Thomas C. Condon

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
THOMAS C. CONDON
Debtor
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Case No. 05-23836
Chapter 7
Judge Hopkins
MEMORANDUM OF DECISION
ON ORDER DENYING MOTION TO CONVERT
This matter is before the Court on the Debtor’s, Thomas C. Condon, Motion to
Convert ("Motion") (Doc. 19) and the Creditors', Mary Smith and John Brady as
representatives of a Certified Class of Similarly Situated Persons, Objection to
Conversion ("Objection")(Doc. 22). The issue before the Court is whether the Debtor
acted in good faith in moving to convert his petition in Chapter 7 bankruptcy to a
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: March 31, 2006
____________________________________________________________
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Chapter 13. An evidentiary hearing on the Objection was held on January 24, 2006.
The Court's findings of fact and conclusions of law follow.
The Debtor, Thomas C. Condon ("Condon"), filed a petition for Chapter 7
bankruptcy on October 15, 2005. 	Creditors Mary Smith and John Brady as
representatives of a Certified Class of Similarly Situated Persons ("Creditors") filed
a motion for relief from stay for the purposes of pursuing a class action lawsuit ("class
action") filed against Condon in U.S. District Court. This Court granted Creditors’
motion for relief from stay in an Order dated October 27, 2005. 	Both parties are
aware that there may be an issue whether any potential liability to Creditors would be
dischargeable in Chapter 7. On November 21, 2005, after learning that it might be
easier to discharge the debt (if any) in Chapter 13, Condon moved to convert his
Chapter 7 to a Chapter 13. Creditors filed their Objection on December 21, 2005, in
which they claimed the Motion was not brought in good faith.
LAW
The Sixth Circuit has made it clear that there is no absolute right of conversion
from a Chapter 7 to a Chapter 13. 	In re Copper, 426 F.3d 810 (6th Cir. 2005). A
debtor must meet the criteria of 11 U.S.C. § 1325(a) before converting to Chapter 13.
Under 11 U.S.C. §1325(a)(3), the debtor must have proposed his plan in good faith.
In re Caldwell, 895 F.2d 1123, 1125 (6th Cir. 1990). The Bankruptcy Court may deny
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a debtor’s request for conversion if the request is made in bad faith or is an attempt
to abuse the bankruptcy process. Copper, 426 F.3d at 815. This Court has a duty, in
these circumstances, to distinguish sincere good faith efforts to repay a debt under
Chapter 13 from Chapter 13 plans "which are nothing more than ‘veiled’ Chapter 7
plans," and the burden of proving good faith is on the debtor. Caldwell, 895 F.2d at
1126.
Good faith is determined by using the "totality of the circumstances" analysis
applied when determining whether a debtor should be permitted to commence a
chapter 13 case. Copper 426 F.3d at 815. The Sixth Circuit has suggested a twelve-
part test to determine whether the debtor has proposed his plan in good faith. 	Id.
Those criteria 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
increase in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan’s statements of the debt, expenses and percentage
repayment of unsecured debt and whether any inaccuracies are an attempt to
mislead the court;
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(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;
(11) the burden which the plan’s administration would place upon the trustee;
and
(12) whether the debtor is attempting to abuse the spirit of the Bankruptcy
Code.
Id. at 1126-27; see In re Francis, 273 B.R. 87 (6th Cir. 2002); In re Okoreeh-Baah,
836 F.2d 1030, 1032 (6th Cir. 1988).
While there is some overlap between these factors and the factors considered
in the confirmation of a Chapter 13 plan, such factors are properly considered at the
time of determining whether to allow conversion as well. In re Alt, 305 F.3d 413, 420
(6th Cir. 2002).
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ANALYSIS
After reviewing Condon’s proposed Chapter 13 plan, schedules, and his
testimony from the evidentiary hearing, the Court finds that the Motion was not
proposed in good faith.
1. Motivation for Seeking Chapter 13 Relief
Attempting to convert from a Chapter 7 to a Chapter 13 is not considered bad
faith in and of itself. 	Caldwell, 895 F.2d at 1127. 	However, it is a factor to be
considered under the totality of the circumstances analysis. In this case, Condon filed
for Chapter 7 while he was a defendant in the class action. Less than one month after
the automatic stay was terminated so that Creditors could proceed against him in
district court, Condon moved to convert the Chapter 7 to a Chapter 13, stating at the
evidentiary hearing that his reason for doing so was to avail himself of the super-
discharge under Chapter 13 to better discharge any potential judgment against him in
the class action.
In Copper, the Sixth Circuit upheld the bankruptcy court’s determination that
the debtor’s sole motivation for the conversion was to avoid a determination that the
debtor was not entitled to a discharge, not by a desire to repay his creditors, and that
such motivation "represented an improper attempt to manipulate the Bankruptcy
Code." 	Copper, 426 F.3d at 815. 	Although it has not been determined whether
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Condon’s potential liability would be dischargeable in Chapter 7, the Debtor has
openly admitted that his Motion was based solely on a desire to avoid a determination
that the potential judgment against him would not be dischargeable under Chapter 7,
and not for the purposes of repaying his creditors.
2. Amount of Payments and Duration of Plan
Notwithstanding his purpose for converting, Condon’s proposed plan also fails
to meet the good faith standard. Under the Chapter 13 plan, Condon has proposed to
repay only 3% of his debt. Furthermore, Condon only proposes a plan that would last
the statutory minimum period of three years rather than five years as permitted under
the Bankruptcy Code. 	Both the percentage and length of repayment are factors in
determining whether his plan was made in good faith, and while he was not required
to do more, the fact that Condon did not, when taken in consideration of the total
circumstances, supports the Creditor’s claim of bad faith.
3. Inaccuracies in Schedules I and J.
When questioned about certain expenses listed on his schedules, Condon
testified that he has been repaying a debt owed to his mother for the repair of his
automobile and that he has been paying his sister $400 a month in rent for the lease
of a studio space. Nowhere on Condon’s schedules are his mother and his sister listed
as creditors, and he has continued paying them throughout these proceedings.
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More problematic for Condon, however, is his testimony during the evidentiary
hearing. When questioned about the studio space he is renting from his sister, Condon
admitted that it contains several sculptures and paintings he also failed to list in his
bankruptcy schedules. 	When asked to explain why he failed to list these assets,
Condon gave several inconsistent answers. First, he stated he did not know they were
assets and he did not believe they were worth anything. 	Then, he claimed they
belonged to his sister, and he was painting simply for his emotional well-being and
not for hopes of profit. 	But these assets are not listed as gifts or transfers in the
statement of financial affairs. According to further testimony, Condon has no hopes
of increasing his income in any way. This statement directly contradicts Schedule J,
in which he identifies the $400 he pays to his sister as expenses for the operation of
a business. 	When taken together, the inconsistencies between Condon’s testimony
and his schedules, as well as his failure to be forthcoming and frank with the Court
regarding these inconsistencies, further exhibit his lack of good faith.
Schedule I 	requires debtors filing for Chapter 13 to report all sources of
income. According to Condon’s testimony, his wife is gainfully employed and earns
an income that fluctuates around $1,000 per month. Yet, Condon failed to report any
of his wife’s income in his schedules. This is a substantial amount of money that he
has not disclosed to his creditors. 	Condon also claimed he did not know he was
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supposed to include his wife’s income in the schedules and that his attorney did not
direct him to do so. Condon’s attorney, Mr. Plotnick, admitted that he mistakenly
failed to add Condon's wife’s income, but this claim is unpersuasive. The heading of
the schedule I, in rather conspicuous fashion, directs that a non-debtor spouse's
income be included on the schedule. Mr. Plotnick has practiced bankruptcy law for
20 years and Condon is an educated man who owned his own business at one time.
Furthermore, Condon signed the Declaration page that stated he had read through the
schedules and that they were true and correct to the best of his knowledge. Taken in
light of the fact that he has also failed to report certain assets and certain creditors,
who he continues to pay, it is evident that this is another attempt to reduce assets
available to Creditors.
CONCLUSION
Condon has failed to be honest and forthcoming in these proceedings, which is
a hallmark of those seeking bankruptcy relief. He has not only failed to report all of
his assets and sources of income, but has also not revealed certain "insider" creditors
who he continues to pay throughout these proceedings. In addition to reducing assets
and disposable income available to Creditors, Condon's proposed plan makes only
minimal payments over the shortest possible time. Furthermore, Condon admits that
his Motion was motivated largely by his desire to discharge his potential liability to
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the Creditors. 	Based on the totality of the circumstances, the Court finds that
Condon’s Motion was filed in bad faith. Accordingly, the Motion will be DENIED
by separate order.
Copies to:
All creditors and parties in interest
Thomas C. Condon
438 Stanley Avenue #1
Cincinnati, OH 45226
Harry B. Plotnick, Esq.
HBP@PhillipsLawFirm.com
Eric W. Goering, Esq.
ericG@fuse.net
Harold Jarnicki, Esq.
jarnickihsd91@earthlink.net
Margaret A. Burks, Esq.
Cincinnati@cinn13.org
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
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