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Goodman v. Gorman

United States District Court, E.D. Virginia, Alexandria Division

July 21, 2015

LAURA A. GOODMAN, Appellant,
v.
THOMAS P. GORMAN, Appellee

For Laura Goodman, Appellant: Robert Ross Weed, LEAD ATTORNEY, Law Offices of Robert Weed, Sterling, VA.

For Thomas P. Gorman, Trustee, Appellee: Eva Choi, LEAD ATTORNEY, Office of Chapter 13 Trustee, Alexandria, VA; Thomas Patrick Gorman, LEAD ATTORNEY, Alexandria, VA.

MEMORANDUM OPINION AND ORDER

Gerald Bruce Lee, United States District Judge.

THIS MATTER is before the Court on Appellant Laura A. Goodman's (" Debtor" ) Appeal from Bankruptcy Court (Doc. 1). This case involves an appeal of rulings made in the United States Bankruptcy Court for the Eastern District of Virginia, Case No. 11-15782-RGM, in favor of Trustee Thomas P. Gorman (" Trustee" ). Appellant raises four issues on appeal. First, whether the Bankruptcy Court abused its discretion in finding that the property of an estate did not vest in Debtor upon confirmation of her Chapter 13 Plan. Second, whether the Bankruptcy Court abused its discretion in finding that Debtor's $36,000 post-confirmation inheritance constituted a " substantial" change in financial circumstances. Third, whether the Bankruptcy Court abused its discretion in finding that Trustee's Motion to Modify may capture the entirety of the $36,000 inheritance for the benefit of Debtor's compromised creditors. Fourth, whether the Debtor's Proposed Modified Chapter 13 Plan paid more to the Debtor's unsecured creditors than they would have received had this case been filed as a Chapter 7 bankruptcy.

The Court AFFIRMS the Bankruptcy Court for four reasons. First, the Court AFFIRMS the Bankruptcy Court's holding that the property of the estate did not vest in Debtor upon confirmation of the Chapter 13 Plan because under Carroll v. Logan, 735 F.3d 147 (4th Cir. 2013), an inheritance received before the Chapter 13 case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 is property of the bankruptcy estate pursuant to 11 U.S.C. § 1306(a) and should thus be used to repay Debtor's compromised creditors. Second, the Court AFFIRMS the Bankruptcy Court's finding that Debtor's inheritance " substantially" changed her financial circumstances under 11 U.S.C. § 1329 because the court's findings of fact were not clearly erroneous as the facts show that the inheritance substantially changed Debtor's financial circumstances such that a modification of her Chapter 13 Plan was warranted.

Third, the Court AFFIRMS the Bankruptcy Court's ruling denying Debtor's Modified Plan because under 11 U.S.C. § 1329, Debtor's living expenses did not constitute a substantial and unanticipated change to Debtor's financial condition that would make any portion of the $36,000 inheritance necessary to support Debtor's Modified Plan. Fourth, the Court AFFIRMS the Bankruptcy Court's Order granting Trustee's Motion to Modify to capture the entirety of the Debtor's $36,000 inheritance as property of the bankruptcy estate because Debtor failed to present evidence of any necessity for retaining any portion of the inheritance.[1]

I. BACKGROUND

This case arises on appeal from the Bankruptcy Court's Order granting Trustee's Motion to Modify Chapter 13 Plan to include the entire $36,000 inheritance Debtor received subsequent to confirmation of her Chapter 13 Plan and denying Debtor's Motion to Confirm Modified Plan to include only a portion of the $36,000 inheritance.

Debtor Laura Goodman filed a Chapter 13 petition in the United States Bankruptcy Court for the Eastern District of Virginia on August 4, 2011. (R. at 1.) On October 20, 2011, Debtor's Chapter 13 Plan was confirmed requiring monthly payments of $780 for 60 months, for a total of $46,800. ( Id. at 3, 61-63.) Under this plan, unsecured creditors received a 0% dividend. ( Id. at 3, 61-63.) On March 12, 2014, Debtor filed an Amended Schedule B disclosing her interest in post-petition inheritance of $36,000 from her recently deceased mother's estate. ( Id. at 3, 64-70.)

On March 27, 2014, Trustee Thomas Gorman filed a Motion to Modify Chapter 13 Plan (" Motion to Modify" ) under 11 U.S.C. § 1329(a) to capture the entire amount of Debtor's inheritance for the benefit of her unsecured creditors. ( Id. at 3, 71-73.) On October 13, 2014, Debtor proposed her own Plan modification under 11 U.S.C. § 1329(a) by filing a Modified Chapter 13 Plan (" Modified Plan" ). ( Id. at 4-5, 101-13.) Debtor's Modified Plan proposed that Debtor contribute 40% of her inheritance over the remaining 20 months of her Chapter 13 Plan, generating a 30% dividend to unsecured creditors. ( Id. at 101-13.) Trustee filed an Objection to Debtor's Modified Plan (" Objection" ) on October 23, 2014, and an amended Objection on December 9, 2014, citing violations of 11 U.S.C. § 1325(a)(3) - (4) and (b)(1)(B) for failure to propose the Modified Plan in good faith, failure to satisfy the best interest of creditors under the Chapter 7 liquidation test, and failure to apply Debtor's projected disposable income to make payments to unsecured creditors under the Modified Plan. (R. at 114-17, 119-22.)

On January 28, 2015, the Bankruptcy Court heard Trustee's Motion to Modify together with the confirmation hearing on Debtor's Modified Plan. These matters offered competing proposals to modify Debtor's confirmed Chapter 13 Plan under 11 U.S.C. § 1329(a) on account of Debtor's $36,000 inheritance, and required the court to determine what portion, if any, of the inheritance Debtor should be required to pay into her Plan. (R. at 5-6; Hr'g Tr. at 5.) Concerning Debtor's existing confirmed Plan, the Bankruptcy Court found that: (1) the Plan had been in effect for forty months with Debtor successfully making scheduled payments according to the Plan; (2) there was no indication of any hardship making timely Plan payments or meeting other financial obligations; and (3) the income reported by Debtor at the time of confirmation was understated and was likely the reason Debtor could to make her scheduled payments without hardship. (Hr'g Tr. at 62-63.) The Bankruptcy Court also found that Debtor did not provide any evidence of changes in her circumstances, prior to receiving the inheritance, that would justify changing the Plan because Debtor's testimony demonstrated that: (1) there had not been any change to Debtor's family status, household size, or health; (2) Debtor's income had marginally improved based on her full-time employment, tax returns, and pension increase; and (3) the reported changes to Debtor's budgeted expenses in her Plan did not need to be buttressed. (Hr'g Tr. at 27, 64-65.)

Based on the totality of the circumstances, the Bankruptcy Court concluded that the inheritance was a windfall not necessary to support Debtor. Accordingly, the entirety of Debtor's inheritance needed to be paid into her Chapter 13 Plan for the benefit of her creditors. (Hr'g Tr. at 64.) On February 12, 2015, the Bankruptcy Court issued its Order Granting Trustee's Motion to Modify and Denying Confirmation of Debtor's Modified Plan. (R. at 6, 137.) The Bankruptcy Court ordered Debtor to promptly turn over $35,000 of her inheritance to Trustee by February 25, 2015, with the remainder due to Trustee by May 31, 2015, to be distributed to creditors as additional funding in accordance with the confirmed Plan. (R. at 137.) Debtor's appeal is now properly before this Court.

II. STANDARD OF REVIEW

A district court reviews findings of fact in bankruptcy proceedings under a clearly erroneous standard. Fed. R. Bankr. P. 8013. " A finding is clearly erroneous when 'the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been made.'" In re Regional Bldg. Systems, Inc., 320 F.3d 482, 485 (4th Cir. 2003) (quoting In re Morris Commc'ns NC, Inc., 914 F.2d 458, 467 (4th Cir. 1990)). A bankruptcy court's conclusions of law are reviewed de novo. See In re Meredith, 527 F.3d 372, 375 (4th Cir. 2008). Where issues present questions of both law and fact, a district court should review facts by a clearly erroneous standard, and legal conclusions derived from those facts are reviewed de novo. Gilbane Bldg. Co. v. Fed Reserve Bank of Richmond, 80 F.3d 895, 905 (4th Cir. 1996). Similarly, a bankruptcy court's decision whether to grant or deny a ...


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