Trustee Blog

Motion to Convert to Chapter 13, Part II

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On November 8, 2013, We talked about Chapter 7 Trustee Karl Anderson trying to prevent a Debtor from leaving Chapter 7 and fleeing to Chapter 13 to avoid turning over an un-exempt Tax Refund. Chapter 7 Trustees like Mr. Anderson and John Pringle must deal with this all the time.

In the case from November 8, 2013’s blog post,

Debtor, in response, argues that:

He is eligible for chapter 13 relief because his secured debts do not exceed $211,250 and any unsecured debts do not exceed $95,365;

Debtor’s valuation of the Property was based on the value provided by Zillow.com ;

The Debtor believes that the value of the Property may have increased since May 3, 20xx when the Trustee initially indicated that he would seek the opinion of a broker as to the value;

At the July 11, 20xx 341 Meeting of Creditors, Debtor disagreed with the Trustee about the value of the Property and that Debtor has an interest in an unexempt $4,144 tax refund;

On August 8, 20xx, the Debtor retained a licensed real estate appraiser’s services to conduct an appraisal. The appraiser determined the value of the Property to be not more than $180,000. A true and correct copy of the appraiser’s appraisal and declaration are attached as Exhibits “A” and “B” to the Reply.

In this case, there is insufficient evidence to demonstrate bad faith. While the Court agrees with the Trustee that the Debtor did not exempt the tax refund in his Schedule C, this alone is insufficient to establish bad faith. In contrast, the Debtor has provided evidence of the valuation of the Property based on information obtained on the website Zillow.com, which is corroborated by Debtor’s appraisal and in the balance is more persuasive given the Trustee’s failure to provide the broker’s price opinion referenced in his declaration.

As to conversion, the Debtor has correctly indicated that a determination of feasibility is not required under § 706(a). However, the Court notes that the Debtor’s Schedules I and J indicate $7 in disposable income, and will need to be supplemented by non-debtor contributions as indicated in the Reply.

TENTATIVE RULING

Based on the foregoing, the tentative ruling is to GRANT the Motion conditioned, however, on reconversion to chapter 7 (instead of dismissal) if the Debtor is unable to propose a confirmable chapter 13 plan.

So in this case the Debtor is allowed to flee from the trustee, but if he fails in his chapter 13 case, he has to go back to Mr. Anderson and Chapter 7.

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