In re Brown

Lerin Brown (debtor) filed for Chapter 13 bankruptcy. Brown had monthly discretionary income of roughly $150 and owed over $16,000 to his unsecured creditors. Brown proposed a three-year Chapter 13 plan requiring monthly payments of $150 for 36 months. Brown proposed to pay $2,000 in attorney fees and roughly $360 in administrative expenses before paying his creditors. Brown’s proposed payment schedule meant that Brown’s creditors would need to wait nearly 17 months for any distribution, while Brown’s attorney would receive $150 per month during that time. Chapter 13 trustee Linda Gore objected to Brown’s proposed plan. Gore argued that Chapter 7 liquidation would have been preferable for Brown because his limited assets would have qualified him for a filing-fee waiver, and he would not have had to pay a trustee’s commission. Brown also could have received a Chapter 7 discharge within a few months, compared to three years to complete the Chapter 13 plan. However, Brown could not have financed his attorney fees in a Chapter 7 liquidation. Instead, Brown would have needed to pay an attorney $750 to $1,000 upfront to file a Chapter 7 petition, and Brown did not have that money. The bankruptcy court concluded that Brown had filed for Chapter 13 instead of Chapter 7 so he could pay his attorney in installments. The court found that (1) only Brown’s attorney benefited under Brown’s plan, (2) Brown would be better served by Chapter 7’s speed and certain discharge, (3) Brown’s plan imposed a burden on the trustee to collect and distribute payments to Brown’s attorney, and (4) Brown was unlikely to successfully complete the plan. Accordingly, the court determined that Brown had not filed his petition or proposed his plan in good faith and denied plan confirmation. The district court affirmed, and Brown appealed.