 1309 (11th Cir. 2014).
89 Matter of Crager, 691 F.3d 671 (5th Cir. 2012).
90 In re Arlen, 461 B.R. 550 (Bankr. W.D. Mo. 2011). The Arlen Court found the record devoid of evidence supporting
confirmation of an attorney-fee-only plan.
91 674 F.3d at 83.
92 Wark, 542 B.R. at 527.
93 134 S. Ct. 1188 (2014).
94 Daniel J. Sheffner, The Chapter 13 Debtor’s Absolute Right to Dismiss, 63 CLEV.ST.L.REV. 833, 863 (2015).


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circumstances’ violates Law v. Siegel—bankruptcy courts do not legislate. “[C]ourts should not
overhaul the traditional good faith analysis when dealing with fee-only plans.”95 In assessing
good faith under §§ 1325(a)(3) and (a)(7), the Court need only apply a totality-of-thecircumstances
test.

The Eleventh Circuit in Brown96 affirmed the bankruptcy court’s denial of an attorneyfee-
only plan, applying a totality-of-the-circumstances approach. The Eleventh Circuit noted
that “the bankruptcy court did not apply a categorical rule prohibiting attorney-fee-centric or
attorney-fee-only chapter 13 plans.”97 Additionally, “[a] few months after denying Brown’s
Chapter 13 plan, the same bankruptcy judge confirmed an attorney-fee-centric Chapter 13
plan . . . .”98

 In Crager, the Fifth Circuit found that “[t]here is no rule in this circuit that a Chapter 13
plan that results in the debtor’s counsel receiving almost the entire amount paid to the Trustee,
leaving other unsecured creditors unpaid, is a per se violation of the ‘good faith’
requirement . . . .”99 The Crager bankruptcy court also noted “that it would ‘border on
malpractice’ for Crager’s attorney to advise her to file a Chapter 7.”100 Ultimately, applying the
totality-of-the-circumstances test, the court found the debtor’s filing responsible, given the
debtor’s circumstances.101

 In Missouri, Arlen102 held that “[a] Chapter 13 plan which pays only the administrative
expenses of the proceeding, primarily debtors’ counsel’s fees, and makes no payment to any
creditor, secured or unsecured, violates the spirit and purpose of Chapter 13 and is not proposed

95 See Clamon, supra note 77, at 473.
96 742 F.3d 1309.
97 Id. at 1318.
98 Id. at 1318 n.7.
99 691 F.3d at 675–76.
100 Id. at 675.


101 Id.
102 461 B.R. 550.


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in good faith.”103 This Court does not find Arlen persuasive. Instead, the Court finds Molina104

and Wark105 persuasive. In 2009, Molina found that a debtor in economic straits may file an

attorney-fee-only plan.106 Recently in Wark, another bankruptcy judge in this District confirmed

several attorney-fee-only plans, finding that the totality-of-the-circumstances test applies to

determine good faith under § 1325—specifically rejecting special circumstances as a piece of the

§ 1325 good faith inquiry.107 Further, “the ‘primary purpose of the good faith inquiry is to

determine under the totality of the circumstances of a case whether there has been an abuse of

the provisions, purpose, or spirit of Chapter 13.’”108 In referencing attorney-fee-only Chapter 13

cases, Wark noted:

Yes, there may be no distribution to unsecured creditors. Again, in a
perfect world, all debtors would file Chapter 13 plans and repay all their
debts, and no creditor would walk away empty handed. But we do not live
in that world.


Instead, this is a world where debtors are harassed by daily collection
calls for admittedly delinquent debts. Where they are repeatedly required
to miss work to attend a cattle call docket to explain why they haven’t paid
old medical bills. Where they cannot afford to keep the gas on, and feel
compelled to incur title or payday loans at exorbitant rates to feed their
families. Where their meager wages are reduced even further by
garnishments. Where they opt not to seek necessary medical care or take
prescribed medication because they cannot afford it. This is the world
these Debtors live in, and this real world sometimes requires bankruptcy,
even if the debtor cannot save enough to pay the up front [sic] attorney’s
fees required to file a Chapter 7.109


Courts rejecting attorney-fee-only Chapter 13 plans express concern that the filing itself

solely benefits the attorney—not the debtor. In Kansas, and in general, attorney’s fees in

103 Id. at 558.
104 420 B.R. 825.
105 542 B.R. at 530.
106 420 B.R. at 830–33.
107 542 B.R. 522, 527.
108 Id. at 577–78 (citing In re Sandberg, 433 B.R. 837, 845 (Bankr. D. Kan. 2010)).
109 Id. at 578.


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Chapter 13 reorganizations are higher than Chapter 7 liquidations.110 Courts fear attorneys
choose Chapter 13 instead of Chapter 7 to secure higher fees and win the client when they cannot
otherwise afford Chapter 7’s upfront costs. This view is misplaced for two reasons. First, under
an attorney-fee-only plan, that attorney foregoes compensation should the debtor’s plan not be
confirmed. Additionally, confirmation does not mean that same attorney is off to the bank. That
attorney may not be fully compensated should the debtor’s plan collapse down the road.
Attorneys filing Chapter 7s do not face this risk. This is an important distinction as much of an
attorney’s time and effort is spent pre-petition and pre-confirmation driving a debtor’s plan to
confirmation. The reality is that lower income debtor’s cases are time consuming. Second,
money is worth more the sooner it is received—the time value of money.111 Securing a fixed fee
over three to five years is different than receiving that same guaranteed fee today. An attorney
solely out for herself would prefer receiving her fee up front. This is different than waiting to
see if a debtor’s three-to five-year payment plan comes to fruition. Allowing an attorney-feeonly
Chapter 13 plan gives debtors access to the automatic stay and fresh start “while fairly
compensating the attorney for the risk of nonpayment.”112

Chapter 13 cases are more work to prepare, are more involved, and expose a debtor’s
attorney to nonpayment. Frequently, a Chapter 13 bankruptcy is financially a losing proposition
for a debtor’s attorney. Most of an attorney’s work in the majority of Chapter 7 cases is
completed up front during the early stages of a case that generally closes within six months.
However, a Chapter 13 debtor’s attorney is obligated to her clients for three to five years during
which much can happen requiring additional attorney time. Chapter 13 debtors’ attorneys often

110 Id. at 531–33.
111 The time value of money is the idea that money today is worth more than the same amount of money in the future
due to its present earning capacity.
112 See Clamon, supra note 77, at 483.


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help their clients through payment defaults, repair or replacement of essential property such as
vehicles and household appliances, unemployment or underemployment, and medical bills. All
of this occurs after the debtor’s attorney successfully navigates plan confirmation but before the
attorney receives full payment through the plan.

Some believe that “success in chapter 13 can be looked at by the percentage of cases in
which a repayment plan is completed. With only a little over one-third of chapter 13 debtors
achieving plan completion, some may conclude that chapter 13 is a failure.”113 However, this is
not true in Kansas. Although it would not change the Court’s analysis, the Court notes that the
Chapter 13 process in Kansas works well.114 In Kansas, the Chapter 13 confirmation rate is more
than 90 percent, compared to the national average of 70 percent from 2007–13.115 The Kansas
Chapter 13 plan completion rate exceeded 60 percent for the same time period.116 In 2013, 71
percent of Kansas Chapter 13 cases were closed by discharge compared with 45 percent
nationally.117 Nationally, only 36 percent of Chapter 13 debtors complete their plans.118 At less
than one percent, Kansas also posts one of the lowest refiling after dismissal rates in the
country.119

Under the totality of the circumstances, Jennifer filed her petition and Plan in good faith
in accordance with §§ 1325(a)(3) and (a)(7). Section 1325(b)(1) also provides for plan
confirmation if the debtor commits all projected disposable income to the plan during the
commitment period. This suggests “that the percentage of repayment to general unsecured

113 Ed Flynn, Chapter 13 Case Outcomes by State, 33 AUG.AM.BANKR.INST. J. 40, 78 (2014).
114 See Wark, 542 B.R. at 578.
115 Flynn, supra note 113, at 41.
116 Id. at 76.
117 The United States Department of Justice, Chapter 13 Trustee Data and Statistics,
https://www.justice.gov/ust/private-trustee-data-statistics/chapter-13-trustee-data-and-statistics.
118 Flynn, supra note 113, at 76.
119 Id. at 76.


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creditors [is] not an issue of good faith.”120 Thus, the Code does not require a minimum
distribution to unsecured creditors as part of the §§ 1325(a)(3) and (a)(7) analysis as long as
Jennifer complies with §§ 1325(b)(1) and 1325(a)(4).

There is no doubt Jennifer needs financial relief and her circumstances demonstrate she
qualifies for Chapter 13. Jennifer has faced at least 17 recent garnishments, 10 stemming from
eviction proceedings brought by her landlord. Further, creditors have repossessed at least three
of Jennifer’s vehicles. Jennifer is living day-to-day on the financial outskirts of the economy and
stated that she “does not enjoy the collective strength, or safety net that most members of society
possess from friends, family and other loved ones.”121 Chapter 13 affords Jennifer immediate
relief from eviction proceedings and vehicle repossessions. Jennifer chose Chapter 13 after
consulting with bankruptcy counsel because she could not afford the Chapter 7 upfront filing
costs. Jennifer does not have previous bankruptcies; there are no inaccuracies in her schedules;
and no other statutory provisions prevent Chapter 13 relief. The Court does not find any
evidence that Jennifer’s petition or Plan are an attempt to abuse or game the provisions, purpose,
or spirit of Chapter 13. The Court does not find the treatment of Jennifer’s unsecured creditors
unfair as those creditors would receive the same under Chapter 7 because Jennifer does not hold
any nonexempt property that a Chapter 7 trustee would liquidate.

Importantly, the Code does not require a minimum distribution to general unsecured
creditors.122 Section 1325(a)(4) only requires general unsecured creditors to receive at least as
much as they would under a hypothetical liquidation. Additionally, unsecured creditors may fare
better in a Chapter 13 because Jennifer must devote at least the next three years of income to

120 See Clamon, supra note 77, at 489–90.
121 Doc. 22, at 3 ¶ e.
122 § 1325(a)(4). See also Clamon, supra note 79, at 476 (“[T]he Code doesn’t necessarily require any repayment to
unsecured creditors in chapter 13.”).


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fund her Plan, and unsecured creditors may participate in any increased future earnings. Under
Chapter 7, unsecured creditors would not share in any increased earnings or post-petition
windfalls. Thus, unsecured creditors are not disadvantaged, and Jennifer has shown her petition
and Plan comply with the good faith provisions of §§ 1325(a)(3) and (a)(7).

“[C]ourts have ‘repeatedly emphasized Congress’s preference that individual debtors use
Chapter 13 instead of Chapter 7.’”123 The Supreme Court has held that bankruptcy courts may
not “recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”124 It is
ethical for attorneys to provide relief to their clients now and receive payment over time. Read
together with the aforementioned analysis, the Code does not prevent qualified debtors from
filing attorney-fee-only Chapter 13 plans.

B. Jennifer’s Chapter 13 Attorney’s Fees Are Reasonable.
Under § 330, the Court finds Jennifer’s attorney’s fees of $2,900 are reasonable based on
the Court’s experience adjudicating Chapter 13 filings in the District of Kansas.125 Further, the
Trustee did not object to the reasonableness of Jennifer’s attorney’s fees.

CONCLUSIONS OF LAW

Based on a totality of the circumstances, Jennifer’s Chapter 13 petition and Plan were
filed in good faith in accordance with §§ 1325(a)(3) and (a)(7). Jennifer need not make a
showing of special circumstances and nothing in the Code forbids attorney-fee-only Chapter 13
plans.

123 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)).
124 See Sheffner, supra note 94, at 863. See also Law v. Siegel, 134 S. Ct. at 1194–97.
125 While the Kansas City Division has not established a baseline “no-look” Chapter 13 fee, the Topeka division in In
re Beck set the fee for an average Chapter 13 below-median income debtor case at $2,800 “unless the debtor is an
‘above-median debtor,’ . . . and unless counsel is required to file, for a repeat filer, a Motion to Extend the Automatic
Stay.” 2007 Bankr. LEXIS 517, at *22–28 (Bankr. D. Kan. Feb. 21, 2007). See also Judge Janice Miller Karlin,
Professional Fee and Expense Guidelines (January 7, 2010), http://www.ksb.uscourts.gov/index.php/chambers/judgekarlin/
312-professional-fee-and-expense-guidelines (last visited Apr. 21, 2016) (the presumptively reasonable fee for
an average Chapter 13 case for a below-median income debtor is $3,100, which includes $300 for end of the case
work).

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IT IS ORDERED that the Chapter 13 Trustee’s objection to confirmation is overruled
and his motion to convert or dismiss is denied.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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15-21258 Dugan (Doc. # 34)

In Re Dugan, 15-21258 (Bankr. D. Kan. May 3, 2016) Doc. # 34

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 3rd day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Daniel Joseph Dugan and

Karen Marie Dresch, Case No. 15-21258
Debtors. Chapter 13

MEMORANDUM OPINION AND ORDER OVERRULING THE
CHAPTER 13 TRUSTEE’S OBJECTION TO CONFIRMATION UNDER
11 U.S.C. §§ 1325(a)(3) AND (a)(7) AND DENYING THE MOTION TO
DISMISS OR CONVERT DEBTORS’ CASE TO CHAPTER 7

The Chapter 13 Trustee (the Trustee) objects to confirmation and moves to dismiss or
convert Debtors’ case to Chapter 7.1 At issue is whether the Bankruptcy Code permits Debtors
to file under Chapter 13 and propose confirmation of a plan that pays only the filing fee, the
Debtors’ attorney’s fees, and the Trustee’s commission.2 The matters are submitted on the
pleadings for this Court’s consideration. Here, the Court finds that Debtors filed their case and
Chapter 13 Plan in good faith, not by any means forbidden by law.

1 Doc. 23 and 24. Debtors, Daniel Joseph Dugan and Karen Marie Dresch, appear by their attorney, Chris W. Steffens,
Topeka, KS. Trustee, William H. Griffin, appears pro se.
2 The Trustee receives a percentage fee in accordance with 28 U.S.C. § 586(e)(1)(B). This percentage fee is assessed
on all payments the Trustee receives under a Chapter 13 Plan. 11 U.S.C. § 1326(b)(2).


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VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.
§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by 28 U.S.C.
§ 157(a) to refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and
all proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.3 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The parties do not object to venue or
jurisdiction.

FINDINGS OF FACT

On June 15, 2015, Debtors Daniel Joseph Dugan (Daniel) and Karen Marie Dresch
(Karen) filed their bankruptcy petition4 and Chapter 13 Plan (the Plan).5 On June 16, 2015, the
Court granted the Debtors’ application to pay their filing fees in installments.6 Debtors are not
repeat filers and certify they have completed pre-petition credit counseling.7 Debtors’ income is
below median. At the time of filing, Debtors’ three dependent children were four, nine, and
twelve years old. Debtors made no payments to insiders or creditors within 90 days of their
petition.8

Debtors’ Plan proposes at least 36 monthly payments of $80.9 Plan payments will pay
$2,800 to attorney’s fees,10 $310 to filing fees, and $0.00 to unsecured creditors.11

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
4 Doc. 1.
5 Doc. 2.
6 Doc. 6. FED.R.BANKR. P. 1006(b) allows paying the 28 U.S.C. § 1930(a)(1) Chapter 13 filing fee in installments.
7 Doc. 1, at 2 and 12–15.
8 Id. at 5 ¶ 3.
9 Doc. 2.
10 Doc. 1, at 43.
11 Doc. 2.


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Debtors’ income from employment for 2013, 2014, and 2015 year to petition date was
$17,742, $45,368, and $1,405, respectively.12 Daniel works as a mixer driver at Kansas Sand
and Concrete, Inc., in Topeka, Kansas, and Karen is unemployed.13 Daniel currently earns gross
wages of $2,426.67 per month.14 From January 1, 2015, to April 18, 2015, Debtors received
$4,200 in unemployment income.15 Debtors’ combined monthly income, including $250 in food
stamps and a prorated tax refund of $400, is $2,847.16 Debtors’ monthly net income is $82 after
subtracting their minimal monthly expenses for a household of five.17 Debtors estimate a 2015
tax refund of $3,100 of which $1,700 is from the earned income tax credit.18

Debtors do not own any real property.19 Debtors list only $6,125 of personal property20
of which $5,250 is exempt.21 Debtors’ nonexempt property is: (a) $20 cash; (b) $5 with Quest
Credit Union; (c) $350 in bonds; and (d) an inoperable 2000 Dodge Ram with 175,000 miles
valued at $500 that needs over $2,000 in repairs.22 A Chapter 7 trustee would likely abandon
these nonexempt assets in a Chapter 7 case because they are not worth liquidating. Debtors’
exempt property is: (a) $850 deposit with their landlord; (b) $100 in miscellaneous household
items; (c) $150 in miscellaneous clothing; (d) $500 in miscellaneous jewelry; (e) two dogs; and

(f) two exempt vehicles consisting of a 2002 Ford Mustang valued at $2,900 with 106,000 miles
in fair condition and an inoperable 1999 Nissan Quest valued at $750 with 156,000 miles.23
Debtors’ liabilities consist of an $836 secured claim by Quest Credit Union on the 1999 Nissan
12 Doc. 1, at 4.
13 Id. at 36.


14 Id.
15 Id. at 4.
16 Id. at 37.
17 Id. at 39.
18 Id. at 18, ¶ 18.
19 Id. at 16.
20 Id. at 17–20.
21 Id. at 21.
22 Id. at 17–21.


23 Id.

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Quest and unsecured nonpriority claims of $10,138.24 Outside the Plan, the Debtors are making
direct payments of $30 per week on the 1999 Nissan Quest to Quest Credit Union.25 No secured
or priority debt is being paid through the Plan.26

Debtors’ Schedule F lists 44 nonpriority claims of which 27 are healthcare related.27
Claims against the Debtors for healthcare services total $4,865, or 48 percent of Debtors’
$10,138 unsecured nonpriority claims. Claims against the Debtors for utilities from Kansas Gas
Service and Westar Energy are $2,115, or over 20 percent of Debtors’ unsecured nonpriority
claims.28 Thus, 69 percent of Debtors’ unsecured nonpriority claims relates to basic necessities.
Debtors’ remaining unsecured nonpriority claims balance consists of: (a) $1,920 to Ad Astra
Recovery (Speedy Cash); (b) $215 on a charge account to Comenity Bank; (c) $380 to Eos Cca
(Century Link); (d) $173 to Eos Cca (AT&T Mobility); (e) $205 to Virtuoso (AT&T Wireless);
and (f) $265 to Unique National Collection.29 Schedule F shows only a single charge account
and very little consumer debt unrelated to basic or modest necessities for a household of five
with minor children. Debtors do not have any gambling debts.30 The instant bankruptcy filing is
not the result of overindulgence.

Since 2010, Debtors have faced at least three garnishment cases in Shawnee County,
Kansas, District Court.31 In 2015, American Medical Response sued Daniel to collect on their
debt in Shawnee County District Court.32 These garnishments led to the shut off of Debtors’
natural gas and electricity services.33 Debtors’ three minor children “had no hot water to take

24 Id. at 22 and 25–33.
25 Doc. 23, at 2.
26 Id., Doc. 2, Doc. 1, at 23–24 (Debtors list the Internal Revenue Service and Kansas Department of Revenue for
notice purposes only).
27 Doc. 1, at 25–33.
28 Id. at 30, 33.
29 Id. at 25–33.
30 Id. at 6 ¶ 8.
31 Doc. 30, at 3 ¶ e. 1.
32 Doc. 1, at 5 ¶ 4.
33 Doc. 30, at 3 ¶ g.


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showers, no electricity to refrigerate food or any means to cook.”34 Debtors’ circumstances were
such that they “may never have been able to accumulate the attorney fees on their own” to fund a
Chapter 7 filing.35 “Debtors do not have a history of incurring debts with no reasonable hope of
repaying them and then subsequently filing for bankruptcy.”36 Debtors’ expenses of $850 for
rent, $325 for utilities, $650 for food, $150 for clothing, and $300 for transportation and other
miscellaneous expenses are modest, but not unrealistic.37

 On August 17, 2015, the Trustee objected to confirmation under 11 U.S.C. §§ 1325(a)(3)
and (a)(7) 38 and moved to dismiss or convert Debtors’ case to Chapter 7.39 The Trustee admits
“the debtors appear to need relief” but asserts that “this is an attorney fee only case that does not
demonstrate ‘special circumstances’ to justify a Chapter 13.”40 The Trustee urges the Court to
find that the “inability to pay attorneys fees for the filing of a Chapter 7, does not constitute
‘special circumstances’ permitting the case to proceed as a Chapter 13.”41 Thus, the Trustee
requests the Court deny confirmation, dismiss the case, or convert the case to Chapter 7.42

Of note, the Trustee did not specifically object to feasibility or challenge the
reasonableness of the Debtors’ attorney’s fees of $2,800.

LAW

Chapter 13 contains two good faith requirements. Debtors must propose plans and file
petitions in good faith. Section 1325(a)(3) and (a)(7) provide:

(a) . . . [T]he court shall confirm a plan if—
. . .
34 Id.
35 Id. at 3 ¶ e (emphasis in original).
36 Id. at 1 ¶ 2.
37 Doc. 1, at 38–39.
38 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
39 Doc. 23.
40 Id. at 2 ¶ 5.
41 Id. at 9 ¶ 14.
42 Id. at 9 ¶ 15.


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(3) the plan has been proposed in good faith and not by any means forbidden
by law; . . .
(7) the action of the debtor in filing the petition was in good faith.43
Congress did not define good faith in subsections (a)(3) and (a)(7).44 The Tenth Circuit

has developed several non-exhaustive factors to examine good faith challenges. Included among

those factors are:

(1)
the amount of the proposed payments and the amount of the debtor’s surplus;
(2)
the debtor’s employment history, ability to earn and likelihood of future increases in
income;
(3) the probable or expected duration of the plan;
(4)
the accuracy of the plan’s statements of the debts, expenses, and percentage
repayment of unsecured debt and whether any inaccuracies are an attempt to
mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6)
the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable
in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform
Act;
(10) the motivation and sincerity of the debtor in seeking Chapter 13 relief; and
(11) the burden which the plan’s administration would place upon the trustee.45
The Trustee relies on In re Puffer46 to justify the Debtors’ need to show special

circumstances. However, as discussed infra,47 this is not required under the Code. The Tenth

Circuit and at least one Kansas Bankruptcy Court “look[] to the totality of the circumstances

surrounding each debtor’s filing to determine whether . . . [they] have filed their Chapter 13

bankruptcy plan in good faith, as required by 11 U.S.C. § 1325(a)(3).”48 “No one factor is

43 BAPCPA added § 1325(a)(7) in 2005.
44 WILLIAM J. MCLEOD, CHAPTER 13 IN 13 CHAPTERS 69 (M. Regina Thomas ed., 2009).
45 Flygare v. Boulden, 709 F.2d 1344, 1347–48 (10th Cir. 1983) (quoting United States v. Estus (In re Estus), 695
F.2d 311, 317 (8th Cir. 1982)) (defining good faith under § 1325(a)(3)). Notably, Congress amended the Code in
1984 to include the ability-to-pay test under § 1325(b). 8 COLLIER ON BANKRUPTCY ¶ 1325.11[1], at 1325-54 (Alan

N. Resnick & Henry J. Sommer, eds., 16th ed. 2016). “[T]he good faith inquiry now ‘has a more narrow focus.’” In
re Cranmer, 697 F.3d 1314, 1319 n.5 (10th Cir. 2012) (quoting Educ. Assistance Corp. v. Zellner, 827 F.2d 1222,
1227 (8th Cir. 1987)).
46 674 F.3d 78 (1st Cir. 2012).
47 Note 96.
48 In re Wark, 542 B.R. 522, 527 (Bankr. D. Kan. 2015). See MCLEOD, supra note 44, at 68 (stating that “[g]ood faith
is determined by considering the totality of the circumstances surrounding the filing of both the petition and the plan”).
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determinative, but it is the totality of the various factors and the facts of the particular case that
are considered.”49 Thus, Debtors need not show special circumstances justifying the filing of a
Chapter 13 plan over a Chapter 7 liquidation. “Only if there has been a showing of serious
debtor misconduct or abuse should a chapter 13 plan be found lacking in good faith.”50

The Court examines §§ 1325(a)(3) and (a)(7) simultaneously because the good faith
analysis under each subsection is the same—the totality of the circumstances.51

ANALYSIS

A. Debtors Filed Their Chapter 13 Petition and Chapter 13 Plan in Good Faith.
“The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest
but unfortunate debtor.’”52 However, the fresh start is not absolute. “The statutory provisions
governing nondischargeability reflect a congressional decision to exclude from the general
policy of discharge certain categories of debts—such as child support, alimony, and certain
unpaid educational loans and taxes, as well as liabilities for fraud.”53 Whether Debtors qualify
for a fresh start is not at issue as the Trustee admits Debtors need relief.54 Thus, the Court must
decide whether Chapter 13 relief is appropriate under the Code.

Chapter 13, commonly referred to as the wage earner chapter, is conceptually a personal
or individual reorganization. Individuals with regular income obtain a discharge of most prepetition
debt after successfully completing a court-approved payment plan.55 Debtors make plan
payments from “future earnings or other future income.”56 Conversely, under Chapter 7, “the

49 See MCLEOD, supra note 44, at 69 (emphasis added). See also In re Dicey, 312 B.R. 456, 459 (Bankr. D.N.H. 2004).
50 COLLIER, supra note 45, ¶ 1325.04[1], at 1325-17 (citations omitted).
51 Wark, 542 B.R. at 533 n.35.
52 Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (quoting Grogan v. Garner, 498 U.S. 279, 286, 287
(1991)).
53 Grogan v. Garner, 498 U.S. 279, 287 (1991).
54 Supra note 40.
55 Marrama, 549 U.S. at 367.
56 Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).


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debtor’s assets are immediately liquidated and the proceeds [are] distributed to creditors.”57
Chapter 13 allows the honest but unfortunate debtor time to reorganize her financial matters,
including curing pre-petition defaults on secured debt,58 curing defaulted leases,59 paying priority
claims over three to five years,60 and frequently—but not always—to provide a distribution to
general unsecured claimants who ordinarily receive little or nothing under Chapter 7. An
individual may not be forced into Chapter 1361 and she is at liberty to seek dismissal of her case
at any time.62 From its inception, Congress preferred Chapter 13 over Chapter 7.63

An important distinction lies between Chapters 13 and 7 in counsel’s ability to collect
attorney’s fees for debtors seeking competent representation. In Chapter 13, debtors may pay
their attorney’s fees through their plan over three to five years. In Chapter 7, debtors must pay
their attorney up front before filing and counsel cannot advise debtors to incur debt to pay for
representation.64 The reality is many debtors cannot afford Chapter 7’s upfront costs.

Most debtors that are contemplating chapter 7 are on the brink of economic
disaster. They have creditors harassing them, calling them nonstop, garnishing
wages and income tax returns, and seizing their vehicles to satisfy judgments.
These hardworking individuals simply do not have the extra funds to pay a
bankruptcy attorney up front in full to file a bankruptcy case to stop the
creditors.65

57 Id. at 1834. Of course, the Chapter 7 trustee does not ordinarily liquidate exempt assets.
58 § 1325(b)(5). See also In re Taddeo, 685 F.2d 24, 29 (2d Cir. 1982) (stating that “‘curing a default’ in Chapter 11
means the same thing as it does in Chapters 7 or 13: the event of default is remedied and the consequences are
nullified.”).
59 § 365.
60 §§ 507 and 1326(b)(1).
61 § 303. See also In re Harper-Elder, 184 B.R. 403, 408 (Bankr. D.D.C. 1995) (“Chapter 13 was intended to be purely
voluntary. . . .”).
62 § 1307(b).
63 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)). See
also In re Jackson, 2006 Bankr. LEXIS 4327, at *3 (Bankr. N.D. Ga. Mar. 16, 2006) (“Congress wanted more debtors
to file for relief under Chapter 13, rather than Chapter 7.”).
64 Wark, 542 B.R. at 531 n.27.
65 Amanda A. Page, Chapter 7 Attorneys’ Fees: Protecting Debtors While Ensuring Attorneys Get Paid,
http://www.abi.org/committee-post/chapter-7-attorneys%E2%80%99-fees-protecting-debtors-while-ensuringattorneys-
get-paid, AM.BANKR.INST. (Feb. 2, 2015-15:07).


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In Chapter 13 cases, “the court does not approve the employment of a chapter 13 debtor’s
counsel.”66 Thus, “[a] chapter 13 debtor may generally employ bankruptcy counsel without
filing an application to employ.”67 If the debtor’s case is converted to Chapter 7, debtor’s
counsel must seek employment by the Chapter 7 estate pursuant to § 327(e) if she wishes to be
paid by assets of the estate. Without such application, compensation may not be awarded.68

Unlike other bankruptcy attorneys, a Chapter 7 attorney has no right to compensation
under § 330.69 In Lamie, 70 the Supreme Court held that debtor’s Chapter 11 counsel could not
receive compensation post-conversion from chapter 7 estate funds unless she is employed by the
Chapter 7 estate. The result from Lamie71 is “that § 330(a)(1) does not authorize compensation
to a Chapter 7 debtor’s attorney from estate funds unless the attorney is employed by the trustee
under § 327.”72 This “creates severe problems for the debtor’s attorney.”73 Attorneys filing
chapter 7 petitions must collect fees pre-petition or risk a discharge of pre-petition fees.
However, Wagers74 found that retainers paid as an advancement on post-petition services must
be placed in a trust account and are not deemed earned until counsel performs those services.
The irony is that if debtor’s counsel procures a sufficient retainer, to the extent it is not used as of
the petition date, the balance is property of the estate subject to turnover to the trustee.75 On the
other hand, if an attorney in a Chapter 7 case does not receive a pre-filing retainer, then the

66 In re Bell, 212 B.R. 654, 657 (Bankr. E.D. Cal. 1997) (citing In re Fricker, 131 B.R. 932, 939–41 (Bankr. E.D. Pa.
1991)).
67 In re Arnold, 2008 WL 2224932, *1 (Bankr. S.D.Tex. 2008).
68 In re French, 111 B.R. 391, 393 (Bankr. N.D.N.Y. 1989).
69 William F. Stone, Jr., & Bryan A. Stark, The Treatment of Attorneys’ Fee Retainers in Chapter 7 Bankruptcy and
the Problem of Denying Compensation to Debtors’ Attorneys for Post-Petition Legal Services They Are Obliged to
Render, 82 AM.BANKR. L.J. 551, 552 (2008).
70 Lamie v. United States Trustee, 540 U.S. 526 (2004).
71 Id. at 538–39.
72 See Stone, supra note 69, at 554.
73 Richard I. Aaron, 1 BANKRUPTCY LAW FUNDAMENTALS § 15:51.
74 In re Wagers, 514 F.3d 1021 (10th Cir. 2007).
75 Id., In re Mansfield, 394 B.R. 783 (Bankr. E.D. Pa. 2008).


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unpaid fees associated with her pre-petition work are dischargeable.76 This disincentive to

competent bankruptcy counsel is profound. Further, it is also difficult and sometimes forbidden

for attorneys to solve Lamie77 issues by unbundling or limiting their scope of representation to

pre-petition or post-petition services for a Chapter 7 client.78

Under Chapter 13, attorney’s fees are allowed pursuant to § 330(a) as an administrative

expense described in § 503(b)(2). With the enactment of § 330, “Congress intended to provide

adequate compensation, on a par with that available in other areas of practice, to attract

competent counsel to the bankruptcy specialty.”79 The bankruptcy practice needs competent

attorneys as

[i]t is absolutely imperative that competent counsel be motivated to seek, accept
and ably handle Chapter 13 cases. That motivation starts with being fairly
compensated for the work they perform. The complexity and importance of the
work, alone, justify such compensation, but there are other reasons able counsel
are vital to the system. The most important reason is that this Court rather
routinely sees pro se debtors “give away” rights or property that they would
otherwise be legally entitled to retain because of their ignorance of the law.80

“[S]tudies show that debtors with legal representation tend to have a much higher success rate in

bankruptcy proceedings than pro se filers.”81 In one study, only 0.8 percent of post-BAPCPA

pro se debtors received a discharge.82 The same study found that “[n]ot one of the post-

BAPCPA cases filed with the assistance of a petition preparer ended in the debtor receiving a

discharge.”83 This Court also notes that even experienced non-bankruptcy attorneys who

76 Wagers, 514 F.3d at 1029–30; Rittenhouse v. Eisen, 404 F.3d 395 (6th Cir. 2005).
77 Lamie, 540 U.S. 526.
78 See e.g. DeLuca v. Seare (In re Seare), 515 B.R. 599 (B.A.P. 9th Cir. 2014) (unbundling or limited scope
representation must comply with the rules of ethics and the Bankruptcy Code based on a qualitative analysis of each
individual debtor’s case completed at intake to ensure that debtor’s reasonable goals and needs are being met); In re
Ruiz, 515 B.R. 362 (Bankr. M.D. Fla. 2014) (attorneys cannot pick and choose the services they provide to Chapter 7
debtors).
79 In re Commercial Consortium of California, 135 B.R. 120, 126 (Bankr. C.D. Cal. 1991).
80 In re Beck, 2007 Bankr. LEXIS 517, at *9 (Bankr. D. Kan. Feb. 21, 2007) (internal footnotes omitted).
81 Alexander F. Clamon, Per Se Bad Faith? An Empirical Analysis of Good Faith in Chapter 13 Fee-Only Plans, 30
EMORY BANKR.DEV. J. 473, 481 (2014).
82 Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, 20 AM.BANKR.INST.L.REV. 17, 81 (2012).
83 Id.


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themselves file for bankruptcy relief frequently hire bankruptcy counsel to navigate the Code’s
unique parameters. Fairly compensated counsel is beneficial to both debtors and the bankruptcy
bar because “attorneys must be zealous advocates for their clients while attempting to keep their
lights on in their own offices.”84 “[P]reserving the integrity of the bankruptcy system includes
encouraging, not discouraging, excellence in legal representation of consumer debtors.”85 “A
requirement that attorneys provide pre-petition representation for free or that debtors find family
members or friends to bankroll their case runs contrary to the priority structure outlined in
§§ 330, 503, and 507 and to the notion that debtors are entitled to competent and properly
compensated representation.”86

At issue is whether the Code permits Debtors to file under Chapter 13 in good faith when
allegedly the only reason they elected Chapter 13 is because they do not have the ability to pay
up front for representation in Chapter 7.87 Bankruptcy courts are divided on this issue. Courts in
New York, New Hampshire, and Massachusetts have rejected attorney-fee-only plans as contrary
to the spirit and purpose of the Code.88 However, three circuit courts have found that attorneyfee-
only Chapter 13 plans are not per se bad faith.89 Courts in North Carolina, New Mexico,
Wisconsin, Illinois, and Kansas have also upheld attorney-fee-only Chapter 13 plans.90

84 See Page, supra note 65 (emphasis in original).
85 Morgan D. King, Between the Charybdis of Biggar and the Scylla of Lamie: How Can a Debtor’s Lawyer Get
Paid?, 2004 No. 6 NORTON BANKR.L.ADVISER 2.
86 In re Busetta-Silvia, 314 B.R. 218, 228 (B.A.P. 10th Cir. 2004).
87 Of course, there are myriad benefits to filing a chapter 13 case, such as the super discharge, § 1303 powers, retention
of non-exempt property, and the binding effect of a confirmed Chapter 13 plan.
88 In re Paley, 390 B.R. 53, 59 (Bankr. N.D.N.Y. 2008); In re Dicey, 312 B.R. 456, 459–60 (Bankr. D.N.H. 2004); In
re Buck, 432 B.R. 13, 21–22 (Bankr. D. Mass. 2010).
89 In re Brown, 742 F.3d 1309 (11th Cir. 2014); In re Puffer, 674 F.3d 78 (1st Cir. 2012); Matter of Crager, 691 F.3d
671 (5th Cir. 2012).
90 See In re Banks, 545 B.R. 241 (Bankr. N.D. Ill. 2016) (finding special circumstances allowing debtor to file an
attorney fee-only Chapter 13 instead of a Chapter 7); In re Wark, 542 B.R. 522 (Bankr. D. Kan. 2015); In re Elkins,
2010 WL 1490585, at *3 (Bankr. E.D.N.C. Apr. 13, 2010) (stating that a Chapter 13 trustee should not summarily
object to the presumptive fees in a Chapter 13 case solely because the case is an attorney-fee-only case); In re Molina,
420 B.R. 825, 829–33 (Bankr. D.N.M. 2009); In re Guzman, 345 B.R. 640 (Bankr. E.D. Wis. 2006) (confirming
debtors’ plan showing no disposable income); In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006) (debtors acted
in good faith proposing a no projected disposable income plan).


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The Trustee cites three circuit cases—Puffer,91 Brown,92 and Crager93—and one Western
District of Missouri case—Arlen94—addressing good faith in attorney-fee-only Chapter 13 plans.
The First Circuit in Puffer determined that attorney-fee-only Chapter 13 plans are not per se bad
faith. Puffer noted that good faith under § 1325(a)(3) is analyzed based on the totality of the
circumstances and the debtor “carries a heavy burden of demonstrating special circumstances”
justifying their plan.95 Notably, the last component of this court-made rule is not found in the
Code and is not the law in the Tenth Circuit.96 Further, Law v. Siegel97 does not authorize this
Court “to recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”98
Thus, the court-created heightened confirmation standard in Puffer requiring ‘special
circumstances’ violates Law v. Siegel—bankruptcy courts do not legislate. “[C]ourts should not
overhaul the traditional good faith analysis when dealing with fee-only plans.”99 In assessing
good faith under §§ 1325(a)(3) and (a)(7), the Court need only apply a totality-of-thecircumstances
test.

The Eleventh Circuit in Brown100 affirmed the bankruptcy court’s denial of an attorneyfee-
only plan, applying a totality-of-the-circumstances approach. The Eleventh Circuit noted
that “the bankruptcy court did not apply a categorical rule prohibiting attorney-fee-centric or
attorney-fee-only chapter 13 plans.”101 Additionally, “[a] few months after denying Brown’s

91 In re Puffer, 674 F.3d 78 (1st Cir. 2012).
92 In re Brown, 742 F.3d 1309 (11th Cir. 2014).
93 Matter of Crager, 691 F.3d 671 (5th Cir. 2012).
94 In re Arlen, 461 B.R. 550 (Bankr. W.D. Mo. 2011). The Arlen Court found the record devoid of evidence supporting
confirmation of an attorney-fee-only plan.
95 674 F.3d at 83.
96 Wark, 542 B.R. at 527.
97 134 S. Ct. 1188 (2014).
98 Daniel J. Sheffner, The Chapter 13 Debtor’s Absolute Right to Dismiss, 63 CLEV.ST.L.REV. 833, 863 (2015).
99 See Clamon, supra note 81, at 473.
100 742 F.3d 1309.
101 Id. at 1318.


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Chapter 13 plan, the same bankruptcy judge confirmed an attorney-fee-centric Chapter 13
plan . . . .”102

 In Crager, the Fifth Circuit found that “[t]here is no rule in this circuit that a Chapter 13
plan that results in the debtor’s counsel receiving almost the entire amount paid to the Trustee,
leaving other unsecured creditors unpaid, is a per se violation of the ‘good faith’
requirement . . . .”103 The Crager bankruptcy court also noted “that it would ‘border on
malpractice’ for Crager’s attorney to advise her to file a Chapter 7.”104 Ultimately, applying the
totality-of-the-circumstances test, the court found the debtor’s filing responsible, given the
debtor’s circumstances.105

 In Missouri, Arlen106 held that “[a] Chapter 13 plan which pays only the administrative
expenses of the proceeding, primarily debtors’ counsel’s fees, and makes no payment to any
creditor, secured or unsecured, violates the spirit and purpose of Chapter 13 and is not proposed
in good faith.”107 This Court does not find Arlen persuasive. Instead, the Court finds Molina108
and Wark109 persuasive. In 2009, Molina found that a debtor in economic straits may file an
attorney-fee-only plan.110 Recently in Wark, another bankruptcy judge in this District confirmed
several attorney-fee-only plans, finding that the totality-of-the-circumstances test applies to
determine good faith under § 1325—specifically rejecting special circumstances as a piece of the
§ 1325 good faith inquiry.111 Further, “the ‘primary purpose of the good faith inquiry is to
determine under the totality of the circumstances of a case whether there has been an abuse of

102 Id. at 1318 n.7.
103 691 F.3d at 675–76.
104 Id. at 675.


105 Id.
106 461 B.R. 550.
107 Id. at 558.
108 420 B.R. 825.
109 542 B.R. at 530.
110 420 B.R. at 830–33.
111 542 B.R. 522, 527.


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the provisions, purpose, or spirit of Chapter 13.’”112 In referencing attorney-fee-only Chapter 13
cases, Wark noted:
Yes, there may be no distribution to unsecured creditors. Again, in a
perfect world, all debtors would file Chapter 13 plans and repay all their
debts, and no creditor would walk away empty handed. But we do not live
in that world.
Instead, this is a world where debtors are harassed by daily collection
calls for admittedly delinquent debts. Where they are repeatedly required
to miss work to attend a cattle call docket to explain why they haven’t paid
old medical bills. Where they cannot afford to keep the gas on, and feel
compelled to incur title or payday loans at exorbitant rates to feed their
families. Where their meager wages are reduced even further by
garnishments. Where they opt not to seek necessary medical care or take
prescribed medication because they cannot afford it. This is the world
these Debtors live in, and this real world sometimes requires bankruptcy,

even if the debtor cannot save enough to pay the up front [sic] attorney’s

fees required to file a Chapter 7.113

Courts rejecting attorney-fee-only Chapter 13 plans express concern that the filing itself
solely benefits the attorney—not the debtor. In Kansas, and in general, attorney’s fees in
Chapter 13 reorganizations are higher than Chapter 7 liquidations.114 Courts fear attorneys
choose Chapter 13 instead of Chapter 7 to secure higher fees and win the client when they cannot
otherwise afford Chapter 7’s upfront costs. This view is misplaced for two reasons. First, under
an attorney-fee-only plan, that attorney foregoes compensation should the debtor’s plan not be
confirmed. Additionally, confirmation does not mean that same attorney is off to the bank. That
attorney may not be fully compensated should the debtor’s plan collapse down the road.
Attorneys filing Chapter 7s do not face this risk. This is an important distinction as much of an
attorney’s time and effort is spent pre-petition and pre-confirmation driving a debtor’s plan to
confirmation. The reality is that lower income debtor’s cases are time consuming. Second,

112 Id. at 577–78 (citing In re Sandberg, 433 B.R. 837, 845 (Bankr. D. Kan. 2010)).
113 Id. at 578.
114 Id. at 531–33.


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money is worth more the sooner it is received—the time value of money.115 Securing a fixed fee
over three to five years is different than receiving that same guaranteed fee today. An attorney
solely out for herself would prefer receiving her fee up front. This is different than waiting to
see if a debtor’s three-to five-year payment plan comes to fruition. Allowing an attorney-feeonly
Chapter 13 plan gives debtors access to the automatic stay and fresh start “while fairly
compensating the attorney for the risk of nonpayment.”116

Chapter 13 cases are more work to prepare, are more involved, and expose a debtor’s
attorney to nonpayment. Frequently, a Chapter 13 bankruptcy is financially a losing proposition
for a debtor’s attorney. Most of an attorney’s work in the majority of Chapter 7 cases is
completed up front during the early stages of a case that generally closes within six months.
However, a Chapter 13 debtor’s attorney is obligated to her clients for three to five years during
which much can happen requiring additional attorney time. Chapter 13 debtors’ attorneys often
help their clients through payment defaults, repair or replacement of essential property such as
vehicles and household appliances, unemployment or underemployment, and medical bills. All
of this occurs after the debtor’s attorney successfully navigates plan confirmation but before the
attorney receives full payment through the plan.

Some believe that “success in chapter 13 can be looked at by the percentage of cases in
which a repayment plan is completed. With only a little over one-third of chapter 13 debtors
achieving plan completion, some may conclude that chapter 13 is a failure.”117 However, this is
not true in Kansas. Although it would not change the Court’s analysis, the Court notes that the
Chapter 13 process in Kansas works well.118 In Kansas, the Chapter 13 confirmation rate is more

115 The time value of money is the idea that money today is worth more than the same amount of money in the future
due to its present earning capacity.
116 See Clamon, supra note 81, at 483.
117 Ed Flynn, Chapter 13 Case Outcomes by State, 33 AUG.AM.BANKR.INST. J. 40, 78 (2014).
118 See Wark, 542 B.R. at 578.


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than 90 percent, compared to the national average of 70 percent from 2007–13.119 The Kansas
Chapter 13 plan completion rate exceeded 60 percent for the same time period.120 In 2013, 71
percent of Kansas Chapter 13 cases were closed by discharge compared with 45 percent
nationally.121 Nationally, only 36 percent of Chapter 13 debtors complete their plans.122 At less
than one percent, Kansas also posts one of the lowest refiling after dismissal rates in the
country.123

Under the totality of the circumstances, Debtors filed their petition and Plan in good faith
in accordance with §§ 1325(a)(3) and (a)(7). Section 1325(b)(1) also provides for plan
confirmation if the debtor commits all projected disposable income to the plan during the
commitment period. This suggests “that the percentage of repayment to general unsecured
creditors [is] not an issue of good faith.”124 Thus, the Code does not require a minimum
distribution to unsecured creditors as part of the §§ 1325(a)(3) and (a)(7) analysis as long as
Debtors comply with §§ 1325(b)(1) and § 1325(a)(4).

There is no doubt that Daniel and Karen need financial relief and their circumstances
demonstrate they qualify for Chapter 13. Garnishments caused utilities to terminate services,
leaving Debtors’ three minor children without hot water and electricity. Debtors are living dayto-
day on the financial outskirts of the economy. Chapter 13 affords Debtors immediate relief.
Debtors chose Chapter 13 after consulting with bankruptcy counsel because they could not
afford the Chapter 7 upfront filing costs. Debtors have no previous bankruptcies, there are no
inaccuracies in Debtors’ schedules, and no other statutory provisions prevent Chapter 13 relief.

119 Flynn, supra note 117, at 41.
120 Id. at 76.
121 The United States Department of Justice, Chapter 13 Trustee Data and Statistics,
https://www.justice.gov/ust/private-trustee-data-statistics/chapter-13-trustee-data-and-statistics.
122 Flynn, supra note 117, at 76.
123 Id. at 76.
124 See Clamon, supra note 81, at 489–90.


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The Court does not find any evidence that Debtors’ petition or Plan are an attempt to abuse or
game the provisions, purpose, or spirit of Chapter 13. The Court does not find the treatment of
Debtors’ unsecured creditors unfair as those creditors would receive the same under Chapter 7
because Debtors do not hold any nonexempt property that a Chapter 7 trustee would liquidate.

Importantly, the Code does not require a minimum distribution to general unsecured
creditors.125 Section 1325(a)(4) only requires general unsecured creditors to receive at least as
much as they would under a hypothetical liquidation. Additionally, unsecured creditors may fare
better in a Chapter 13 because Debtors must devote at least the next three years of income to
fund their Plan, and unsecured creditors may participate in any increased future earnings. Under
Chapter 7, unsecured creditors would not share in any increased earnings or post-petition
windfalls. Thus, unsecured creditors are not disadvantaged, and Debtors’ have shown their
petition and Plan comply with the good faith provisions of §§ 1325(a)(3) and (a)(7).

“[C]ourts have ‘repeatedly emphasized Congress’s preference that individual debtors use
Chapter 13 instead of Chapter 7.’”126 The Supreme Court has held that bankruptcy courts may
not “recognize exceptions to the Bankruptcy Code that are not statutorily authorized.”127 It is
ethical for attorneys to provide relief to their clients now and receive payment over time. Read
together with the aforementioned analysis, the Code does not prevent qualified debtors from
filing attorney-fee-only Chapter 13 plans.

125 § 1325(a)(4). See also Clamon, supra note 81, at 476 (“[T]he Code doesn’t necessarily require any repayment to
unsecured creditors in chapter 13.”).
126 In re Bateman, 515 F.3d 272, 279 (4th Cir. 2008) (quoting In re McDonald, 205 F.3d 606, 614 (3d Cir. 2000)).
127 See Sheffner, supra note 98, at 863. See also Law v. Siegel, 134 S. Ct. at 1194–97.

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B. Debtors’ Chapter 13 Attorney’s Fees Are Reasonable.
Under § 330, the Court finds that Debtors’ attorney’s fees of $2,800 are reasonable based
on the Court’s experience adjudicating Chapter 13 filings in the District of Kansas.128 Further,
the Trustee did not object to the reasonableness of Debtors’ attorney’s fees.

CONCLUSIONS OF LAW

Based on a totality of the circumstances, Debtors’ Chapter 13 petition and Plan were filed
in good faith in accordance with §§ 1325(a)(3) and (a)(7). Debtors need not make a showing of
special circumstances and nothing in the Code forbids attorney-fee-only Chapter 13 plans.

IT IS ORDERED that the Chapter 13 Trustee’s objection to confirmation is overruled
and his motion to convert or dismiss is denied.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
128 While the Kansas City Division has not established a baseline “no-look” Chapter 13 fee, the Topeka division in In
re Beck set the fee for an average Chapter 13 below-median income debtor case at $2,800 “unless the debtor is an
‘above-median debtor,’ . . . and unless counsel is required to file, for a repeat filer, a Motion to Extend the Automatic
Stay.” 2007 Bankr. LEXIS 517, at *22–28 (Bankr. D. Kan. Feb. 21, 2007). See also Judge Janice Miller Karlin,
Professional Fee and Expense Guidelines (January 7, 2010), http://www.ksb.uscourts.gov/index.php/chambers/judgekarlin/
312-professional-fee-and-expense-guidelines (last visited Apr. 21, 2016) (the presumptively reasonable fee for
an average Chapter 13 case for a below-median income debtor is $3,100, which includes $300 for end of the case
work).

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