Bryan Osborn

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
BRIAN OSBORN, No. 05-11639
Debtor(s).
______________________________________/
Memorandum re Plan Confirmation
_________________
Debtor Brain Osborn has proposed a Chapter 13 plan whereby he will pay $1,350.00 per month
for 36 months to the Chapter 13 trustee. After payment of mortgage arrears, there will be a pot of about
$43,000.00 for unsecured creditors to share. Unsecured creditor Tor Perkins objects.
Osborn is a licensed architect and general contractor. Perkins has filed a claim for $282,393.00
based on “construction liability.” Perkins alleges that Osborn overcharged him for design and
construction work on Perkins’ home in Mill Valley. A state court lawsuit was pending when Osborn
filed his Chapter 13 petition.
Perkins has raised three objections to confirmation. First, he alleges that Osborn was not
eligible because his total debt exceeded the limit of § 109(e) of the Bankruptcy Code. Second, he
alleges that due to a fraudulent transfer of property to his wife which would be avoided in Chapter 7
Osborn’s plan fails to meet the requirements of § 1325(a)(4). Third, he alleges that the plan has been
proposed in bad faith.
Osborn is ineligible for Chapter 13 only if Perkins’ claim is considered liquidated. Osborn
Entered on Docket
May 31, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-11639 Doc# 35 Filed: 05/30/06 Entered: 05/31/06 10:49:41 Page 1 of 3

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1Perkins’ argument that his claim is easily calculated requires the court to accept the findings of a
non-binding arbitrator. However, because the arbitration was non-binding the court would have to take
evidence on each and every issue decided by the arbitrator.
2In addition, Perkins’ claim includes $90,000.00 in “loss of rental value,” which is a number
pulled out of the ether by Perkins and will require expert testimony to substantiate.
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claims that his debt is liquidated because he can easily calculate it, but that is not the test. His claim is
only liquidated if the court can easily calculate it.1 Perkins’ claim is about as unliquidated as a claim
can get; a full trial will have to be held to consider liability, each item of damages, and Osborn’s
$107,000.00 counterclaim.2 The claim is not subject to ready determination and precision in
computation of the amount due, as required by In re Nicholes, 184 B.R. 82, 91 (9th Cir.BAP 1995).
Osborn accordingly is eligible for Chapter 13 relief.
In 2003, Osborn and his wife changed title to their home from community property to joint
tenancy. Perkins argues that this was a fraudulent transfer and which a Chapter 7 trustee would avoid
and which would result in a larger dividend for him in Chapter 7 than Osborn’s Chapter 13 plan affords
him.
While the court remains unconvinced of Osborn’s argument that transmutation of community
property to joint tenancy is never fraudulent, it rejects completely Perkins’ argument that Osborn has
forfeited his homestead exemption as to the half of the property which was in his name on the date of
filing of his bankruptcy. California Code of Civil Procedure § 704.710(c) defines a homestead as the
dwelling in which the debtor resides; § 704.720(a) provides that a homestead is exempt. Perkins has
cited no case where any court has held that a debtor who transmutates community property to joint
tenancy forfeits all homestead rights.
Under bankruptcy law, a debtor is barred from exempting property which the trustee recovers by
avoiding a fraudulent transfer. 11 U.S.C. § 522(g). However, Osborn’s joint tenancy interest does not
fall within this bar because as to this interest there is nothing for the trustee to recover. Section 522(g)
only applies to property restored to the estate, not property already in the estate on the date of filing. See
Case: 05-11639 Doc# 35 Filed: 05/30/06 Entered: 05/31/06 10:49:41 Page 2 of 3

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3Or, if anything was recovered on account of the transmutation it would be smaller than the
amount Osborn is to pay under his plan, so the plan still meets the requirements of § 1325(a)(4).
4After the court expressed scepticism about Perkins’ forfeiture-of-homestead argument, Perkins
argued that the $80,000.00 second deed of trust on the property was fraudulent or allowed Osborn to
conceal assets. After further testimony, the court concludes that equivalent value was paid for the deed
of trust and the proceeds were properly used to improve Osborn’s home. While this was probably pre-
bankruptcy planning, such conduct is permissible and neither the deed of trust nor the loan proceeds
would be avoidable by a Chapter 7 trustee.
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In re Glass, 60 F.3d 565, 568 (9th Cir. 1995).
Because there is so little equity in the property, the transmutation from community property to
joint tenancy had no economic effect as long as Osborn had homestead rights in the property on the date
he filed. Since he had such rights, a Chapter 7 trustee would not recover anything on account of the
transmutation3 and Osborn’s plan accordingly meets the requirements of § 1325(a)(4).4
The only argument raised by Perkins which gives the court much pause is his argument that the
transmutation from community property to joint tenancy is evidence bad faith. There is certainly every
indication that this was done in order to reduce the consequences to Osborn’s wife if Perkins obtained a
judgment against Osborn. However, a fraudulent transfer is not per se bad faith so as to make an
otherwise confirmable plan unconfirmable. None of Osborn’s actions were taken in secret or concealed
from Perkins or the Chapter 13 trustee. So long as Osborn’s creditors are not faring worse under his
Chapter 13 plan than they would fare under a hypothetical Chapter 7, the requirements of the Bankruptcy
Code are met. Osborn’s plan calls for large monthly payments and a significant dividend to creditors.
Viewing all of the circumstances as a whole, the court finds good faith.
For the foregoing reasons, Osborn’s plan will be confirmed. Counsel for Osborn shall submit an
appropriate form of order.
Dated: May 30, 2006
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 05-11639 Doc# 35 Filed: 05/30/06 Entered: 05/31/06 10:49:41 Page 3 of 3