Riverside Bankruptcy Court’s Sua Sponte Dismissal Reversed

Posted by NCBRC - April 16, 2012

The District Court for the Central District of California reversed the bankruptcy court’s dismissal of the debtors’ chapter 13 case after debtors filed a notification of conversion to chapter 7. Taylor v. Danielson (In re Taylor), No. 11-1879 (C.D. Cal April 13, 2012). The court distinguished Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) where the Supreme Court found that a debtor does not have an absolute right to convert a case from chapter 7 to chapter 13 under section 706(a). In Marrama, the Court reasoned, in part, that conversion from chapter 7 to chapter 13 could result in a debtor either escaping the consequences of bad faith by voluntarily dismissing under chapter 13, or benefiting from the conversion despite bad faith by gaining access to estate assets to the detriment of creditors.

Conversions from chapter 13 to chapter 7 are distinguished by the fact that upon such conversion the trustee has control over estate assets and the court retains jurisdiction over the debtor, so the concerns that were dispositive in Marrama are not present. Additionally, the Bankruptcy Rules treat conversions from chapter 7 to chapter 13 differently than conversion from chapter 13 to chapter 7. Rule 1017(f)(2) contemplates judicial scrutiny over conversions from chapter 7 to chapter 13, while, in contrast, Rule 1017(f)(3) provides that a “chapter 13 case shall be converted without court order when the debtor files a notice of conversion under . . . [§] 1307(a).”

NCBRC’s Tara Twomey assisted in the writing of debtors’ brief.

Taylor opinion


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