                                             Filed:   January 7, 1997


                    UNITED STATES COURT OF APPEALS

                        FOR THE FOURTH CIRCUIT



                              No. 95-2925
                    (CA-95-1199-AW, BK-931-6838-PM)



Robert J. Kestell,

                                              Plaintiff - Appellant,

           versus

Janet A. Kestell,

                                                 Defendant - Appellee.




                               O R D E R


     The Court amends its opinion filed October 31, 1996, as

follows:
     On the cover sheet, section 3, line 4 -- the district court

number is corrected to read "CA-95- 1199-AW."

                                       For the Court - By Direction



                                           /s/ Patricia S. Connor

                                                      Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: ROBERT J. KESTELL,
Debtor.

ROBERT J. KESTELL,
                                                             No. 95-2925
Plaintiff-Appellant,

v.

JANET A. KESTELL,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Williams, Jr., District Judge.
(CA-95-1199-AW, BK-931-6838-PM)

Argued: September 25, 1996

Decided: October 31, 1996

Before WILKINSON, Chief Judge, and WILKINS and
WILLIAMS, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Wilkins and Judge Williams joined.

_________________________________________________________________

COUNSEL

ARGUED: Edward Malcolm Kimmel, HAMBRIGHT & KIMMEL,
Washington, D.C., for Appellant. Irving Edward Walker, MILES &
STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee. ON
BRIEF: Lisa B. Tancredi, MILES & STOCKBRIDGE, P.C., Balti-
more, Maryland, for Appellee.

_________________________________________________________________

OPINION

WILKINSON, Chief Judge:

Appellant Robert Kestell was denied a discharge in bankruptcy.
The bankruptcy court found that Kestell had failed to list assets that
were property of the estate and that such failure constituted a fraudu-
lent concealment under 11 U.S.C. § 727. We need not decide whether
the assets at issue were property of the estate because the bankruptcy
court's findings amply support the conclusion that Kestell attempted
to abuse the bankruptcy process so as to ensure that his former wife,
appellee Janet Atkinson, could not collect a debt Kestell owed her.
See 11 U.S.C. §§ 105, 707. Because we believe that both the bank-
ruptcy court and district court acted properly to protect the integrity
of the bankruptcy process, we affirm the judgment.

I.

On December 3, 1993, Janet Atkinson was granted a divorce, on
grounds of desertion, from her husband of 27 years, Robert Kestell.
The divorce judgment required Kestell to pay Atkinson alimony, sup-
port for three of the couple's five children, a lump-sum award, attor-
ney's fees, and a share of profits from a rental property. Kestell
earned $193,000 in 1993.

Thirteen days after the divorce judgment, Kestell filed for Chapter
7 bankruptcy relief. At a meeting of creditors held a month later, Kes-
tell stated that he intended to reaffirm all of his debts except the dis-
chargeable portion of his debt to Atkinson and a small credit card
debt. Kestell also declared, "I don't want [Atkinson] to have any-
thing." He swore under oath that to the best of his knowledge he had
listed all of his assets and all of his debts on the bankruptcy schedules.

Kestell did not list, however, his anticipated receipt of an income
tax reimbursement from his employer, Inter-American Development

                    2
Bank. Nor did he amend the schedule to add the reimbursement of
approximately $13,000 when it was paid to him postpetition. Kestell
also did not report or turn over to the bankruptcy trustee accrued sick
leave benefits of $33,511.09 paid to him in March 1994. At the time
of Kestell's bankruptcy petition, these sick leave benefits were avail-
able only upon retirement or resignation, but a change in company
policy in March 1994 allowed Kestell to cash in the benefits he had
earned up to that point. He first picked up the check, then tried to
return it so he could cash the benefits later, then retrieved it and
deposited the check in his checking account in Jamaica.

After a one-day trial, the bankruptcy court reached two conclu-
sions. First, it determined that Kestell's interest in the sick leave bene-
fits and tax reimbursement were property of the bankruptcy estate,
and that Kestell should have amended his asset schedules accordingly
and turned the money over to the trustee when he received it. Second,
the court found that Kestell's choice not to list or turn over the assets
evinced an intent to defraud a creditor, namely his ex-wife. Based on
these findings, the bankruptcy judge found fraudulent concealment in
violation of 11 U.S.C. § 727(a)(2)(B) and denied Kestell's petition.
Kestell appealed to the United States District Court, which affirmed
the bankruptcy judge's ruling.

II.

Kestell claims on appeal that the bankruptcy court committed a
great injustice in his case. The court, he argues, penalized him either
for legally correct conduct or for entirely innocent mistakes. It should
be possible, he says, "to have an honest disagreement, even with a
bankruptcy judge, about what is property of the estate." Above all, he
insists, a court's bankruptcy powers must be exercised "liberally in
favor of the debtor" and strictly against objections to a discharge. See
Williams v. United States Fidelity & Guarantee Co., 236 U.S. 549,
554-55 (1915) (bankruptcy process designed "to relieve the honest
debtor from the weight of oppressive indebtedness, and permit him to
start afresh").

This statement of the Code's objectives is correct as far as it goes,
but it does not go far enough. In particular, it overlooks the fact that
bankruptcy courts have traditionally drawn upon their powers of

                     3
equity to prevent abuse of the bankruptcy process and to ensure that
a "case be commenced in `good faith' to reflect the intended policies
of the Code." 2 L. King, Collier on Bankruptcy § 301.05[1], at 301-5
to 301-7 (1996). Such a good faith requirement

        prevents abuse of the bankruptcy process by debtors whose
        overriding motive is to delay creditors without benefiting
        them in any way or to achieve reprehensible purposes.
        Moreover, a good faith standard protects the jurisdictional
        integrity of the bankruptcy courts by rendering their power-
        ful equitable weapons (i.e., avoidance of liens, discharge of
        debts, marshalling and turnover of assets) available only to
        those debtors and creditors with "clean hands."

In re Little Creek Development Co., 779 F.2d 1068, 1072 (5th Cir.
1986).

Indeed, Congress has made it clear within the Bankruptcy Code
itself that misuse of the bankruptcy process should not be counte-
nanced. Specific provisions throughout the Code provide remedies for
abuses in each of the types of bankruptcy proceedings. In some Code
provisions, enumerated circumstances of abuse are addressed. In oth-
ers, general phrases such as "for cause" provide broad coverage for
unenumerated instances of misuse.

Chapter 7, for example, affords a court the discretion to dismiss sua
sponte a consumer debtor's case "if it finds that the granting of relief
would be a substantial abuse of the provisions of [Chapter 7]." 11
U.S.C. § 707(b). Further, section 727 lists ten specific grounds on
which the judge should deny a Chapter 7 debtor discharge from his
debts. These include situations in which the debtor has "with intent
to hinder, delay, or defraud a creditor . . . transferred, removed,
destroyed, mutilated, or concealed [property]"; "knowingly and fraud-
ulently . . . made a false oath or account"; "failed to explain satisfacto-
rily . . . any loss of assets"; or refused "to obey any lawful order of
the court." 11 U.S.C. § 727(a)(2),(4),(5),(6).

Similarly, Chapter 11 bankruptcy cases may be dismissed for a
lack of good faith, a requirement this court has found to be "implicit
in § 1112(b)." Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989).

                     4
        On the basis of the soundly reasoned decisions of other
        courts, the clear purposes of the bankruptcy code and our
        reading of the relevant statutory provisions and rules, we
        hold that petitions for protection under the reorganization
        provisions of Chapter 11 must be filed in "good faith." If
        properly found not to have been, they may be summarily
        dismissed for that reason.

Id. at 700. Section 1112(b) also lists ten explicit grounds for dismissal
or conversion to Chapter 7 of a Chapter 11 petition, including "inabil-
ity to effectuate a plan," "unreasonable delay by the debtor that is
prejudicial to creditors," and "material default by the debtor with
respect to a confirmed plan." 11 U.S.C. § 1112(b)(2),(3),(8).

Good faith is also necessary for a Chapter 13 plan to be confirmed
under section 1325(a). In re Solomon, 67 F.3d 1128 (4th Cir. 1995);
Neufeld v. Freeman, 794 F.2d 149 (4th Cir. 1986). That section pro-
vides that plans may be confirmed only if "proposed in good faith and
not by any means forbidden by law." 11 U.S.C. § 1325(a)(3). Addi-
tionally, under section 1307, bankruptcy petitions filed under Chapter
13 may be dismissed or converted to Chapter 7 "for cause." Reasons
constituting "cause" for dismissal include enumerated ones, such as
unreasonable and prejudicial delay by the debtor or material default
by the debtor, 11 U.S.C. § 1307(c)(1),(6), as well as judicially con-
strued ones such as bad faith, In re Love, 957 F.2d 1350 (7th Cir.
1992).

Finally, overlaying these specific provisions is the broad grant of
judicial power set forth in 11 U.S.C. § 105(a). That section authorizes
bankruptcy courts to:

        issue any order, process, or judgment that is necessary or
        appropriate to carry out the provisions of this title. No provi-
        sion of this title providing for the raising of an issue by a
        party in interest shall be construed to preclude the court
        from, sua sponte, taking any action or making any determi-
        nation necessary or appropriate to enforce or implement
        court orders or rules, or to prevent an abuse of process.

A leading commentator on bankruptcy law characterizes section 105
as "an omnibus provision phrased in such general terms as to be the

                    5
basis for a broad exercise of power in the administration of a bank-
ruptcy case. The basic purpose of section 105 is to assure the bank-
ruptcy courts power to take whatever action is appropriate or
necessary in aid of the exercise of its jurisdiction." 2 L. King, Collier
on Bankruptcy § 105.01, at 105-3 (1996). The second sentence of sec-
tion 105(a), added in 1986, was expressly intended to broaden the
authority of bankruptcy courts to act, sua sponte, to promote the
Code's provisions. See 132 Cong. Rec. S15074-05 (Oct. 3, 1986); In
re Haddad, 68 B.R. 944, 949 (Bankr. D. Mass. 1987).

Section 105 is not, of course, unlimited. It cannot be invoked, for
example, to achieve ends contrary to other specific Code provisions.
Section 105 states, after all, that it empowers the court to "carry out
the provisions of [the Bankruptcy] title." On the other hand, the power
granted in section 105 is not a mere duplicate of that explicitly
granted in other specific Code provisions. By its own terms, section
105 gives the court the additional power to "issue any order, process,
or judgment necessary . . . to carry out the provisions of [Title 11],"
(emphasis added) and to take any action, even at its own initiative, "to
prevent an abuse of process." See In re Calder, 93 B.R. 739, 740
(Bankr. D. Utah 1988) (abuse of process defined as "maneuvers or
schemes which would have the effect of undermining the integrity of
the bankruptcy system"); In re Burrell, 148 B.R. 820, 824 (Bankr.
E.D. Va. 1992) (abuse of process defined as the circumstance in
which inaction by the court "would undermine the integrity of the
bankruptcy system").

This court has seen "no reason to read into this language [of section
105] anything other than its plain meaning that a court of bankruptcy
has authority to issue any order necessary or appropriate to carry out
the provisions of the bankruptcy code." In re Walters, 868 F.2d 665,
669 (4th Cir. 1989). Walters held that section 105 gives a judge the
authority to hold a party in civil contempt of court, a conclusion also
reached by other circuits. In re Ragar, 3 F.3d 1174, 1180 (8th Cir.
1993); In re Skinner, 917 F.2d 444, 447 (10th Cir. 1990). The plain
meaning of section 105 goes beyond contempt of court power. It also
grants judges the authority to dismiss a bankruptcy petition sua sponte
for ineligibility, In re Hammers, 988 F.2d 32, 34-35 (5th Cir. 1993),
for lack of good faith, In re Van Owen Car Wash, Inc., 82 B.R. 671,
674 (Bankr. C.D. Ca. 1988), or for one of the "causes" enumerated

                    6
in section 1112, In re Finney, 992 F.2d 43, 44 (4th Cir. 1993); In re
Erchak, 152 B.R. 68 (Bankr. N.D. W. Va. 1993).

What Kestell overlooks, in sum, is that the Bankruptcy Code, both
in general structure and in specific provisions, authorizes bankruptcy
courts to prevent the use of the bankruptcy process to achieve illicit
objectives. The right of debtors to a fresh start depends upon the hon-
est and forthright invocation of the Code's protections. As the bank-
ruptcy judge observed, "[a]ccuracy, honesty, and full disclosure are
critical to the functioning of bankruptcy," and are "inherent in the bar-
gain for the discharge." See In re Mascolo, 505 F.2d 274, 278 (1st
Cir. 1974).

III.

A.

The question before us is whether the bankruptcy court made ade-
quate findings under relevant provisions of the Code to support the
denial of Kestell's discharge. Although the bankruptcy court
addressed this case under the fraudulent concealment provision of
section 727(a)(2), we think this petition is more appropriately dis-
missed under sections 707(b) and 105(a). Section 707(b) provides that
a court "may dismiss a case filed by an individual debtor under
[Chapter 7] whose debts are primarily consumer debts if it finds that
the granting of relief would be a substantial abuse of the provisions
of [Chapter 7]." Kestell is an individual debtor, and more than half his
debt is the lump-sum amount owed to his former wife from the
divorce judgment. Since this debt was not incurred with a profit
motive or in connection with a business transaction, it is considered
"consumer debt" for purposes of section 707. Matter of Booth, 858
F.2d 1051, 1054-55 (5th Cir. 1988); see 11 U.S.C. § 101(8) (defining
consumer debt as "debt incurred by an individual primarily for a per-
sonal, family, or household purpose"); In re Palmer, 117 B.R. 443
(Bankr. N.D. Iowa 1990) (lump-sum marital award "consumer debt"
under section 707). The critical factor under section 707(b), therefore,
is whether Kestell's actions constituted "substantial abuse" of Chapter
7. This court has previously adopted a "totality of the circumstances"
approach to substantial abuse, with the recognition of "a strong indi-
cation that Section 707(b) was intended to explicitly recognize the

                    7
court's ability to dismiss a Chapter 7 petition for lack of good faith--
when `the total picture is abusive.'" In re Green, 934 F.2d 568, 572
(4th Cir. 1991).

The record amply supports the conclusion that Kestell's behavior
constituted both "substantial abuse" under section 707(b) and "abuse
of process" under section 105(a). A major purpose of the bankruptcy
process is the equitable distribution of a bankrupt's assets among
creditors. See H.R. Rep. No. 1409, 75 Cong., 1st Sess. 17 (1937) (cit-
ing equitable distribution among creditors as "the fundamental pur-
pose of the Act"); In re MortgageAmerica Corp., 714 F.2d 1266,
1275 (5th Cir. 1983) (same); see also 11 U.S.C. § 726 (detailing how
property of the estate is to be equitably distributed). From early on in
the bankruptcy process, Kestell clearly communicated that he did not
desire the equitable distribution of his assets among all creditors and
a fresh start free from debt. Instead, Kestell sought to avoid paying
what he owes to his former wife while making good on his other
financial obligations.

Kestell stated at the creditors' meeting that he intended to reaffirm
all of his debts except his dischargeable debt to Atkinson and a small
credit card debt. At the same meeting, Kestell declared, "I don't want
[Atkinson] to have anything." He failed to list his sick leave benefit
and tax reimbursement as assets, and failed to bring them to the trust-
ee's attention when he received the money. He attempted to use the
sick leave check, according to the bankruptcy judge,"to reimburse
creditors he thought worthy of priority," and when Kestell discovered
that was not possible, he tried to return the check to the company so
it would not be available to the bankruptcy estate. The bankruptcy
judge, who conducted the trial and observed the testimony and
demeanor of the witnesses, including appellant Kestell, concluded
that the above facts "suggest that the sole purpose of the filing was
to avoid the payment of the sums owing to his ex-wife on account of
the state court judgment." We find no evidence to dispute the bank-
ruptcy court's conclusion.

B.

Kestell, however, would have us address whether his tax reim-
bursement and sick leave benefits were "self-evidently" property of

                     8
the bankruptcy estate. This determination would be necessary if we
were resolving this appeal under section 727(a)(2), which sanctions
debtors for, among other things, fraudulently concealing property of
the estate. However, the bankruptcy judge's findings in this case
amply support dismissal of the debtor's petition under both sections
105(a) and 707(b). Under these provisions, we need not definitively
decide the question of whether the sick leave and tax reimbursement
belonged to the bankrupt estate. Instead, we need only consider
whether Kestell's handling of the two benefits, both of which were
earned prior to the bankruptcy petition, evidenced a good faith invo-
cation of the bankruptcy process.

Kestell argues that he relied on the advice of his attorney, who told
him that listing the two assets in the bankruptcy filing was not neces-
sary. The bankruptcy judge, however, found clear indication of fraud-
ulent intent in Kestell's testimony sufficient to overcome any claim
of good faith reliance on legal advice. Specifically, the court found
that Kestell attempted to use his sick leave check to reimburse other
creditors while keeping the check from Atkinson,"illustrat[ing] his
intent to hinder, delay, or defraud his ex-wife."

Furthermore, even if Kestell was unsure at the time of filing
whether the sick leave and tax benefits were part of the estate, he
could have, at a minimum, disclosed to the trustee the fact that he had
received these substantial funds so soon after the petition. This would
have demonstrated his good faith efforts to comply with the bank-
ruptcy process, and allowed a proper and open resolution of whether
the funds should have been included as part of the estate. In re Krich,
97 B.R. 919, 924 (Bankr. N.D. Ill. 1988). The sick leave funds to this
day remain unavailable despite the trustee's efforts to retrieve them.

Honesty and disclosure are essential to achieve the fundamental
bankruptcy policy of equitable distribution among creditors.
MortgageAmerica, 714 F.2d at 1275. Because favoritism of one credi-
tor over another is antithetical to the goal of equitable distribution, the
Bankruptcy Code cannot be used as a vehicle for advancing personal
antagonisms against an ex-spouse. The bankruptcy court found
repeatedly that Kestell's sole purpose for filing his petition was to
favor certain creditors and defraud his ex-wife. Kestell's conduct was

                     9
an abuse of the bankruptcy process, and his petition for discharge
from debt was properly denied.

IV.

For the foregoing reasons, we affirm the judgment of the district
court.

AFFIRMED

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