Michael B. Thompson, II

[INTENDED FOR PUBLICATION]
UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In re:
Michael B. Thompson, II,
Debtor.
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Case No. 24-32150
Chapter 7
Judge Crist
MEMORANDUM OPINION AND ORDER DENYING JOINT MOTION TO
APPROVE SETTLEMENT AND COMPROMISE (DOC. 44)
I. 	Introduction
This matter is before the Court on the Joint Motion of Creditor, CFBank, National
Association and Debtor Michael B. Thompson, II to Approve Settlement and Compromise (Doc.
44) (the “Motion to Approve Settlement”), filed on October 24, 2025. As stated therein, the
settlement “is intended to resolve CFBank’s Motion to Dismiss filed on April 9, 2025 (ECF Doc.
# 34) [(the “Motion to Dismiss”)] and the pending adversary proceeding, CFBank, N.A. v.
Thompson, Adv. Pro. No. 3:25-ap-03015[.]”1 Mot. to Approve Settlement at 1. But tellingly,
1 Previously, this Court entered an Order (Doc. 42) on July 1, 2025 consolidating CFBank’s Motion to Dismiss Chapter
7 Case (Doc. 34) and Adversary Proceeding No. 25-3015, in which CFBank is seeking to deny Mr. Thompson a
discharge of all debts pursuant to 11 U.S.C. § 727(a)(2) and (5), which set deadlines for discovery and dispositive
motions, but did not set a trial date.
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: March 31, 2026
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CFBank does not analyze the bases for the settlement and whether it meets the standard for
approval of a settlement under Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 9019
and applicable case law;2 rather, the Motion to Approve Settlement simply sets forth the terms.
This could be read as a tacit acknowledgment that analyzing the bases for the settlement would
lead to the conclusion that the settlement should not be approved, given that only CFBank would
benefit from the proposed settlement. Either way, the Court finds the terms of the proposed
settlement, in the context of the claims asserted by CFBank, to be inappropriate and violative of
public policy.
CFBank seeks to deny Mr. Thompson a discharge of all his debts (not just his debt to
CFBank) pursuant to 11 U.S.C. § 727(a)(2) and (5). See Compl. of Creditor CFBank, Nat’l Ass’n
Objecting to Discharge Pursuant to 11 U.S.C. § 727 (the “Complaint”), Adv. Pro. No. 25-3015
(Doc. 1).3 But what CFBank did not assert in its Complaint is any claim to object to the
dischargeability of a debt owed to it; thus, the proposed settlement, in which Michael B.
Thompson, II (“Mr. Thompson” and “Debtor”) would pay CFBank $20,000, appears to squarely
violate the best interest of the estate, not be “fair and equitable,” and potentially violate what is
sometimes referred to as the public policy against forcing the debtor to purchase their discharge.4
Not only that, but another term of the settlement is that “[i]f Mr. Thompson fails to pay as agreed,
then the entire debt owed to CFBank becomes non-dischargeable.” Mot. to Approve Settlement at
2, ¶ 4. Yet, as noted above, there is no pending claim to object to the dischargeability of a debt
owed to CFBank under 11 U.S.C. § 523(a)(2), (4), or (6), and the time to file any such claim
expired on April 10, 2025, such that CFBank appears to have no legal basis to have its debt held
non-dischargeable, such that this Court would not have a basis to enter such a judgment. See Stip.
of Debtor Michael B. Thompson, II, and Creditor CFBank, N.A. to Extend Deadline to Obj. to
Discharge (Est. Doc. 19), Feb. 6, 2025. Thus, although the law favors settlement, particularly in
2 The Motion to Approve Settlement also fails to address Bankruptcy Rule 7041 given that it does not request “a court
order setting out any terms and conditions for the dismissal[,]” which would be required for the parties to stipulate to
dismiss the Complaint objecting to Debtor’s discharge as proposed in paragraph 5 of the proposed settlement, as set
forth below.
3 Hereinafter, items on the docket of the adversary proceeding, No. 25-3015, will be cited as “Adv. Doc. __” and items
on the docket of Debtor’s chapter 7 case, No. 24-32150, will be cited as “Est. Doc. __.”
4 The Court is not opinion, at this time, on whether it views this as a violation of public policy.
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bankruptcy matters,5 and although the Court is mindful that this will leave the matter unresolved
for now, this settlement cannot be approved as proposed. In other words, to approve this type of
settlement, under these circumstances, would effectively encourage demands for payments from
debtors for the sole benefit of the objecting creditor in exchange for withdrawing complaints
objecting to the discharge of all the debtor’s debts, even when the creditor has no basis to object
to the dischargeability of a debt owed to them.6 This type of settlement cannot be approved as it
does nothing for the estate and is not fair and equitable, nor does it meet the more tailored test for
approval of these types of settlements as discussed below.
The very reason that Bankruptcy Rule 7041 adds a requirement, on top of the requirements
of Federal Rule of Civil Procedure (“Civil Rule”) 41, for a plaintiff to move to dismiss “a complaint
objecting to the debtor’s discharge” on “notice to the trustee, the United States trustee, and any
other person the court designates” is so that parties cannot simply stipulate to dismiss a discharge
complaint in exchange for payment solely to the objecting creditor. This type of settlement
squarely presents the improper arrangement of a debtor having to buy their discharge from a single
“squeaky wheel” creditor.7 Because CFBank took on the role of “pursuing the action for the benefit
of all creditors,” which is what it did when it filed its Complaint in the adversary proceeding
objecting only to Debtor’s discharge under 11 U.S.C. § 727, any settlement of an objection to
discharge brought by a creditor “will not be dismissed or compromised unless the consideration is
paid to the estate for the benefit of all creditors.” 10 Collier on Bankruptcy ¶ 7041.01 at 7041-3,
n.6 (citing Ballard Furniture Co. v. Lindsey (In re Lindsey), 208 B.R. 169, 170 (Bankr. E.D. Ark.
1997)), 7041-4, n. 11 (citing Bankr. Receivables Mgmt. v. de Armond (In re de Armond), 240 B.R.
51, 56 (Bankr. C.D. Cal. 1999) (discussing three approaches to settlement of claims under 11
U.S.C. §§ 523 and 727)). Thus, if the parties want to salvage a settlement and not go forward with
(or have CFBank withdraw entirely) the pending adversary proceeding and corresponding Motion
5 See 10A Collier on Bankruptcy ¶ 9019.01 at 9019-2 & n.2 (16th ed. 2025) (stating “[c]ompromises and settlements
are favored in bankruptcy” (citations omitted)).
6 The Court does not know why CFBank did not file a complaint objecting to dischargeability of a debt pursuant to
11 U.S.C. § 523(a)(2), (4), or (6), but given how active CFBank has been in opposing Mr. Thompson’s discharge
under § 727, it stands to reason that if CFBank had a good faith basis to file a complaint under § 523(a)(2), (4), or (6),
they would have done so.
7 See 10 Collier on Bankruptcy ¶ 7041.01 at 7041-2-7041-4 (16th ed. 2025) (stating “[i]t is improper for a debtor to
offer or for a creditor to receive any consideration for the doing or forbearance of any act.”).
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to Dismiss filed by CFBank, it appears they would need to pay the consideration into the estate for
the benefit of all creditors, subject to the established priorities of the Bankruptcy Code.
As a result of the foregoing, as more fully discussed below, the Court has determined, based
on the skeletal unopposed Motion to Approve Settlement before it, that the terms and conditions
of the proposed settlement provide no benefit to the bankruptcy estate or the other creditors and
would result in the appearance of, if not the actual agreement for, the Debtor to be required to
purchase his general discharge of all debts from one creditor, CFBank. Moreover, it would grant
to CFBank the possibility of obtaining a judgment holding its debt non-dischargeable in an
adversary proceeding in which CFBank has not timely asserted a valid claim to hold those debts
non-dischargeable. For all these reasons, the Motion to Approve Settlement, as currently proposed,
cannot be granted.
II. 	Jurisdiction
This Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and Amended General Order
05-02 (Amended Standing Order of Reference) of the United States District Court for the Southern
District of Ohio entered pursuant to 28 U.S.C. § 157(a). This is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(A), (J), and (O).
III. 	Background
A. 	Chapter 7 Case, Examination of Debtor, and Motion to Dismiss
On November 2, 2024, Debtor Michael B. Thompson, II (the “Debtor”) filed a petition for
relief under chapter 7 of title 11 of the United States Code (the “Bankruptcy Code”). (Est. Doc. 1.)
The meeting of creditors occurred on February 10, 2025. See Docket Entry dated Feb. 10, 2025.
The Chapter 7 Trustee, Eileen Field, docketed a Report of No Distribution on March 5, 2025. The
Debtor and Creditor CFBank, N.A. (“CFBank”) entered into a stipulation on February 6, 2025, as
permitted by Local Bankruptcy Rules (“LBR”) 4004-2 and 4007-1(a) and gave only CFBank an
extension of the original deadline of February 10, 2025, to and including April 10, 2025, “to object
to discharge and to challenge whether the debts owed to CFBank are dischargeable[.]” Stip. (Est.
Doc. 19).
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On April 7, 2025, CFBank filed a transcript (the “Transcript”) of the examination of Mr.
Thompson that its counsel took on January 21, 2025.8 See Tr. of Rule 2004 Examination of
Michael B. Thompson II Via Videoconference (Docs. 32 and 33). And on April 9, 2025, the Bank
filed its Motion of Creditor CFBank, National Association to Dismiss Chapter 7 Case (Est. Doc.
34) (the “Motion to Dismiss”). Therein, CFBank sought dismissal of Debtor’s chapter 7 case under
11 U.S.C. § 707(a), alleging that Debtor “has filed this Chapter 7 petition in bad faith by abusing
the protections of the Bankruptcy Code, the debts are modest in relation to Thompson’s assets and
income, and Thomspon [sic] transferred assets shortly before bankruptcy.” Mot. to Dismiss at 1.
CFBank also sought, pursuant to 11 U.S.C. § 349(a), a two-year prohibition from the Debtor filing
any type of bankruptcy. Id. The facts alleged as forming a basis for the Motion to Dismiss are the
same as those forming the basis for CFBank’s Complaint objecting to the Debtor’s discharge, as
set forth below (such that those alleged facts will not be repeated here).
B. 	CFBank’s Complaint Objecting to Discharge (11 U.S.C. § 727(a)(2) and (5))
On the same day as filing the Motion to Dismiss, CFBank commenced the adversary
proceeding by filing its Complaint seeking to deny the Debtor his discharge, of all debts, pursuant
to 11 U.S.C. § 727(a)(2) and (5). See 11 U.S.C. § 727(c) (providing that a chapter 7 trustee,
creditor, or the United States Trustee “may object to the granting of a discharge . . . .”).
The Complaint contains a series of allegations related to the Debtor’s finances and business
interests. See Compl. at 2-3, ¶¶ 5-24. According to those allegations and citations to the Transcript,
the Debtor earns $170,000 each year “working in logistics for the Goodrich Corporation” and
“operates several businesses, including a long-haul trucking business . . . , an Amazon delivery
company . . . , a laundromat . . . , and a management consulting company . . . .” Compl. at 2,
¶¶ 5-6. CFBank alleges it loaned the long-haul trucking business, DPD Transportation, Logistics
& Courier Services, Inc. (“DPD Transportation”) $372,500 on December 15, 2021, as evidenced
by a Cognovit Promissory Note. Id. at 2, ¶ 7 and Ex. A. The Debtor is alleged to have personally
8 Notably, CFBank did not obtain an order of this Court under Bankruptcy Rule 2004(a) to permit the examination
before proceeding to conduct the examination of Mr. Thompson on January 21, 2025. Although CFBank filed its
Motion of Creditor CFBank, National Association for an Order Authorizing Bankruptcy Rule 2004 Discovery (Est.
Doc. 13) on December 27, 2024, CFBank asked to conduct the examination on January 21, 2025, which was the
twenty-fifth (25th) day after it filed its motion, and before it even uploaded the proposed order in accordance with
LBR 9072-1(e). See Order (Est. Doc. 15), Jan. 23, 2025 (stating “[t]he court . . . received the proposed order granting
the Motion after the examination was scheduled to be conducted.”).
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guaranteed this loan, as evidenced by a Commercial Guaranty. Id. at 2, ¶ 9 and Ex. C. When DPD
Transportation allegedly went out of business in 2024, CFBank took judgment on the Cognovit
Promissory Note and the Debtor’s Commercial Guaranty in the Court of Common Pleas, Franklin
County, Ohio, Case No. 24CV4517, on June 13, 2024.9 Id. at 2, ¶¶ 10-11. In addition, although
the Debtor had allegedly previously paid $105,016 to invest in the laundromat, Alpha & Omega
LT Holding, LLC, and invested another $20,000 for repairs, the Debtor’s interest in the laundromat
is scheduled as having no value. Id. at 3, ¶¶ 12-14. In regard to the Amazon delivery company,
DPD Deliveries LLC (“DPD Deliveries”), that company allegedly paid the Debtor’s management
consulting company, MBT2 Management LLC (“MBT2”) $41,000 for “human resources and
bookkeeping services[,]” and other members of DPD Deliveries had their management consulting
companies paid a “combined amount of $84,000 in 2024.” Id. at 2-3, ¶¶ 6, 17, 19. The Debtor
allegedly owns both DPD Deliveries (which allegedly had profit of only $5,000 in 2024, despite
gross revenues of “approximately $3,000,000.00 per year”) and MBT2, both of which were also
scheduled as having no value. Id. at 3, ¶¶ 18, 20-21. In addition, two DPD Transportation trucks
that allegedly secured CFBank’s loan were “totaled in traffic collisions in 2023[,]” but CFBank
did not receive any insurance proceeds, despite those vehicles being insured. Id. at 3, ¶¶ 22-24.
Finally, the Debtor allegedly purchased a 2024 Toyota 4Runner with no cash down for
approximately $60,000.00 in April 2024, just over 6 months prior to filing his chapter 7
bankruptcy. Id. at 3, ¶ 15; Schedule A/B: Property (Est. Doc. 1) at 2, item 3.1. However, Debtor
asserts that he “financed the vehicle 100%” and he scheduled a claim in favor of Omega PSI PHI
Fraternity Credit Union in the amount of $58,932 secured by the 2024 Toyota 4Runner (greater
than the scheduled $56,832 value), and Debtor has since reaffirmed that debt. Resp. to Mot. to
Dismiss (Doc. 34) at 9 (Est. Doc. 37), Apr. 29, 2025; Schedule D at 4, item 2.7 (Est. Doc. 1 at 24);
Reaffirmation Agmt. (Est. Doc. 30), Mar. 21, 2025.
The Complaint, in its first claim, alleges that the Debtor transferred assets to “hinder, delay,
or defraud a creditor . . . ” in violation of § 727(a)(2), including spending, approximately seven (7)
months before filing bankruptcy, “$105,016.00 in liquid funds, to purchase an interest in a
laundromat that he now claims has no value.” Id. at 4, ¶ 27. In addition, the Complaint alleges that
9 The online docket of the Franklin County, Ohio Clerk of Courts of the Common Pleas reflects that counsel for
CFBank herein obtained a Judgment Entry in Case No. 24CV4517 against DPD Transportation, Logistics & Courier
Services, Inc., Jarrod Pickens, and Michael Thompson on June 13, 2024, jointly and severally, in the amount of
$287,239.49.
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“[a]pproximately 6 months before Thompson filed for bankruptcy, Thompson purchased himself
a new Toyota 4Runner using his available credit to avoid paying any money down.” Id. at 4, ¶ 28.
Further, the first claim in the Complaint alleges that Debtor used his business (MBT2) bank
account to pay “car loan payments and life insurance premiums[.]” Id. at 4, ¶ 29. In the second
claim of the Complaint, seeking a denial of discharge under § 727(a)(5), in which CFBank alleges
that the Debtor “failed to explain satisfactorily . . . any loss of assets or deficiency of assets to meet
the debtor’s liabilities[,]” CFBank accuses the Debtor of failing to “explain why he does not have
the cash and credit that he used to purchase the interest in the laundromat, the Toyota 4Runner, or
the life insurance premiums.” Id. at 5, ¶ 35. And finally, in the second claim, CFBank alleges that
Debtor “has failed to satisfactorily explain the failure . . . to pay CFBank any of the proceeds of
the insurance claim from the two totaled vehicles.” Id. at 5, ¶ 36.
C. 	CFBank Did Not Timely File a Complaint Under 11 U.S.C. § 523(a)(2), (4),
or (6) to Determine Whether its Debt is Dischargeable
Interestingly, despite the fact that CFBank appears to hold a cognovit judgment that is
jointly and severally against Mr. Thompson (for an amount not disclosed in the Complaint, for
which CFBank did not file a proof of claim in Mr. Thompson’s chapter 7 case, and for which
CFBank did not attach a copy to its Complaint), CFBank did not include a claim in its Complaint
to object to the dischargeability of this debt pursuant to 11 U.S.C. § 523(a)(2), (4), or (6), such that
if and when a discharge is issued in Debtor’s chapter 7 case, this judgment debt will be discharged.
D. 	Consolidation of the Motion to Dismiss and Adversary Proceeding
As noted above, following the Court’s review of the parties’ Joint Preliminary Pretrial
Statement (Adv. Doc. 9) filed on June 5, 2025, the Court held a pretrial conference on June 25,
2025 (Adv. Doc. 14 and Est. Doc. 41, June 26, 2025). Following that pretrial conference, the Court
entered an Order on July 1, 2025, consolidating the adversary proceeding and the Motion to
Dismiss, which have since proceeded within the adversary proceeding. Order (Adv. Doc. 15; Est.
Doc. 42).
E. 	Motion to Approve Settlement
On October 24, 2025, CFBank and the Debtor jointly filed the Motion to Approve
Settlement to compromise both the Motion to Dismiss filed in the chapter 7 case and the Complaint
filed in the adversary proceeding, pursuant to Bankruptcy Rule 9019. (Est. Doc. 44.) Although the
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Motion to Approve Settlement cites to Bankruptcy Rule 9019, it does not cite to any case law,
does not advocate for this Court to take any particular approach to analyzing the settlement, and
does not even attempt to argue why the proposed settlement meets any legal standard governing
approval; rather, it simply set forth the proposed terms of the settlement and compromise,10 which
are solely stated in the Motion to Approve Settlement (not in a separate settlement agreement) as
follows:
1. 	Mr. Thompson will pay CFBank $20,000 within 60 days of the Court’s
approval of the settlement described herein.
2. 	The Motion to Dismiss will be withdrawn within seven days of the Court’s
approval of the settlement.
3. 	If Mr. Thompson pays $20,000 as agreed, then the balance of the debt owed
to CFBank is discharged with Mr. Thompson’s other debts when the Court
issues its standard discharge order in the Main Case.
4. 	If Mr. Thompson fails to pay as agreed, then the debt owed to CFBank[11]
becomes non-dischargeable. The Motion to Dismiss will still be withdrawn
and the debts other than the debt owed to CFBank will be discharged when
the Court issues its standard discharge order in the event Mr. Thompson
fails to pay the settlement amount.
5. 	The Adversary Action shall be resolved by either a stipulated dismissal if
Mr. Thompson pays as agreed herein or by a judgment entry excluding the
10 Originally, the parties had inquired whether they could simply submit an agreed order. That approach would appear
to violate Bankruptcy Rule 7041(a) and (b), and it would not provide the Chapter 7 Trustee, the United States Trustee,
or any other creditors in this case an opportunity to review and oppose the settlement.
11 The Clerk’s Claims Register for this case indicates that only The Huntington National Bank filed a proof of claim
in this chapter 7 case, Claim 1-1, on March 3, 2025, for what appears to be a similar, but different guaranty of a loan
made to DPD Transportation Logistics & Courier. Creditors were notified to “not file a proof of claim now” in the
original Notice of Chapter 7 Bankruptcy Case – No Proof of Claim Deadline (Doc. 9) issued on November 4, 2024
(see item 10), and the Chapter 7 Trustee filed a Report of No Distribution on the docket on March 5, 2025, such that
no deadline to file proofs of claim was ever set.
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debt owed to CFBank from the discharge in the event Mr. Thompson does
not pay as agreed.[12]
Mot. to Approve Settlement at 1-2.
Notably, the settlement does not provide any payment to the bankruptcy estate, and it
appears, if the settlement was approved, this case would close as a “no-asset” case. Therefore,
except for CFBank, none of the estate’s creditors would receive any distribution. And the Debtor’s
scheduled creditors are not insignificant.
F. 	Debtor’s Scheduled Debts
The Debtor scheduled priority debts owed to the IRS of $48,961 for 2021, $43,349 for
2022, an estimated $35,000 for 2023, and an unknown amount for 2024, along with another $1,000
in tax debt to the State of Ohio. Schedule E/F at 1-3 (Est. Doc. 1 at 25-27). The Debtor also
scheduled $686,840 in non-priority unsecured debt. Id. at 11 (Est. Doc. 1 at 35).
As far as secured claims, CFBank was scheduled as holding a claim of $300,207, partially
secured by a judgment lien relating to debt incurred on July 5, 2024, on the Debtor’s residence at
9724 Dinwiddie Court, Dayton, Ohio 45458 (the “Dinwiddie Property”). Schedule D at 2, item 2.2
(Est. Doc. 1 at 22).13 However, that judgment lien appeared to be junior in priority to two senior
mortgages on the Dinwiddie Property granted in 2019 and 2023, on January 29, 2025, Debtor filed
a Motion to Avoid Judicial Lien on Real Property Pursuant to 11 U.S.C. § 522(f)(1)(A) (Est. Doc.
17), in which he asserted that there are two senior mortgages on the Dinwiddie Property,14 and on
February 25, 2025, the Court entered the Order Granting Motion to Avoid Judicial Lien on Real
12 Although not presently up for determination, the Court cannot envision a scenario in which it would enter a judgment
holding CFBank’s debt non-dischargeable given there is no timely filed non-dischargeability claim asserted in the
Complaint. See, e.g., In re Dalen, 259 B.R. 586, 607 n.28 (Bankr. W.D. Mich. 2001) (citing Chevy Chase FSB v.
DeGraves (In re DeGraves), No. 91-8031, 1991 WL 303452 (W.D. Mich. 1991)). It appears that ship has sailed; thus,
CFBank’s Complaint focused on objecting to the discharge of all of Debtor’s debts, not a specific debt owed to it,
which concerns the estate and all creditors.
13 As noted above, CFBank did not file a proof of claim in Debtor’s chapter 7 case. See supra note 9.
14 Flagstar Bank holds the apparent first position secured mortgage on the Dinwiddie Property, which is scheduled in
the amount of $263,028. Schedule D at 2, item 2.3 (Est. Doc. 1 at 22). And Huntington Mortgage Group holds the
apparent second position secured mortgage on the Dinwiddie Property, which is scheduled in the amount of $118,538.
Id. at 3, item 2.5 (Est. Doc. 1 at 23).
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Property Pursuant to 11 U.S.C. § [522](f)(1)(A) (Est. Doc. 26), providing that upon discharge in
the chapter 7 case, CFBank’s judgment lien will be avoided.15
IV. 	Analysis
A. 	Bankruptcy Rule 9019
Initially, the question is whether Bankruptcy Rule 9019 applies to this situation.
Bankruptcy Rule 9019 concerns court approval of a compromise or settlement “[o]n the trustee’s
motion[.]” Fed. R. Bankr. P. 9019(a). Under Bankruptcy Rule 9019, whether the compromise is
“fair and equitable” is examined under the following four factors:
(a) The probability of success in the litigation; (b) the difficulties, if
any, to be encountered in the matter of collection; (c) the complexity
of the litigation involved, and the expense, inconvenience and delay
necessarily attending it; (d) the paramount interest of the creditors
and a proper deference to their reasonable views in the premises.
Bush v. Nathan (In re Bush), No. 19-2131, 2021 U.S. App. LEXIS 768, at *6 (6th Cir. Jan. 12,
2021) (quoting Bard v. Sicherman (In re Bard), 49 F. App’x 528, 530 (6th Cir. 2002) (quoting
Drexel v. Loomis, 35 F.2d 800, 806 (8th Cir. 1929))); Prime Fin., Inc. v. Shapiro (In re TAJ
Graphics Enters., L.L.C.), 162 F.4th 791, 798-99 (6th Cir. 2025) (quoting In re Bard, 49 F. App’x
at 530 (collecting cases)). Notably, a bankruptcy court “enjoys ‘significant discretion’ in
determining ‘whether to approve a proposed settlement.’ ” In re TAJ Graphics Enters., L.L.C., 162
F.4th at 798 (quoting Hindelag v. Mid-State Aftermarket Body Parts Inc. (In re MQVP, Inc.), 477
F. App’x 310, 312-13 (6th Cir. 2012) (quoting Rankin v. Lavan and Assoc., P.C. (In re Rankin),
438 F. App’x 420, 426 (6th Cir. 2011))). Ultimately, this Court “is charged with an affirmative
obligation to apprise itself of the underlying facts and to make an independent judgment as to
whether the compromise is fair and equitable.” In re TAJ Graphics Enters., L.L.C., 162 F.4th at
798 (quoting In re MQVP, Inc., 477 F. App’x at 313 (quoting Reynolds v. Comm’r of Internal
Revenue, 861 F.2d 469, 473 (6th Cir. 1988))).
Chapter 11 debtors-in-possession are expressly included within the definition of a “trustee”
as used in the Bankruptcy Rules, pursuant to Bankruptcy Rule 9001(b)(11), and neither sections
101 or 102 of the Bankruptcy Code, which are referenced as also providing definitions of words
15 The Court is providing this additional background from the record of the chapter 7 case solely for context of
analyzing the settlement herein and obviously makes no findings with respect to any secured claim or the priorities.
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that apply to the Bankruptcy Rules, contain contrary or supplemental definitions of the word
“trustee.” Sometimes a debtor acts derivatively on behalf of a trustee for the benefit of the estate.
See Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.),
555 F.3d 231, 245 (6th Cir. 2009) (creditors can pursue avoidance actions derivatively in both
chapter 7 and chapter 11 cases). However, in this instance, CFBank, as creditor, ultimately took
up the mantel of prosecuting an objection to the Debtor’s discharge, as expressly permitted by
§727(c)(1). As previously noted, that provision permits the Chapter 7 Trustee, a creditor, or the
United States Trustee to pursue an objection to the discharge of all debts. 11 U.S.C. § 727(c)(1).
However, when a creditor does so, they act in a pseudo-fiduciary capacity on behalf of all the
creditors and the estate, in the nature of what the Chapter 7 Trustee might do if they were funded
to do so and believed there was a valid claim to pursue. 10 Collier on Bankruptcy ¶ 7041.01 at
7041-3 & n.7 (citing In re de Armond, 240 B.R. 51). Thus, CFBank has stepped in to fulfill the
role of fiduciary, similar to a trustee, such that it makes sense that CFBank would also have the
ability to seek approval of a compromise that would normally be sought by the Chapter 7 Trustee,
particularly given that the Debtor is the other party to the settlement.
The next question is whether the resolution of a complaint to object to a debtor’s discharge
under § 727(a) is subject to being settled. An objection under § 727(a) “is not property of the estate
which is to be reduced to money nor is it a contested claim against the estate which must be
resolved before the [s]ection 726 distribution can be completed.” In re Levine, 287 B.R. 683, 693
(Bankr. E.D. Mich 2002). Unlike other claims brought on behalf of an estate, “the only type of
‘judgment’ which can be entered in such an adversary proceeding is a judgment sustaining the
objection.” Id. And some courts therefore conclude that an objection to discharge cannot be turned
“into an economic benefit” regardless of “whether the monetary recovery benefits only the
competing creditor or the entire creditor body” because a discharge “cannot be sold . . . , nor can
it be bought off by the debtor.” Id. However, at least one of the bankruptcy courts in that camp
have also found that a “pragmatic approach” of allowing a Chapter 7 trustee “to accept money in
exchange for her dismissal of an objection to the debtor’s discharge” “works well when the
debtor’s misconduct is at issue, which it is when the objection is based upon one or more of the
exceptions set forth in [s]ections 727(a)(2)-(7).” Id.
Generally, settlements under Bankruptcy Rule 9019, or otherwise, are to be encouraged.
See In re Batt, 488 B.R. 349 (Bankr. W.D. Ky. 2013) (citing In re Fishell, 47 F.3d 1168 (6th Cir.
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1995) (citing In re A & C Props., 784 F.2d 1377 (9th Cir. 1986)). This Court approves settlements
of all stripes, on matters large and small, and such settlements generally are to be encouraged. See,
e.g., In re Sheffer, 350 B.R. 402, 406 (Bankr. W.D. Ky. 2006) (“This Court is ever mindful that
litigation is costly and taxes judicial resources. Settlement should be encouraged, where
appropriate, in order to expedite case administration.”). It is also beyond debate that the Court has
discretion in determining the appropriateness of settlements. See In re Batt, 488 B,R, at 350 (citing
In re Planned Sys., Inc., 82 B.R. 919, 921 (Bankr. S.D. Ohio 1988)). But as noted above, settlement
of a creditor’s complaint objecting to a debtor’s discharge raise unique issues. “A creditor . . . may
not initiate a § 727(a) proceeding as a tool in negotiating the nondischargeability of a debtor’s debt
to it.” In re Babb, 346 B.R. 774, 778 (Bankr. E.D. Tenn. 2006) (quoting Bank One v. Kallstrom
(In re Kallstrom), 298 B.R. 753, 758-59 (B.A.P. 10th Cir. 2003) (quoting State Bank of India v.
Chalasani (In re Chalasani), 92 F.3d 1300, 1310 (2d Cir. 1996))). A voluntary dismissal, under
certain circumstances, may “create the appearance that the debtor is purchasing his discharge.”
Preston-Marone Constr. v. McKissack (In re McKissack), 320 B.R. 703, 718 (Bankr. D. Colo.
2005). In order to address these competing concerns, decisions have taken three different methods
to analyze § 727 settlements: (1) the per se prohibition of such settlements; (2) allowing
compromises that serve the public interest; and (3) examining whether the proposed settlement is
fair and equitable and in the estate’s best interests. Lindauer v. Traxler (In re Traxler), 277 B.R.
699, 702-03 (Bankr. E.D. Tex. 2002). This Court is taking the last approach.
At least under the currently proposed compromise, the guidelines for approval under
Bankruptcy Rule 9019, which are geared toward the resolution of a claim asserted for the benefit
of the estate, such as a claim to avoid and recover a transfer, do not appear to be met. The current
compromise proposed between the Debtor and CFBank does nothing for the very estate on behalf
of which CFBank was supposedly prosecuting the objection to Mr. Thompson’s discharge.
However, it could be a different story if the payment Debtor proposed would be paid into the
chapter 7 estate for administration and distribution to the Debtor’s creditors—a benefit to the estate
and potentially to all creditors.16 Whether to approve this proposed settlement is further discussed
below in the context of Bankruptcy Rule 7041.
16 The Court is cognizant that if funds are paid into the estate and the priorities of distribution under 11 U.S.C.
§§ 726(a) and 507 are such that only some of the priority claims are paid, unsecured nonpriority creditors will not
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B. 	Bankruptcy Rule 7041
In this instance, in addition to Bankruptcy Rule 9019, CFBank must address Bankruptcy
Rule 7041, but has failed to do so. Generally, Civil Rule 41, which is made applicable in adversary
proceedings by Bankruptcy Rule 7041, allows dismissal without a court order by stipulation by all
parties. Fed. R. Civ. P. 41(a)(1)(A)(ii). However, Bankruptcy Rule 7041 adds a more stringent
requirement, providing that in an adversary proceeding objecting to discharge, a complaint may
be dismissed “on the plaintiff’s motion only[,]” and “by a court order setting out any terms and
conditions for the dismissal[.]” Fed. R. Bankr. P. 7041(a). Further, the motion must notice “the
trustee, the United States trustee, and any other person the court designates.” Fed. R. Bankr. P.
7041(b). The reason for this more stringent approach to dismissal of a discharge complaint is
explained in the Advisory Committee’s notes to Bankruptcy Rule 7041, as follows:
Dismissal of a complaint objecting to a discharge raises special concerns because
the plaintiff may have been induced by an advantage given or promised by the
debtor or someone acting in his interest. Some courts by local rule or order have
required the debtor and his attorneys or the plaintiff to file an affidavit that nothing
has been promised to the plaintiff in consideration of the withdrawal of the
objection. By specifically authorizing the objection to impose conditions in the
order of dismissal this rule permits the continuation of this salutary practice.
In re Levine, 287 B.R. at 697. This has been interpreted to mean that “the Advisory Committee
was concerned that a debtor might corrupt the judicial process of granting or denying a discharge
by ‘buying off’ parties who otherwise had legitimate bases to participate in the process.” Id. at
699. There is also a concomitant problem in the situation in which a creditor is pursuing the
objection to discharge, once the payment of money is introduced, as to whether the sum at issue
will satisfy the creditor if they are forced to share it equally with all creditors. In other words, if
the settlement is rejected because the payment of money is not made to the estate for ratable
distribution to all creditors, will that not incentivize the creditor to simply ask for more such that
its ultimate ratable share is closer to what was expected if it were the sole recipient of the funds?
Perhaps this suggests that simply prohibiting the payment of money, per se, to resolve an objection
to discharge, as some courts have concluded, is the better approach.
realize a benefit; however, the Court cannot alter the priorities of the Bankruptcy Code, and this is something the
creditor would need to take into account when determining whether to pursue an action to object to the debtor’s
discharge in a no-asset chapter 7 case. See, e.g., Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017).
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For the moment, however, the question is “whether there is anything in the Code that
prohibits such settlements.” Carbone v. Beltran (In re Beltran), No. 09 A 00778, 2010 Bankr.
LEXIS 2548, at *10 (Bankr. N.D. Ill. Aug. 25, 2010). And “[m]ost courts allow settlement of an
objection to discharge if the terms of the settlement are fair and equitable and in the best interest
of the estate.” Id. at *11 (citing In re Sheffer, 350 B.R. 402, 406-07 (Bankr. W.D. Ky. 2006)
(collecting cases)). Here, however, there is zero benefit to the estate. “[I]n a Chapter 7 case in
which there are no assets to distribute—and over 95% of Chapter 7 cases involve no assets—the
settlement does nothing to benefit other creditors because they will not receive any distribution on
their claims.” In re Beltran, 2010 Bankr. LEXIS 2548, at *13. Therefore, “permitting a single
creditor to obtain a benefit disproportionate to what other creditors receive is at odds with the
consequence of a denial of discharge, which allows all creditors equally to pursue their claims.”
Id. at *13-14 (noting that “[m]any decisions recognize this problem with a proposed settlement
payment to a single creditor.” (collecting cases)). Moreover, Bankruptcy Rule 7041, which only
permits a complaint objecting to discharge to be dismissed “by a court order setting out any terms
and conditions for the dismissal[,]” which is interpreted to mean that bankruptcy courts have
“ ‘considerable discretion in determining whether a § 727(a) complaint should be dismissed at the
request of a plaintiff, and if so under what terms and conditions’ ” means that a creditor should not
be permitted to dismiss a complaint objecting to discharge on terms that the court finds
inappropriate. In re Baltran, 2010 Bankr. LEXIS 2548, at *18 (quoting Kallstrom, 298 B.R. at
759).
As mentioned above, Collier on Bankruptcy summarizes that when a settlement is proposed
to resolve a complaint objecting to a debtor’s discharge, “it will not be dismissed or compromised
unless the consideration is paid to the estate for the benefit of all creditors.” 10 Collier on
Bankruptcy ¶ 7041.01. This view is echoed in case law within the Sixth Circuit:
It should be crystal clear to all concerned that the settlement of a § 727 action which
calls for a payment to go only to the complaining creditor in return for dismissal of
the adversary proceeding are highly disfavored and are unlikely to be approved.
Such settlements create the appearance that a bankruptcy discharge is a commodity
that is up for sale; and they fail to account for the interests of the estate and the
remaining creditors in the § 727 action.
In re Babb, 346 B.R. at 779 (quoting McKissack, 320 B.R. at 722-23). The settlement at bar suffers
from these problems and is “highly disfavored.”
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The Court does not, at this time, ascribe to the view that settlements of § 727 actions should
be forbidden per se. See In re Sheffer, 350 B.R. 405-06 (rejecting a per se ban of settlement of all
§ 727 actions as “unduly restrictive” and stating, in the context of settlement of an objection to
discharge under § 727, that such an approach “undermines the fundamental principle that the law
favors settlements” and that “[s]ettlement should be encouraged, where appropriate, in order to
expedite case administration.”); In re Batt, 488 B.R. at 353-54 (adopting the position in In re
Johnston, 2007 WL 1239199 (Bankr. W.D. Ky. 2007) to reject “any per se rule banning § 727
settlements as unduly restrictive.” (other citations omitted)); In re Maynard, 269 B.R. 535, 543
(D. Vt. 2001) (concluding that “a blanket prohibition on settlement of § 727 cases is not justified
by the language of Bankruptcy Rule 7041, the majority of jurisdictions that have considered the
matter, or countervailing public policy concerns favoring dispute resolution”). But the per se
prohibition view does have a logical and systemic appeal and has been adopted by some courts.
See In re Levine, 287 B.R. at 693 (denying the Chapter 7 Trustee’s motion to approve settlement
with the Debtor because “the Chapter 7 Trustee simply has no authority to settle objections to
discharge in exchange for consideration[;]” such a settlement “is ultra vires and, therefore,
breaches the Chapter 7 Trustee’s fiduciary duty to engage in only lawful activities on behalf of the
bankruptcy estate.”); In re Applegate, 498 B.R. 383 (Bankr. S.D. Ga. 2013); In re Rotert, 530 B.R.
791 (Bankr. N.D. Okla. 2015). Instead, the Court is only focused on addressing the proposed
settlement now before it, although the Court suspects that a case-by-case approach is best given
that it must be apprised of all facts and a different set of facts could result in a different outcome.17
What is fairly clear, however, is that a creditor cannot bring a complaint to object to the
debtor’s discharge of all debts under § 727, which concerns all creditors, and then use that as the
leverage to extract a benefit for only themselves, with no benefit to a no-asset chapter 7 estate.18
17 The Court notes that in this particular case, because there were no objections filed, no hearing was conducted;
however, the Court has conducted a thorough review of the case record and takes judicial notice of the same pursuant
to Rule 201(c) of the Federal Rules of Evidence for the purpose of issuing this Memorandum Opinion and Order.
18 In reviewing case law on this topic, there are a few cases that appear to have approved this type of settlement, as
identified in In re Beltran, 2010 Bankr. LEXIS 2548, at *12 (citing Tindall v. Mavrode (In re Mavrode), 205 B.R.
716, 721 (Bankr. D.N.J. 1997) (“approving a settlement under which the plaintiff creditor received $15,000 and other
creditors received nothing); Jacobson v. Robert Speece Props., Inc. (In re Speece), 159 B.R. 314, 317-23 (Bankr. E.D.
Cal. 1993) (“finding potentially fair and equitable a settlement that benefited only the objecting creditor, but ultimately
disapproving settlement because the court had previously determined that debtor was not entitled to discharge”)).
However, those were not no-asset chapter 7 cases, such that there was arguably some benefit to the estate by permitting
a settlement that resolved one creditor’s claims and permitted the remaining creditors to receive their resultantly
increased distributions. Id.
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See, e.g., Gordon v. Streck (In re Streck), No. 03-1193, 2007 Bankr. LEXIS 311, at *2-3 (Bankr.
D. Mass. Jan. 25, 2007) (agreeing “with the majority view that an adversary proceeding seeking
denial of discharge under § 727 can be settled” (citing In re Sheffer, 350 B.R. at 406), but holding
that when all “the consideration being paid by Debtor (and his spouse) goes directly to Plaintiff
and not to the estate” the settlement “is not in the best interests of the estate” (citing In re de
Armond, 240 B.R. at 56; In re Bates, 211 B.R. 338, 345 (Bankr. C.D. Cal. 1999)).
If the present situation does not implicate the need to closely scrutinize these types of
settlements and to decline to approve this type of compromise in order to uphold the integrity of
the discharge in bankruptcy, then the Court is not sure what type of situation would rise to that
level. In other words, approving this settlement, based on the terms set forth in the Motion to
Approve Settlement, set against the backdrop of the Motion to Dismiss and Complaint, would
suggest that there is little to no bar to a creditor utilizing a § 727 action as leverage for recovery
on a single debt—a recovery from the debtor that no other creditor will receive. Not only does this
is this not “fair and equitable” and not in the best interest of the estate, but it would seem to
encourage an end-run around the chapter 7 process for creditors with means and motive to pursue
an objection to discharge. While true that settlements are favored in bankruptcy, the focus in
analyzing which settlements to approve should likely focus more on preventing creditors from
forcing this issue than simply helping with an exit strategy.
In Carbone v. Betran (In re Beltran), Judge Wedoff noted that some decisions have
concluded that “an objection to discharge can never be settled—that the plaintiff must either
proceed to judgment or dismiss the action without consideration from the debtor.” 2010 Bankr.
LEXIS 2548, at *7 (collecting cases). One rationale for this analysis is that a Chapter 7 Trustee or
a creditor lacks the authority to settle an objection to discharge. But, as Judge Wedoff aptly points
out, parties’ rights to settlement flow from their standing to prosecute the claim, and no other
“special grant of authority” is required. Id. at *8. The “second rationale is that a debtor’s discharge
is a matter of public policy and so cannot be negotiated—that dishonest debtors should not be able
to purchase discharges to which they are not entitled.” Id. at *7-8.
Nevertheless, if the totality of the circumstances indicates that the Debtor is having to
purchase their discharge and the proceeds of that purchase will solely benefit the objecting creditor,
who is only pursuing an objection to the debtor’s discharge of all debts under 11 U.S.C. § 727(a)(2)
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and (5), and a related motion to dismiss this case under § 707(a), the settlement likely should not
be approved. The Court is not attempting, at this point, to establish a uniform standard for
reviewing these types of settlements; however, this particular settlement does not pass muster
based on the current record of this case and the skeletal Motion to Approve Settlement.
Although the Court is not ascribing to a particular test at this time for all situations, for
purposes of comparison it is worthwhile to review the McKissack decision, which applied a seven
(7)-part, non-exhaustive set of factors to consider the propriety of any settlement of an action to
revoke or deny a debtor’s discharge. This test was cited favorably for analysis of § 727 settlements
in In re Babb, 346 B.R. at 780. Given the absence of any analysis or argument in support of the
proposed settlement by the parties in the Motion to Approve Settlement, the Court will run through
this framework to shed light on the propriety of the terms of this settlement:
“1. 	Nature of the wrongful behavior alleged in the complaint and the basis and support
for those allegations.” In re McKissack, 320 B.R. at 723-724.
The Court cannot, at this time, determine exactly how egregious, if at all, Mr. Thompson’s
behavior was leading up to his chapter 7 case, particularly given that the Complaint is only at the
pleading stage and the parties provided no analysis within the Motion to Approve Settlement. The
Bank alleges certain issues of supposedly undervalued assets, two significant purchases six and
seven months prior to filing bankruptcy (the Toyota 4Runner and the interest in a laundromat),
and certain transfers from his business entities, but the issues complained of seem to boil down to
Debtor having used funds to do things other than repay the debt to CFBank. The Court is also
aware that the Chapter 7 Trustee, as an independent fiduciary, has not pursued any avoidance
actions in this case and did not pursue a § 727 action, filed a no-asset report, and has not weighed
in on the propriety of the proposed settlement. It is unclear at this stage whether CFBank could
prevail on its claims. Thus, this factor is not compelling one way or the other.
“2. 	Whether consideration for the dismissal is paid into the estate or only to the
complaining creditor.” Id.
This factor is front and center in this case and is of paramount concern to the Court, given
that the proposed settlement would not benefit anyone besides CFBank and the Debtor despite the
fact that pursuing a denial of discharge is a matter of concern to the entire creditor body. Further,
CFBank did not seek to have its debt held non-dischargeable after conducting an examination of
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the Debtor and obtaining an extension of time to file a complaint under 11 U.S.C. § 523, such that
it appears there was not a good faith basis for CFBank to seek to hold the debt non-dischargeable,
absent a tactical decision to forego this approach. Moreover, CFBank’s settlement term that would
purport to hold the prospect of a future judgment for non-dischargeability over the head of the
Debtor as leverage to force payment, which it has no right to do, given that it failed to timely file
a non-dischargeability claim, appears to be overreaching. This factor weighs heavily in favor of
denying approval of the proposed settlement.
“3. 	Whether the amount of consideration going to the complaining creditor is greater
than its expenses in prosecuting the action.” Id.
The Court has no information concerning this factor given that the Motion to Approve
Settlement Motion does not provide any information regarding the Bank’s expenses. Accordingly,
this factor does not cut one way or the other.
“4. 	Whether other parties have filed objections to the proposed settlement.” Id.
In this case, no parties have filed objections to the proposed settlement. Accordingly, this
factor would seem to weigh in favor of approving the settlement, and if there were some benefit
to the estate, perhaps this factor would tip the scale; however, as it stands, the Court believes that
it must perform its independent role in analyzing the proposed settlement and only allowing
CFBank to dismiss its Complaint objecting to Debtor’s discharge on terms and conditions it finds
appropriate, as required by Bankruptcy Rule 7041(a).
“5. 	Whether another qualified party in interest is willing to commit to taking over the
litigation and pursuing it to judgment.” Id.
No other party has stepped forward to take over the Complaint objecting to Debtor’s
discharge under § 727, or to take over the Motion to Dismiss the Debtor’s chapter 7 case under
§ 707(a). There could be a variety of reasons for this, such as no other party wanting to throw good
money after bad, other parties not viewing the Complaint as particularly strong, or perhaps just
having moved on due to the filing of a bankruptcy. Accordingly, this factor does not seem
particularly relevant to the present case.
“6. 	The degree to which the settling parties have sought the involvement of the [U.S.
Trustee] and case trustee at an early stage of their settlement negotiations. Id.
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The parties have not provided any information to the Court regarding this factor and the
Chapter 7 Trustee and United States Trustee have not weighed in; thus, the Court cannot weigh
this factor.
“7. 	Whether or not a § 523 action is being settled at the same time that a § 727 action
is proposed to be dismissed.” Id.
If a parallel § 523 action existed the Court would, under this factor, need to consider “the
extent to which any consideration paid . . . is being paid on account of the § 727 action.” Id. at 724.
But here, there is no claim under § 523 such that all the consideration is being paid to resolve the
§ 727 action, along with the Motion to Dismiss, which is based upon the same nucleus of facts.
Moreover, as already mentioned, this proposed settlement is inappropriate from the standpoint that
it would purport to give CFBank rights it does not presently have to object to the dischargeability
of debt under 11 U.S.C. § 523(a)(2), (4), or (6), as leverage to ensure Debtor’s payment of the
settlement.
This non-exhaustive list of factors leads to only one conclusion, which is that the Cout
should not approve this settlement. Again, the overriding concern of the Court is that the Debtor
is being coerced into paying a single creditor in return for CFBank withdrawing both its Motion
to Dismiss and Complaint objecting to discharge so that Debtor can remain in this case and receive
his discharge. This raises concerns not only for the administration of this particular case, but also
for the systemic dynamic of what may happen in other cases. Accordingly, the Court will not
approve this settlement, as currently proposed and particularly without any analysis or support for
the Motion to Approve Settlement by the parties. At this point, CFBank may choose to move to
dismiss the Complaint pursuant to Bankruptcy Rule 7041 on other terms, withdraw the Motion to
Dismiss, pursue the litigation to its conclusion, or propose a different settlement, if agreed to by
the Debtor, for consideration by the Court, all creditors, and parties in interest.
Ultimately, for many of the same reasons as the Court in In re Betran relied upon, this
Court will not approve the settlement proposed by CFBank and Debtor. As in In re Beltran, the
“settlement does not propose to pay [the creditor] just a disproportionate share of the proceeds, but
all of the proceeds.” In re Beltran, 2010 Bankr. LEXIS 2548, at *20. Therefore, “[i]t is simply
impossible to approve such an agreement as ‘fair, reasonable, and adequate’ ” because, at its
essence, CFBank “is attempting to use an objection to discharge—which can be asserted only on
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behalf of all creditors—to obtain a payment solely for [itself].” Id. at 20-21. This type of settlement
of a discharge complaint is often rejected on the following basis:
Some things are black and white and this is one of them. If the successful
prosecution of a proceeding will benefit the entire creditor body, that action may
not be settled in return for a private benefit. Unless the same parties that would
benefit from the successful prosecution of a particular action also receive the
benefits of its settlement, the settlement is improper. No amount of notice, absence
of objection, or lack of creditor interest can change this principle or remove the
fundamental impropriety which taints a settlement that does not comply with it.
In re Beltran, 2010 Bankr. LEXIS 2548, at *21 (quoting Bank One NA v. Smith (In re Smith), 207
B.R. 177, 178 (Bankr. N.D. Ind. 1997)). The terms and conditions of the settlement are not proper
in this context. See In re Babb, 346 B.R. at 778, 783 (concluding that the court could not approve
a settlement that would determine the creditor’s “[j]udgment to be nondischargeable, and pay her
$10,000.00 towards her attorneys’ fees and expenses in exchange for [creditor] dismissing her
§ 727 action against him.”). As aptly summarized for the present case, “ ‘[t]his quid pro quo
exchange is exactly what Bankruptcy Rule 7041 discourages, and the [parties] failed to present
any evidence showing that [their settlement] was something other than what it appears on its
face.’ ” Id. at 783 (quoting In re Kallstrom, 298 B.R. at 760).
Whether another settlement would be “fair and equitable and in the best interest of the
estate” cannot be predicted at this time, but it would appear to require, at a minimum, that the
benefit be paid into the estate, not solely to CFBank.
V. Conclusion
Based upon the foregoing analysis and for many of the same reasons analyzed in the In re
Beltran opinion by former Bankruptcy Judge Wedoff, “[b]ecause a creditor may not compromise
an objection to discharge in exchange for payments that benefit only that creditor,” the proposed
settlement between CFBank and Mr. Thompson “cannot be approved” and the Motion to Approve
Settlement will be denied. In re Beltran, 2010 Bankr. LEXIS 2548, at *21. Moreover, this case
presented an extra wrinkle in that CFBank was effectively purporting to obtain a right through this
proposed settlement that it does not currently have, which is to end up with a non-dischargeable
judgment if the Debtor did not pay the settlement, again solely to CFBank. Given that CFBank did
not timely file a complaint objecting to the dischargeability of debt under 11 U.S.C. § 523(a)(2),
(4), or (6), this is troubling. Notwithstanding, this denial is without prejudice to another settlement
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that would be fair and equitable and in the best interest of the estate. CFBank will need to decide
whether to propose a settlement on terms that will benefit the estate and that Debtor will find
acceptable, dismiss the Complaint (on terms the Court would find appropriate) and its Motion to
Dismiss, or continue forward in prosecution of its Complaint and Motion to Dismiss. The Court
will schedule a status conference in order to discuss the next steps with the parties.
IT IS SO ORDERED.
Copies to
All Creditors and Parties in Interest
Edward H. Cahill, Assistant United States Trustee, Office of the US Trustee, 170 North High Street,
Suite 200, Columbus, OH 43215-2417
Pamela Arndt, Counsel for the United States Trustee, Office of the US Trustee, 170 North High
Street, Suite 200, Columbus, OH 43215-2417
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