FILED MAR 24 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. CC-21-1178-LTF ALICIA MARIE RICHARDS, Debtor. Bk. No. 8:21-bk-10635-ES
ALICIA MARIE RICHARDS, Appellant, v. MEMORANDUM∗ RICHARD A. MARSHACK, Chapter 7 Trustee; RYAL W. RICHARDS; KEVIN E. ROBINSON, Appellees.
Appeal from the United States Bankruptcy Court for the Central District of California Erithe A. Smith, Bankruptcy Judge, Presiding
Before: LAFFERTY, TAYLOR, and FARIS, Bankruptcy Judges.
INTRODUCTION
Alicia Richards appeals the bankruptcy court’s denial of her motion
to convert her chapter 7 1 case to one under chapter 13. Ms. Richards filed
∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532. 1 the motion shortly after the chapter 7 trustee began marketing
Ms. Richards’ residence. The bankruptcy court denied the motion on
grounds of bad faith and because Ms. Richards lacked sufficient regular
income to fund a chapter 13 plan. We AFFIRM.
FACTS 2
Ms. Richards filed a chapter 7 bankruptcy petition in March 2021.
Appellee Richard A. Marshack was appointed chapter 7 trustee
(“Trustee”). This was Ms. Richards’ second bankruptcy filing. She had
previously filed a chapter 13 case in May 2019 but was unable to propose a
confirmable plan, and the bankruptcy court dismissed it in October 2019.
On her initial schedules, Ms. Richards listed her residence located in
Newport Beach, California (the “Property”). In the space provided for the
value of the Property, she wrote, “tbd.” She included on Schedule B
amounts she was owed for family support totaling $288,000, claims against
third parties of $1 million, and contingent and unliquidated claims of
$1 million. On Schedule D, Ms. Richards listed several claims purportedly
secured by the Property, including a claim for $375,000 payable to herself,
as well as several disputed judgment liens. On Schedule E, she listed a
priority unsecured claim held by the Remsen Family Trust (the “Family
Trust”) for $300,000 that purported to be a domestic support obligation.
2 Where necessary, we have exercised our discretion to take judicial notice of the dockets and imaged papers filed in debtor’s current and previous bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 2 Ms. Richards’ Schedules I and J showed that she had income of $1,600
per month and expenses of $5,301. But on her Statement of Financial
Affairs (“SFA”), Ms. Richards indicated she had no year-to-date income.
Ms. Richards disclosed on her SFA a transfer of $250,000 to the Family
Trust.
After her initial § 341 meeting, 3 on May 13, 2021, Ms. Richards filed
amended schedules. On Schedule A, she changed the value of the Property
from “tbd” to $3 million. On Schedule B, she changed the value of “claims
against third parties” and “contingent and unliquidated claims” to
$28,637,734. She attached a lengthy exhibit listing numerous lawsuits and
claims against various parties, including her ex-husband, Ryal Richards,
and his counsel, Kevin Robinson. Despite her valuation of “claims against
third parties” at over $28 million, the claims listed on the attached exhibit
totaled $1.6 million.
Amended Schedule D deleted the debt purportedly owed to
Ms. Richards as well as the disputed judgment liens, leaving only two
consensual liens of $180,000 and $15,000, respectively, secured by the
Property. She also deleted from Schedule E the debt to the Family Trust.
On her amended SFA, Ms. Richards changed her year-to-date earnings
from $0 to $8,000. She also reduced the amount of the transfer to the Family
Trust from $250,000 to $235,280.
3 Trustee has continued the § 341 meeting at least eight times. 3 On June 17, 2021, Ms. Richards again filed amended schedules.
Amended Schedule D added the secured claim of the Family Trust and the
disputed judgment liens. Total monthly income under Schedule I changed
to $5,000, comprised of $2,000 from employment and $3,000 from family
contributions to pay the mortgage payment on the Property. Schedule J
expenses totaled $4,878, resulting in a net monthly income of $122.
Schedule F showed unsecured nonpriority claims of $104,709.56.
About two months into the case, Trustee filed a notice of assets and
an application to employ a real estate agent to sell the Property. While that
application was pending, Ms. Richards moved to convert the case to
chapter 13. In her supporting declaration, she stated that she sought
conversion to enable her to sell the Property herself. She stated that her
salary had increased from $1,600 to $2,000 per month and that she would
be receiving an additional $3,000 per month from her family to pay the
mortgage payments. She proposed to make “a modest, yet meaningful”
monthly plan payment while the Property was listed and stated that she
had contacted several investment companies that had expressed interest in
purchasing the Property for $2 million. She attached a proposed chapter 13
plan calling for monthly plan payments of $122 for six months, with a 100%
payout to unsecured creditors (except for certain disputed claims) from the
sale of the Property.
Trustee opposed the motion to convert on the grounds that
Ms. Richards was not eligible to be a debtor under chapter 13 and because
4 conversion was not sought in good faith. Specifically, Trustee contended
that Ms. Richards did not have “regular income” as required under § 109(e)
because her expenses exceeded her income, and her lack of good faith was
demonstrated by her inconsistent statements regarding her employment
and income. Trustee noted that one of the reasons her prior chapter 13 case
had been dismissed was her lack of sufficient income with which to fund a
plan.
Trustee filed a supplemental opposition after questioning
Ms. Richards at her continued § 341 meeting. At that meeting, she testified
that, on February 4, 2020, she had given a deed of trust in the amount of
$235,280.88 for the benefit of the Family Trust, of which her son Jonathan
serves as trustee and of which she is a beneficiary. The deed of trust, which
was never recorded, purported to secure a promissory note given by Ms.
Richards in December 2017. Trustee argued that because the deed of trust
was avoidable, he could preserve its value for the estate in the chapter 7
case but, if the case were converted, Ms. Richards likely would not take
steps to avoid the deed of trust.
Trustee’s counsel’s supporting declaration stated that Ms. Richards
had not timely provided certain financial records and information about
the Family Trust. He recounted Ms. Richards’ § 341 meeting testimony, in
which she testified that, in addition to having gross earnings of $2,000 per
month, her son Jonathan was contributing $3,000 per month by paying the
mortgage payments on the Property. She also testified that her son was
5 planning to vacate the Property, and she was uncertain whether he would
continue to be able to pay the mortgages. She further testified that Schedule
B assets had increased from $5,215,431 scheduled in her first bankruptcy to
$31,859,308 due to claims she asserted against various individuals,
including Trustee, a superior court judge, her ex-husband and his counsel,
her mother-in-law, and her neighbors. When questioned about the basis for
her $2 million claim against her neighbors, she refused to elaborate.
Ms. Richards filed a reply in which she stated, among other things,
that she would be foreclosing on a support judgment of $372,000, which
would bring more funds into her chapter 13 case. She also argued that she
had regular income from her employment as a legal assistant and that her
motion to convert was filed in good faith. She accused Trustee of “a bunch
of games and litigation tactics.” In a later filed reply responding to the
supplemental opposition, Ms. Richards disputed the facts regarding her
failure to disclose the deed of trust and her lack of attempts to avoid it.
Ms. Richards’ ex-husband and his counsel also opposed the
conversion motion. They argued that, based on her income and the claims
asserted against the estate, she could not propose a viable plan.
Ms. Richards filed a reply declaration in which she blamed Mr. Richards
for forcing her into bankruptcy and accused Trustee of having a secret
meeting with and “taking the side of” Mr. Richards’ counsel, attempting to
discredit Ms. Richards with false facts, and “playing a bunch of games.”
She further alleged that Trustee had in the past sold properties to
6 “flipping” companies. She also complained that Trustee had not been able
to obtain any bids for the purchase of the Property. In another reply
declaration, she attached documentation relating to the support judgment.
Ms. Richards thereafter filed a Declaration of Contribution to Chapter
13 Plan, purportedly executed by her father, Lawrence Remsen. The
declaration stated that he would be contributing $3,000 per month toward
his daughter’s plan to pay the mortgage payments. Trustee filed an
objection and motion to strike the declaration on grounds that it was filed
too late and did not attach documentary evidence of the source of the
contribution. Trustee also noted that Mr. Remsen had been serving a life
sentence in prison since 1983 and questioned how Mr. Remsen could
plausibly contribute to the plan. Ms. Richards filed a reply in which she
promised to provide copies of bank statements.
Ms. Richards filed two more declarations. The first was from her
employer, John H. Mitchell, who is also Ms. Richards’ stepfather. He
testified that Ms. Richards was a “1099 employee” and that he had decided
to increase her salary from $2,000 to $5,000 per month to assist in her effort
to convert. The second was Mr. Remsen’s declaration, to which was
attached a copy of a cashier’s check for $18,000 dated July 15, 2021, made
payable to Mr. Remsen, along with his testimony that he had instructed
Ms. Richards to deposit the funds into a separate account and set up
automatic payments for the first and second mortgages on the Property.
7 After a hearing, the bankruptcy court took the matter under
submission. The court entered its order denying the motion to convert on
July 30, 2021, and Ms. Richards timely appealed. She sought a stay pending
appeal, which the bankruptcy court denied. She did not ask this Panel for a
stay.
During the pendency of this appeal, the bankruptcy court approved a
sale of the Property for $2.2 million. It also entered an order requiring
Ms. Richards to turn over possession of the Property no later than
December 4, 2021. On February 22, 2022, the bankruptcy court entered an
order finding Ms. Richards in contempt for her failure to turn over the
Property and ordering her to vacate the Property promptly. Ms. Richards
has appealed all those orders but did not obtain a stay pending appeal. The
sale of the Property closed after this appeal was submitted.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion in denying the motion
to convert?
STANDARDS OF REVIEW
We review for abuse of discretion an order denying a motion to
convert. Levesque v. Shapiro (In re Levesque), 473 B.R. 331, 335 (9th Cir. BAP
2012). A bankruptcy court abuses its discretion if it applies the wrong legal
8 standard, or misapplies the correct legal standard, or if it makes factual
findings that are illogical, implausible, or without support in inferences
that may be drawn from the facts in the record. United States v. Hinkson, 585
F.3d 1247, 1262 (9th Cir. 2009) (en banc).
A bankruptcy court’s factual finding of bad faith is reviewed for clear
error. Ellsworth v. Lifescape Medical Assocs., P.C. (In re Ellsworth), 455 B.R.
904, 914 (9th Cir. BAP 2011). Under the clearly erroneous standard of
review, if the bankruptcy court’s findings are plausible in light of the
record viewed in its entirety, we may not reverse even if we would have
weighed the evidence differently. “Where there are two permissible views
of the evidence, the factfinder’s choice between them cannot be clearly
erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985)
(citations omitted).
We may affirm on any basis supported by the record. Caviata Attached
Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes, LLC), 481 B.R.
34, 44 (9th Cir. BAP 2012).
DISCUSSION
A. Legal standard for conversion from chapter 7 to chapter 13
A debtor may convert her chapter 7 case to one “under chapter 11, 12,
or 13 of this title at any time, if the case has not been converted under
section 1112, 1208, or 1307 of this title.” § 706(a). Despite the “at any time”
language of this provision, the right to convert is not absolute. Rather, it is
qualified by § 706(d), which provides, “[n]otwithstanding any other
9 provision of this section, a case may not be converted to a case under
another chapter of this title unless the debtor may be a debtor under such
chapter.” See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 372 (2007).
In Marrama, the Supreme Court held that a debtor seeking conversion
to chapter 13 does not qualify under that chapter if he or she has engaged
in bad faith or fraudulent conduct or is otherwise ineligible for chapter 13
relief. 549 U.S. at 372-74. In that case, the debtor had misrepresented facts
about his principal asset, a home in Maine. Upon learning that the chapter
7 trustee intended to recover the home for the estate, the debtor moved to
convert the case to chapter 13, arguing that he had an absolute right to
convert. The Supreme Court disagreed, holding that the debtor did not
qualify for chapter 13 because he had engaged in bad faith conduct. See id.
The Court reasoned that, because bad faith is routinely held to constitute
“cause” for dismissal of a chapter 13 case under § 1307(c), it was an
appropriate ground for denial of a motion to convert from chapter 7 to
chapter 13. The Court found that the bankruptcy courts’ authority “to take
any action that is necessary or appropriate ‘to prevent an abuse of process’
described in § 105(a) of the Code” justified “immediate denial of a motion
to convert filed under § 706 in lieu of a conversion order that merely
postpones the allowance of equivalent relief and may provide a debtor
with an opportunity to take action prejudicial to creditors.” Id. at 375.
10 Although the Court’s holding was not limited to the facts before it, it
declined to decide exactly what conduct would suffice in future cases,
other than that the debtor’s conduct must be “atypical”:
We have no occasion here to articulate with precision what conduct qualifies as “bad faith” sufficient to permit a bankruptcy judge to dismiss a Chapter 13 case or to deny conversion from Chapter 7. It suffices to emphasize that the debtor’s conduct must, in fact, be atypical. Limiting dismissal or denial of conversion to extraordinary cases is particularly appropriate in light of the fact that lack of good faith in proposing a Chapter 13 plan is an express statutory ground for denying plan confirmation. Id. at 375 n.11 (citations omitted).
Ms. Richards argues that Marrama was overruled by Law v. Siegel, 571
U.S. 415 (2014). She cites Nichols v. Marana Stockyard & Livestock Market, Inc.
(In re Nichols), 10 F.4th 956 (9th Cir. 2021), which was decided during the
pendency of this appeal.
In Law, the Supreme Court held that bankruptcy courts may not use
their equitable powers under § 105(a) to contravene express provisions of
the Bankruptcy Code. 571 U.S. at 422-23. In Nichols, the Ninth Circuit held
that Law effectively overruled Rosson v. Fitzgerald (In re Rosson), 545 F.3d
764 (9th Cir. 2008). In Rosson, the issue was whether the debtor had an
absolute right to dismiss his chapter 13 case under § 1307(b), which
provides, “[o]n request of the debtor at any time, if the case has not been
converted under section 706, 1112, or 1208 of this title, the court shall
11 dismiss a case under this chapter. . . .” (Emphasis added.) The Ninth
Circuit expanded the reasoning of Marrama to the chapter 13 dismissal
context, holding that “the debtor’s right of voluntary dismissal under
§ 1307(b) is not absolute, but is qualified by the authority of a bankruptcy
court to deny dismissal on grounds of bad-faith conduct or to prevent an
abuse of process.” In re Rosson, 545 F.3d at 773-74 (cleaned up).
In Nichols, the bankruptcy court, relying on Rosson, denied a chapter
13 debtor’s motion to dismiss and granted the creditors’ motion to convert
to chapter 7 on grounds that the debtor was abusing the bankruptcy
process. The Ninth Circuit reversed, holding that Rosson had been
“effectively overruled” by Law. In re Nichols, 10 F.4th at 961.
But Law did not overrule Marrama, and Nichols did not so hold.
Marrama involved a different statute with different language. As noted
above, the right to convert under § 706(a) is qualified by § 706(d), which
requires that a debtor seeking conversion must qualify to be a debtor in the
converted case. The Supreme Court in Marrama held that when a debtor
has engaged in bad faith conduct, he or she is disqualified from being a
debtor under chapter 13, which has an explicit statutory good faith
requirement. See § 1307(c) (authorizing dismissal of a chapter 13 case “for
cause,” including bad faith) and § 1325(a)(7) (requiring, as a condition to
confirmation of a chapter 13 plan, that “the action of the debtor in filing the
12 petition was in good faith.”)4 Put another way, Marrama’s holding that the
right to convert is not absolute was not premised upon the bankruptcy
court’s equitable power but on explicit provisions of the Bankruptcy Code.
Thus, it does not run afoul of Law. This is so despite the Supreme Court’s
reference to § 105(a) as authorizing immediate denial of a motion to
convert under § 706 instead of granting conversion and then entertaining a
motion to reconvert or dismiss. Marrama, 549 U.S. at 375. The right to
convert is expressly conditioned upon § 706(d)’s requirement that the
debtor qualify to be a debtor in the converted case, and nothing in the Code
requires the bankruptcy court to grant a motion to convert if that
requirement is not met. Accordingly, denying conversion on that ground
does not contravene any express provision of the Bankruptcy Code.
B. The bankruptcy court’s finding of bad faith was not clearly erroneous. As discussed above, Marrama’s holding is not limited to situations
where a debtor fails to disclose or misrepresents the value of assets but
stands for the proposition that “atypical” conduct may support a bad faith
finding sufficient to justify denial of conversion. Under Marrama, the
determination of whether to grant a § 706 conversion motion implicitly
incorporates the standards for dismissal or conversion set forth in § 1307(c).
549 U.S. at 372-74. In this circuit, bad faith is a ground for dismissal or
conversion under § 1307(c) and requires an inquiry into the totality of the
4 This is in contrast to chapter 11, which requires only that the plan be proposed 13 circumstances, focusing on: (1) whether the debtor misrepresented facts in
her petition or plan, unfairly manipulated the Bankruptcy Code, or
otherwise filed her petition or plan in an inequitable manner; (2) the
debtor’s history of filings and dismissals; (3) whether the debtor only
intended to defeat state court litigation; and (4) the presence of egregious
behavior. In re Ellsworth, 455 B.R. at 917-18 (citing Leavitt v. Soto (In re
Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999)).
The bankruptcy court considered the totality of the circumstances
and found that Ms. Richards did not seek conversion in good faith and that
granting her motion would constitute an abuse of the bankruptcy process.
The bankruptcy court listed the following relevant circumstances
supporting that finding:
1. Trustee had begun marketing the Property, which was
Ms. Richards’ primary reason for seeking conversion.
Ms. Richards did not provide persuasive evidence for her
argument that Trustee would not fulfill his duty to obtain
appropriate value for the estate, despite her assertion that the
Trustee had a pattern of using “flippers” to sell real estate.
2. Ms. Richards’ proposed chapter 13 plan did not include any
alternative should the Property not sell in six months, other
than renting the Property—which would require Mr. Richards’
consent—or reconverting the case.
in good faith. See § 1129(a)(3). 14 3. Ms. Richards lacked sufficient income to fund a chapter 13
plan, even if her monthly salary were increased to $5,000. The
court noted that the familial relationship between Ms. Richards
and her employer was not initially disclosed by her, but by
Mr. Richards. It also noted that Mr. Mitchell’s declaration
testimony suggested that the $5,000 monthly salary was
unrelated to the actual value of services rendered and was in
the nature of gratuitous payments by a family member. For
purposes of the motion, however, the court assumed the $5,000
was regular income.
4. Although doubts existed about the authenticity of the
declarations submitted by Mr. Remsen, 5 even if those
declarations were authentic and the funds existed, $18,000
would be insufficient to pay creditors in full.
5. On February 4, 2020, Ms. Richards executed a deed of trust
against the Property as security for a debt of $235,280.88
purportedly owed to the Family Trust. 6 In her prior case,
5 Trustee questioned the authenticity of Lawrence Remsen’s declarations because Mr. Remsen was incarcerated. Ms. Richards responded that she had power of attorney to act on Mr. Remsen’s behalf. But the signatures on the declarations purport to be those of Mr. Remsen; there is no indication that they were signed by Ms. Richards as attorney- in-fact for Mr. Remsen. 6 The parties agree that the bankruptcy court erroneously found that the deed of
trust was executed without court authorization during Ms. Richards’ prior case. It was executed after her first case was dismissed and before she filed the instant chapter 7. Ms. Richards contends that this was “a structural error requiring immediate reversal.” 15 Ms. Richards had listed the Family Trust as having a secured
claim of $148,238.93. In the instant case, Ms. Richards listed the
Family Trust as having an unsecured priority debt for domestic
support payment reimbursement of $300,000, although she
later amended Schedule D to include the Family Trust secured
debt of $235,280.88. The bankruptcy court concluded that “the
dramatic inconsistencies surrounding the amount and
characterization of the Family Trust in the Prior Case and the
current case are concerning and militate in favor of a finding of
bad faith.”
The bankruptcy court’s bad faith finding was not illogical,
implausible, or without support in the record. Even making allowances for
Ms. Richards’ pro se status, her constantly shifting statements and failures
to provide competent evidence regarding her assets, liabilities, and income
support the bankruptcy court’s finding of bad faith. Although no single act
or omission cited by the court necessarily provided an independent ground
for a bad faith finding, the totality of Ms. Richards’ conduct supports the
bankruptcy court’s conclusion that she was abusing the bankruptcy
process.
Ms. Richards argues that the bankruptcy court’s finding of bad faith
is not supported by the evidence. She points out that that she did not
As discussed herein, that was only one of the acts cited by the bankruptcy court in support of its bad faith finding. The finding still stands without it. 16 inaccurately value the Property, nor did she hide the Property from
creditors. But that is not the only basis for a bad faith finding, and she fails
to address her inconsistent representations about the Family Trust and the
purported debts owed to it. She also disputes the bankruptcy court’s
finding that her primary reason for seeking the conversion was because
Trustee had begun marketing the Property. She asserts that she sought
conversion to protect creditors by preventing Trustee from running up fees
and selling the Property for less than fair market value. But there is no
evidence in the record that this was a likely scenario.
Finally, Ms. Richards argues that creditors would not be prejudiced
by conversion because if the case stays in chapter 7, it will be some time
before any distributions are made “because of all the disputes.” But even
accepting this assertion as true, this is not a relevant reason to permit
conversion when there is evidence of bad faith—particularly where
Ms. Richards is the instigator of the disputes.
C. The bankruptcy court did not err in finding that Ms. Richards lacked sufficient regular income to fund a chapter 13 plan. Although the bankruptcy court cited Ms. Richards’ lack of sufficient
regular income as a factor in determining bad faith, a lack of regular
income independently disqualifies a debtor from being in a chapter 13 case.
“Only an individual with regular income that owes, on the date of the
filing of the petition, noncontingent, liquidated, unsecured debts of less
than $419,275 . . . and noncontingent, liquidated, secured debts of less than
17 $1,257,850 . . . may be a debtor under chapter 13 of this title.” § 109(e). The
term “individual with regular income” is defined as “individual whose
income is sufficiently stable and regular to enable such individual to make
payments under a plan under chapter 13 of this title . . . .” § 101(30).
It is undisputed that Ms. Richards lacked sufficient regular income to
pay creditors absent a sale of the Property. According to her proposed
chapter 13 plan, she had only $122 in disposable monthly income, while
nonpriority unsecured claims totaled $104,709.56. Although family
contributions may be considered in determining the feasibility of a plan,
the court may require evidence of a “firm commitment by the family
member to make the contributions and a long and undisputed history of
providing for the debtor.” In re Deutsch, 529 B.R. 308, 312 (Bankr. C.D. Cal.
2015) (citation omitted); see also Pellegrino v. Boyajian (In re Pellegrino), 423
B.R. 586, 590 (1st Cir. BAP 2010) (“Typically, courts include contributions
where the contributor commits to contributing monthly for the life of the
plan, and has demonstrated a willingness and ability to do so.” (citations
omitted)).
Here, the evidence did not show a “firm commitment.” Ms. Richards
testified at her § 341 meeting that she was not sure whether her son would
be able to continue making the mortgage payments on the Property; he did
not file a declaration committing to those payments. Mr. Remsen indicated
in his declaration that he was giving $18,000 to Ms. Richards to cover the
mortgage payments for six months pending a sale of the Property in
18 chapter 13, but this one-time gift does not constitute “regular income”
either. Moreover, as suggested by the bankruptcy court, Ms. Richards’
salary increase should probably have been treated as a gratuitous family
contribution rather than employment income. Mr. Mitchell’s declaration
testimony indicated that he did not keep track of her hours, and in his
amended declaration he testified, “I have decided to increase Alicia’s salary
beginning August 1, 2021 to $5,000 per month in order to help her covert
[sic] to Chapter 13.” This testimony suggests that her stepfather
gratuitously increased her salary to help her fund her plan, but there is no
evidence of a firm commitment for the term of the plan or a history of
providing for Ms. Richards.
Ms. Richards complains that the bankruptcy court failed to consider
the sale of the Property, the support judgment, and pending litigation
claims as sources of plan payments. But those assets do not constitute
“regular income” under the Code. Cf. McDonald v. Burgie (In re Burgie), 239
B.R. 406, 410-11 (9th Cir. BAP 1999) (only regular income and substitutes
therefor may be counted in the determination of projected disposable
income; only if an asset in question is an anticipated stream of payments is
it included in the calculation). The bankruptcy court did not err in finding
that Ms. Richards did not have sufficient regular income to fund a chapter
13 plan.
We note that, during the pendency of this appeal, Ms. Richards filed
an opposition to Trustee’s motion to sell the Property in which she asserted
19 that the Property was fully encumbered by secured debt. In that
opposition, she listed claims secured by the Property totaling
approximately $3 million. This amount includes the “Lawrence Remsen
contract” for $1.75 million, a claim that she had never listed in her
schedules. These claims render Ms. Richards ineligible to be a debtor under
chapter 13 because they exceed the secured debt limit under § 109(e)
($1,257,850). At oral argument, Trustee’s counsel pointed out that the
proofs of claim filed in this case exceeded the debt limits. Although this
information was not before the court when it ruled on the motion to
convert, this circumstance impacts both bad faith and eligibility and lends
further support to the bankruptcy court’s ruling.
In Trustee’s brief, he raises some issues that do not appear to have
been raised in the bankruptcy court in the context of the motion to convert
and were not addressed in the bankruptcy court’s ruling.
First, he argues that Ms. Richards’ proposed plan is essentially a
liquidating plan, which is not an appropriate use of a chapter 13, citing In
re Gavia, 24 B.R. 573, 575 (9th Cir. BAP 1982). In Gavia, the debtors proposed
to park in a chapter 13 for six months without making any payments on
either secured or unsecured debts pending the sale of real property.
Ms. Richards argues that her case is distinguishable because she will be
making payments pending the sale of her home.
Second, Trustee notes that, pre-petition, the family court entered an
order that required sale or refinance of the Property by July 7, 2017, but
20 Ms. Richards failed to comply and instead pursued litigation to have that
order set aside. He argues that this is evidence of bad faith pre-petition
conduct. Ms. Richards contends that orders entered in the family court
were void on various grounds, including denial of due process and equal
protection.
Because these arguments were not considered by the bankruptcy
court in connection with the motion to convert, we decline to consider
them here. 7
CONCLUSION
For these reasons, the bankruptcy court did not abuse its discretion in
denying the motion to convert. We AFFIRM.
7 Trustee mentioned in his application to employ the real estate agent that Ms. Richards had failed to comply with the family court’s order, but he did not raise it as a ground for denying conversion. 21