Chapter 7 Trustee Karl Anderson was recently involved in a Motion to Convert Case From Chapter 7 to 13, that was heard before Judge Houle. Judge Houle wrote:
On March 25, 20xx, (“Debtor”) filed for chapter 7 relief. Karl Anderson is the duly appointed chapter 7 trustee (“Trustee”).
On August 5, 20xx, the Debtor filed his Motion to Convert Case to a case under chapter 13 under 11 U.S.C. § 706(a) (“Motion”).
On August 21, 20xx, the Trustee filed Opposition to the Motion (“Opposition”).
On September 16, 20xx, the Debtor filed his Reply to the Opposition (“Reply”).
Trustee asserts that conversion should not be permitted because the Debtor has demonstrated bad faith. Under § 706(a), a “debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title.” 11 U.S.C. § 706(a). In Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), the Supreme Court held that the apparently absolute right of the debtor to convert a chapter 7 case to chapter 13 could be curtailed in the “atypical” case of a fraudulent or “bad faith” debtor, in order “to prevent an abuse of process.” Id. at 375 & n. 11, 127 S.Ct. 1105. As
remarked at the outset of the Marrama decision, “The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.” In re Levesque, 473 B.R. 331, 339 (9th Cir. BAP 2012) (quoting Marrama).
In particular, the Trustee asserts that:
In his Schedule A, Debtor listed an interest in property located at 9935 Ironwood Ct, Fontana, CA (“Property”) with a value of $202,723.00 and encumbrances of $79,979 (Trustee Decl. ¶ 2);
Debtor further listed a tax refund in the amount of $4,144 (Id.);
Debtor sought a $100,000 exemption in the Property and Debtor did not seek exemption of the 2012 tax refund of $4,144 (Id.);
Pursuant to a broker’s price opinion (which Trustee does not attach), the Property is allegedly valued at between $245,000 and $255,000 (Id. at ¶ 3);
Trustee informed Debtor that he had received a higher value for the Property and inquired whether he would be interested in retaining the Property as well as requesting turnover of the tax refund (Id.);
In response, the Debtor indicated that the tax refund had already been utilized and the Debtor then filed his Motion to Convert (Id.);
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Trustee believes that Debtor is only seeking conversion because Trustee is taking actions to liquidate the undervalued Property and requesting turnover of the tax refund (Id.); and
Trustee believes conversion is improper due to Debtor’s undervaluing of the Property, utilizing the tax refund, and not providing evidence of the validity of the homestead exemption (Id).
See the Next Blog Post to see what happened….