In Re: Herman

Background

Kathleen Herman filed a Chapter 13 bankruptcy petition in the Southern District of New York on February 3, 2020. Her proposed plan required her to pay $200 per month for 36 months to address mortgage arrears involving two properties. She was represented by Julius Rivera during the bankruptcy proceeding and in a loss-mitigation program involving creditors and one property.

The bankruptcy court ended the loss-mitigation process after no agreement was reached and later lifted the foreclosure stay on the New York property. The bankruptcy court also approved additional compensation of $7,923 for Rivera, in addition to an earlier administrative fee claim of $4,550. The court ordered that the Chapter 13 trustee pay the awarded fees from available funds.

Herman paid $5,200 under the plan but missed a $200 installment in February 2022. She said she had been out of work because of the COVID-19 pandemic and was recovering from non-elective hip surgery. The trustee moved to dismiss, arguing that the plan was not adequately funded because of Rivera’s approved fees and Herman’s missed payment. Herman’s counsel did not oppose the motion. The bankruptcy court dismissed the case on April 20, 2022, stating that the proposed plan was not feasible because it lacked enough funding to repay secured claims as required by federal bankruptcy law. The plan had never been confirmed.

After dismissing her lawyer, Herman moved without a lawyer to reconsider the dismissal. The bankruptcy court denied that motion after finding that she had not presented new facts that would change the dismissal decision. Herman then appealed to the district court.

Issues and Arguments

The district court understood Herman to raise these arguments:

- The bankruptcy court wrongly dismissed her case because her plan was viable. - The bankruptcy court wrongly approved Rivera’s fees, which depleted the Chapter 13 fund. - The trustee breached a fiduciary duty and acted negligently by allowing the funds to be depleted. - The court should reinstate her Chapter 13 case and require Rivera to return the compensation he received from the fund.

Record on Appeal

Herman did not designate the materials to be included in the appellate record and did not provide the required transcript or record excerpts. The court nevertheless declined to dismiss the appeal on that basis. It found no indication of bad faith or a pattern of negligence, and it found that the trustee was not prejudiced because the trustee filed a brief with her own record materials. The district court reviewed materials attached to the trustee’s brief and the underlying bankruptcy docket.

Fiduciary-Duty and Negligence Claims

The court declined to consider Herman’s fiduciary-duty and negligence claims because she raised them for the first time on appeal. The court also stated that the trustee had paid Rivera’s fees pursuant to the bankruptcy court’s order, which undermined Herman’s allegations that the trustee acted improperly by making that payment.

Reconsideration of the Bankruptcy Dismissal

The district court reviewed the denial of reconsideration for abuse of discretion, meaning it would reverse only if the bankruptcy court applied the law incorrectly or made a clearly erroneous factual finding. A reconsideration motion generally requires a qualifying change in law or facts, newly discovered evidence, fraud, or another recognized basis for relief; it cannot be used simply to relitigate an issue already decided.

The district court found that the bankruptcy court did not err in dismissing Herman’s Chapter 13 case. Herman had the burden to show that her plan was feasible, but her counsel did not oppose the trustee’s dismissal motion. The district court also noted that the bankruptcy court’s dismissal order gave little legal analysis, but concluded that the record still supported dismissal because the plan was not adequately funded.

The district court recognized that the bankruptcy court had described Herman’s reconsideration motion as late without explaining why or identifying whether it was treating the motion under Bankruptcy Rule 9023 or Rule 9024. The district court concluded that this was harmless because the bankruptcy court considered the substance of Herman’s arguments anyway.

On the substance, the district court found no clear error in the bankruptcy court’s conclusion that the plan was not viable. The plan required Herman to pay $7,200, while the court identified approximately $7,751.95 in claims and $12,473 in Rivera’s fees. Herman’s assertion that she could make future payments did not resolve the shortfall under the proposed plan.

Attorney Fees

The district court stated that Herman’s appeal was not from the separate order approving Rivera’s compensation. It also said that the absence of a transcript from the hearing on Rivera’s fee application prevented the court from deciding whether the fee award itself was erroneous.

The court nevertheless rejected Herman’s argument that the fees could not be paid from the Chapter 13 fund before dismissal. It explained that administrative fees generally receive priority under the Bankruptcy Code and that, when a Chapter 13 plan is not confirmed, allowed administrative claims may be deducted before remaining payments are returned to the debtor. The court therefore concluded that the fees contributed to the plan’s lack of viability and that the bankruptcy court did not err in denying reconsideration.

Disposition

The opinion states that the court "DISMISSES" Herman’s bankruptcy appeal and concludes that the bankruptcy court’s decision is "AFFIRMED." The clerk was directed to close the case and mail the order to Herman, who was representing herself.

Practical Effect

The district court left in place the dismissal of Herman’s Chapter 13 bankruptcy case and the bankruptcy court’s denial of reconsideration. It did not reinstate the case, order Rivera to return his fees, or consider Herman’s newly raised fiduciary-duty and negligence claims.