1 

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re: Michele Robinson, Case No. 18-31989-KLP 

aka Michele Hewlett Chapter 7 

aka Michele Lynette Robinson 

aka Michele Lynette Goode, 

 Debtor. 

MEMORANDUM OPINION 

 This case is before the Court on the motion of the United States Trustee (the 

“UST”) to dismiss the chapter 7 case of Michele Robinson (the “Debtor”) with 

prejudice to refiling another bankruptcy case for two years. After reviewing the 

submissions of the parties and the evidence and argument presented at an 

evidentiary hearing held October 26, 2022, the Court finds that the UST’s motion 

should be granted, and the case should be dismissed with a one-year bar to refiling. 

Jurisdiction and Venue 

The Court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b) and 

the general order of reference of the U.S. District Court for the Eastern of Virginia 

dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). 

Venue is appropriate in this Court pursuant to 28 U.S.C. § 1409. 

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History of the Case and Findings of Fact 

Prior to the hearing, the parties submitted a joint stipulation of facts. ECF 

85.1 The following findings of fact are derived from the joint stipulations, the 

record, and the evidence admitted during the hearing.2

The Debtor commenced her case by filing a voluntary chapter 13 petition (the 

“Petition”) on April 13, 2018 (the “Petition Date”). ECF 1. When the Petition was 

filed, the Debtor’s assets included: (a) a 100% ownership interest in a parcel of real 

estate located at 2227 South Whitehill Drive in Petersburg, VA (the “Petersburg 

Property”); (b) a shared interest with her spouse in a timeshare in Orlando, FL (the 

“Timeshare”); and (c) a 2011 Hyundai Genesis (the “Hyundai”). 

The exemptions and secured indebtedness the Debtor listed in her schedules 

revealed that if this case been filed under Chapter 7, only the Petersburg Property 

would have had equity for the benefit of unsecured creditors. The Debtor scheduled 

the Petersburg Property as having a value of $41,900 on the Petition Date which, 

after the deduction of an exemption of $10,000 and a $14,704.10 lien in favor of the 

Credit Union of Richmond (the “Credit Union”), left hypothetical equity of 

$17,195.90. See ECF 1, Schedules A/B, C, D. The Petersburg Property was 

described as a rental property, although in Schedule I the Debtor did not list any 

rental income. 

1 References to “ECF” refer to the Court’s Electronic Case File for the Debtor’s case. 

2 Findings of fact shall be construed as conclusions of law, and conclusions of law shall be 

construed as findings of fact when appropriate. See Fed. R. Bankr. P. 7052, incorporated by 

Fed. R. Bankr. P. 9014(c). 

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The Debtor’s chapter 13 repayment plan (the “Plan”) was the only plan filed 

in the Debtor’s chapter 13 case. The Plan was confirmed on September 25, 2018, 

and provided that the Debtor would pay $840.00 per month for 60 months, for a 

total of $50,400.00, to the Chapter 13 Trustee (“the Chapter 13 Trustee”). ECF 24. 

From those payments, the Chapter 13 Trustee was to pay a crammed down claim on 

the Hyundai of $8,075.00 and the $14,704.10 claim secured by the lien on the 

Petersburg Property. Unsecured creditors were expected to receive a dividend of 

24% of their claims; the distribution in a chapter 7 liquidation was estimated at 

22.72%. The Debtor and/or her spouse were to maintain and directly pay the 

regular contract payment of $365.99 per month for the Timeshare. See ECF 12.3 

During the Debtor’s chapter 13 case, neither the Debtor nor her spouse made a 

payment on the Timeshare. 

The Chapter 13 Trustee objected to the Plan on the basis that the Plan failed 

to satisfy chapter 13’s liquidation test (the “Liquidation Test”), which requires that 

unsecured creditors in a chapter 7 case receive at least as much as they would have 

received had the case been filed under chapter 7. 11 U.S.C. § 1325(a)(4). More 

specifically, the Chapter 13 Trustee alleged that the Debtor had undervalued the 

Petersburg Property, which had a tax assessment of $51,900.00, and that 

accounting for its true value would result in a larger distribution to unsecured 

creditors. ECF 16. For reasons unexplained, the Chapter 13 Trustee subsequently 

3 The original Schedule J included a line-item expense of $356.00 for the Timeshare 

payment. ECF 1. 

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withdrew the objection, ECF 23, and the Plan was confirmed.4 ECF 24. Prior to 

confirmation, the Debtor made no modifications to the Plan nor did the confirmation 

order modify the Plan in any way. ECF 85, ¶ 6. 

On October 20, 2021, the Chapter 13 Trustee moved to dismiss the Debtor’s 

case for default by the Debtor in making payments under the Plan. ECF 29. At a 

December 1, 2021, hearing on the Trustee’s motion to dismiss, the Debtor was 

granted 30 days to convert her case to chapter 7 or the case would be dismissed. 

ECF 31. The Debtor moved to convert her case to chapter 7 on December 21, 2021, 

ECF 34, and the Court entered an order of conversion the next day. ECF 36. 

The total amount the Debtor paid to the Chapter 13 Trustee was $33,547.07. 

ECF 47. From that amount, Counsel for the Debtor received $4,633.00, the 

modified claim secured by the Hyundai was paid $8,862.43, and the Credit Union 

received $7,759.90 on its claim secured by the Petersburg Property. Id. 

Participating unsecured creditors, whose claims totaled $66,381.16, collectively 

received a total of $9,813.74. Id. The amount received by unsecured creditors was 

approximately 15% of their claims, which is less than the 24% they would have 

received under the Plan if it had been completed and is also less than the 22.72% 

creditors would have received under the liquidation analysis set forth in the Plan. 

4 It would appear that the Chapter 13 Trustee elected to accept the Debtor’s valuation of 

the Petersburg Property, perhaps after accounting for expenses of administration in 

connection with the liquidation analysis. Accordingly, under the confirmed Plan, unsecured 

creditors were expected to receive a total of just under $16,000 (24% of $66,281.16 of 

allowed unsecured claims). 

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On May 15, 2020, more than two years into the chapter 13 case and over a 

year and a half before the Debtor converted her case to chapter 7, there was a fire at 

the Petersburg Property. As a result of the fire, the Debtor made an insurance 

claim (the “Insurance Claim”) with USAA and obtained an actual cash value 

settlement totaling $91,174.53. ECF 79, Ex. 17. From that amount, the Debtor 

received a direct payment of $82,544.03 (the “Proceeds”) on July 15, 2020. USAA 

wrote a separate check payable to the Credit Union in the amount of $8630.49 to 

pay the Credit Union’s remaining secured claim. ECF 79, Ex. 22. 

The Debtor did not amend Schedules A/B or C to disclose the Insurance 

Claim or claim any exemption in the Proceeds. The Debtor did not seek court 

approval to retain or use the $82,544.03. It was only after her case was converted to 

chapter 7, approximately seventeen months after receiving the Proceeds, that the 

Debtor first amended her schedules to report the fire; however, the amended 

schedules did not disclose the Insurance Claim or the Proceeds. ECF 85, ¶ 10. 

Following the Debtor’s receipt of the Proceeds in July 2020, the Chapter 13 

Trustee was informed of the fire in two separate communications. ECF 85, ¶ 11. 

On August 8, 2020, Counsel for the Debtor spoke to the Chapter 13 Trustee’s 

director of operations, Ms. Stewart, to inform her of the fire and to determine the 

balance owed to the Credit Union so USAA could pay off the loan. Ms. Stewart 

directed the Debtor to contact the Credit Union directly to obtain the loan payoff. 

Ms. Stewart was not advised of the existence of the Proceeds during the 

conversation. 

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The second communication to the Chapter 13 Trustee was in the form of a 

letter from the Debtor received on August 11, 2020, in which the Debtor wrote: 

USAA sent me this check to pay off the house at 2227 S. Whitehill Dr. 

They spoke with the law firm and this is the amount quoted to them that was 

owed. If I’m not mistaken another payment was received from me towards 

my bankruptcy since then so the amount should have gone down. Will they 

send the overage to you or me? 

ECF 79, UST Ex. 22, p. 3. The Chapter 13 Trustee’s office returned the enclosed 

check to the Debtor because it was made payable to the Debtor and another party, 

and the Debtor was advised to contact the Credit Union directly. 

 No other communications took place between the Debtor and the Chapter 13 

Trustee. The phone call of August 8, 2020, and the letter received on August 11, 

2020, along with the Chapter 13 Trustee’s instructions that the check should be 

directed to the Credit Union, were the only communications between the parties 

regarding the fire at the Petersburg Property. See also ECF 85, ¶ 11. 

 The Debtor’s bank statements reflect how the Debtor spent the Proceeds. 

ECF 79, Ex. 19, 20.5 More than $21,000.00 in bank withdrawals were made within 

the first two months of the Proceeds’ receipt: 

Date Account Description of Transaction Amount__ 

07/16/20 3710 Withdrawal Made In A Branch/Store $3,000.00 

07/23/20 3710 Withdrawal Made In A Branch/Store $2,500.00 

08/07/20 3710 Withdrawal Made In A Branch/Store $1,000.00 

08/19/20 3710 Withdrawal Made In A Branch/Store $1,000.00 

5 The statements for two accounts at Wells Fargo were introduced, ending in 3710 and 

1451. Most of the insurance proceeds were transferred from Account xxxxxx3710 to 

Account xxxxxx1451 on July 28, 2020, in the amount of $62,413.54. ECF 79 Ex. 19, 20. 

After that date, bank withdrawals and transfers to Account xxxxxx3710 occurred regularly 

over the next seventeen months. Id. 

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08/19/20 1451 Withdrawal Made In A Branch/Store $6,000.00 

09/01/20 3710 Withdrawal Made In A Branch/Store $1,000.00 

09/02/20 1451 Withdrawal Made In A Branch/Store $5,000.00 

09/15/20 1451 Withdrawal Made In A Branch/Store $1,800.00 

Id. 

The Debtor’s bank statements also reflect more than $17,000 in payments to 

Hyundai- Motor Finance that the Debtor made between July 15, 2020, and January 

15, 2022. ECF 79, Ex. 19. The Debtor testified that she had been making payments 

on her husband’s behalf for a 2020 Hyundai Palisade (the “Palisade”) and paying its 

associated expenses. According to the purchase contract for the Palisade, payments 

were required to commence February 29, 2020. ECF 79, Ex. 79, Ex. 18. The amount 

financed totaled $52,193.64. Id. Although it is not clear whether the Debtor was 

making payments on the Palisade before July 2020, considering that the required 

payments under the contract between February 29, 2020, and December 29, 2021, 

totaled $18,756.50, it appears the Debtor has made most of the loan payments due 

on the Palisade to date. See ECF 79, Ex. 18, 19.6 

The bank statements also reflect numerous recurring transactions to 

individuals throughout the period following the Debtor’s receipt of the Proceeds, via 

applications like Cash App and Square. Id. The Debtor testified that many of the 

recipients were family or friends whom she supported financially and that she also 

regularly supported an adult son with Crohn’s disease throughout this period. 

6At the time of conversion, the Debtor amended schedule J to disclose that she was making 

the payments on the Palisade. ECF 42. 

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When the Chapter 13 Trustee filed the Motion to Dismiss in October 2021, 

alleging the Debtor’s payment default under the Plan, the Debtor still retained 

approximately $11,000.00 of the Proceeds in her savings account. ECF 20, 29. The 

Debtor made the following cash withdrawals following the Chapter 13 Trustee’s 

Motion to Dismiss: 

Date Acct. Description of Transaction Amount__ 

11/23/21 1451 Withdrawal Made In A Branch/Store $1,000.00 

11/24/21 1451 Withdrawal Made In A Branch/Store $3,200.00 

12/21/21 1451 Withdrawal Made In A Branch/Store $1,000.00 

ECF 79, Ex. 20. The Debtor’s bank statements also show that she received regular 

income averaging over $6500.00 per month between her receipt of the Proceeds and 

her conversion of the case to chapter 7. 

 After the conversion of the case to chapter 7, the Debtor amended her 

schedules to report the fire, but she did not disclose her receipt of the Proceeds in 

her amended schedules.7 See ECF 42. In her amended schedule A/B the Debtor 

listed the value of the Petersburg Property at $5000.00 and stated that the 

residence was totaled by fire and not habitable. Id. The Chapter 7 Trustee filed a 

report of no distribution in the chapter 7 case on April 19, 2022. ECF 61.8

Conclusions of Law 

7 Debtor filed the amended schedules on January 20, 2022, following the conversion of her 

case to chapter 7. The amendment added the Debtor’s adult son as a dependent and 

removed the Timeshare payment. ECF 42, Schedule J. 

8 The Chapter 7 trustee did not take a position on the UST’s Motion to Dismiss. See ECF 

Docket, generally. Whether and to what extent the Chapter 7 trustee would have had any 

rights under the Insurance Claim and/or the Proceeds is not an issue before the Court. See 

11 U.S.C. § 348(f)(1) (defining scope of estate upon conversion). 

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A bankruptcy court may dismiss a case under chapter 7 “for cause” after 

notice and a hearing. 11 U.S.C.§ 707(a). Although “cause” is not defined in the 

Bankruptcy Code, § 707(a) provides three non-exclusive causes: unreasonable delay 

by the debtor that is prejudicial to creditors, nonpayment of statutory fees, and the 

failure of the debtor to timely file the information required § 521(a)(1) of the 

Bankruptcy Code. Id.9 Most courts, including the Fourth Circuit, have held that “a 

debtor’s bad faith in filing may constitute cause for dismissal under § 707(a).” 

Janvey v. Romero, 883 F.3d 406, 412 (4th Cir. 2018).10 

In Janvey, the Fourth Circuit noted that the Bankruptcy Code “balances the 

interests of both creditors and debtors in the distribution of an insolvent party’s 

assets” by seeking to pay creditors “to the extent possible” while simultaneously 

granting a “fresh start to the honest but unfortunate debtor.” Id. at 410 (citations 

omitted). The court cautioned that while there is a need to prevent “serious abuses 

of the bankruptcy process,” the acknowledgment that bad faith may constitute 

cause for dismissal under § 707(a) also “requires that the remedy of dismissal be 

reserved for cases of real misconduct.” Id. at 412. For that reason, “bad faith exists 

only where ‘the petitioner has abused the provisions, purpose, or spirit of 

9 Unless otherwise noted, subsequent references to the Bankruptcy Code or to specific 

sections are to the provisions of 11 U.S.C. §§ 1-1532. 

10 Citing Krueger v. Torres (In re Krueger), 812 F.3d 365, 370 (5th Cir. 2016) (“[A] debtor’s 

bad faith in the bankruptcy process can serve as the basis of a dismissal ‘for cause’ . . . .”). 

In Krueger, the Fifth Circuit quoted Little Creek Dev. Co. v. Commonwealth Mortg. Co. (In 

re Little Creek Dev. Co.), 779 F.2d 1068, 1071 (5th Cir.1986), observing that “[e]very 

bankruptcy statute since 1898 has incorporated literally, or by judicial interpretation, a 

standard of good faith for the commencement, prosecution, and confirmation of bankruptcy 

proceedings.” 812 F.3d at 370. 

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bankruptcy law.’” Id. (quoting Tamecki v. Frank (In re Tamecki), 229 F.3d 205, 207 

(3d Cir. 2000)); see also Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 

1129 (6th Cir. 1991) (bad faith exists “only in those egregious cases that entail 

concealed or misrepresented assets and/or sources of income, and excessive and 

continued expenditures, lavish lifestyle, and intention to avoid a large single debt 

based on conduct akin to fraud, misconduct, or gross negligence.”). 

The court in Janvey instructed that “[c]ourts must consider the totality of the 

circumstances underlying each case to determine whether a debtor has acted in bad 

faith.” 883 F.3d at 412. Various courts have developed multifactor tests to 

determine whether a debtor has acted in bad faith such that cause for dismissal 

exists;11 however, none of these tests are absolutes, and “[e]valuating these factors 

11 See, e.g., McDow v. Smith, 295 B.R. 69, 80 n.22 (E.D. Va. 2003): 

(1) The debtor's concealment or misrepresentation of assets and/or 

sources of income, such as the improper or unexplained transfers of 

assets prior to filing; 

(2) The debtor's lack of candor and completeness in his statements and 

schedules, such as the inflation of his expenses to disguise his financial 

well-being; 

(3) The debtor has sufficient resources to repay his debts, and leads a 

lavish lifestyle, continuing to have excessive and continued 

expenditures; 

(4) The debtor's motivation in filing is to avoid a large single debt 

incurred through conduct akin to fraud, misconduct, or gross 

negligence, such as a judgment in pending litigation, or a collection 

action; 

(5) The debtor's petition is part of a “deliberate and persistent pattern” 

of evading a single creditor; 

(6) The debtor is “overutilizing the protection of the Code” to the 

detriment to his creditors; 

(7) The debtor reduced his creditors to a single creditor prior to filing 

the petition; 

(8) The debtor's lack of attempt to repay creditors; 

(9) The debtor's payment of debts to insider creditors; 

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and their comparative relevance is a discretionary exercise that is best left to 

bankruptcy judges.” Id. Accordingly, the Court must consider the testimony and 

exhibits admitted at the October 26 hearing, take judicial notice of filings on the 

record, and consider the relevant factors to determine whether the circumstances 

existing in this case are sufficient to establish that the Debtor acted in bad faith. 

The Debtor’s acts and omissions of which the UST complains took place 

mostly prior to the Debtor’s voluntary conversion of her case from chapter 13 to 

(10) The debtor's “procedural gymnastics” that have the effect of 

frustrating creditors; 

(11) The unfairness of the debtor's use of the bankruptcy process. 

See also In re Griffieth, 209 B.R. 823, 827 (Bankr. N.D.N.Y. 1996) (“some common factors 

emerge from the case law. These factors include: (1) debtor's manipulations having the 

effect of frustrating one particular creditor, (2) absence of an attempt to pay creditors, (3) 

debtor's failure to make significant lifestyle changes, (4) debtor has sufficient resources to 

pay substantial portion of debts, (5) debtor inflates expenses to disguise financial wellbeing, and (6) debtor is overutilizing protections of the Code to the unconscionable 

detriment of creditors.”). 

See also In re Spagnolia, 199 B.R. 362, 365 (Bankr. W.D. Ky. 1995): 

1. The debtor reduced his creditors to a single creditor in the months 

prior to filing the petition. 

2. The debtor failed to make lifestyle adjustments or continued living 

an expansive or lavish lifestyle. 

3. The debtor filed the case in response to a judgment pending litigation, 

or collection action; there is an intent to avoid a large single debt. 

4. The debtor made no effort to repay his debts. 

5. The unfairness of the use of Chapter 7. 

6. The debtor has sufficient resources to pay his debts. 

7. The debtor is paying debts to insiders. 

8. The schedules inflate expenses to disguise financial well-being. 

9. The debtor transferred assets. 

10. The debtor is over-utilizing the protection of the Code to the 

unconscionable detriment of creditors. 

11. The debtor employed a deliberate and persistent pattern of evading 

a single major creditor. 

12. The debtor failed to make candid and full disclosure. 

13. The debts are modest in relation to assets and income. 

14. There are multiple bankruptcy filings or other procedural 

“gymnastics.” 

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chapter 7. The UST contends that the Debtor committed bad faith by failing to 

disclose the existence of the Insurance Claim and her receipt of the Proceeds and by 

failing to provide accurate and complete information on her bankruptcy schedules.12

More specifically, the UST asserts that the Proceeds were estate property, the 

receipt of which resulted in a substantial and unanticipated change in the Debtor’s 

postpetition financial affairs giving her a duty to disclose their existence. The UST 

argues that the Debtor’s failure to do so, coupled with her dissipation of the 

Proceeds without court authority and her subsequent conversion to Chapter 7 after 

the funds had largely been expended, requires the dismissal of her case for bad 

faith. 

Section 1325(a)(4) of the Bankruptcy Code provides that “the court shall 

confirm a plan if . . . the value . . . of property to be distributed under the plan on 

account of each allowed unsecured claim is not less than the amount that would be 

paid on such claim if the estate of the debtor were liquidated under chapter 7 . . . .” 

11 U.S.C. §1325(a)(4). The Debtor’s confirmed Chapter 13 plan (the “Plan”) 

provided that unsecured creditors could expect to receive a dividend of 24% of their 

allowed claims, based on an estimated chapter 7 liquidation distribution of 22.72%. 

On her schedules, the Debtor valued the Petersburg Property at $41,900.00 as of 

the Petition Date. After subtracting an exemption of $10,000.00 and the Credit 

Union lien in the amount of $14,704.10, $17,195.90 in equity would be available for 

unsecured creditors in a hypothetical liquidation under chapter 7, without 

12 A lack of candor and completeness in a debtor’s schedules is a factor evidencing bad faith. 

See McDow, 295 B.R. at 80 n.22. 

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considering associated sale expenses. Based on this understanding, the Plan was 

confirmed, as it complied with the Liquidation Test. 

Section 1329(a) of the Bankruptcy Code provides that a chapter 13 plan “may 

be modified, upon request of the debtor, the trustee, or the holder of an allowed 

unsecured claim, to . . . increase or reduce the amount of payments on claims of a 

particular class provided for by the plan . . . .” 11 U.S.C. § 1329(a). The Fourth 

Circuit has held that “[i]t is well-settled that a substantial change in the debtor’s 

financial condition after confirmation may warrant a change in the level of 

payments.” Arnold v. Weast (In re Arnold), 869 F.2d 240, 241 (4th Cir. 1989). In 

Arnold, the court pointed out that “Congress did not intend for debtors who 

experience substantially improved financial conditions after confirmation to avoid 

paying more to their creditors,” noting that it “is especially true here, where under 

the original Chapter 13 plan, the unsecured creditors were to receive only 20 cents 

on the dollar for their claims . . . while [the debtor’s] income has escalated nearly 

150%.” Id. at 242. 

In In re Murphy, the Fourth Circuit held that modification of a chapter 13 

plan pursuant to 11 U.S.C.§1329 may be necessary if a debtor experiences a 

“substantial and unanticipated” change in financial circumstances. Murphy v. 

O’Donnell (In re Murphy), 474 F.3d 143, 150 (4th Cir. 2007). Whether the change in 

a debtor’s financial circumstances is “substantial” depends on the facts and 

circumstances of the case. In re Ilyev, Case No. 17-12987, 2022 WL 2965029, at *3 

(July 26, 2022). A change is “unanticipated” if it could not have been reasonably 

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anticipated at the time of plan confirmation. In re Arnold, 869 F.2d at 243 (“We 

adopt the objective test applied in Fitak to determine whether a change was 

unanticipated: ‘whether a debtor’s altered financial circumstances could have been 

reasonably anticipated at the time of confirmation by the parties seeking 

modification.’” quoting In re Fitak, 92 B.R. 243, 249-50 (Bankr. S.D. Ohio 1988), 

aff’d, 121 B.R. 224 (1980)). 

The Debtor’s chapter 13 plan was confirmed on September 25, 2018. The fire 

that resulted in the destruction of the Petersburg Property occurred on May 15, 

2020. On July 15, 2020, after making a claim on her insurance policy, the Debtor 

received a payment from her insurance company in the amount of $82,544.03. The 

amount received by the Debtor was substantial and greatly exceeded the $10,000 

exemption the Debtor had claimed in the Petersburg Property.13 The receipt of the 

funds was also unanticipated because neither the fire nor the Proceeds were 

foreseeable at the time of confirmation. Under Murphy, grounds existed to modify 

the Debtor’s chapter 13 plan. 

If the Chapter 13 Trustee, a creditor, or the Debtor had moved to modify the 

chapter 13 plan pursuant to § 1329 in light of the Debtor’s substantial and 

unanticipated receipt of the Proceeds, such a modification likely would have 

occurred. The UST contends that neither the Chapter 13 Trustee nor any creditor 

was given an opportunity to seek modification of the plan because the Debtor failed 

13 See, e.g., Goodman v. Gorman (In re Goodman), 534 B.R. 656 (E.D. Va. 2015) (debtor’s 

inheritance of $36,000 was substantial and unanticipated). 

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to report receiving the Proceeds. This failure forms the basis of the UST’s assertion 

of bad faith. 

The Debtor contends that she had no duty to amend her schedules or disclose 

the Insurance Claim and the Proceeds. Recently, in In re Ilyev, this Court held that 

while the Bankruptcy Code and Federal Rules of Bankruptcy Procedure may not 

explicitly require the amendment of a debtor’s schedules when an asset becomes 

property of a chapter 13 estate pursuant to § 1306(a),14 “[d]ebtors also have a duty 

of cooperation with the Trustee. Section 521(a)(3) requires debtors to cooperate 

with trustees as necessary to enable the trustee to perform the trustee’s duties 

under Title 11.” Id. at *3. The Court concluded that “[t]he duty of cooperation under 

Section 521(a)(3) and Rule 4002(a)(4) includes a duty of disclosure for substantial 

and unanticipated changes in the Debtor’s financial condition. The Chapter 13 

Trustee cannot perform his duties, and the Court is not in a position to decide 

whether a particular change in financial circumstances may be substantial and 

unanticipated, without disclosure.” Id. at *5. Thus, even if amending her schedules 

to include the Insurance Claim and the Proceeds may not have been technically 

required, their receipt required accurate and timely disclosure to the Chapter 13 

Trustee. See U.S. Trustee v. Cortez (In re Cortez), 457 F.3d 448, 458 (5th Cir. 2006) 

(duty to disclose postpetition change in income); Cotita v. Verizon Wireless, 54 

14 Bankruptcy Code §1306(a)(1) provides that “[p]roperty of the estate includes, in addition 

to the property specified in section 54 of this title . . . all property of the kind specified in 

such section that the debtor acquires after the commencement of the case but before the 

case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, 

whichever occurs first . . . .” 11 U.S.C.§1306(a)(1). 

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F.Supp.3d 714 (W.D. Ky. 2014) (duty to disclose litigation claims); In re Pautin, 521 

B.R. 754, 763 (Bankr. W.D. Tex. 2014) (failure to report additional earnings and tax 

refund not good faith); see also Waldron v. Brown (In re Waldron), 536 F.3d 1239, 

1245 (11th Cir. 2008) (“The disclosure of post confirmation assets gives the trustee 

and creditors a meaningful right to request, under section 1329, a modification of 

the debtor’s plan to pay his creditors . . . . If post confirmation assets were not 

subject to disclosure, modifications for increased payments would be rare because 

few debtors would voluntarily disclose new assets, and the trustee and creditors 

would be unlikely to obtain this information from sources other than the debtor.”). 

The Debtor has also asserted that the insurance policy covering the 

Petersburg Property is a contractual right between the insurance company and the 

Debtor and, therefore, neither inures to the benefit of the bankruptcy estate nor 

represents proceeds derived from the property itself.15 This assertion is wrong, as 

demonstrated by a lengthy opinion out of the U.S. Bankruptcy Court for the 

Southern District of Ohio addressing factual circumstances similar to those at bar. 

In In re Scholl, 605 B.R. 163 (Bankr. S.D. Ohio 2019), the bankruptcy court 

addressed a dispute between a chapter 13 debtor and the trustee over insurance 

proceeds stemming from a fire that destroyed the debtors’ rental property during 

the 59th month of a 60-month plan. The debtor filed a motion to keep all the 

15 “[The USAA policy] is only a contractual right between the insurer and the insured and is 

of no benefit to third parties not named in the policy. . . . The receipt of fire insurance 

proceeds was never additional income to the debtor, nor was it after acquired property.” 

Debtor’s Memorandum in Support of its Objection to the Trustee’s Motion to Dismiss Case 

with Prejudice to Refiling for Bankruptcy for Two Years, ECF 87, p.5. 

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insurance proceeds, in the amount of $194,000, for the purpose of replacing the 

improvements on the property. The chapter 13 trustee objected and sought 

modification of the plan to increase the distribution to unsecured creditors. 

 Initially, the court observed that “there [can be no] serious dispute that the 

insurance policy that the Debtors owned prepetition is property of the estate, even 

though they failed to list it on their bankruptcy schedules.”16 Id. at 171. The court 

also found that proceeds of an insurance policy made payable to the debtor are 

property of the estate that may inure to the benefit of creditors. Id. at 172 (citing, 

inter alia, Am. Bankers Ins. Co. v. Maness, 101 F.3d 358, 364 (4th Cir. 1996)). For 

that reason, the court found that the insurance proceeds could only be used by the 

debtors with court approval. Id. at 173. 

After considering the totality of the circumstances, the court concluded that 

“a post-confirmation fire that results in a total loss of the Debtors' Rental Property, 

which has appreciated in value and leads to a substantial payment from an insurer, 

constitutes the sort of financial change that justifies a request for an increase in the 

payments unsecured creditors should receive. The fire and subsequent demolition 

of the Rental Property were completely unforeseen, as was the substantial 

appreciation in value of the Property before it was destroyed. Those events gave 

rise to a dramatic change in the Debtor’s financial condition post-confirmation, and 

16 Citing Stinett v. Laplante (In re Stinett), 465 F.3d 309, 312 (7th Cir. 2006) (“As a general 

matter, insurance contracts in which the debtor has an interest at the time the petition is 

filed constitute property of the estate for purposes of § 541(a).”). See also Am. Bankers Ins. 

Co. v. Maness, 101 F.3d 358, 362 (4th Cir. 1996) (“[D]ebtors’ insurance policies clearly 

constitute ‘interests’ under § 541(a) of the Bankruptcy Code.”). 

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that change became subject to the provisions of § 1329.” Id. at 179. The court held 

that a plan modification that would permit the debtors to retain a “windfall” of 

$80,000 while paying only 32 cents on the dollar to unsecured creditors “perverts 

the good faith test under § 1325 (a)(3) . . . .” Id. at 183. 

Just as the court in Scholl found when addressing similar facts, here the 

Proceeds of the policy insuring the Petersburg Property were property of the 

Debtor’s chapter 13 estate that the Debtor could use only with court approval. And, 

like the facts in Scholl, the fire that destroyed the Petersburg Property was 

unforeseen and resulted in a substantial insurance payment, thus triggering the 

application of § 1329. 

Having found that both the Insurance Claim and the Proceeds constituted 

property of the estate and that receipt of the Proceeds stemming from the 

destruction of the Petersburg Property represented a substantial and unanticipated 

change in the Debtor’s financial circumstances, the Court must now review the 

Debtor’s actions and determine whether dismissal with prejudice is the appropriate 

remedy under the circumstances of this case. The primary consideration here is 

whether the Debtor has acted in good faith.17

In contrast to the debtor in Scholl, the Debtor neither reported the receipt of 

the $82,544.03 in insurance proceeds, nor did she seek court approval before 

expending the funds. The Debtor received the Proceeds on July 15, 2020, but did 

17Courts consistently hold that “good faith and candor are necessary prerequisites to 

obtaining a fresh start.” Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1129 

(6th Cir. 1991) 

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not amend her bankruptcy schedules until after her conversion to chapter 7 on 

December 21, 2021. When she did amend her schedules, she reported the fire but 

not the receipt of net proceeds of $82,544.03.18 Although the Chapter 13 Trustee’s 

office was advised of the fire in August 2020, it was not made aware that the 

insurance proceeds greatly exceeded the payoff of the Credit Union’s lien. Instead, 

the Chapter 13 Trustee was told only that the insurance company would pay off the 

Credit Union lien. The Debtor’s actions were consistent with the position she is 

currently taking, that the Proceeds were not property of the bankruptcy estate and 

she had no obligation to disclose them, neither of which is correct. As a result of her 

actions, the Chapter 13 Trustee and her creditors were not afforded the opportunity 

to seek a plan modification, and the Court’s responsibility to determine the 

appropriate disposition of the insurance proceeds was usurped. 

During the pendency of her chapter 13 case, the Debtor paid $33,547.07 to 

the Chapter 13 Trustee. Of that amount, counsel to the Debtor received $4633.00, 

the creditor whose claim was secured by the Hyundai received $8,862.43,19 and the 

Credit Union received $7759.00.20 Unsecured creditors holding a total of $66,381.16 

in allowed claims received only $9,813.74. After her receipt of the insurance 

proceeds on July 15, 2020, and before her conversion to chapter 7, the Debtor paid 

only $12,600.00 to the Chapter 13 Trustee. 

18 The actual cash value of the insurance claim was $91,174.52, ECF 79, UST Ex. 17, of 

which the Debtor received a direct payment of $82,544.03 ECF 85, ¶9. A separate check in 

the amount of $8630.49 was written to pay the balance of the Credit Union lien. ECF 79, 

Ex. 22. 

19 The secured creditor was paid its full $8075.00 claim plus $787.43 in interest. 

20 The Credit Union was paid its full $6384.29 claim plus $1375.61 in interest. 

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Evidence presented at the hearing on October 26 reflected that the majority 

of the Proceeds were expended by the Debtor toward living expenses and payments 

on her husband’s vehicle. The Debtor acknowledged that she used a portion of the 

Proceeds to support needy family members and friends, including an adult son 

suffering from Crohn’s disease. She further testified that her financial 

circumstances had significantly changed, resulting in additional living expenses. 

There was no evidence indicating that the Proceeds were used for luxury items or 

discretionary expenses. 

The Court finds the Debtor’s testimony to be credible and accepts the 

Debtor’s representation that the Proceeds she received were primarily used to pay 

necessary living expenses. However, her lack of candor cannot be overlooked or 

condoned. Had the Trustee been made aware of the actual amount of the Proceeds, 

it is likely that she would have sought modification of the Debtor’s chapter 13 plan 

to increase the distribution to unsecured creditors. Instead, the Debtor, perhaps 

under the mistaken belief that she had no duty to report her receipt of the Proceeds, 

chose to deprive her creditors and the Chapter 13 Trustee the opportunity to seek 

an increase in their recoveries. She expended nearly $80,000 in unreported 

receipts, with only a few thousand dollars remaining before seeking to convert her 

case to one under chapter 7. Considering the totality of the circumstances, the 

Court finds that the Debtor failed to act in good faith.21 Consequently, cause exists 

to dismiss the Debtor’s case pursuant to 11 U.S.C.§ 707(a). 

21 Bad faith does not require a finding of actual fraud or malice, neither of which appears to 

have occurred in this case. However, when it is determined that a debtor has acted in bad 

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The UST seeks dismissal of the Debtor’s case along with a bar to refiling 

bankruptcy for a period of two years. The Court agrees that dismissal with 

prejudice is an appropriate remedy because it establishes a consequence for the 

Debtor’s bad faith, provides some relief to her creditors and puts others on notice 

that a chapter 13 debtor’s failure to disclose unanticipated and substantial changes 

in their financial circumstances will result in similar repercussions; however, in the 

view of the Court a two-year bar is excessive under the facts of this case. The Court 

will therefore impose a one-year bar to the Debtor’s refiling bankruptcy. See 11 

U.S.C.§ 105(a) (“The court may issue any order, process, or judgment that is 

necessary or appropriate to carry out the provisions of this title.”). 

Conclusion 

There is no doubt that the Proceeds received by the Debtor during the 

pendency of her chapter 13 case represented a substantial and unanticipated 

change in circumstances necessitating that her receipt of same be disclosed in her 

bankruptcy case. It was for the Court, not the Debtor, to determine the appropriate 

disposition of the Proceeds regardless of the perceived needs of the Debtor and her 

dependents. The Debtor’s failure to report her receipt of the Proceeds deprived her 

creditors of the opportunity to seek a modification of her Plan and, more 

importantly, preempted the role of the Court to determine their appropriate 

disposition. 

faith, it is incumbent upon the Court to preserve the integrity of the bankruptcy process by 

refusing to condone it. Shell Oil C. v. Waldron (In re Waldron), 785 F.2d 936, 941 (11th Cir. 

1986). 

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 For the foregoing reasons, the Debtor’s bankruptcy case will be dismissed. 

The Debtor will be prohibited from filing a bankruptcy case in this or any other 

court for a period of one year. 

A separate order will issue. 

Signed : March 17, 2023 

 /s/ Keith L. Phillips 

 United States Bankruptcy Court 

Copies: 

Michele Robinson 

21301 Trogan Dr 

South Chesterfield, VA 23803 

Corine E. G. Bailey 

Law Office of Corine E.G. Bailey PC 

116 N. Sycamore Street 

P.O. Box 548 

Petersburg, VA 23804 

John P. Fitzgerald, III 

Office of the US Trustee - Region 4 -R 

701 E. Broad Street, Ste. 4304 

Richmond, VA 23219 

Kathryn R. Montgomery 

Office of the United States Trustee 

701 East Broad Street, Ste. 4303 

Richmond, VA 23219 

Jason Brill Shorter 

Office of the United States Trustee 

701 East Broad Street, Suite 4304 

Richmond, VA 23219 

ENTERED ON DOCKET: March 17, 2023

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