KSB

15-21531 Doucet (Doc. # 47)

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

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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:

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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15-21340 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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15-20635 Fakhari (Doc. # 64)

In Re Fakhari, 15-20635 (Bankr. D. Kan. Feb. 23, 2016) Doc. # 64

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 22nd day of February, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

ALBOLFAZL FAKHARI, Case No. 15-20635
Debtor.

MEMORANDUM OPINION AND ORDER DENYING
RAYNE-STORM, LLC, STAY RELIEF


The Court considers the Motion for Relief from [Automatic] Stay (Doc. 27) and the
Memorandum in Support of Motion for Relief from [Automatic] Stay filed by Rayne-Storm Co.,
LLC (Doc. 41), and the Debtor Albolfazl Fakhari’s Objection thereto (Doc. 32). The parties
appear by counsel.1 The Court has reviewed the pleadings and considered oral arguments of
counsel. The Court is prepared to rule.

VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.

1 Debtor appears by his attorney, Colin N. Gotham of Evans & Mullinix, P.A., Shawnee, KS. Rayne-Storm Co., LLC,
appears by its attorney, Robert F. Flynn of The Flynn Law Firm, P.A., Kansas City, MO.

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§§ 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 § 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, 2013.2 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)(G). The parties do not object to venue or
jurisdiction.

BACKGROUND

The Debtor’s residence (Residence) and homestead (Homestead) 3 was damaged during a
storm.4 The majority of the damages and the repairs were to the roof of the Residence, and the
repairs were performed by Rayne-Storm, LLC. In 2012, Rayne-Storm sued Debtor for nonpayment
and costs. During 2014, a jury returned a verdict in favor of Rayne-Storm in the
amount of $19,129.44, less $5,000 that had been paid by Debtor to Rayne-Storm, and against
Debtor for a net judgment (prior to the assessment of costs) of $14,129.44 as damages for the
Debtor’s breach of contract and non-payment of the net sum owed for repairs to the Residence.
Rayne-Storm did not file a mechanic’s lien against the Residence, but elected to proceed with
litigation against the Debtor. The Debtor unsuccessfully asserted affirmative defenses and a
counterclaim against Rayne-Storm’s owner, facts which are not relevant to this Court’s analysis.
Subsequent to the jury verdict, the state court awarded Rayne-Storm $72,000.00 in attorney’s
fees and $350.50 in costs, for a total judgment of $86,479.94 (Judgment) with post-judgment
interest accruing thereon. Both the Residence and the lawsuit are located in Johnson County,

2 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2014).
3 The homestead exemption laws are remedial in nature and not an estate, the function of which is to protect debtor’s
interest in property, in this instance, the Debtor’s Residence. Rayne-Storm does not contest that Debtor’s Residence
is his homestead.
4 It is unclear from the record, but it appears that the storm damage occurred during 2011 or 2012.


-2


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Kansas. The initial journal entry that reflected the jury verdict in the amount of $14,129.44, plus
costs, was filed in the state court on September 19, 2014. Thereafter, Rayne-Storm filed a
motion for costs and attorney’s fees, upon which the state court entered judgment on January 13,
2015, for $72,000.00 in attorney’s fees plus $350.50 in court costs. 5 The Judgment was entered
in the same county in which the Residence is located.

This bankruptcy case was filed on April 2, 2015. The Debtor listed Rayne-Storm on
Schedule F as a general unsecured creditor in the amount of $86,479.44. On April 2, 2015,
Debtor’s counsel filed a Notice of Bankruptcy Filing in the state court proceeding, and a copy
thereof was served on Rayne-Storm’s counsel.6 The original Chapter 13 plan was confirmed by
this Court on June 26, 2015. Rayne-Storm did not file an objection to confirmation of the plan
and does not assert inadequate notice. Rayne-Storm did not timely file a proof of claim, but did
file a motion to file a proof of claim out of time,7 which this Court denied. Since Rayne-Storm
tardily filed its proof of claim, the Debtor objected to the proof of claim as untimely,8 which
objection this Court sustained.9

By virtue of Rayne-Storm’s prepetition garnishment of the Debtor’s wages, Rayne-Storm
attached and retained $379.83 of the Debtor’s post-petition wages after this case was filed.
Debtor’s counsel made demand upon Rayne-Storm for delivery of these funds as they constituted
property of the bankruptcy estate, and retention thereof was in violation of § 362(a) and § 542.
Rayne-Storm refused to turn over this property of the estate, and the Debtor on August 5, 2015,
filed a motion for contempt against Rayne-Storm, 10 which this Court heard on September 18,

5 Rayne-Storm sought total attorney’s fees in the amount of $120,000, which request was reduced by the state court
judge to $72,000.
6 See Doc. 21, Ex. 2.
7 Doc. 23.
8 Doc. 33.
9 Doc. 52.
10 Doc. 21.


-3


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2015. This Court directed that Rayne-Storm pay the post-petition wages to the Debtor and found
that Rayne-Storm’s actions were contemptuous and violated § 362(a)11 and § 542.12

Rayne-Storm did not file an objection to allowance of the Debtor’s Residence as his
homestead and the time to do so has passed. Hence, the exemption of the Residence as a
homestead is allowed.13

Rayne-Storm did not file a complaint to determine the dischargeability of the Judgment.

LEGAL ANALYSIS

In Chapter 13, the debtor has the exclusive right to file a plan.14 “The exclusive right on
the part of the debtor to file a Chapter 13 plan is in keeping with the voluntary nature of Chapter
13 relief.”15 Confirmation of a Chapter 13 plan is binding upon the debtor and his creditors,
regardless of whether the claim of a creditor is provided for by the plan and regardless of
whether the creditor has objected to, accepted, or rejected the plan. “Upon becoming final, the
order confirming a Chapter 13 plan represents a binding determination of the rights and liabilities
of the parties as ordained in the plan.”16 Even improper provisions in a confirmed plan are
binding.17 Silence or the failure to object, is acceptance of the debtor’s plan as to procedural and
legal challenges to the content of the plan, otherwise known as the “snooze, you lose” rule.18
Recognizing that Rayne-Storm does not have an allowed proof of claim, either general unsecured

11 Doc. 46.
12 The Court found that an award of attorney’s fees to Debtor under § 362(k) was warranted; that issue remains
pending.
13 Taylor v. Freeland & Kronz, 503 U.S. 638, 642 (1992).
14 8 COLLIER ON BANKRUPTCY ¶1321 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015).
15 8 COLLIER ON BANKRUPTCY ¶¶1321.01, 1321-2 and 1321-3.
16 See 8 COLLIER ON BANKRUPTCY, ¶1327.02[1], at 1327-3.
17See United Student Aid Funds, Inc., v. Espinosa, 559 U.S. 260, 275 (2010) (concluding that a provision in the
debtor’s confirmed Chapter 13 plan that discharged student loan interest in contravention of § 523(a)(8) was binding
on the student loan creditor even though the debtor did not comply with the procedural requisites to determine that
not discharging the student loan interest was an undue hardship on him).
18 Keith M. Lundin & William H. Brown, CHAPTER 13 BANKRUPTCY,4TH EDITION, § 229.1, Sec. Rev. Oct. 8, 2010,
www.Ch13online.com.


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or secured, it is nevertheless bound by the treatment afforded general unsecured creditors in the
Debtor’s confirmed plan, which provides:

14. GENERAL UNSECURED CREDITORS: General unsecured claims will be paid
after all other unsecured claims, including administrative and priority claims, from
Debtor’s projected disposable income in an amount not less than the amount those
creditors would receive if the estate of Debtor were liquidated under chapter 7 on the date
of confirmation pursuant to 11 U.S.C. § 1325(a)(4), the “best interest of creditors” test.19
Rayne-Storm in its Memorandum in Support of Motion for Relief from Stay (Doc. 41)
alleges that by virtue of the Judgment, it has a lien in the Debtor’s Residence, that the lien is
entitled to adequate protection, and that since the Debtor has little, if any, equity in this
Residence above the alleged lien, Rayne-Storm is not adequately protected, is entitled to relief
from the automatic stay, and may foreclose upon its judgment lien in state court. The infirmity
in this argument is that Rayne-Storm does not hold a lien or any other interest in the Residence.
The Debtor’s claimed homestead exemption has been allowed as a matter of law and may not be
collaterally attacked.

Section 522(b)(2) provides the statutory framework for exemptions under the
Bankruptcy Code. Under § 522(b)(2), a debtor may exempt any property which is
exempt under federal non-bankruptcy law or, alternatively, under the laws of the
state of the debtor's domicile. However, §§ 60–2312 prohibits Kansas citizens
from electing to use federal bankruptcy exemptions, with certain exceptions
inapplicable here.20

Importantly, it is the remedial protection afforded to Debtor’s Residence by virtue of its
status as his homestead that insulates the Residence from a judgment lien. It is axiomatic that
under Kansas law a judgment lien does not attach to a homestead unless the underlying

19 Doc. 5, at 10.
20 In re Kester, 339 B.R. 764, 768 (Bankr. D. Kan. 2005) (citations omitted), aff’d, 339 B.R. 749 (B.A.P. 10th Cir.
2006), certified question answered sub nom. Redmond v. Kester, 284 Kan. 209, 159 P.3d 1004 (2007), and aff’d,


493 F.3d 1208 (10th Cir. 2007).

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obligation falls within a narrow class of exceptions.21 The homestead exemption is codified at

K.S.A. § 60-2301, which provides:
A homestead to the extent of 160 acres of farming land, or of one acre within the
limits of an incorporated town or city, or a manufactured home or mobile home,
occupied as a residence by the owner or by the family of the owner, or by both the
owner and family thereof, together with all the improvements on the same, shall be
exempted from forced sale under any process of law, and shall not be alienated
without the joint consent of husband and wife, when that relation exists; but no
property shall be exempt from sale for taxes, or for the payment of obligations
contracted for the purchase of said premises, or for the erection of improvements
thereon. The provisions of this section shall not apply to any process of law
obtained by virtue of a lien given by the consent of both husband and wife, when
that relation exists.22

Further, “the homestead exemption codified in K.S.A. § 60-2301 originates in the Kansas

Constitution, which provides in relevant part:

A homestead to the extent of one hundred and sixty acres of farming land, or one acre
within the limits of an incorporated town or city, occupied as a residence by the family of
the owner, together with all the improvements on the same, shall be exempted from
forced sale under any process of law, and shall not be alienated without the joint consent
of husband and wife, when that relation exists; but no property shall be exempt from sale
for taxes, or for the payment of obligations contracted for the purchase of said premises,
or for the erection of improvements thereon: Provided, That provisions of this section
shall not apply to any process of law obtained by virtue of a lien given by the consent of
both husband and wife....” Kan. Const. Art. 15, § 9.23

“This constitutional remedy [homestead exemption] has been zealously guarded and

enforced by the courts of this state.”24 Exemptions in Kansas enjoy a liberal reading in favor of

the debtor.25 This is particularly true with respect to the Constitutional homestead exemption.26

The homestead exemption “was created to benefit families rather than creditors by protecting the

21 In re McCoy, 204 B.R. 62, 65 (Bankr. D. Kan. 1996); In re Lewis, 2007 WL 625723, at *3 (Bankr. D. Kan.); In re

Garstecki, 364 B.R. 95, 105 (Bankr. D. Kan. 2006).

22 Redmond v. Kester, 284 Kan. 209, 210-11 (2007) (emphasis added).

23 Kester at 211 (emphasis added).

24 Kester at 211.

25 Nohinek v. Logsdon, 6 Kan. App. 2d 342, 344 (1981).

26 Garstecki 364 B.R. at 100.
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family from the destitution caused by losing the family home.27 Even bad actors enjoy the rights
of the homestead exemption.28

The Debtor’s Residence is protected by the allowed homestead exemption, so the
question remains whether one of the homestead exceptions delineated in K.S.A. § 60-2301 and
the Kansas Constitution applies. The only argument made by Rayne-Storm is that a homestead
shall not be exempt from sale for the payment of obligations contracted “for the erection of
improvements thereon.” Rayne-Storm argues that the repairs it conducted to the Debtor’s
Residence constitute improvements to the Residence. This Court disagrees and the facts and
Kansas law demand that this Court reject Rayne-Storm’s argument.

Rayne-Storm has provided copies of the following documents from the state court case:
verdict forms exhibited as A, B, and C; journal entry filed on September 19, 2014, for returned
verdicts from the jury that enters a damage judgment of $14,129.44 against Debtor; and the
journal entry filed on January 13, 2015, that provides for the allowance of $72,000.00 as
reasonable attorney’s fees and $350.50 as court costs in Rayne-Storm’s favor against Debtor.
The problem with Rayne-Storm’s argument is that it did not erect improvements on the Debtor’s
Residence and Homestead, but repaired it, the latter of which is not an obligation that is as an
exception to the homestead exemption. This analysis is performed cognizant that “exceptions to
the Constitutional and statutory homestead exemption are to be strictly construed in favor of the
one claiming the exemption.”29

27 Kester at 217.
28 Id. at 218.
29 De Priest v. Ransom, 165 Kan. 147, 152, 154 (1948), finding that the homestead “erection of improvements”
exception applied to a creditor who constructed and completed two dwelling houses on debtor’s land (a portion of
which was debtor’s homestead); also stating in dicta that in order to prevail under the homestead exception, the
judgment creditor should include language in the judgment that specifies what portion of the judgment is for the
erection of improvements.


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While it is true that Rayne-Storm holds a judgment against the Debtor and that generally

judgments constitute “a lien on the real estate of the judgment debtor within the county in which

judgment is rendered,”30 without more, the judgment lien does not attach to a judgment debtor’s

homestead interest.31 Within another statutory context, the Kansas mechanic’s lien statutes have

been interpreted to exclude repairs from the definition of “improvement of the property.”

Black’s Law Dictionary most closely defines what is meant by use of the phrase
“improvement of the property” in K.S.A. 60-1101: “A valuable addition made to real
property (usually real estate) or an amelioration in its condition, amounting to more than
mere repairs or replacement, costing labor or capital, and intended to enhance its value,
beauty or utility or to adapt it for new or further purposes.” Black’s Law Dictionary 757
(6th ed. 1990).32

The text of the homestead exemption, combined with the rule that the homestead

exception is read in a manner most favorable to the owner, establishes that the “erection of

improvements” does not include repairs to the Residence. Rayne-Storm did not erect

anything--it repaired damage to the Residence. The state court pleadings and verdict forms

submitted to this Court refer to the repair of the Debtor’s Residence, and in no instance is

improvement to the Residence referenced. Such is reflected in Rayne-Storm’s Memorandum in

Support of Motion for Relief from Stay at footnotes 9, 10 and 11:

9 Exhibit A, ¶4; Exhibit C, p. 2 [Pretrial Order]
Plaintiff’s Legal Theories . . . Rayne and Fakhari entered into a
written contract for Rayne to repair damage to Fakhari’s home as
a result of storm damages to the residence. . . . . Rayne performed
work in a timely and workmanlike manner. Fakhari breached the
parties’ contract by unilaterally rescinding the contract onNovember 2, 2011[,] and by failing to pay the amount due to Rayne
under the terms of the contract . . . . Rayne furnished labor and
roofing materials--amongst other building materials--to Fakhari
with the reasonable expectation of being compensation [sic] for
the labor and all residential building materials it provided to

30 K.S.A. § 60-2202, Judgment Liens.
31 See supra note 21.
32 Haz-Mat Response, Inc. v. Certified Waste Svcs. Ltd., 259 Kan. 166, 175-76 (1996), defining improvement to
property within the context of Kansas mechanic’s lien laws at K.S.A. § 60-1101 et seq., Liens of Contractors. Of
course, the “erection of improvements” applies to the homestead exemption and should be even more narrowly
defined. Certainly if removal of hazardous waste is not an improvement of real property under the mechanic’s lien
statute, then repair of a damaged roof is not the “erection of improvements” under the homestead exemption.

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Fakhari. Fakhari benefited from the labor and residential building
materials in the form of a roof, attic, soffits, fascia, insulation,
drywall, and more.

10 Exhibit A, ¶4; Exhibit D, Jury Instruction 7: [Jury Instructions]
Rayne-Storm Co., LLC claims that it has been damaged in that:
There was a contract between Rayne-Storm Co., LLC and Abolfazl
Fakhari for Rayne-Storm Co., LLC to perform all storm-related
repairs that the homeowner’s insurance company would pay for;
While Rayne-Storm Co., LLC was performing the contract andalready had replaced the roof, Abolfazl Fakhari refused to let
Rayne-Storm Co., LLC finish the rest of the work; Rayne-Storm
Co., LLC did its work in a timely and workmanlike manner;
Abolfazl Fakhari breached the contract by refusing to let Rayne-
Storm Co., LLC finish its work, refusing to let Rayne-Storm Co.,
LLC correct any allegedly deficient work, failing to pay what he
owed under the contract [or at the very least pay for the work
Rayne-Storm Co., LLC had already completed]; Even if the
contract is not binding, Rayne-Storm Co, LLC conferred benefits on
Abolfazl Fakhari, Abolfazl Fakhari knew he was receiving those
benefits, and it would be unjust for Abolfazl Fakhari to avoid
paying the fair market value of what he received; Abolfazl Fakhariowes money to Rayne-Storm Co., LLC for the work Rayne-Storm
Co., LLC performed on his residence in the amount of $18,090.99
plus $3,752.10 for the contractual 15%cancelation fee.. . .” [sic]).

11 Claim 3-1, p. 5: [Although referred to as a journal entry, this appears

to be the jury verdict form.]

1.
Was there a contract between Rayne-Storm Co., LLC and
Abolfazl Fakhari?
.. Yes No
2.
Did Rayne-Storm Co., LLC perform the repairs to Abolfazl
Fakhari’s residence in a workmanlike manner?
..: Yes No
3.
Did Rayne-Storm Co., LLC perform the repairs to Abolfazl
Fakhari’s residence in a timely manner?

Yes No
4.
Did Abolfazl Fakhari material breach the contract with
Rayne-Storm?
..: Yes No
5. Did Rayne-Storm Co., LLC sustain damages as a result ofAbolfazl Fakhari's breach of the parties’ contract?

Yes No33
Now that the Debtor has filed bankruptcy, Rayne-Storm unsuccessfully attempts to

construe the Judgment for repairs as a liability arising from the erection of improvements on the

Residence. In the state court pleadings and the relevant verdict form, the work performed on

Debtor’s Residence is referred to as repairs. Now that the matter is before the Bankruptcy Court,

33 Doc. 41, at 5 (emphasis added).
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Rayne-Storm makes no mention of repairs but asserts that it improved the Residence. The order
of consolidation entered in the state court on September 13, 2012, specifically states: “Both
lawsuits concern the construction contract to repair damage at the home of defendant herein
and there are common issues of fact and law.” (Emphasis added.) The state court pretrial order
refers to repairs to the Debtor’s home, the jury instruction 7 refers to storm-related repairs to
Debtor’s Residence, and the verdict form refers to the performance of “repairs” on Debtor’s
Residence.34 Rayne-Storm pursued Debtor in the state court for non-payment of the repairs it
performed on the Residence and represented that its work on the Residence was in the form of
storm-related repairs. Here, Rayne-Storm attempts to redefine its cause of action, the jury
findings, and the Judgment entered in the state court case.35 Although Rayne-Storm’s judgment
was entered in the same county in which the Debtor’s Residence is located, the judgment lien
never attached to Debtor’s Residence by virtue of the homestead exemption.36 Since Rayne-
Storm does not possess a lien or any other interest in Debtor’s Residence, it is not entitled to
adequate protection as it does not hold a secured claim, and this Court denies the motion for
relief from automatic stay accordingly.

Rayne-Storm has not established grounds to grant relief from the automatic stay under
§ 362(d)(2) because it does not hold a lien or any interest in Debtor’s Residence. To the extent
relevant, the Debtor has plentiful equity above the mortgage lien, and the Residence is necessary
to an effective reorganization. Cause is not established under § 362(d)(1) because Rayne-Storm
does not have an interest in the Debtor’s Residence that warrants adequate protection. Rayne


34 In their arguments, the parties assume that the “home” referenced in the state court is the Debtor’s Residence.
35 The Debtor does not argue, and this Court does not so rule, but Rayne-Storm’s inconsistent position in the
bankruptcy case as to the nature of the work performed on the Residence may be barred by judicial estoppel.
36 See supra note 21.

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Storm is a general unsecured creditor, with a liquidated debt, albeit without an allowed claim,
that cannot establish cause for relief from the automatic stay.

Rayne-Storm further requests relief under § 362(d)(1) through this Court’s equitable
powers37 and argues that good faith may warrant granting Rayne-Storm relief from the automatic
stay. Rayne-Storm’s arguments in this venue should have been raised prior to confirmation of
the Debtor’s plan; having failed to object to the Debtor’s confirmed plan, it is improper to raise
the issue of good faith or lack thereof in the filing of the Debtor’s bankruptcy case or in the
proposed Chapter 13 plan.38 Confirmation of the plan operates as res judicata as to all issues and
arguments that should have been raised prior to confirmation. It is inappropriate for this Court to
exercise its equitable discretionary powers to grant relief from the automatic stay so late in the
game. And one would query, what exactly would be gained by this relief? Rayne-Storm does
not have a timely filed and allowed claim in this case or a lien on the Residence; Rayne-Storm
did not object to confirmation of the Debtor’s plan; Rayne-Storm violated the automatic stay by
not turning over funds of the estate to the Debtor or to the Trustee; Rayne-Storm did not object to
the dischargeability of its debt; and Rayne-Storm only held a general unsecured claim when this
case was filed. Rayne-Storm has unsuccessfully attempted, without argument as to the
distinction, to convert a state court judgment for damages arising from repair of the Residence to
a judgment for the erection of improvements on the Debtor’s Residence. However, as clearly
established, by virtue of the homestead exemption a judgment lien never attached to the
Residence.

37 This Court is not imparted with equitable powers to modify, disrupt or surcharge an allowed exemption. See Law

v. Siegel, 571 U.S. ---, 134 S. Ct. 1188 (2014).
38 See § 1325(a)(3) and (a)(7); see also 8 COLLIER ON BANKRUPTCY ¶1325.08.
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CONCLUSIONS OF LAW

Rayne-Storm’s motion for relief from the automatic stay to enforce an alleged judgment
lien against the Debtor’s Residence and Homestead is denied for lack of cause shown under
§ 362(d). Rayne-Storm’s state court judgment is for damages for breach of contract and the
unpaid obligation for repair of the Debtor’s Residence, as well as associated attorney’s fees and
costs, but not for the erection of improvements on the Debtor’s Residence and Homestead. Since
Rayne-Storm’s Judgment does not fall within one of the limited exceptions to the homestead
exemption set out in the Kansas Constitution39 and K.S.A. § 60-2301, Rayne-Storm does not
hold an interest, whether a lien or otherwise, in the Debtor’s Homestead. An obligation and the
judgment therefor that arise from repairs to a debtor’s residence that is his homestead does not
attach to the residence and is not an exception to the Kansas homestead exemption.

IT IS SO ORDERED.
###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
39 Kan. Const. Art. 15, § 9.

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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).

16.05.03 (Dugan) Order Overruling Trustee's Objection and Motion to Dismiss.docx
Case 15-21258 Doc# 34 Filed 05/03/16 Page 18 of 18



14-06018 Herman v. Brooks et al (Doc. # 40)

Herman v. Brooks et al, 14-06018 (Bankr. D. Kan. Feb. 2, 2016) Doc. # 40

PDFClick here for the pdf document.


 IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

 

 

In re:

 

Gary Wayne Brooks and

Linda Margaret Brooks, Case No. 13-22981

 Debtors. Chapter 7

 

 

Janice Herman,

 Plaintiff,

 

 v. Adv. Pro. No. 14-6018

 

Gary Wayne Brooks and

Linda Margaret Brooks,

 Defendants.

 

 

MEMORANDUM OPINION AND ORDER GRANTING IN PART

PLAINTIFF JANICE HERMAN’S MOTION FOR SUMMARY JUDGMENT

 

 Comes on for hearing Plaintiff’s Motion for Summary Judgment (MSJ).1 This is an
adversary proceeding in which Creditor-Plaintiff Janice Herman seeks nondischargeability of

1 Doc. 21. Plaintiff, Janice Herman, appears by her attorneys, Chris M. Troppito, Kansas City, MO, and Patrick J.
O’Hara, Springfield, IL, appearing pro hac vice. Defendants, Gary and Linda Brooks, appear pro se.


debts owed by Defendant-Debtors Linda M. Brooks and Gary W. Brooks pursuant to 11 U.S.C.
§§ 523(a)(2) and (4).2

2 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2014).

4 Circuit Court of Logan County (Illinois) Case No. 05L7.

5 Herman v. Hilton, 2013 IL App (4th) 120575-U, at 1 (internal citations omitted). Doc. 1-1, at 1.

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 § 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)(I). The parties do not object to venue or
jurisdiction.

FINDINGS OF FACT

 Janice Herman (Janice) and Linda Brooks are the daughters of Dortha and Marvin Hilton,
Sr., both of whom are deceased. Linda Brooks and Gary Brooks (the Brookses) are husband and
wife. In June 2005, Janice sued the Brookses in Illinois in her individual capacity and in her
capacity as the special representative of Dortha Hilton’s estate.4 Janice alleged Marvin Hilton
paid the Brookses $125,000 with the actual intent to hinder and delay a statutory custodial claim
held by Janice. On February 1, 2013, the Appellate Court of Illinois concluded that Janice,

. . . who took care of her completely disabled mother for the final three years of
her mother’s life, is the creditor for purposes of claims under the Uniform
Fraudulent Transfer Act, and therefore the amount corresponding to the value of
those caregiving services should have been awarded to plaintiff [Janice]
individually instead of to the mother’s estate.5


 On November 13, 2013, the Brookses filed for chapter 7 relief.6 The Brookses’ Schedule
F listed a $128,000 debt owed to Janice as an unsecured nonpriority claim resulting from a
“judgment awarded and sanction feess [sic] awarded.”7 The Brookses’ statement of financial
affairs indicate Janice was suing them for damages in Logan County, Illinois Circuit Court, Case
No. 2012-L-8 (the Pending Litigation).8

6 Doc. 1, Case No. 13-22981.

7 Doc. 1, at 14, Case No. 13-22981.

8 Doc. 1, at 23, Case No. 13-22981.

9 Doc. 1, Case No. 14-06018. Unless otherwise noted, future references to Doc. numbers are to pleadings filed in the
instant adversary proceeding, Case No. 14-06018.

10 Doc. 1, at 2 ¶ 5.

11 Doc. 1, at 4 ¶ 5.

12 Doc. 1, at 5 ¶ 4.

13 Doc. 1, at 6 ¶ 5.

14 Doc. 1, at 7 ¶ 5.

15 Doc. 1, at 8 ¶ 5.

 On February 7, 2014, Janice filed a six-count complaint9 seeking nondischargeability of
debts owed by the Brookses under §§ 523(a)(2) and (a)(4). Count I listed a $125,000 judgment
owed to Janice by Linda Brooks for:

. . . engaging as a transferee in a transaction constituting a fraudulent transfer to
avoid creditors pursuant to the Illinois Uniform Fraudulent Transfer Act, 740
Illinois Compiled Statutes 160/1 et seq., inasmuch as Defendant, LINDA
BROOKS, received fraudulently transferred property for inadequate consideration
so as to defraud Plaintiff, JANICE HERMAN, and which transfer was voided by
the Illinois Appellate Court for the Fourth Judicial District.10

 

The remaining five counts stem from the Pending Litigation. Count II is a cause of action
against the Brookses for willful breach of fiduciary duty.11 Count III is a cause of action against
Linda Brooks for willful fraudulent concealment.12 Count IV is a cause of action against Gary
Brooks for willful fiduciary concealment.13 Count V is a cause of action against Linda Brooks
for willful fraudulent concealment.14 Count VI is a cause of action against Gary Brooks for
sanctions of $2,626.75 awarded to Janice to cover her attorney’s fees resulting from Gary’s
submission of false pleadings to avoid service of process in the Pending Litigation.15


 On March 7, 2014, the Brookses filed an answer to the complaint.16 On Count I, they
admit the Illinois Appellate Court’s holding.17 However, the Brookses contest the
nondischargeability of the judgment under § 523(a)(2).18 The Brookses assert that Janice is not a
creditor and was not defrauded.19

16 Doc. 11.

17 See holding cited supra note 5.

18 Doc. 11, at 1 ¶ 3. The Brookses cite § 5239(a)(2) for nondischargeability. However, § 5239(a)(2) does not exist
under the Code. The Brookses’ citation is a typographical error and the Court treats the cite as one to § 523(a)(2).

19 Doc. 11, at 2 ¶ 5–6.

20 Doc. 11, at 2 ¶ 3–6.

21 Doc. 11, at 3 ¶ 3–5.

22 Doc. 11, at 3 ¶ 3–6.

23 Doc. 11, at 3–4, ¶ 4–5.

 On Count II, the Brookses contest all substantive allegations. The Brookses allege they
did not have a fiduciary duty to fulfill, Janice did not file a custodial claim, and Janice was not a
creditor at the time of transfer.20

 On Count III, the Brookses contest all substantive allegations. The Brookses allege there
was no fraudulent concealment, Janice was not a creditor, Gary Brooks was not involved with
the transfer, and that property was not transferred to defraud any creditors.21

 On Count IV, the Brookses contest all substantive allegations. The Brookses allege they
did not work together to defraud Janice, Gary Brooks was not involved with the transfer, Gary
Brooks had no fiduciary responsibilities, and Linda Brooks is in the final stages of colon
cancer.22

 On Count V, the Brookses assert that: (a) no fraud was intended; (b) Janice was not a
creditor at the time of transfer; (c) Janice filed her fraudulent transfer action prematurely; (d) the
property was transferred back to Janice; and (e) Janice sold the property below fair market
value.23


 On Count VI, the Brookses assert that they: (a) don’t understand the nature of the
sanctions; (b) are unaware how Janice received sanctions against Gary Brooks; and (c) “never
received any paperwork on this matter.”24

24 Doc. 11, at 5 ¶ 5–6.

25 Doc. 11, at 5.

26 Doc. 21.

27 Doc. 24.

28 Doc. 26.

29 Doc. 28.

30 Doc. 35.

31 Doc. 35, at 3 ¶ 2.

 Additionally, the Brookses assert their frustration with Janice, their financial condition,
the Pending Litigation, and their poor health.25

 On May 20, 2014, Janice filed her MSJ26 requesting nondischargeability of the debts
identified in her complaint and a stay of this Court’s adjudication of Counts II–VI (the Pending
Litigation debts) until the Pending Litigation was finalized.

 On July 28, 2014, Janice filed a stay relief motion to proceed with the Pending
Litigation.27 The Brookses objected due to their poor health and lack of financial resources.28
The stay relief motion was heard on September 18, 2014, and an order conditionally granting the
motion was entered September 24, 2014.29 The motion was granted for the limited purpose of
proceeding with the Pending Litigation related to the MSJ in the instant proceedings.

 On April 14, 2015, Janice filed a supplemental status report indicating Defendants
committed fraudulent misrepresentation and breached their fiduciary duties owed to the Plaintiff
in the Pending Litigation.30 As a result of the adjudication of the Pending Litigation, the Logan
County Circuit Court found, among other things, that:

Plaintiff [Janice] has been judicially determined (by the Appellate Court Fourth
District in Case No. 4-10-0735) to be a creditor in the amount of $125,000 . . . .31

 


[Actions by the Brookses] constitute[], as a matter of law, fraudulent concealment
by Defendant Linda Brooks and aiding and abetting fraudulent concealment by
Defendant Gary Brooks.32

32 Doc. 35, at 6 ¶ B.

33 Doc. 35, at 6 ¶ C. The Logan County Circuit Court defined executor de son tort as an “executor of his own wrong,
is a person who without any authority intermeddles with the estate of a decedent, and does such acts as properly
belongs to the office of executor or administrator, and thereby becomes a sort of quasi executor, although only for
purposes of being sued or made liable for the assets with which he had intermeddled. Having assumed a representative
character, he cannot deny it, and on that account has all the liabilities of an executor, but he acquires none of the rights
or privileges which belong to the office.” Grace v. Seibert, 235 Ill. 190, 192–3 (1908) (citations omitted).

34 Doc. 35, at 6–7 ¶ D.

35 Doc. 35, at 7 ¶ E.

36 Doc. 35, at 7.

37 Doc. 35, at 7–8.

 

The Defendants Linda Brooks and [Gary] Brooks took it upon themselves to
willfully take possession of, and distribute, assets of the estate of Marvin Hilton.,
Sr., while wholly disregarding the strictures of the Illinois Probate Act. As such,
Defendants Linda Brooks and Gary Brooks, were, and are, as a matter of law,
executors de son tort.33

 

Defendants Linda Brooks and Gary Brooks owed, and continue to owe, a
fiduciary duty to Plaintiff Janice Herman, as a creditor of the estate of Marvin
Hilton Sr., to preserve the estate assets and to distribute them pursuant to probate
proceedings according to 755 ILCS 5/1-1.34

 

Defendants Linda Brooks and Gary Brooks breached their respective fiduciary
duties owed to Plaintiff Janice Herman, as a matter of law, by failing to comply
with 755 ILCS 5/1-1 and taking possession of, and distributing, assets of the
estate of Marvin Hilton Sr.35

 

[It was the ruling of the Logan County Circuit Court that] Defendants LINDA
BROOKS and GARY BROOKS committed fraudulent misrepresentation by
concealment . . . by preparation and submission of false small estate affidavits that
failed to disclose known creditors of the estate, including Plaintiff JANICE
HERMAN.36

 

That Defendants LINDA BROOKS and GARY BROOKS breached their
fiduciary duties as a matter of law by: a) Failing to act with prudence in
marshaling and preserving the estate assets of the estate of Marvin Hilton, Sr.;
b) Failing to notify the creditors of the estate of Marvin Hilton, Sr.; c) Failing to
act with loyalty to the creditors, including Plaintiff, and to the beneficiaries of the
estate of Marvin Hilton, Sr., by distributing and/or confiscating and expending the
assets of said estate without notice or legal authority; d) Conducting themselves in
a manner that resulted in a patent conflict of interest in that they acted in a self-
serving manner in distributing or confiscating assets of the estate of Marvin
Hilton, Sr., to themselves and to others without legal authority and with prejudice
to the creditors, including Plaintiff, of the estate of Marvin Hilton, Sr.37


 Linda Brooks passed away in April of 2015.38

38 Doc. 16, Case No. 13-22981. “Death . . . of the debtor shall not abate a liquidation case under chapter 7 of the Code.
In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though
the death . . . had not occurred.” FED. R. BANKR. P. 1016.

39 Doc. 36.

40 Doc. 38.

41 Doc. 38, at 2.

42 Doc. 38, at 3.

43 FED. R. CIV. P. 56. is applicable to adversary proceedings pursuant to FED. R. BANKR. P. 7056.

44 Magnus, Inc. v. Diamond State Ins. Co., 545 F. App’x 750, 752 (10th Cir. 2013) (citation omitted).

 On May 21, 2015, this Court entered an order allowing Janice 30 days to
supplement her memorandum of law in support of her MSJ and granted the Brookses 21
days thereafter to file and serve a response pursuant to D. Kan. LBR 7056.1(f).39

 On June 9, 2015, Janice filed a supplemental memorandum of law in support of
her MSJ.40 Janice asserts that the Illinois Appellate Court’s judgment regarding Linda
Brookses’ fraudulent conduct is res judicata.41 Janice additionally asserts that the
findings and ruling in the Pending Litigation “operate to collaterally estop Defendant
Gary Brooks from avoiding an order of nondischargeability regarding the $125,000 debt
owed to Plaintiff.”42 Janice moved for summary judgment on Counts II, IV, and VI and
asserts the pleadings establish the $125,000 debt is nondischargeable under §§ 523(a)(2)
and (a)(4). Gary Brooks did not respond to Janice’s supplemental memorandum.

LAW

A. SUMMARY JUDGMENT STANDARD


 Summary judgment is appropriate when the movant shows that there is “no genuine issue
as to any material fact” and that the movant is “entitled to a judgment as a matter of law.43 All
justifiable inferences must be drawn in favor of the nonmoving party to determine whether a
genuine dispute as to a material fact exists.44 Summary judgment is appropriate if the
nonmoving party “fails to make a showing sufficient to establish the existence of an element


essential to that party’s case.”45 The moving party bears the initial burden of demonstrating an
absence of a genuine issue of material fact and entitlement to judgment as a matter of law.46 If
the movant meets its initial burden, then the nonmoving party cannot simply rely on its
pleadings. The burden then shifts to the nonmoving party to go beyond the pleadings and “set
forth specific facts” that would be admissible as evidence at trial.47

45 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

46 Id. at 322–23.

47 Williamson v. Whiteman (In re West), 384 B.R. 872, 877–78 (Bankr. D. Kan. 2008) (quoting Thom v. Bristol-
Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003)).

48 Doc. 26.

B. NONDISCHARGEABILITY UNDER §§ 523(a)(2) AND (a)(4).


 Janice’s dischargeability claim against the Brookses arises from §§ 523(a)(2) and (a)(4).
Section 523(a)(2) and (a)(4) provide:

(a) A discharge under section 727 . . . of this title does not discharge an 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 . . . financial condition;

(B) use of a statement in writing—

(i) that is materially false;

(ii) respecting the debtor’s . . . financial condition;

(iii) on which the creditor to whom the debtor is liable for such money,
property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to
deceive; . . .

(4) for fraud or defalcation while acting in a fiduciary capacity,
embezzlement, or larceny.

 

ANALYSIS

 The Brookses’ response to Janice’s MSJ is deficient. The Brookses’ response,48 a letter to
the Court, contains no legal arguments, supporting citations, and only references the record by
including the name of Janice’s MSJ. The letter signed by the Brookses states they are:

. . . objecting to the motion above [the MSJ] as we have no monies, we owe
$93,000.00 on our home.. [sic] I receive $850.00 a month on social security. We


have no assets. Linda is in the final stages of colon cancer and only have [sic]
13% lung capacity.

 

Gary also has many medical problems and is in very bad health as well. The only
thing we have is a pick up truck and this is used to transport our oxygen to get to
the doctor, Linda’s wheelchair, Gary’s scooter. It is the only vehicle we can use as
it has never been smoked in and I cannot be around any smoke. We are objecting
to the motion under these circumstances.

 

 Federal Rule of Civil Procedure 56 requires a party asserting that a fact is disputed must
support their assertion by citations to the record or by showing that the materials cited by the
movant do not support the facts.49 “[T]he non-movant then must either establish the existence of
a triable issue of fact under Fed. R. Civ. P. 56 or explain why he cannot . . . under Rule 56.”50
The Brookses have not complied with this requirement as their response was not supported by
citations to the record and does not challenge any of Janice’s assertions regarding
dischargeability. Therefore, the Court is permitted to “consider the fact[s] undisputed for
purposes of the motion”51 and “grant summary judgment if the motion and supporting
materials—including the facts considered undisputed—show that the movant is entitled to it.”52

49 FED. R. CIV. P. 56(c).

50 Diaz v. The Paul J. Kennedy Law Firm, 289 F.3d 671, 674–75 (10th Cir. 2002) (quoting United States v. Simons,
129 F.3d 1386, 1388–89 (10th Cir. 1997) (citations omitted)).

51 FED. R. CIV. P. 56(e)(2).

52 FED. R. CIV. P. 56(e)(3).

 Further, the same result is required under District of Kansas Local Bankruptcy Rule
7056.1. Rule 7056.1 requires the allegations in the Brookses’ response to “be presented by
affidavit, declaration under penalty of perjury, and/or through the use of relevant portions of
pleadings, depositions, answer to interrogatories and responses to requests for admissions.” Rule
7056.1(a) states that the “court will deem admitted for the purpose of summary judgment, all
material facts contained in the statement of the movant unless the statement of the opposing
party specifically controverts those facts.” Under Rule 7056.1, the Brookses’ response is


inadequate as they fail to support their allegations with any record citation or affidavit and fail to
controvert Janice’s factual statements.

 Additionally, the Brookses failed to respond to Janice’s supplemental memorandum of
law in support of her MSJ.53 The time for filing a response has passed and the Brookses did not
seek an extension. Further, D. Kan. Rule 56.1(a) provides that “[a]ll material facts set forth in
the statement of the movant will be deemed admitted for the purpose of summary judgment
unless specifically controverted by the statement of the opposing party.”54 Therefore, the facts
contained in Janice’s supplemental memorandum of law in support of her MSJ are deemed
admitted because the Brookses failed to controvert those facts.

53 This pleading was filed after Linda passed; however, Gary did not file a response. Regardless, this does not change
the collateral estoppel effect of the judgment entered in the Pending Litigation.

54 D. Kan. Rule 56.1(a) is adopted and incorporated into this Court’s Local Rules at D. Kan. LBR 1001.1(a).

55 West, 384 B.R. 872, 878 (Bankr. D. Kan. 2008) (quoting Reynolds v. Delmar Gardens of Lenexa, Inc., 2003 WL
192481, at *2 (D. Kan. 2003).

56 Doc. 21-1.

57 See, e.g., Garrett v. Selby Connor Maddux & Janer, 425 F.3d 836, 840 (10th Cir. 2005) (“Although a pro se litigant’s
pleadings are to be construed liberally and held to a less stringent standard than formal pleadings drafted by lawyers,
this court has repeatedly insisted that pro se parties follow the same rules of procedure that govern other litigants.”)
(internal quotations and alterations omitted).

 D. Kan. Rule 7.4 authorizes the Court to grant the MSJ without any further notice to the
Brookses. However, “[a] party’s failure to respond to a summary judgment motion is not a
sufficient basis on which to enter judgment against the party.”55 Therefore, the Court reviewed
Janice’s memorandum supporting her MSJ56 to make an independent determination that there is
a factual and legal basis for granting the requested relief.

 The Brookses’ pro se status does not relieve them of their responsibilities to follow
procedural requirements.57 Thus, the Court deems admitted Janice’s uncontroverted statements
of fact for the purpose of assessing her MSJ.

 


A. COUNT I, II, AND IV: THE BROOKSES’ DEBT OF $125,000 TO JANICE
HERMAN IS NONDISCHARGEABLE UNDER § 523(a)(4), BUT NOT
§ 523(a)(2)).


 

 The Code “has long prohibited debtors from discharging liabilities incurred on account of
their fraud, embodying a basic policy animating the Code of affording relief only to an ‘honest
but unfortunate debtor.’”58 However, “exceptions to discharge are narrowly construed, and
because of the fresh start objectives of bankruptcy, doubt as to the meaning and breadth of a
statutory exception is to be resolved in the debtor’s favor.”59 The standard of proof in § 523
actions is by the preponderance of evidence.60

58 Cohen v. De La Cruz, 523 U.S. 213, 217 (1998) (citations omitted); see also Grogan v. Garner, 498 U.S. 279, 286
(1991) (“[A] debtor has no constitutional or ‘fundamental’ right to a discharge in bankruptcy.”).

59 DSC Nat’l Properties, LLC v. Johnson (In re Johnson), 477 B.R. 156, 168 (B.A.P. 10th Cir. 2012) (internal
quotations and alterations omitted).

60 Horejs v. Steele (In re Steele), 292 B.R. 422, 424 (Bankr. D. Colo. 2003) (citing Grogan v. Garner, 498 U.S. 279,
286 (1991)).

61 Johnson, 477 B.R. at 169.

62 Id.

63 Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1375 (10th Cir. 1996) (internal quotations and citations
omitted).

 Under § 523(a)(2), Janice must prove that: (1) the Brookses made a false representation;
(2) the Brookses made the representation with the intent to defraud; (3) Janice relied on that
representation; (4) Janice’s reliance was justifiable; and (5) the Brookses’ representation caused
Janice to sustain a loss.61 The Brookses “must have acted with subjective intent to deceive”
Janice.62 Intent to deceive is inferred from the totality of the circumstances or “from a
knowingly made false statement.”63

 Here, the uncontroverted facts do not establish nondischargeability under § 523(a)(2).
Janice establishes that the Brookses made a fraudulent transfer to avoid creditors under the
Illinois Uniform Fraudulent Transfer Act and there was a breach for misappropriation and
unauthorized distribution of assets. However, Janice does not specifically allege or show that
she relied on a false representation made by the Brookses resulting in a loss as required under §


523(a)(2). Instead, the facts show the Brookses’ fraud while acting in a fiduciary capacity
resulting in nondischargeability under § 523(a)(4).

 Janice carries her burden under § 523(a)(4) to except the $125,000 debt from discharge.
Section 523(a)(4) excepts a debt from discharge “for fraud or defalcation while acting in a
fiduciary capacity.”64 For Janice to prevail on her MSJ under § 523(a)(4), she needs to show a
relationship between the Brookses and herself such that the Brookses owed her a fiduciary
duty.65 Janice must also show that the Brookses breached that duty causing her damages.66

64 11 U.S.C. § 523(a)(4).

65 Steele, 292 B.R. at 426.

66 Id.

67 Young, 91 F.3d at 1371.

68 Steele, 292 B.R. at 426 (quoting Young, 91 F.3d at 1371).

69 Duggins v. Bratt (In re Bratt), 489 B.R. 414, 426–27 (Bankr. D. Kan. 2013).

 Whether a fiduciary relationship exists is determined under federal law.67 However,
Illinois state law is relevant to the instant inquiry. A fiduciary relationship arises under
§ 523(a)(4) when an express or technical trust is present.68 Section § 523(a)(4):

. . . contemplates a trust relationship that is narrower than the general duty of one
in a fiduciary relationship. It may be an express trust, defined in a written or oral
agreement that created the relationship and identified the property held in trust
(the res), the trustee, and the trustee's duties with respect to the res. Or, it may be
a technical trust that is imposed by statute. The statute must define the res, spell
out the fiduciary duties of the party to whom the trust property is entrusted, and
the trust must have arisen on the res before the debtor took the action that created
the debt. The trust relationship must be imposed by the law rather than implied
from it.69

 

 The Brookses breached their fiduciary duty to Janice arising from a technical trust under
the Illinois Uniform Fraudulent Transfer Act. The Logan County Circuit Court found that:
(a) the Fourth District Illinois Appellate Court held that Janice is a creditor in the amount of
$125,000; (b) the Brookses committed fraudulent concealment; (c) the Brookses disregarded the
Illinois Probate Act and were executors de son tort; (d) the Brookses owed a fiduciary duty to


13
16.02.01 Order Granting MSJ In Part
Janice—as a creditor of Marvin Hilton’s estate; and (e) the Brookses breached their fiduciary
duties owed to Janice as a matter of law.70 Further, the Brookses committed fraudulent
misrepresentation by concealment when they failed to disclose Janice as a creditor.71 Therefore,
the motion for summary judgment on Count I is granted because the Brookses breached their
fiduciary duty to Janice resulting in nondischargeability of the related $125,000 debt under
§ 523(a)(4).
The aforementioned facts also require granting summary judgment as to Counts II and IV
because the Brookses breached their fiduciary duty and committed fiduciary concealment.
B. COUNT VI: GARY BROOKS’ DEBT OF $2,626.75 TO JANICE HERMAN IS
DISCHARGEABLE UNDER § 523(a)(2).
A finding of nondischargeability under § 523(a)(2) requires Janice to prove that: (1) Gary
made a false representation; (2) Gary made the representation with the intent to defraud;
(3) Janice relied on that representation; (4) Janice’s reliance was justifiable; and (5) Gary’s
representation caused Janice to sustain a loss.72 The facts easily establish that Janice met
requirements one and five. Gary did submit a false affidavit and that submission caused Janice
to incur $2,626.75 of unnecessary attorney’s fees. The second prong is not as easy as the facts
do not clearly explore Gary’s motive for submitting false and fraudulent pleadings. However,
the Court need not explore Gary’s intent as the facts fail to establish satisfaction of elements
three and four. The record indicates that as a consequence of Gary’s false submissions:
Plaintiff’s [Janice’s] counsel was required to research the law regarding
amenability to process; communicate with his client, Plaintiff Janice L. Herman;
contact and communication with Shane Hilton, the nephew of Defendant Gary
Brooks; prepare an affidavit of Shane Hilton; prepare a Response to the motion
and affidavit of Defendant Gary Brooks; and appear in Court to argue said
motion.73
70 See supra notes 26–30.
71 See supra p. 6.
72 See supra note 64.
73 Doc. 1-5, at 1 ¶ 4.
Case 14-06018 Doc# 40 Filed 02/01/16 Page 13 of 15

 

The facts fail to show Janice’s reliance on Gary’s fraudulent representations. In fact, Janice did
not rely on Gary’s submissions and instead investigated his veracity. Because element three is
not met, element four is moot.

C. COUNTS III & V: ORDER TO SHOW CAUSE WHY COUNTS III & V
AGAINST LINDA BROOKS SHOULD NOT BE DISMISSED.


 

 Janice’s original MSJ requested this Court’s abstention on Counts III and V until the
Logan County, Illinois Circuit Court resolved the Pending Litigation.74 The Pending Litigation
was resolved on March 6, 2015.75 On June 9, 2015, Janice omitted Counts III and V from her
supplemental memorandum of law in support of her MSJ.76 In Counts III and V, Janice alleged
Linda Brooks committed willful fraudulent concealment. Linda Brooks passed in April of 2015.
However, Counts III and V are still before the Court. Therefore, the Court orders that Janice
show cause why Counts III and V should not be dismissed.

74 Doc. 21.

75 Doc. 35.

76 Doc. 38.

77 Doc. 21.

CONCLUSIONS OF LAW

 

 There are no genuine issues of material fact regarding the events set forth above. Based
on the foregoing analysis, the Court finds that the debt of $125,000 owed to Plaintiff, Janice
Herman, by Defendants, Gary Brooks and Linda Brooks, is nondischargeable under § 523(a)(4).
The Court grants Plaintiff’s motion for summary judgment77 in part as follows:

(a) The Court grants Plaintiff Janice Herman’s motion for summary judgment on Counts
I, II, and IV.
(b) The Court denies Plaintiff Janice Herman’s motion for summary judgment on Count
VI.



 IT IS ORDERED that Plaintiff Janice Herman’s motion for summary judgment is
GRANTED in part as set out above.

 IT IS FURTHER ORDERED that Plaintiff Janice Herman SHOW CAUSE by written
response due within 20 days of this order why Counts III and V should not be entitled to
summary judgment or dismissed. Gary Brooks shall file a response to the aforementioned Show
Cause Order response within 40 days of this order. This Court may, in its discretion, set any
response to this Order to Show Cause for hearing.

 

 IT IS SO ORDERED.

###

 

ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE

DISTRICT OF KANSAS

 



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