Right to Dismiss Prevails Over Motion to Convert

Posted by NCBRC - June 5, 2017

A chapter 13 debtor’s right to dismiss is absolute even in the face of a creditor’s prior motion to convert to chapter 7. In re de Lamadrid Perez, 2017 WL 1458857 (Bankr. D. Puerto Rico, April 24, 2017) (No. 12-2042).

Two of Julio Enrique Gil de Lamadrid Perez’s creditors moved the court to convert his chapter 13 case to chapter 7. Mr. de Lamadrid Perez opposed the motion then moved to dismiss under section 1307(b). The creditors argued that a debtor’s right to voluntarily dismiss his bankruptcy case is limited once there has been a motion to convert.

The Bankruptcy Court held that in the absence of First Circuit precedent on the issue the language of the statute controls. Here, the mandatory language of section 1307(b) that “on request of the debtor at any time, . . . the court shall dismiss a case under this chapter,” overrides the permissive language of section 1307(c) that “on request of a party in interest . . . the court may convert a case under this chapter to a case under chapter 7.”

While other courts have held that the debtor’s absolute right to dismiss may be limited where a party in interest has moved to convert or the debtor has acted in bad faith, the court here found that those cases misapplied Supreme Court precedent or ignored the mandatory language of the statute. Additionally, the court found that its inherent power under section 105(a) to guard against abuse did not come into play. Section 105 does not authorize a court to contravene any other section of Title 11 and, therefore, the mandatory language in section 1307(b) prevails. The court also disagreed with In re Howard, 179 B.R. 7 (Bankr. D. N.H. 1995), which held that permitting a debtor to voluntarily dismiss in the face of a motion to convert would essentially nullify the involuntary conversion provision in section 1307(c). Contrary to the Howard court’s interpretation, section 1307(c) does not impose a limitation on section 1307(b), but the reverse; section 1307(c)’s permissive language gives way to the mandatory language of section 1307(b).

The court noted that section 109(g) provides some leeway for a court to punish bad faith by precluding refiling within 180 days of dismissal where there has been a “failure to obey court orders or to properly appear and prosecute the case.” In this case, the court found that those factors were not present and no party in interest had moved to enjoin refiling.

Perez Bankr PR opinion April 2017

 

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