Candie J. Nelson

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
CANDIE J. NELSON, No. 05-10660
Debtor(s).
______________________________________/
Memorandum on Plan Confirmation
_________________
Before her current series of bankruptcy filings, debtor Candie Nelson was an owner of a chain of
Mexican restaurants known as Viva Mexico. During that time she kept two separate records of employee
time, one real and one fabricated which deleted most of the overtime her employees worked. She
instructed her managers to change employee time records to reduce overtime owed to employees.
On October 1, 2002, an involuntary Chapter 7 petition was filed against Nelson. Seven days
later, Nelson filed a voluntary petition and sought dismissal of the earlier involuntary case. Her motives
quickly became apparent: the one-year period for recovery of an insider preference under §
547(b)(4)(B) of the Bankruptcy Code expired before the voluntary petition but after the involuntary
petition. Her motion was denied and the two cases consolidated.
The Chapter 7 trustee in the consolidated cases brought an action to deny Nelson her discharge,
alleging that Nelson had, with the intent to defraud her creditors, transferred three parcels of real
property to her mother. Just before trial, the action was settled by Nelson waiving her discharge
pursuant to § 727(a)(10) of the Code. On July 30, 2003, Viva Mexico filed a voluntary Chapter 7
petition.
Entered on Docket
July 26, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-10660 Doc# 41 Filed: 07/26/06 Entered: 07/26/06 14:34:07 Page 1 of 4

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1Even if there had been a discharge, it would not have protected Nelson from liability. The court
has difficulty believing that Nelson’s errors are attributable to her pro se status, as she has had legal
representation in much of the proceedings before the court.
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On March 29, 2005, Nelson filed a Chapter 13 petition commencing this case. She filed a plan
calling for payments of $50 per month for 36 months, which would result in a small fraction of a cent on
the dollar for her creditors. The Chapter 13 trustee objected on grounds of bad faith and ineligibility for
Chapter 13. The court solicited an offer of proof from her as to why she believed her plan was filed in
good faith. When she responded that her only argument was that $50 per month was all she could afford,
the court summarily ruled that the plan was filed in bad faith and dismissed the case. The Bankruptcy
Appellate Panel reversed the decision and remanded the case, holding that the court should have
permitted Nelson to amend her plan before dismissing the case. The court then set an evidentiary hearing
on the good faith and eligibility issued.
The court begins by noting that Nelson makes two legal arguments which are in error. First, she
argues that she is entitled to a finding of good faith under the mandate of the Appellate Panel. However,
its decision makes it clear that it remanded only for Nelson to “sharpen her pencil” and see if she could
propose a better plan, which Nelson has declined to do. Second, Nelson argues that all of the business
debts of Viva Mexico were discharged in its bankruptcy and she is therefore no longer liable for them.
This is wrong because only individuals receive a discharge in bankruptcy, not corporations or
partnerships; there was no discharge issued in the Viva Mexico case.1
The burden is on the debtor to demonstrate good faith and eligibility. For the reasons set forth
below, the court finds both that Nelson is not eligible for Chapter 13 and that her plan is proposed in bad
faith. In re Barnes, 32 F.3d 405, 407 (9th Cir. 1994); In re Ho, 274 B.R. 867, 882 (9th Cir BAP
2002)[Klein, concurring].
One important fact goes to both good faith and eligibility. Because of her mistaken belief that
Viva Mexico’s debts were discharged in its bankruptcy case, Nelson did not schedule most of its debts
in her case, even if the claimant alleged she was personally liable. Thus, she failed to schedule at least
Case: 05-10660 Doc# 41 Filed: 07/26/06 Entered: 07/26/06 14:34:07 Page 2 of 4

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2Even without adding the wage claims and the claim of Nelson’s mother, discussed elsewhere,
the unsecured claims filed in this case add up to $101,547.43, more than twice the $45,382.00 Nelson
scheduled in her amended schedules. This raises a serious issue as to the truthfulness and accuracy of
the schedules.
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50 former employees of Viva Mexico who allege that she is personally liable to them for unpaid
overtime. On their behalf, California Rural Legal Assistance has filed a claim in this case for $1.3
million. Nelson’s only response to the wage claims was to attack CRLA. Aside from the issue of
whether these wage claims are considered liquidated for eligibility purposes, misrepresentations in
schedules go to the heart of the good faith requirement. In re Ho, supra, at 876.2
Pursuant to § 109(e) of the Code, a debtor is not eligible for Chapter 13 if she has more than
$307,675.00 in noncontingent, liquidated unsecured debts. So long as a debt is subject to ready
determination and precision in computation of the amount due, then it is considered liquidated and
included for eligibility purposes under § 109(e), regardless of any dispute. In re Nelson, 184 B.R. 182,
190-91 (9th Cir. BAP 1995). The wage debts claims would be subject to ready determination and
precise computation, merely multiplying the hours worked by the appropriate rate, except for the fact that
Nelson has herself steadfastly refused to supply the claimants with the necessary information. Where the
debtor herself withholds the information necessary to perform the calculation, principles of estoppel
should prevent a debtor from discounting the claims for eligibility purposed. However, it does not
appear that Nelson is eligible even without considering the wage claims.
When she filed her case, Nelson scheduled unsecured debts of $324,832.00. After the trustee
objected to her eligibility, Nelson amended her schedules to delete the $279,000.00 claim of her mother.
The scheduled claim of her mother was consistent with legal positions taken by Nelson and her mother in
the prior Chapter 7 case. Eligibility is determined as of the date of filing, so a postpetition waiver or
forgiveness of a debt has no effect on eligibility. In re Slack,187 F.3d 1070, 1073 (9th Cir. 1999). Even
though Nelson failed to schedule the vast majority of her debt, she did schedule $320,832.00 in
undisputed, liquidated unsecured debt. She is therefore not eligible for Chapter 13 relief.
Case: 05-10660 Doc# 41 Filed: 07/26/06 Entered: 07/26/06 14:34:07 Page 3 of 4

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3The Bankruptcy Code does not differentiate between a discharge denied after a trial and one
waived before trial. 11 U.S.C. § 523(a)(10). All of Nelson’s debts were incurred before her Chapter 7
case, and are therefore forever nondischargeable in Chapter 7. An attempt to discharge such debts in
Chapter 13 raises significant bad faith issues, especially combined with other factors indicating bad
faith. See In re Warren, 89 B.R. 87, 93 (9th Cir. BAP 1988).
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While the court could stop its analysis of the case at this point, if it were to do so it has no doubt
that Nelson would be right back in a new Chapter 13 with her schedules more cleverly drafted. A bad
faith finding is necessary to finally resolve Nelson’s bankruptcy rights, especially for the fifty or so
working people who were intentionally robbed of their rightful income by Nelson.
A court considering whether a Chapter 13 plan has been filed in good faith should examine the
intentions of the debtor and the legal effect of the confirmation in light of the spirit and purposes of
Chapter 13. In re Chinichian, 784 F.2d 1440, 1444 (9th Cir. 1986). After observing Nelson’s actions in
this and her prior bankruptcy cases, the court finds that Nelson filed this case in a cynical attempt to
manipulate the Bankruptcy Code. There is no doubt in the court’s mind that when Nelson stipulated to
denial of her discharge in the Chapter 7 case she had already formed the intent to buy her discharge back
on the cheap in Chapter 13.3 Nelson’s intentions are to obtain a discharge without ever having to
answer for her unlawful conduct. The legal effect of confirmation would be to discharge, with no justice
or compensation to her creditors, a debtor who a few months prior to filing was denied a discharge.
This is not the spirit of Chapter 13.
The court accordingly finds that Nelson is not eligible for Chapter 13 relief. The court further
finds, considering all of the above circumstances, that Nelson proposed her Chapter 13 plan in bad faith.
Confirmation will accordingly be denied. The Trustee shall submit an appropriate form of order.
Dated: July 26, 2006
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 05-10660 Doc# 41 Filed: 07/26/06 Entered: 07/26/06 14:34:07 Page 4 of 4