by NCBRC’s Tara Twomey assisted debtors’ counsel in appealing a decision by the Bankruptcy Court of the Central District of California, Riverside Division, in which the court refused to give effect to debtors’ notice of conversion and instead dismissed the case with a 180-day bar to refiling. In re Taylor, No. 11-1879 (C.D. Cal.). In Taylor, the judge dismissed debtors’ chapter 13 case sua sponte the day after the chapter 13 debtors filed a notice of conversion to chapter 7. While acknowledging that the notice of conversion had been filed, the court refused to give the notice any effect. At a continued confirmation hearing, debtors’ counsel commented that the case had been converted the prior day, but the judge responded by saying: “No, it wasn’t. Confirmation denied. Cased dismissed. 109(g) applies.”
Debtors argued in their brief on appeal that under the plain language of section 1307(a) a debtor is entitled to convert a case under chapter 13 to a case under chapter 7 at any time and without limitation. Debtors’ position is consistent with the recently decided case by the Ninth Circuit BAP Nady v. Defrantz (In re DeFrantz), 454 B.R. 108 (B.A.P. 9th, 2011). Further, Debtors distinguished this case from Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), where the debtor sought to convert from chapter 7 to chapter 13 under section 706(a). In Marrama, the Supreme Court found that the bankruptcy court could deny debtor’s conversion from chapter 7 to chapter 13 under section 105(a) in order to prevent an abuse of the bankruptcy process. There, the bankruptcy court found that debtor’s conduct, including misleading statement concerning property of the estate, rose to the level of bad faith. The procedural rules draw a distinction between conversion from chapter 7 to chapter 13, where, under Rule 9013, the conversion is subject to the discretion of the court, and from chapter 13 to chapter 7, where, under Rule 1017(f)(3), conversion is automatic.