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Dismissal of three debtors’ cases upheld

Virginia Lawyers Weekly//October 11, 2021

Dismissal of three debtors’ cases upheld

Virginia Lawyers Weekly//October 11, 2021

Where three debtors appealed the dismissal of their cases, the bankruptcy court did not abuse its discretion in finding the first debtor did not file in good faith; that the second did not comply with a court-directed payment process, thus causing unreasonable delay; or that the third debtor’s plan was infeasible.


This is a consolidated appeal involving three separate bankruptcy cases. The bankruptcy court found that John Curtis Williams did not file his Chapter 13 case in good faith because the plan offered a minimal amount of compensation of the original debt to the creditors, and his take-home income was significantly greater than the original repayment plan.

The bankruptcy court dismissed the case filed by Karen Moss Kelly with prejudice and prohibited Kelly from refiling for bankruptcy for 180 days after it found that her conduct in ignoring its payment-method directive demonstrated a lack of good faith and “caused unreasonable delay.” The bankruptcy court dismissed the case filed by Adele Moorman Polk on feasibility grounds, stating that Polk’s budget would be too thin to absorb the increased costs and cure the additional arrearage without an increase in income.


Williams argues that a lack of repayment is only one of many factors considered in the good-faith inquiry outlined by Deans v. O’Donnell, 692 F.2d 968 (4th Cir. 1982). Second, he maintains that the bankruptcy court’s remedy of dismissal was inappropriate. And third, he states that the bankruptcy court should not have considered his VA benefits.

At the outset, Williams did not preserve some arguments for review because he did not raise them in a written brief or at oral argument in the bankruptcy court. Further, even if these arguments against the plan’s dismissal were preserved, they would not succeed. The record shows that the bankruptcy court engaged in a “totality of the circumstances” inquiry, which is what Deans requires. This court finds nothing to suggest that the bankruptcy court abused its discretion in dismissing Williams’s case given that even dismissals by bankruptcy courts on its own accord are permitted.

One argument Williams raises is properly preserved. Williams contends that because Social Security benefits are not included in the disposable-income calculation under federal statute, VA benefits should likewise not be included in the good-faith inquiry. Based on the record, it is not entirely clear the bankruptcy court based its decision on Williams’s VA disability income.

What is clear, however, is that the court applied a totality-of-the-circumstances analysis, finding that the aforementioned “additional circumstance[s]” dictated its finding that Williams’s proposed repayment plan had been offered in bad faith. Even assuming the bankruptcy court had improperly relied on Williams’s VA disability income, any error in such reliance was harmless because it is apparent from the record that the bankruptcy court would have reached the same conclusion had it excluded the VA-derived income from the equation.


Kelly argues that the dismissal was unwarranted because it is an “extraordinary statutory remedy” not justified by the circumstances and that a more appropriate remedy would have been for the bankruptcy court to find her in civil contempt rather than dismissing the case. Her failure to assert these challenges in the bankruptcy court means she cannot raise them for the first time before a reviewing court.

Even if Kelly’s arguments were preserved for appeal, they are unpersuasive. The bankruptcy court apparently found a pattern of behavior in Kelly’s willful disregard of court orders based on the appellant repeatedly submitting payments through means other than certified funds, the method the court directed. At the evidentiary hearing, Kelly offered no evidence as to why she did not comply.

Critically, Kelly offers no statutory authority or controlling case that would suggest dismissal was unwarranted in the face of her violation of a court order. Whether the bankruptcy court might have instead held Kelly in civil contempt is of no moment because the facts of her case meant dismissal was a permissible remedy.


In the bankruptcy proceedings, appellee argued that Polk’s financial retrogression revealed the proposed modified plan was unfeasible and not brought in good faith. Although Polk emphasizes that the computation should have included her daughter’s potential future earnings, the bankruptcy court appropriately cabined its determination to Polk’s then-presently available funding sources. The court finds no abuse of discretion as to its decision to dismiss Polk’s case.


Williams v. Gorman, Case Nos. 1:20-cv-1206, 1:20-cv-1443, 1:20-cv-1449, Sept. 20, 2021. EDVA at Alexandria (Alston). VLW 021-3-456. 20 pp.

VLW 021-3-456

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