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Parties Involved:
Pioneer Bank of Longmont
Appellant
Elmer Claire Rasmussen
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In re: ELMER CLAIRE RASMUSSEN, 

FI LED 

u~1ited States Court of Appeals 

Tenth Cirrn.it 

NOV -11989 

ROBERT L. HOECKER 

Clerk 

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No. 88-2593 

PIONEER BANK OF LONGMONT, 

Creditor-Appellant, 

v. 

ELMER CLAIRE RASMUSSEN, 

Debtor-Appellee. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 88-F-970) 

Mark M. Haynes (Joseph c. French with him on the brief), Boulder, 

Colorado, for Appellant. 

Thomas E. Croak, Longmont, Colorado, for Appellee. 

Before LOGAN, SETH and MOORE, Circuit Judges. 

PER CURIAM. 

Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 1 
This case presents the issue of what conduct constitutes bad 

faith sufficient to deny confirmation of a Chapter 13 plan. Elmer 

Claire Rasmussen, the debtor, had more than $100,000 in unsecured 

debts, including a debt of more than $40,000 to the Pioneer Bank 

of Longmont (Pioneer). Mr. Rasmussen filed for relief under a 

Chapter 7 bankruptcy proceeding. All of his unsecured debts were 

discharged with the exception of his debt to Pioneer. The 

bankruptcy court in the Chapter 7 action found that the debt to 

Pioneer had been obtained through fraud, refused to discharge the 

debt through the bankruptcy ·proceeding pursuant to 11 u.s.c. 

§ 52~(a)(2), and entered judgment on the note underlying the debt. 

Within two weeks of the conclusion of the Chapter 7 proceeding, 

Mr. Rasmussen filed a "reorganization" plan under Chapter 13. 1 

The only debt listed was that to Pioneer. The plan proposed a 

return to Pioneer of approximately 1.5% of the amount due, over a 

three-year period. Over the objection of Pioneer and after a 

hearing, the bankruptcy court confirmed the plan, reasoning that 

it is not per se bad faith to file successive petitions under 

Chapter 7 and Chapter 13, and applying the suggested factors from 

Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983). The district 

court affirmed the bankruptcy court's confirmation of the Chapter 

13 plan. Pioneer appeals. For the reasons set forth below, we 

reverse. 

We are bound by the factual findings of the bankruptcy court 

unless they are clearly erroneous. The legal conclusions of the 

1 Successive filing of a Chapter 7 bankruptcy and a Chapter 

plan is often referred to as a ''Chapter 20" situation. 

2 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 2 
bankruptcy court and the district court are subject to de novo 

review on appeal. Rowe Int'l, Inc. v. Herd (In re Herd), 840 F.2d 

757, 759 (10th Cir. 1988); Branding Iron Motel, Inc. v. Sandlian 

Equity, Inc. (In re Branding Iron Motel), 798 F.2d 396, 399-400 

(10th Cir. 1986). 

Chapter 13 of the Bankruptcy Code is a liberal provision 

which allows discharge of all debts except those defined by 11 

U.S.C. § 1322(b)(5) (cure of d~fault on long-term debt when final 

payment is due after proposed final payment under Chapter 13 plan) 

and 11 u.s.c. § 523(a)(5) (alimony and child support). 11 U.S.C. 

§ 1328(a). However, the plan may only be confirmed if it is 

proposed in good faith. 11 u.s.c. § 1325(a)(3). Neither the 

bankruptcy code itself nor its legislative history defines the 

term "good faith," and definition of the term in the context of 

successive filings has evolved through case decisions since the 

1984 amendments to the code. This circuit has rejected a per se 

bad faith standard, holding instead that bad faith is to be judged 

by the totality of the circumstances on a case by case basis. 

Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983). In Flygare, 

the court set forth eleven factors to be considered, among other 

relevant circumstances, in determining whether the Chapter 13 plan 

was filed in good faith. 2 Other circuits have rejected a per se 

2 The eleven factors set forth in Flygare include: 

1) the amount of proposed payments and the amount of the 

debtor's surplus; 

2) the debtor's employment history, ability to earn and 

likelihood· of future increases in income; 

3) the probable or expected duration of the plan; 

4) the accuracy of the plan's statement of the debts, 

expenses and percentage repayment of unsecured debt and 

3 

Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 3 
bad faith standard in favor of a "totality of circumstances" 

approach. See State of Ohio, Student Loan Comm'n v. Doersam (In 

re Doersam), 849 F.2d 237, 239 (6th Cir. 1988); In re Hines, 723 

F.2d 333, 334 (3d Cir. 1983); Public Fin. Corp. v. Freeman (In re 

Freeman), 712 F.2d 219, 221 (5th Cir. 1983); Kitchens v. Georgia 

R.R. Bank and Trust Co. (In re Kitchens), 702 F.2d 885, 888-89 

(11th Cir. 1983); Deans v. O'Donnell (In re Deans), 692 F.2d 968, 

970-72 (4th Cir. 1982); Ravenot v. Rimgale (In re Rimgale), 669 

F.2d 426, 432-33 (7th Cir. 1982); United States v. Estus (In re 

Estus), 695 F.2d 311, 316-17 (8th Cir. 1982) 3 ; Goeb v. Heid (In re 

Goeb), 675 F.2d 1386, 1389-90 (9th Cir. 1982); Barnes v. Whelan 

(In re Barnes), 689 F.2d 193, 198 (D.C. Cir. 1982). "[B]oth prewhether any inaccuracies are an attempt to mislead the court; 

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 non-dischargeable 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; and 

11) the burden which the plan's administration would 

place upon the trustee. 

709 F.2d at 1347-48 (quoting United States v. Estus (In re Estus), 

695 F.2d 311, 317 (8th Cir. 1982)). 

3 In re Estus continues to be used widely as authority for this 

proposition. It was modified in Education Assistance Corp. v. 

Zellner, 827 F.2d 1222, 1227 (8th Cir. 1987) (relevant factors to 

the analysis of good faith after the 1984 amendments include 

"whether the debtor has stated his debts and expenses accurately; 

whether he has made any fraudulent misrepresentation to mislead 

the bankruptcy court; or whether he has unfairly manipulated the 

Bankruptcy Code.") 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 4 
petition conduct and prior bankruptcy filings by the debtor may be 

relevant to the good faith inquiry under§ 1325(a}(3}." Neufeld 

v. Freeman, 794 F.2d 149, 150 (4th Cir. 1986). 

Reviewing the totality of circumstances, we undertake de novo ---

review of the circumstances surrounding Mr. Rasmussen's Chapter 13 

filing. The bankruptcy court noted in its thoughtful recitation 

of the factors involved that the debtor's budget was "tight" and 

that he did not have more than $50 per month for debt repayment 

under the plan. R. V. IV, tr. at 20. Mr. Rasmussen's attorney 

pointed out that Mr. Rasmussen was in the business of buying and 

selling sheep and lambs, a business which made necessary the use 

of a bank account for deposits and payments. He pointed out that 

Mr. Rasmussen would not be able to get the fresh start envisioned 

by the bankruptcy code if Pioneer's debt were not discharged and 

Mr. Rasmussen's banking accounts were garnished repeatedly by 

Pioneer. Id. at 5, 13. 

In addition, the bankruptcy court noted that the stated 

legislative purpose of Chapter 13 was to achieve broad, extensive, 

and unqualified discharge of debts for a working debtor. Id. at 

17. The bankruptcy court noted that there is no bar to successive 

filings under Chapter 13, and the very fact that the exceptions to 

Chapter 13 discharge are so limited is an indication of 

legislative intent that objections to discharge be scrutinized 

closely. Id. The bankruptcy court noted the distinction between 

"deviousness" and "clever lawyering," drawing strength for 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 5 
confirmation of Mr. Rasmussen's plan from the lack of 

congressional bar to successive Chapter 7 and Chapter 13 filings. 

Id. at 18-19. 

On appeal, the district court agreed, citing In re Chaffin, 

816 F.2d 1070, 1073-74 (5th Cir. 1987), modified on rehearing, 836 

F.2d 215, 216 (1988), for the proposition that the fact of 

successive filings does not, by itself, constitute bad faith in a 

Chapter 13 filing. R. v. II, tab 12 at 3. See also Downey Sav. 

and Loan Ass'n v. Metz, (In re Metz), 820 F.2d 1495, 1497 (9th 

Cir. 1987); In re Baker, 736 F.2d 481, 482 (8th Cir. 1984); cf. 

Jim Walter Hornes, Inc. v. Saylors (In re Saylors), 869 F.2d 1434, 

1435-1436 (11th Cir. 1989)(atternpting to discharge a debt in a 

Chapter 13 filing which is not dischargeable in a Chapter 7 is not 

per se bad faith); In re Doersam, 849 F.2d at 239 (same). 

We agree with the Fifth Circuit's holding in Chaffin, but 

find that more factors than merely the fact of successive filings 

are involved with the case before us. We note also that Chaffin 

was an involuntary proceeding. Mr. Rasmussen originally was not 

able to meet the jurisdictional limits of a Chapter 13 proceeding 

because his unsecured debts totalled more than $100,000 in 

contravention of 11 u.s.c. § 109(e). He proceeded to discharge 

all his unsecured debts except that of Pioneer through a voluntary 

Chapter. 7 proceeding. During the course of that proceeding, the 

bankruptcy court disallowed discharge of his debt to Pioneer, 

pursuant to 11 U.S.C. § 523(a)(2), because he provided fraudulent 

information to obtain the loan; the court entered judgment on 

Pioneer's note. Twelve days after the conclusion of the Chapter 7 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 6 
proceeding, Mr. Rasmussen initiated a proceeding under Chapter 13, 

listing his debt to Pioneer as his only obligation. His plan 

proposed to pay $50 per month for 36 months, less than 1.5% of the 

value of the debt. In effect, confirmation of Mr. Rasmussen's 

Chapter 13 plan is tantamount to a discharge of his debt to 

Pioneer. 

We agree with the Fourth Circuit in Neufeld, when it stated: 

[A]lthough the discharge of an obligation which would be 

nondischargeable in Chapter 7 is not, standing alone, a 

sufficient basis on which to find bad faith or deny 

confirmation, it is a relevant factor to be considered 

in the § 1325(a)(3) good faith inquiry. Resort to the 

more liberal discharge provisions of Chapter 13, though 

lawful in itself, may well signal an "abuse of the 

provisions, purpose, or spirit" of the Act, especially 

where a major portion of the claims sought to be 

discharged arises out of pre-petition fraud or other 

wrongful conduct and the debtor proposes only minimal 

repayment of these claims under the plan. Similarly, a 

Chapter 13 plan may be confirmed despite even the most 

egregious pre-filing conduct where other factors suggest 

that the plan nevertheless represents a good faith 

effort by the debtor to satisfy his creditors' claims. 

This approach is not at cross-purposes with the 

admittedly liberal provisions of Chapter 13, under which 

debts resulting from illegal acts such as embezzlement, 

fraud, and willful and malicious injury, ordinarily may 

be discharged. Rather, it ensures against manipulation 

of the statute by debtors who default on obligations 

grounded in dishonesty and who subsequently seek refuge 

in Chapter 13 in order to avoid, at minimal cost, a 

nondischargeable debt. 

794 F.2d at 152-53; see also Fidelity & Casualty Co. of N.Y. v. 

Warren (In re Warren), 89 Bankr. 87, 90-91 (9th Cir. BAP 1988); 

Johnson v. Vanguard Holding Corp. (In re Johnson), 708 F.2d 865, 

868 (2d Cir. 1983). 

On balance, using the "totality of the circumstances" 

approach required by Flygare, we conclude that Mr. Rasmussen's 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 7 
Chapter 13 filing was not made in good faith. We reach this 

conclusion because the Chapter 13 filing was a manipulation of the 

bankruptcy system in order to discharge a single debt for de 

minimis payments under a Chapter 13 plan which was ruled not 

dischargeable under an immediately previous Chapter 7 filing, when 

the debtor could not originally meet the jurisdictional 

requirements of Chapter 13. 

Because the bankruptcy court and the district court 

previously considered these factual matters and reached what we 

believe to be an erroneous conclusion, we do not need to remand 

this matter for further consideration below. The judgment of the 

United States District Court for the District of Colorado is 

REVERSED. The debtor's Chapter 13 debt reorganization plan is 

DISMISSED. 

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Appellate Case: 88-2593 Document: 010110063727 Date Filed: 11/01/1989 Page: 8