Trustee Blog

Convert from Chapter 7 to Chapter 13

Posted by:

Chapter 7 Trustee Larry Simons

—Motion to convert to Chapter 13

One of Chapter 7 Riverside Trustee Larry Simons duties is to administer assets for the benefit of the creditors. Sometimes a Debtor will want to flee Chapter 7 and go to Chapter 13. This maneuver used to be a matter of right, but now the process can be challenged by a Chapter 7 trustee.

Trustee Larry Simons was recently involved in such a case before Judge Houle in the Riverside Division. Judge Houle wrote in his tentative opinion:

“Before the Court is the Debtors’ motion to convert to Chapter 13. The chapter 7 Trustee filed an Opposition on 7/23/xx

Section 706(a) provides that the debtor may convert a case under chapter 7 to a case under chapter 11, 12, or 13 at any time, if the case has not previously been converted under section 1112, 1307 or 1208.

The Supreme Court addressed section 706(a) in Marrama v. Citizens Banks, and held that a debtor’s right to convert a chapter 7 case to another chapter is not absolute; the Court went on to rule that a debtor who in bad faith had concealed significant assets, and whose case under chapter 13 would be subject to immediate dismissal under section 1307(c), did not have the right to convert to chapter 13. 549 U.S. 365 (2007).

The Ninth Circuit has endorsed the decision set forth in Marrama as evidenced in the Court’s decision in In re Buckridge. 367 B.R. 191 (Bankr. C.D. Cal. 2007). In Buckridge, the Court found that a Debtor had no absolute right to remain in chapter 13 after finding that the Debtor had filed his motion in bad faith and primarily for the purpose of frustrating the chapter 7 trustee’s efforts in the pending adversary proceeding to revoke his discharge and recover the Inheritance alleged to be an undisclosed asset of the chapter 7 estate. Id. at 197.

Here, while the Debtors may contend that the Trustee’s assertions are mere speculation, it appears that at the very least, there are past transfers and potentially concealed assets that appear to warrant further investigation by the Trustee. Furthermore, it appears from the Court’s records (Debtors’ Schedules; 341(a) meeting; 2004 Examination)[See Creditor Opposition Dk. 56, Pgs. 6-9] that the Debtors may have provided conflicting statements with respect to their financial affairs, alleged fraudulent transfers, and available assets, which warrant further investigation at this time.”

The Hon. Bankruptcy Judge Mark Houle ruled in Trustee Simons favor and blocked the Debtors from entering into Chapter 13.



About the Author: