UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

NORTHERN DIVISION 

In re: Michael B. White and 

 Darla Kay White, 

 Debtors, 

MICHAEL B. WHITE, and 

DARLA KAY WHITE, 

 Appellants, Case No. 14-cv-14599 

v. Honorable Thomas L. Ludington 

DANIEL M. MCDERMOTT, United States Trustee, 

FRANKENMUTH CREDIT UNION, 

ALLY FINANCIAL, INC., 

 Appellees. 

_______________________________________/ 

OPINION AND ORDER AFFIRMING BANKRUPTCY COURT 

 Appellants Michael and Darla White appeal a decision of the Bankruptcy Court for the 

Eastern District of Michigan. The bankruptcy case was initiated on July 30, 2013 when the 

Whites sought the protection of Chapter 11 of the bankruptcy code. After proposing two plans of 

reorganization, both of which were rejected by the bankruptcy court, Judge Opperman 

determined that the case should be converted to a proceeding under Chapter 7 of the bankruptcy 

code and the automatic stay on the sale of the White’s assets, namely their house and car, should 

be lifted. The Whites now appeal that ruling. 

I. 

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 Michael and Darla White were a husband and wife who resided in Birch Run, Michigan.1

Michael White has worked in the fields of construction and sand mining. Darla White worked for 

a number of years in the insurance and trucking industries. The Whites’ careers changed 

significantly in 2007 when Darla White began suffering from a disability. She was no longer able 

to work and Michael, facing his own issues with employment, took time to care for her. Darla’s 

health never recovered after 2007 and she was unable to return to work. Eventually Michael 

found steady employment in the meat market at a local Meijer’s, where he still works. 

A. 

 The Whites purchased their primary residence at 11085 Block Road, Birch Run, 

Michigan (“Block Road property”), in 1990. The homestead consists of 40 acres of farmland and 

a farmhouse where the Whites reside. They paid the mortgage loan for the house in full in 2006. 

In 2007, the White sought a line of credit from Frankenmuth Credit Union (“FCU”). Their credit 

request was approved and they secured a $100,000.00 loan from FCU that was secured by a 

mortgage against the Block Road property. The loan money was withdrawn using a credit card 

issued to the Whites. 

 The Whites withdrew the full amount of the loan within eighteen months of the account 

being opened. By 2010, the Whites began to fall behind on their loan payments. They stopped 

making payments altogether in 2011. In response, FCU initiated a foreclosure action in Saginaw 

County Circuit Court. The Whites defended the action, contending that FCU’s mortgage was 

invalid, but were unsuccessful. The Saginaw County Circuit Court entered a judgment of 

foreclosure in favor of FCU on July 15, 2011. FCU was authorized to hold a foreclosure sale 

after August 5, 2011 and to recover $113,789.23 in costs and fees. 

 

1

 Darla White passed away after appeal was taken in this case. 

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B. 

 On July 30, 2015, before FCU conducted a foreclosure sale, the Whites filed for 

bankruptcy and the automatic stay barred the foreclosure sale. As part of the Chapter 11 

bankruptcy proceeding, the Whites were required to provide monthly operating reports to the 

bankruptcy court. Those reports were timely filed each month until the case was converted to a 

Chapter 7 proceeding. 

C. 

 During the roughly one year that the Whites were in bankruptcy they reported a negative 

cash flow in their monthly operating reports more often than not. Indeed, seven of the twelve 

reports reflected a deficit. These reports also did not make any mention of the mortgage 

payments. The Whites also did not consistently service their car loan while in bankruptcy, 

evidenced by the fact that only some of their monthly operating reports show payments on that 

loan. 

 In addition to filing monthly operating reports, the Whites had to file a schedule of their 

assets. This was filed in their initial petition, but was also included in the monthly reports. While 

the asset schedules initially reflected significant assets relative to their debt, the Whites reduced 

the value assigned to their assets during the bankruptcy proceeding. Between April and May 

2014, the Whites reduced the estimated asset value of their Block Road property from 

$360,000.00 to $170,000.00 and their WCI2

 stock from $240,000.00 to $20,520.00. 

 The Whites proposed two plans of reorganization. The first came ten months into the 

bankruptcy. All significant parties in interest objected to confirmation of the plan, including 

FCU, Ally Financial (holder of the Whites’ car loan), and the United States Trustee. The plan’s 

 

2

 This is the acronym representing the Whites’ personal incorporated entity. They use this entity to sell items on 

Amazon, amongst other things. 

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defining feature was a reduction of the amount owed by the Whites to FCU under the loan 

secured by their residence. At the time the first plan was proposed, FCU was owed $158,401.60 

but the Whites proposed reducing that amount to $70,000.00, $30,000.00 of which would come 

from a Michigan state program set up to help those hardest hit by the mortgage crisis and only 

$40,000.00 would be paid by the Whites. The Whites also proposed that the $40,000.00 be paid 

over 25 years. The plan was not confirmed and the Whites were given 28 days to propose a new 

plan. 

 Shortly after the Whites proposed their first plan, the United States Trustee moved to 

have their case dismissed or converted to a Chapter 7 proceeding. FCU and Ally also moved to 

have the automatic stay lifted, allowing FCU to continue the foreclosure. 

D. 

 The Whites filed their second plan of reorganization on August 21, 2014. A hearing was 

held the next day on the plan, the United States Trustee’s motion to dismiss or convert, and the 

creditors’ motion to lift the automatic stay. As with the first plan, the Whites’ second plan 

attempted to reduce the amount actually owed to FCU, this time claiming that, if they owed 

anything, it “should not exceed $76,556.70.” R. at 340. With this new plan, the Whites still 

proposed that FCU receive $30,000.00 in state funds, but increased the amount they would pay 

to $45,000.00, this time amortized over 40 years. The plan included a number of contingencies 

and liquidated payments to be made to them by the creditors, particularly FCU, pending the 

results of collateral proceedings unrelated to the bankruptcy. R. at 320. These included FCU 

agreeing, by confirming the plan, to paying the “Whites $175,000.00 for liquidated damages 

related to their loss of credit rating, pain & suffering, and related issues, in addition to any direct 

damages” if the Whites prevailed over FCU in their state court appeal. Id. The Whites also 

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inserted a condition that FCU would pay them $250,000.00 if the Whites lost their home to 

foreclosure but prevailed in the state court appeal. Id. Lastly, the Whites also required those 

payments to be made by FCU if “a government regulator deems the credit union to have 

committed any errors or wrongdoing in this matter” even if the Whites do not prevail in their 

state court appeal. Id. 

 The bankruptcy court declined to affirm the Whites plan and granted the motion to 

convert, converting the proceeding to a Chapter 7 bankruptcy, and lifted the stay imposed upon 

property securing the FCU and Ally loans. The Whites appealed to this Court. 

II. 

 Final orders of a bankruptcy court are appealable to a federal district court under 28 

U.S.C. § 158(a). In re Gourlay, 496 B.R. 857, 859 (E.D. Mich. 2013). “Th[is] Court reviews a 

bankruptcy court's findings of fact for clear error and its conclusions of law de novo.” Id. (citing 

AMC Mortg. Co. v. Tenn. Dep't of Revenue (In re AMC Mortg. Co.), 213 F.3d 917, 920 (6th 

Cir.2000)). 

III. 

 The Whites appeal two rulings made by the Bankruptcy Court with respect to their 

Chapter 11 proceedings. First, they challenge the decision to convert the proceeding to a Chapter 

7 bankruptcy. Second, they challenge the decision to lift the stay on FCU’s foreclosure of their 

residence. Neither of the challenges have merit. The Whites’ appeal will be denied. 

A. 

 The Whites first challenge the decision to convert the nature of the bankruptcy 

proceeding from Chapter 11 to Chapter 7. That decision was made following a motion by the 

United States Trustee to dismiss or convert the case. 

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 Chapter 11 U.S.C. § 1112 governs the conversion of Chapter 11 bankruptcy proceedings. 

Specifically, subsection (b)(1) states that: “. . . on request of a party in interest, and after notice 

and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or 

dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for 

cause . . . .” 11 U.S.C. § 1112(b)(1). Subsection (b)(4) provides a list of what qualifies as “cause” 

for purposes of conversion or dismissal of a Chapter 11 bankruptcy case. Subsection (b)(4) lists 

sixteen different scenarios that constitute “cause”, but only two, subsections (b)(4)(A)&(M), are 

relevant to the Whites. Subsection (b)(4)(A) defines “cause” as “substantial or continuing loss to 

or diminution of the estate and the absence of a reasonable likelihood of rehabilitation[.]” 11 

U.S.C. § 1112(b)(4)(A). 

 When deciding to convert the Whites’ case to a Chapter 7 proceeding, Judge Opperman 

determined that the Whites’ were experiencing continuing losses and did not have a reasonable 

likelihood of rehabilitation. He also concluded that the Whites were unable to develop a 

conforming plan. The Whites challenge that determination. 

1. 

 The Whites first argue that Judge Opperman incorrectly concluded that they were 

suffering from a substantial or continuing loss. To prove cause for conversion under Chapter 11, 

“the moving party must demonstrate that there is both a (1) [substantial or] continuing loss to or 

diminution of estate assets and (2) an absence of a reasonable likelihood of rehabilitation.” In re 

Creekside Sr. Apartments, L.P., 489 B.R. 51, 61 (B.A.P. 6th Cir. 2013) (quoting In re Westgate 

Props., Ltd., 432 B.R. 720, 723 (Bankr. N.D. Ohio 2010)) (internal quotation marks omitted). 

“To satisfy the first prong, a movant may demonstrate “that the debtor continues to incur losses 

or maintains a negative cash-flow position after the entry of the order for relief” or that the 

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debtor’s assets have declined in value since the case was commenced.” Id. (internal quotation 

marks omitted). The Sixth Circuit noted that a loss need not be substantial and continuing. Only 

one of the two is necessary. Id. Furthermore, a negative cash flow suffices to establish a 

continuing loss. Loop Corp. v. U.S. Tr., 379 F.3d 511, 515-16 (8th Cir. 2004). 

 As for rehabilitation (the second prong), “a movant must demonstrate that the debtor does 

not have a reasonable likelihood of rehabilitation.” Id. Rehabilitation requires something “much 

more demanding . . . than ‘reorganization.’” Id. (quoting In re Brutsche, 476 B.R. 298, 301 

(Bankr. D.N.M. 2012)) (internal quotation marks omitted). The Sixth Circuit explained a 

reasonable likelihood of rehabilitation as the possibility of “the debtor, or some other party, . . . 

stem[ing] the debtor’s losses and plac[ing] the debtor's enterprise back on a solid financial 

footing within a reasonable amount of time[.]” Id. (quoting In re Costa Bonita Beach Resort, 

Inc., 479 B.R. 14, 42 (Bankr. D.P.R. 2012) (internal quotation marks omitted). 

The Whites do not explain on appeal how their estate was not suffering from continuing 

diminution. They similarly made no such proofs before the bankruptcy court. Instead, the Whites 

state conclusorily that their financial situation is thriving and that the continued and repeated 

negative cash flow reflected in their monthly operating reports is merely an accounting quirk. 

According to the Whites, the fact that they used the cash method of accounting instead of the 

accrual method of accounting explains the negative cash flow. If the accrual method of 

accounting were used, they argue, their financial situation would look far healthier. 

This explanation is unpersuasive. The Whites do not explain what revenues they have an 

accrued right to receive where the cash proceeds have yet to be actually received. Only by 

showing such transactions would they benefit from the accrual method of accounting as opposed 

to the cash method. The Whites argue that the accrual method would allow them to credit 

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speculative future income, such as the value associated with the right to remove gravel from a lot 

or the value of possible future legal judgments. These items were at best speculative income and 

thus the Whites’ situation would be no better if accrual accounting were applied. 

That leaves the monthly operating reports that were presented to the bankruptcy court. As 

those reports demonstrate, the Whites were not paying their monthly liabilities. For seven of the 

twelve months they were in bankruptcy, the Whites operated at a loss. As the United States 

Trustee emphasizes, these negative figures actually understate the Whites’ financial 

circumstance. The Whites did not make a payment on their home mortgage during any month of 

the bankruptcy proceeding, let alone the months where they noted an operating loss.3

 The Whites 

also made only periodic payments on the debt owed under their automobile loan. Thus, even 

assuming the Whites did not need to service two of their most substantial debts, they were still 

operating at a loss. Judge Opperman did not err in determining that the Whites’ were suffering a 

continuing loss. 

2. 

Facing a continuing loss is alone not fatal to the Whites’ hopes of completing a Chapter 

11 bankruptcy unless their estate also faces no reasonable probability of rehabilitation—the 

second prong of the continuing or substantial loss analysis. The Sixth Circuit explained in In re 

Creekside Sr. Apartments, L.P., 489 B.R. 51 (B.A.P. 6th Cir. 2013), that debtors are not afforded 

“an unlimited amount of time to confirm a plan or an unlimited number of attempts at plan 

confirmation[.]” Id. at 61. For that reason, a debtor does not have a “reasonable likelihood of 

rehabilitation” if “the debtor’s plan of reorganization lacks a ‘reasonable possibility of being 

confirmed within a reasonable time.’” Id. (quoting Loop Corp., 379 F.3d at 516). There is no 

 

3

 The Whites maintain that they do not owe any money on this mortgage, which perhaps explains why they have 

chosen not to make any payments on the mortgage. 

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bright line rule as to what amount of time is a reasonable amount for a debtor to confirm a plan. 

See In re Am. Capital Equip., LLC, 688 F.3d 145, 162 (3d Cir. 2012) (citing conversions that 

occurred after three months as reasonable). 

 The Whites argue that they were not given a reasonable amount of time to confirm a plan 

because they were only permitted two proposals. They believe this to be unjust because in 

Creekside, 489 B.R. 51, the debtors were permitted to file four plans. But Creekside does not 

support the notion that the Whites were entitled to more bites at the apple. Rather, where a 

debtor’s proposals do not show an improved likelihood of confirmation, the law favors 

conversion or dismissal rather than more attempts at confirmation. That is because “repeatedly 

unsuccessful attempts at confirmation are likely to generate enormous administrative costs, often 

without increasing the likelihood of success[.]” In re Am. Capital Equip., LLC, 688 F.3d at 162-

63 (quoting In re Rand, No. AZ–10–1160, No. 07–06801, 2010 WL 6259960, at *5 (9th Cir. 

BAP Dec. 7, 2010)) (internal quotation marks omitted). 

 Here, the Whites did not propose their first plan until ten months after first filing for 

bankruptcy. After that plan was rejected it took another three months to propose a new plan. 

Such a delay is not offensive in and of itself, but the second plan was materially the same as the 

first, despite the Whites’ debt continuing to mount and them not making any servicing payments 

on those liabilities. The Whites argue that Judge Opperman’s decision to convert their 

bankruptcy on the same day that their second plan was heard was unfair. But the Whites’ first 

plan was substantively unreasonable and their second plan made no greater progress. For 

example, the Whites proposed reducing the liability on their foreclosed mortgage from over 

$150,000.00 to $75,000.00. This, in spite of the fact that Chapter 11 plans may not “modify the 

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rights of holders of secured claims . . . secured only by a security interest in real property that is 

the debtor’s principal residence[.]” 11 U.S.C. § 1123(b)(5). 

The Whites argue that not all of their Block Road property qualifies as a principal 

residence, but none of their arguments are persuasive. The bankruptcy code defines a “debtor’s 

principal residence” as “a residential structure if used as the principal residence by the debtor, 

including incidental property[.]” 11 U.S.C. § 101(13A)(A). The Whites somehow interpret the 

inclusion of the “incidental property” language as permission to separate their acreage into two 

buckets: principal residence and incidental property. The bankruptcy code authorizes no such 

treatment. The Code further defines “incidental property” as, “with respect to a debtor’s principal 

residence[,] . . . property commonly conveyed with a principal residence in the area where the 

real property is located[.]” 11 U.S.C. § 101(27B)(A). Thus, the Code is clear in two separate 

sections that there is no authority for separating a parcel of land that constitutes a principal 

residence. 

The Whites’ attempts to modify the amount owed on their mortgage are not permitted by 

the Code. To the extent a modification of the Whites’ mortgage liability was integral to their 

possibility of rehabilitation, their plan could not be reasonably effectuated. 

But the Whites not only argue that their mortgage liability should be reduced. They also 

argue that the mortgage itself is invalid. These arguments were presented to the Bankruptcy 

Court in the Whites’ objection to Frankenmuth Credit Union’s proof of claim. The Bankruptcy 

Court rejected Whites’ arguments that the mortgage was invalid on the basis of the RookerFeldman doctrine. The Whites’ challenge that ruling on appeal. They argue that “[p]reclusion in 

[the] bankruptcy court would violate [their] right to due process under the U.S. Constitution.” 

ECF No. 5 at 19. 

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This claim falls squarely within the Rooker-Feldman doctrine. Indeed, the Whites’ claim, 

as they formulate it, seeks the exact kind of relief the doctrine prohibits. The Rooker-Feldman

doctrine “prevent[s] a party losing in state court . . . from seeking what in substance would be 

appellate review of the state judgment [in the lower federal courts] based on the losing party’s 

claim that the state judgment itself violates the loser’s federal rights.” Pieper v. Am. Arbitration 

Ass’n, Inc., 336 F.3d 458, 460 (6th Cir. 2003) (quoting Tropf v. Fid. Nat. Title Ins. Co., 289 F.3d 

929, 936-37 (6th Cir. 2002)) (second alteration in original). The doctrine also “bars relitigation 

of claims raised in state-court proceedings as well as claims that are “inextricably intertwined” 

with the claims asserted there.” Id. So the Whites assertion that federal law4

 requires a ruling that 

their mortgage with FCU is invalid would be no more than an attempt at relitigating the issues 

they raised in the Saginaw Circuit Court. Judge Borchard of the Saginaw Circuit Court issued a 

judgment of foreclosure after determining that FCU did indeed hold a valid mortgage. Litigating 

that mortgage’s validity would be a collateral attack on that ruling in the form of a federal 

appeal, something that is explicitly barred by Rooker-Feldman. 

The Whites attempt to salvage this claim by asserting that the Rooker-Feldman doctrine 

does not apply until the final appeal is taken in the state action. That is not the law of this circuit. 

The Sixth Circuit has rejected the argument that Rooker-Feldman only applies to state actions 

that have exhausted all appeals and “join[ed] with the majority of circuits that have concluded 

that the Rooker–Feldman doctrine does apply to interlocutory orders and to orders of lower state 

courts.” Pieper, 336 F.3d 462. Thus, the fact that the Whites are still pursuing an appeal of the 

state court ruling where it was determined that FCU holds a valid mortgage is irrelevant to the 

applicability of the Rooker-Feldman doctrine. 

 

4

 Though the Whites notably do not identify the specific provisions of federal law that would invalidate their 

mortgage. 

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B. 

 The Whites also challenge the decision of the bankruptcy court to lift the stay on the sale 

of their assets that were subject to secured credit interests. The lifting of an automatic bankruptcy 

stay is governed by 11 U.S.C. § 362(d). That subsection reads: 

On request of a party in interest and after notice and a hearing, the court shall 

grant relief from the stay provided under subsection (a) of this section, such as by 

terminating, annulling, modifying, or conditioning such stay . . . (1) for cause, 

including the lack of adequate protection of an interest in property of such party in 

interest 

11 U.S.C. § 362(d)(1). Relief from a stay under the cause standard in 11 U.S.C. §362(d)(1) is 

governed by the same standard for conversion under 11 U.S.C. § 1112(b)(4)(A) where there is a 

“substantial or continuing loss to or diminution of the estate and the absence of a reasonable 

likelihood of rehabilitation.” See In re 51-53 W. 129th St. HDFC, Inc., 475 B.R. 391, 399 

(Bankr. S.D.N.Y. 2012); see also In re Creekside, 489 B.R. at 62 (recognizing the 

interrelationship between the lifting of a stay and the conversion of a bankruptcy filing). Because 

the Whites cannot show any error in the bankruptcy court’s decision to convert their bankruptcy 

to a Chapter 7 proceeding, they likewise cannot show that the bankruptcy court erred in lifting 

the automatic stay imposed in their case. 

C. 

 The last form of relief the Whites seek relates to Ally Financial’s proof of claim before 

the bankruptcy court. According to the Whites, Ally Financial did not comply with Federal Rule 

of Bankruptcy Procedure 3001 concerning proofs of claim. Rule 3001(c)(2)(A) requires that in a 

case where the debtor is an individual “[i]f in addition to its principal amount, a claim includes 

interest, fees, expenses, or other charges incurred before the petition was filed, an itemized 

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statement of the interest, fees, expenses, or charges shall be filed with the proof of claim.” The 

Whites allege that they did not receive an itemization statement from Ally Financial.5

 This claim is contradicted by the record. The Whites admitted in their objection to Ally’s 

proof of claim that they received accountings of their debt up until they filed their bankruptcy 

petition on July 30, 2013. See R. 300-01. They only claimed in that objection that they stopped 

receiving accountings after their petition was filed. But Rule 3001(a)(2)(A) only requires an 

itemized statement of “interest, fees, expenses, or other charges incurred before the petition was 

filed[.]” Ally contended in their response to the Whites’ objection that they provided an 

itemization of the principal owed on the car loan and the arrearages owed. The Whites do not 

allege that this was not provided with Ally’s proof of claim. Instead, the Whites seek an 

itemization of each payment made against the debt prior to the claim being filed. Rule 3001 does 

not require such exactitude. The Bankruptcy Court’s ruling is affirmed on this ground. 

IV. 

 Accordingly, it is ORDERED that the judgment of the bankruptcy court is AFFIRMED. 

Dated: July 31, 2015 s/Thomas L. Ludington 

 THOMAS L. LUDINGTON 

 United States District Judge 

 

 

5

 Ally Financial did not file an Appellee Brief in response to the Whites’ appeal, a practice that is not encouraged. 

PROOF OF SERVICE 

The undersigned certifies that a copy of the foregoing order was served 

upon each attorney or party of record herein by electronic means or first 

class U.S. mail on July 31, 2015. 

 s/Karri Sandusky 

 Karri Sandusky, Acting Case Manager 

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