§ 148.2     Absolute Right of Debtor?
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 148.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

So long as the case was not previously converted from Chapter 11, 12 or 13,1 § 706(a) imposes no conditions on the right of an eligible debtor2 to convert from Chapter 7 to Chapter 13. Conversion from Chapter 7 to Chapter 13 is allowed “at any time.”3 A Chapter 7 case can be reopened under 11 U.S.C. § 350(b) to permit a debtor to convert to Chapter 13.4 Any waiver of the right to convert from Chapter 7 to Chapter 13 is “unenforceable.”5

[2]

Although increasingly controversial,6 it has been held that the bankruptcy court has no discretion to deny conversion to an eligible Chapter 13 debtor either before or after entry of discharge in the Chapter 7 case.7 The debtor can convert from Chapter 7 to Chapter 13 after a judgment barring the debtor’s discharge or declaring the nondischargeability of a debt in the Chapter 7 case.8 The debtor’s questionable or fraudulent conduct in the Chapter 7 case does not preclude conversion to Chapter 13.9 An absolute right of voluntary conversion to Chapter 13 is consistent with the policy that individual debtors should have the opportunity to attempt repayment of some or all of their debts.

[3]

There are grounds for objection to conversion from Chapter 7 to Chapter 13. Within the statute itself, § 706(a) somewhat inartfully allows voluntary conversion only “if the case has not been converted under section 1112, 1208 or 1307 of this title.” It has been held that a Chapter 13 case once converted to Chapter 7 cannot be reconverted to Chapter 13.10 But other decisions find the statutory prohibition against reconversion to be less than absolute. The court in In re Sensibaugh11 ruled that in the absence of an objection, the debtor can convert from Chapter 7 to Chapter 13 despite a prior conversion to Chapter 7 from Chapter 11. Going a little further, in In re Hollar,12 the court held that after conversion from Chapter 11 to Chapter 7, the debtor loses the “absolute right” to convert from Chapter 7 to Chapter 13; however, “permissive conversion” to Chapter 13 is still possible because public policy favors repayment of debt. “[A]bsent abuse of the bankruptcy laws or other extraordinary circumstances . . . debtors otherwise eligible for Chapter 13 relief should not be barred from permissively converting to that chapter.”13

[4]

Eligibility for Chapter 13 relief is a statutory prerequisite for conversion. 11 U.S.C. § 706(d) states: “Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.”14 The reported decisions recognize ineligibility under § 109(e) is a ground for denial of conversion from Chapter 7 to Chapter 13.15 It has been held that conversion from Chapter 7 to Chapter 13 is “void ab initio” when the debtor was not eligible for Chapter 13 relief.16 That the debtors exceeded the debt limitations for Chapter 13 relief was a ground to deny conversion from Chapter 11 to Chapter 13.17 When the debtor’s income is insufficient to fund a Chapter 13 plan, conversion from Chapter 7 has been denied at the threshold.18 In Nikoloutsos v. Nikoloutsos (In re Nikoloutsos),19 the U.S. Court of Appeals for the Fifth Circuit held that the bankruptcy court inappropriately permitted an ineligible debtor to convert from Chapter 7 to Chapter 13 based on materially false representations with respect to the amount of debts during the Chapter 7 case. The Fifth Circuit found that the debtor’s fraud justified revocation of confirmation under § 133020 and remand to undo conversion from Chapter 7.

[5]

The reported decisions are not in agreement whether eligibility for conversion from Chapter 7 to Chapter 13 is determined based on the facts at the filing of the original petition or the facts at the time of conversion. Discussed below,21 at conversion for most purposes the date of the order for relief in the Chapter 13 case is “thrown back” to the date of filing of the Chapter 7 petition.22 If eligibility for Chapter 13 is determined as of the date of filing of the Chapter 7 petition, then courts must ignore events during the Chapter 7 case. This is practically and conceptually difficult. One court held that eligibility is determined at the time of conversion because “but for a change in circumstances or a re-evaluation of existing circumstances, no debtor would request a conversion of a case.”23 In Nikoloutsos, the Fifth Circuit considered an informal proof of claim filed by a creditor, the grant of relief from the stay during the Chapter 7 case and the entry of a judgment by a state court after the grant of relief from the stay as facts bearing on whether the debtor was eligible to convert the Chapter 7 to Chapter 13.

[6]

In contrast, the bankruptcy court in In re Bush24 held that at conversion from Chapter 7 to Chapter 13, eligibility was determined as of the filing of the original Chapter 7 case.25 In Bush, this timing worked to the debtor’s advantage: debts that were contingent and unliquidated at the filing of the Chapter 7 petition were held to be contingent and unliquidated for eligibility purposes at conversion notwithstanding that those debts had been liquidated and became noncontingent during the Chapter 7 case. In In re Rohl,26 this timing worked otherwise: because debt scheduled at the Chapter 7 petition exceeded eligibility limits for Chapter 13, the debtor could not convert from Chapter 7; settlements and recharacterizations of debts during the Chapter 7 case could not improve the debtor’s eligibility for conversion.27

[7]

The timing debate becomes more interesting when facts supporting opposition to conversion arise after the Chapter 7 petition. Increasingly, reported decisions cite the debtor’s actions during the Chapter 7 case as evidence of “bad faith” or “extreme circumstances” barring conversion to Chapter 13.28 If the debtor’s behavior during the Chapter 7 case is relevant to good faith or bad faith at conversion, then should it not also be appropriate to consider events during the Chapter 7 case that bear on the amount or characterization of debts?

[8]

Converting a Chapter 7 case to Chapter 13 certainly saves the debtor a second filing fee, but filing a separate new Chapter 13 case may avoid litigation of difficult eligibility issues. Filing the separate Chapter 13 case before the Chapter 7 case is closed adds the issue whether the debtor can be a debtor in simultaneously pending bankruptcy cases.29 Filing a separate Chapter 13 case soon after the Chapter 7 case is closed raises serial-filing issues30 and may provoke a good-faith objection to confirmation31 but is generally the safer approach.

[9]

Whether to convert an existing Chapter 7 case or refile a separate Chapter 13 case may turn on the rule in the district with respect to the allowance of debts that were discharged during the Chapter 7 case. Discussed in detail elsewhere,32 some courts hold that discharged debts are not allowable claims when a Chapter 7 case is converted to Chapter 13 after entry of discharge. Other courts hold that discharged debts, though stripped of personal liability, are allowable claims against the Chapter 13 estate at conversion. The rule in the district would make much difference in the amount of debt that must be provided for through the plan after conversion and might convince the debtor to consider filing a separate new Chapter 13 case.

[10]

The timing of conversion relative to the entry of discharge, the timing of the eligibility calculation and the question whether discharged debts are counted for eligibility purposes all become tangled at conversion from Chapter 7 to Chapter 13. For example, the bankruptcy court in In re Safley33 refused conversion after discharge, reasoning that if eligibility for conversion to Chapter 13 were determined as of the filing of the Chapter 7 petition, the debtor was not eligible, because the debtor had scheduled noncontingent, liquidated, unsecured debts in excess of the (then) $100,000 limit for Chapter 13 relief. However, if eligibility for conversion were determined at the time of the motion to convert (after discharge in the Chapter 7 case), the debtor was eligible, but conversion would be meaningless because no debt remained to be dealt with in the Chapter 13 case.

[11]

In contrast, after reopening a closed Chapter 7 case and converting to Chapter 13, the court in In re Sieg34 held that neither § 706(a) nor § 348 required vacating or revoking the Chapter 7 discharge. The only debts remaining in Sieg to be managed in the Chapter 13 case were debts that survived the Chapter 7 discharge.35

[12]

The Bankruptcy Court for the Northern District of Ohio cited the absence of a time limitation in § 706(a) to support the conclusion that entry of discharge is not relevant to whether a Chapter 7 case can be converted to Chapter 13:

The language of § 706(a) is broad and permissive, allowing conversion by a debtor “at any time.” There is no time limitation to pre- or post-discharge in the language Congress chose, and its use of the words “at any time” shows that Congress did not intend that there be a time limitation on the right to convert. . . . The court finds that it lacks discretion to block a conversion based on the debtor’s Chapter 7 discharge, where the case is still open, it has not previously been converted and the debtor is eligible for relief under the chapter chosen.36
[13]

In In re Rigales,37 the Bankruptcy Court for the District of New Mexico acknowledged Tenth Circuit authority that permits conversion to Chapter 13 after discharge in a Chapter 7 case; but the court invited Congress to close this door because it seemed unfair to creditors:

When a debtor converts to Chapter 13 after the Chapter 7 discharge, but before the estate property is liquidated, he has received all of the benefits of Chapter 7 without any of the burdens, because he regains his nonexempt property, and his debts have all been discharged. . . . [M]ost of the debts do not survive the Chapter 7 discharge to be administered in the Chapter 13 reorganization. All dischargeable debts are wiped out by the Chapter 7 discharge. Those creditors’ claims are wiped out and, therefore, are not included in the Chapter 13 plan. Those creditors have no standing to object to the provisions of the plan and are left with nothing . . . . Congress should change the language of § 706(a) and qualify the right to convert eliminating post-discharge conversions from Chapter 7 to 13 in order to fully administer a bankruptcy estate in Chapter 7 once a discharge has been entered.38
[14]

Section 348 does not undo the discharge granted in the Chapter 7 case.39 The Code does not require debtors to forfeit discharge as an entry fee for conversion to Chapter 13.40

[15]

After entry of discharge in the Chapter 7 case, the debtor is released from personal liability with respect to all dischargeable debts. As the Supreme Court determined in Johnson v. Home State Bank,41 a debtor can file a new Chapter 13 case after discharge in a Chapter 7 case and deal only with claims (including liens) that survived discharge in the Chapter 7 case. Eligibility in the new Chapter 13 case would appropriately be determined based on the debt that survived discharge in the prior Chapter 7 case.42

[16]

But eligibility at conversion from Chapter 7 to Chapter 13 involves a different set of considerations. If eligibility is determined as of the original Chapter 7 petition date, then discharge of debts during the Chapter 7 case would be ignored and eligibility would be determined based on the debt in the original Chapter 7 schedules. If eligibility for Chapter 13 is determined at conversion, then a second question must be asked: What is the rule in the district with respect to counting debts that were discharged in the Chapter 7 case before conversion?43 If debts with respect to which personal liability has been eliminated are not counted for eligibility purposes at conversion, then only debts that survived discharge would be considered for eligibility purposes. If debts discharged during the Chapter 7 case remain claims against the Chapter 13 estate at conversion,44 then eligibility determined at conversion would be essentially the same calculation as eligibility determined as of the original Chapter 7 petition date.

[17]

Increasingly, the reported decisions reveal nonstatutory barriers to conversion from Chapter 7 to Chapter 13. The trend seems to be that the unwaiveable right to convert from Chapter 7 to Chapter 13 at any time is conditioned that there has been no misconduct by the debtor during the Chapter 7 case, that the debtor’s motives in conversion are consistent with “good faith,” and that there is no evidence that conversion will abuse creditors or distort the “bankruptcy process.” Put simply, the courts are finding discretion to deny conversion from Chapter 7 to Chapter 13 notwithstanding no suggestion in the Code that discretion was intended.

[18]

Not unexpectedly, the reported decisions offer no consensus description of this judge-made discretion to deny conversion. It has been said that the bankruptcy courts “may disallow specific ‘Chapter 20’ conversions under the peculiar circumstances of a given case,” applying “the requisite scrutiny.”45 Conversion from Chapter 7 to Chapter 13 has been described as a “presumptive right” that can be denied under “extreme circumstances.”46 One court decided a contested motion to convert by considering “the totality of the circumstances,” including “the debtor’s motivation for conversion.”47 Facts sufficient to deny conversion have been described as “egregious conduct,”48 “compelling circumstances,”49 and “only the most egregious circumstances.”50 This use of words with undefined boundaries has invited objections to conversion based on many of the same considerations that test confirmation of a plan.

[19]

For example, the Bankruptcy Code imposes good faith as a predicate for confirmation of a Chapter 13 plan.51 Some courts hold that bad faith is a ground for conversion or dismissal of a Chapter 13 case.52 One reported decision points out that after conversion from Chapter 7 to Chapter 13, a challenge to the debtor’s good faith is appropriately raised as an objection to confirmation of the plan, not as a motion to reconvert to Chapter 7.53 But a growing number of reported decisions demonstrate that bad faith has become an independent ground to bar conversion from Chapter 7 to Chapter 13.

[20]

For example, in Kuntz v. Shambam (In re Kuntz),54 the Bankruptcy Appellate Panel for the First Circuit held that a debtor’s one-time right to convert from Chapter 7 to Chapter 13 can be refused in “extreme circumstances” constituting bad faith. In Kuntz, the Chapter 7 debtor became aware of an inheritance in the spring of 1997, during the Chapter 7 case, and disclosed the new asset in amended Schedules B and C in April of 1997. The debtor received the inheritance in November 1997 but did not amend the schedules to reveal the amount until February of 1998. The amount was substantial, and the debtor moved to convert to Chapter 13 to deal with the new asset. The First Circuit BAP stated that bad faith could bar conversion from Chapter 7 to Chapter 13, but there was insufficient evidence of bad faith to deny conversion in this case: “There is no evidence to support the conclusion that the debtor intended to hide the asset or purposefully shielded the asset from his creditors. . . . We find that the delay, without more, does not translate into a lack of good faith sufficient to support the denial of the debtor’s right conferred by § 706(a).”55

[21]

Three years after Kuntz, in Cabral v. Shamban (In re Cabral),56 the Bankruptcy Appellate Panel for the First Circuit found “extreme circumstances” barring conversion to Chapter 13 when the debtor gave misleading testimony at the § 341 meeting in the Chapter 7 case and there were substantial differences between original and amended schedules. In Cabral, the First Circuit BAP stated the extreme-circumstances test this way: “[C]ourts generally require a substantial showing prior to denying conversion, such as a finding that the debtor acted in subjective bad faith, where conversion would be objectively futile or result in an abusive process or some other gross inequity.”57 A growing number of reported decisions apply one version or another of this extreme-circumstances test at conversion from Chapter 7 to Chapter 13.58

[22]

Typically without mention of extreme circumstances, there are many decisions that find bad faith sufficient to bar conversion in debtor misconduct during the Chapter 7 case or implicit in the act of conversion itself. For example, the bankruptcy court in In re Sully59 found “inherent” authority to deny voluntary conversion from Chapter 7 to Chapter 13 based on the debtor’s bad-faith concealment of the settlement of a lawsuit. In Sully, the debtor filed a Chapter 7 case and scheduled a personal injury lawsuit valued at zero dollars. During the Chapter 7 case, the debtor settled the personal injury lawsuit for $40,000. The Chapter 7 trustee learned of the settlement only after calling the debtor’s personal injury lawyer. The debtor filed a motion to convert to Chapter 13, and the trustee objected. The bankruptcy court sustained the trustee’s objection, describing in broad language a bad-faith limitation on the right of conversion to Chapter 13:

The right to convert under § 706(a), despite the statutory language, is not absolute. Bankruptcy courts possess inherent equitable powers to protect the process when the debtor attempts to convert to a reorganization chapter for an improper purpose. . . . The Debtor had neither the authority nor the power to execute a settlement agreement . . . . He did not disclose to the Trustee that he negotiated a settlement of his personal injury suit . . . . The Debtor contemplated conversion to a Chapter 13 case only after the Trustee independently uncovered the Debtor’s unilateral attempted settlement of estate property. The Debtor intended to obtain the benefits of a Chapter 7 case while covertly managing to settle estate property for his own use. . . . The . . . adverse impact on unsecured creditors is significant. . . . Conversion would afford the Debtor the use of the settlement funds, and shift the risk to creditors without any feasible likelihood of repayment. The motion to convert is an abuse of the bankruptcy system and was not filed in good faith.60
[23]

The debtor’s good faith in first filing a Chapter 7 case and then converting to Chapter 13 is most appropriately tested at confirmation under § 1325(a)(3) using the usual good-faith rules applicable in the circuit.61 No obvious good purpose is served by overlaying a whole new jurisprudence of good faith as a judge-imposed condition on conversion from Chapter 7 to Chapter 13.

[24]

Good faith is not the only condition for confirmation that has been grafted onto conversion. One court denied a debtor’s motion to convert when the proposed Chapter 13 plan would not be feasible and could not be confirmed.62 One reported decision states that the bankruptcy court “should make a preliminary inquiry as to the quality of any proposed Chapter 13 plan, and whether it would meet confirmation requirements” when the debtor moves for conversion from Chapter 7 to Chapter 13.63 A few courts have attempted to distinguish the “appropriate” exercise of discretion with respect to conversion from inappropriately conditioning conversion with respect to the tests for confirmation of a plan.64


 

1  See § 150.1  Reconversion from Chapter 7 or Chapter 11 to Chapter 13 and § 150.2  Reconversion to Chapter 13 after BAPCPA.

 

2  See below in this section.

 

3  11 U.S.C. § 706(a).

 

4  See In re Sieg, 120 B.R. 533 (Bankr. D.N.D. 1990) (Reopening of closed Chapter 7 case and conversion to Chapter 13 does not undo the discharge granted in the Chapter 7 case. Neither § 706(a) nor § 348 provides for vacation or revocation of an order of discharge.).

 

5  11 U.S.C. § 706(a).

 

6  See below in this section.

 

7  In re Martin, 87 B.R. 20 (E.D. La. 1988), aff’d, 880 F.2d 857 (5th Cir. 1989). Accord In re Barnes, 275 B.R. 889, 894–95 (Bankr. E.D. Cal. 2002) (“The court concludes that a chapter 7 debtor has the unqualified right to convert his petition to chapter 13. . . . There is no such thing as a ‘bad faith conversion.’ . . . Nonetheless, the debtor’s right to convert from chapter 7 to chapter 13 is tempered by the court’s right to reconvert the case pursuant to 11 U.S.C. § 1307(c). . . . When the initial conversion to chapter 13 is an attempt to preempt the chapter 7 trustee’s administration of the case rather than a legitimate attempt at reorganization, as here, the court may reconvert the case to chapter 7.”); In re Schauer, No. 99-31918, 2000 WL 33792712, at *4 (Bankr. D.N.D. Aug. 14, 2000) (unpublished) (Absolute right to convert from Chapter 7 to Chapter 13 is respected by converting the case to Chapter 13 and then taking up motions by former Chapter 7 trustee and by a creditor to reconvert to Chapter 7. “Schauer’s statutory right to convert to chapter 13 was, in fact, honored. Whether or not he has the ability to defeat the present motion and remain in chapter 13 is another matter entirely. Schauer’s ability to remain in chapter 13 depends upon his good faith . . . . It may also depend upon his chapter 13 eligibility.”); In re Widdicombe, 269 B.R. 803, 807 (Bankr. W.D. Ark. 2001) (“[T]he better reasoned position is the majority position, which holds that § 706(a) gives a debtor eligible to be a chapter 13 debtor under § 109(e) a one time absolute right to convert a chapter 7 case to a chapter 13 case. . . . [Section] 706(d) requires that the Court consider whether Debtor meets the eligibility requirements of § 109(e).”); In re Agresta, No. 5-97-01568, 2000 WL 1639570, at *2 (Bankr. M.D. Pa. May 24, 2000) (unpublished) (“This Court will honor the ‘plain meaning’ of 11 U.S.C. § 706(a) giving the debtor an absolute right to convert at any time to pay their debts and escape liquidation. . . . The fact that the Debtor received a discharge under Chapter 7 and later converted to Chapter 13 does not harm the creditors. The Debtor’s conversion to Chapter 13 would relate to May 29, 1997, the original date of filing under Chapter 7. This original date of filing is also the measuring point for creditor’s [sic] proof of claims. While, the Chapter 7 discharge extinguished the Debtor’s personal liability towards the creditors, it does not cancel the claim. The claim is still pending to be addressed under the Chapter 13 Plan.”). See In re Sieg, 120 B.R. 533 (Bankr. D.N.D. 1990). See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA for discussion of effects of conversion to Chapter 13 on discharge entered in Chapter 7 case.

 

8  Street v. Lawson, 55 B.R. 763 (B.A.P. 9th Cir. 1985) (Conversion from Chapter 7 to Chapter 13 following entry of a judgment of nondischargeability in the Chapter 7 case is not prohibited, nor is it manipulative of the bankruptcy process.); In re Caldwell, 67 B.R. 296 (Bankr. E.D. Tenn. 1986) (Conversion from Chapter 7 to Chapter 13 following entry of a judgment of nondischargeability is the debtor’s absolute right; because the only unsecured debts scheduled in the Chapter 7 case have been declared nondischargeable, the debtor’s motion to revoke the Chapter 7 discharge is granted.); In re Parameswaran, 64 B.R. 341 (Bankr. S.D.N.Y. 1986) (Conversion from Chapter 7 to Chapter 13 after trustee’s successful objection to debtor’s discharge is permitted, but debtor must pay Chapter 7 trustee’s fees and the attorney’s fees in the Chapter 13 case.).

 

9  In re Jennings, 31 B.R. 378 (Bankr. S.D. Ohio 1983). Accord In re Verdi, 241 B.R. 851, 853–57 (Bankr. E.D. Pa. 1999) (Debtor who admittedly acted in bad faith during Chapter 7 case by concealing assets and being generally uncooperative can convert to Chapter 13; motions of Chapter 7 trustee and creditor to re-convert are denied on conditions that the debtor pay in full all administrative expenses of the Chapter 7 case and pay the objecting creditor. During Chapter 7 case, debtor testified “that he and the Wife worked hard for their money and didn’t intend to let the Trustee or anyone else get it.” Chapter 7 trustee and a creditor uncovered assets and objected to discharge. Debtor converted to Chapter 13. Proper procedure under the circumstances “was to allow the conversion from Chapter 7 to Chapter 13 and to require the parties opposing same . . . to seek an involuntary reconversion to Chapter 7 after this case was converted to Chapter 13.” Chapter 7 trustee and a creditor moved for reconversion. “We find the Debtor here to be stubborn, uncooperative, and to have acted in bad faith . . . . However, we do not see how an immediate reconversion of the instant case to Chapter 7 will benefit either of the two interested parties here any more than will our ultimate order herein. . . . A Chapter 13 liquidation, where, by application of 11 U.S.C. § 1325(a)(4), the debtor must distribute all non-exempt assets up to the amount of the claim, is not much different than a Chapter 7 liquidation. To be sure, the Chapter 13 debtor has more flexibility concerning the timing of payments. However, where a debtor has acted in bad faith, as been [sic] the instant Debtor, a court may be very demanding about the contents of a confirmable Chapter 13 plan. . . . Because of our finding of bad faith in the Debtor’s actions in this case, and our uncertainty that he has not improperly converted property of the estate to his own use before and after the filing, we will revise the normally controlling principles of 11 U.S.C. § 348(f) and provide that all property of the Debtor’s estate as of July 23, 1999, shall so remain if the case fails to remain in Chapter 13. We also will expressly require that the allowed fees of the Trustee and his counsel be paid as administrative claims in the Debtor’s Chapter 13 plan.”).

 

10  See § 150.1  Reconversion from Chapter 7 or Chapter 11 to Chapter 13 and § 150.2  Reconversion to Chapter 13 after BAPCPA. See, e.g., Gualtieri v. Goux, 65 B.R. 121 (Bankr. N.D.N.Y. 1986); In re Richardson, 43 B.R. 636 (Bankr. M.D. Fla. 1984); Ghosh v. Financial Fed. Sav. & Loan Ass’n, 38 B.R. 600 (Bankr. E.D.N.Y. 1984).

 

11  9 B.R. 45 (Bankr. E.D. Va. 1981).

 

12  70 B.R. 337 (Bankr. E.D. Tenn. 1987).

 

13  In re Hollar, 70 B.R. 337, 338 (Bankr. E.D. Tenn. 1987). Accord In re Johnson, 116 B.R. 224 (Bankr. D. Idaho 1990) (Conversion back to Chapter 13 after conversion to Chapter 7 is within the discretion of the bankruptcy court. Section 706 permits reconversion to Chapter 13 “where the request is founded upon genuine desire and ability to confirm a plan.”).

 

14  11 U.S.C. § 706(d).

 

15  See Gulley v. Depaola, 301 B.R. 361, 365 (M.D. Ala. 2003) (Chapter 7 debtor does not have an absolute right to convert to Chapter 13 when the debtor is not eligible for Chapter 13. “[T]he plain language of § 706(d) requires denial of the right to convert from a Chapter 7 to a Chapter 13 plan [sic] where the debtor is ineligible to be a Chapter 13 debtor.”); In re Rohl, 298 B.R. 95 (Bankr. E.D. Mich. 2003) (Voluntary conversion from Chapter 7 to Chapter 13 is denied because debt scheduled at the Chapter 7 petition exceeded eligibility limitations for Chapter 13 and settlements and recharacterizations of debts during the Chapter 7 case cannot improve eligibility.); In re Rigales, 290 B.R. 401 (Bankr. D.N.M. 2003) (Applying Mason v. Young (In re Young), 237 F.3d 1168 (10th Cir. 2001), the Tenth Circuit recognizes no limitations on a Chapter 7 debtor’s right to convert to Chapter 13 under § 706(a) other than the statutory limitations with respect to a previous conversion or ineligibility for Chapter 13.); In re Grew, 278 B.R. 619 (Bankr. M.D. Fla. 2002) (Motion to convert from Chapter 7 to Chapter 13 is denied because the debtor is ineligible for Chapter 13 based on the debts scheduled in the Chapter 7 case.); In re Widdicombe, 269 B.R. 803, 807 (Bankr. W.D. Ark. 2001) (“[Section] 706(a) gives a debtor eligible to be a chapter 13 debtor under § 109(e) a one time absolute right to convert a chapter 7 case to a chapter 13 case. . . . [Section] 706(d) requires that the Court consider whether Debtor meets the eligibility requirements of § 109(e).”); In re Pisczek, 269 B.R. 641 (Bankr. E.D. Mich. 2001) (At conversion from Chapter 7, eligibility for Chapter 13 is measured as of the date of the filing of the (Chapter 7) petition; evidentiary hearing is necessary to determine whether debtor met the debt limitations at the original petition date.); In re Faulhaber, 269 B.R. 348 (Bankr. W.D. Mich. 2001) (Unsecured debt exceeding limit in § 109(e) bars conversion from Chapter 7 to Chapter 13. Chapter 7 schedules listed lawsuit for $615,000. After filing of § 707(d) motion, debtor converted to Chapter 13 and amended schedules, changing “$615,000” to “unknown” and changing description of claim to “contingent, unliquidated and disputed.” Amendments were not in good faith, and debtor was ineligible to convert to Chapter 13.); In re Stern, 266 B.R. 322, 325–27 (Bankr. D. Md. 2001) (Conversion from Chapter 7 to Chapter 13 is denied and case is dismissed because debtor is ineligible for Chapter 13. After discharge, debtor converted to Chapter 13, listing one debt that was declared nondischargeable in the Chapter 7 case. “The debtor’s eligibility is judged as of the original date of the filing of the bankruptcy petition, because the conversion of the case from one chapter to another ‘does not effect a change in the date of the filing of the petition.’ . . . Because the Court has found the debtor to be ineligible to convert the case to Chapter 13, it need not decide whether the discharge that was entered before the case was converted should be revoked.”); In re Marcakis, 254 B.R. 77, 82 (Bankr. E.D.N.Y. 2000) (“Since a motion must be made and approved by the Court, then a court must consider in its decision to permit or deny[:] . . . the eligibility to be a Debtor under the conver[sion] section of the code.”).

 

16  Bobroff v. Continental Bank (In re Bobroff), 766 F.2d 797 (3d Cir. 1985).

 

17  Commonwealth Bank v. Pambianco (In re Pambianco), 206 B.R. 351 (Bankr. M.D. Pa. 1996) (Debtors cannot convert from Chapter 11 to Chapter 13 because they are not eligible for Chapter 13. Condition in bank loan that debtors’ obligation to the sellers of a business would be subordinated to bank’s debt did not render debtors’ obligation to the sellers contingent. $500,000 note to sellers was counted toward eligibility limits and barred debtors’ conversion from Chapter 11 to Chapter 13.). Accord In re Rohl, 298 B.R. 95 (Bankr. E.D. Mich. 2003) (Conversion from Chapter 7 to Chapter 13 is denied because debtor exceeds debt limits for Chapter 13 based on schedules at the Chapter 7 petition; changes in amount or characterization of debt during the Chapter 7 case are not considered for purposes of eligibility for conversion to Chapter 13.); In re Grew, 278 B.R. 619 (Bankr. M.D. Fla. 2002) (Debtor is not eligible to convert from Chapter 7 to Chapter 13 when debts scheduled in the Chapter 7 case exceed the limitations for Chapter 13 eligibility notwithstanding that claims actually filed in the Chapter 7 case are below the eligibility limits.).

 

18  In re Lilley, 29 B.R. 442 (B.A.P. 1st Cir. 1983). Accord Gulley v. Depaola, 301 B.R. 361 (M.D. Ala. 2003) (A bankruptcy court appropriately denied conversion from Chapter 7 to Chapter 13 based on finding that the debtor did not have sufficient regular income to fund a Chapter 13 plan.). See In re Carson, 32 B.R. 27 (Bankr. S.D. Fla. 1983).

 

19  199 F.3d 233 (5th Cir. 2000).

 

20  See § 224.1 [ Revocation of Confirmation ] § 117.3  Revocation of Confirmation.

 

21  See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

22  11 U.S.C. § 348(a). But see 11 U.S.C. § 348(b).

 

23  In re Griggs, 181 B.R. 111, 114 (Bankr. N.D. Ala. 1994) (On a Chapter 7 debtor’s motion to convert to Chapter 13, eligibility is determined at the time of conversion because “[n]ot to allow a court to consider the changed circumstances or to make its own reevaluation of existing circumstances would hamstring any review of such a request.” Schedules show that noncontingent, liquidated, unsecured debts do not exceed the $100,000 limitation in § 109(e). That the debtor is attempting to discharge a debt that might be nondischargeable in the Chapter 7 case is not per se bad faith. Debtor’s occupation as a construction supervisor with a net monthly income of $1,376.22 qualifies the debtor as an individual with regular income at conversion.).

 

24  120 B.R. 403 (Bankr. E.D. Tex. 1990).

 

25  Accord In re Pisczek, 269 B.R. 641 (Bankr. E.D. Mich. 2001) (At conversion from Chapter 7, eligibility for Chapter 13 is measured as of the date of the filing of the Chapter 7 petition.); In re Stern, 266 B.R. 322, 325–27 (Bankr. D. Md. 2001) (“The debtor’s eligibility is judged as of the original date of the filing of the bankruptcy petition, because the conversion of the case from one chapter to another ‘does not effect a change in the date of the filing of the petition.’”); In re Agresta, No. 5-97-01568, 2000 WL 1639570, at *2 (Bankr. M.D. Pa. May 24, 2000) (unpublished) (“The Debtor’s conversion to Chapter 13 would relate to . . . the original date of filing under Chapter 7. This original date of filing is also the measuring point for creditor’s [sic] proof of claims.”). See also In re Faulhaber, 269 B.R. 348 (Bankr. W.D. Mich. 2001) (Unsecured debt exceeding limit in § 109(e) bars conversion from Chapter 7 to Chapter 13. Chapter 7 schedules listed lawsuit for $615,000. After filing of § 707(d) motion, debtor converted to Chapter 13 and amended schedules, changing “$615,000” to “unknown” and changing description of claim to “contingent, unliquidated and disputed.” Amendments were not in good faith, and debtor was ineligible to convert to Chapter 13.).

 

26  298 B.R. 95 (Bankr. E.D. Mich. 2003).

 

27  Accord In re Grew, 278 B.R. 619 (Bankr. M.D. Fla. 2002) (Debtor is ineligible to convert from Chapter 7 to Chapter 13 when debts scheduled in the Chapter 7 case exceed limitation for Chapter 13 eligibility notwithstanding that claims actually filed in the Chapter 7 case are below the eligibility limits.).

 

28  See below in this section, and see § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

29  See § 19.1 [ Eligibility of a Simultaneous Filer ] § 22.1  Eligibility of a Simultaneous Filer.

 

30  See § 23.1  Eligibility of a Serial Filer: “Chapter 20” and Beyond and § 23.2  Eligibility of Repeat Filers after BAPCPA.

 

31  See § 179.1 [ Frequency of Filing Bankruptcy—Chapter 20 and Beyond ] § 104.2  Frequency of Filing Bankruptcy—Chapter 20 and Beyond.

 

32  See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13  and § 148.4  Conversion to Chapter 13 after BAPCPA. See also § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts and § 138.4  Nonrecourse Claims and Claims Discharged in Prior Bankruptcy Case.

 

33  132 B.R. 397 (Bankr. E.D. Ark. 1991).

 

34  120 B.R. 533 (Bankr. D.N.D. 1990).

 

35  This holding is controversial. See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

36  In re Oblinger, 288 B.R. 781, 784–85 (Bankr. N.D. Ohio 2003).

 

37  290 B.R. 401 (Bankr. D.N.M. 2003).

 

38  290 B.R. at 407–08.

 

39  See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

40  See Mason v. Young (In re Young), 237 F.3d 1168, 1173–74 (10th Cir. 2001) (Chapter 7 debtor can convert to Chapter 13 after discharge in the Chapter 7 case. “While courts may disallow specific ‘Chapter 20’ conversions under the peculiar circumstances of a given case, as a general matter the Bankruptcy Code and most courts are clear regarding the permissibility of such conversions: ‘The debtor may convert a case under [Chapter 7] to a case under chapter . . . 13 of this title at any time.’ . . . There is no evidence of congressional intent to the contrary. As the Supreme Court stated in Johnson v. Home State Bank, [501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991),] . . . it is our considered judgment that a so-called ‘Chapter 20’ conversion is both permissible under the Code and—given the requisite scrutiny by the bankruptcy courts—entirely proper.”); In re Mosby, 244 B.R. 79, 83–84 (Bankr. E.D. Va. 2000) (“[T]here is nothing in the Bankruptcy Code that expressly bars a conversion from chapter 7 to chapter 13 after a discharge has been granted. Nor, for that matter, does any provision of the Bankruptcy Code in express terms require, as a condition of such conversion, that the chapter 7 discharge be vacated.”); In re Agresta, No. 5-97-01568, 2000 WL 1639570, at *2 (Bankr. M.D. Pa. May 24, 2000) (unpublished) (“This Court will honor the ‘plain meaning’ of 11 U.S.C. § 706(a) giving the debtor an absolute right to convert at any time to pay their debts and escape liquidation. . . . The fact that the Debtor received a discharge under Chapter 7 and later converted to Chapter 13 does not harm the creditors.”). See also Markovich v. Samson (In re Markovich), 207 B.R. 909, 910 n.2, 911 (B.A.P. 9th Cir. 1997) (At conversion from Chapter 7 to Chapter 13, the debtor lacks standing to set aside the discharge in the prior Chapter 7 case under § 727(d). After discharge in Chapter 7 case, dischargeability complaint under § 523(a)(2)(A) was decided against the debtor. The debtor moved to vacate the discharge order and convert the Chapter 7 case to Chapter 13. “Section 727(d) allows a trustee, a creditor, or the United States Trustee to ask the court to revoke a discharge. . . . Section 727(d) does not authorize a debtor to bring a motion to revoke a discharge.” The BAP notes, “Nothing was to be gained by moving to vacate the discharge in Debtor’s chapter 7 case. The nondischargeable claim could be discharged in either a converted chapter 13 or a new chapter 13 case filed by Debtor.”).

 

41  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991). See § 146.1 [ Debts Discharged in Prior Bankruptcy and Nonrecourse Debts ] § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts.

 

42  See, e.g., In re Cavaliere, 208 B.R. 784, 786–87 (D. Conn. 1997) (The non-recourse loan that remains after discharge of a partially secured claim in a Chapter 7 case is unenforceable as a personal obligation of the debtor and is not counted toward the debt limitation for eligibility in a subsequent Chapter 13 case. “[T]he Second Circuit has observed that sections 506(a) and 502(b)(1) operate to disallow undersecured claims of ‘a creditor when the financing that provides the basis for the claim was advanced on a nonrecourse basis.’ . . . The Second Circuit was plainly of a mind that a nonrecourse debt deemed unsecured under § 506(a) was unenforceable within the meaning of § 502(b)(1). . . . [C]ongressional intent seems little advanced by denying the benefits of Chapter 13 protection merely on the basis of a large quantity of unenforceable debt. . . . Given that all fully and partially secured debt, as well as all nondischargeable and post-discharged debt, may indisputably be counted towards the applicable jurisdictional limitations, the Court has been provided with no basis to conclude that acceptance of the trustee’s interpretation is necessary to prevent the evisceration of either the letter or the spirit of § 109(e).”). See also In re PCH Assocs., 949 F.2d 585 (2d Cir. 1991).

 

43  See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

44  See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

45  Mason v. Young (In re Young), 237 F.3d at 1173–74.

 

46  In re Krishnaya, 263 B.R. 63, 69 (Bankr. S.D.N.Y. 2001).

 

47  In re Pakuris, 262 B.R. 330, 335–36 (Bankr. E.D. Pa. 2001). Accord In re Kelly, 261 B.R. 785, 788–89 (Bankr. M.D. Fla. 2001) (Debtors’ right to convert from Chapter 7 to Chapter 13 is not absolute, but retaining nonexempt assets and dealing with revocation of discharge in the Chapter 7 case were not egregious motives that would forfeit the right of conversion. “Here the motivation of the Debtors was clearly to convert a Chapter 7 to a Chapter 13 case to avoid a loss of non-exempt assets . . . . [T]he facts as appear from this record fall short of the egregious conduct which would justify the denial of the Debtors’ right to convert.”); In re Dews, 243 B.R. 337, 340 (Bankr. S.D. Ohio 1999) (At conversion from Chapter 7 to Chapter 13, “courts should make some determination regarding the motives of the debtors.”).

 

48  In re Kelly, 261 B.R. 785, 789 (Bankr. M.D. Fla. 2001).

 

49  In re Little, 245 B.R. 351, 355 (Bankr. E.D. Mo. 2000), appeal dismissed as moot, 253 B.R. 427 (B.A.P. 8th Cir. 2000).

 

50  In re Mosby, 244 B.R. 79, 84 (Bankr. E.D. Va. 2000).

 

51  See 11 U.S.C. § 1325(a)(3), see discussions beginning at § 103.1  In General§ 104.1  In General§ 105.1  Prepetition Conduct and Misconduct—In General§ 106.1  In General§ 107.1  Greed, Not Need§ 108.1  Economic Components of Good Faith—In General§ 109.1  Smell Tests and § 110.1  Good-Faith Filing Requirement after BAPCPA.

 

52  See § 141.3  Cause for Conversion, § 141.4  Cause for Conversion Added or Changed by BAPCPA, § 152.2  Cause for Dismissal—In General§ 152.3  Cause for Dismissal Added or Changed by BAPCPA and § 152.4  Cause for Dismissal, Including Bad-Faith, Multiple and Abusive Filings.

 

53  In re Dixon, 241 B.R. 234 (Bankr. M.D. Fla. 1999).

 

54  233 B.R. 580 (B.A.P. 1st Cir. 1999).

 

55  233 B.R. at 585.

 

56  285 B.R. 563 (B.A.P.1st Cir. 2002).

 

57  285 B.R. at 575.

 

58  See, e.g., Martin v. Cox, 213 B.R. 571, 572–73 (E.D. Ark. 1996) (Bankruptcy court appropriately denied Chapter 7 debtor’s motion to convert to Chapter 13 based on “extreme circumstances.” “[T]he Bankruptcy Judge found appellant to be ‘conniving, distrustful and not truthful.’ . . . Appellant had falsified documents; failed to list significant assets . . . omitted pertinent information . . . failed to file a federal or state tax return since 1988; made false representations to a Texas bankruptcy court; violated a preliminary injunction . . . and falsified a tax return to obtain a loan. . . . [T]he right to convert is only absolute absent ‘extreme circumstances’ amounting to bad faith. . . . Appellant has grossly misused the bankruptcy process and fraudulently misrepresented crucial facts . . . . [T]his flagrant conduct defines ‘extreme circumstances’ and Appellant should not be able to escape her intentionally deceitful acts.”), aff’d, No. 97-1189 (8th Cir. June 19, 1997) (Table decision at 116 F.3d 480); In re Oblinger, 288 B.R. 781, 785 (Bankr. N.D. Ohio 2003) (“This court otherwise tends to agree with those cases holding that conversion might nevertheless be denied under ‘extreme circumstances,’ such as debtor’s abuse of process.”); In re Carter, 285 B.R. 61, 64–66 (Bankr. N.D. Ga. 2002) (Conversion from Chapter 7 to Chapter 13 can be denied in extreme circumstances. “The more recent trend in the case law appears to favor a finding that the debtor’s first-time conversion of a case from Chapter 7 to Chapter 13 is not absolutely free from consideration by the court and is not completely insulated from any objection filed by an interested party. . . . In the event an objection is filed to a debtor’s motion to convert from Chapter 7 to Chapter 13, a bankruptcy court must have the discretion to deny the motion due to ‘extreme circumstances’ or the ineligibility of a debtor for relief under Chapter 13. . . . [T]he Court would consider evidence that a debtor is seeking to avoid payment of debts, rather than to make an honest effort to repay them. . . . [T]hat the Debtor has waited for more than a year to make a decision to proceed in Chapter 13 . . . may have prejudiced her creditors . . . . However, the Debtor has offered to voluntarily relinquish her Chapter 7 discharge in exchange for an opportunity to proceed under Chapter 13 and has also represented to the Court that she intends to file a Chapter 13 plan that would provide for a 100% dividend to her unsecured creditors.”); In re Ponzini, 277 B.R. 399, 404–06 (Bankr. E.D. Ark. 2002) (“The plain meaning of § 706(a) does not provide debtors with an absolute right to convert a chapter 7 case . . . . [I]t is more logical to interpret [‘at any time’] as referring to the debtor’s right to convert at any point in the bankruptcy case’s proceedings rather than granting the debtor a one-time absolute right to convert. . . . The statute’s use of the verb ‘may’ rather than ‘shall’ supports the view that the right granted by § 706(a) is presumptive rather than absolute. . . . Notwithstanding the legislative history’s description of the conversion right as ‘absolute,’ the Court is obliged to apply the statute, not its legislative history. . . . [T]he rules’ requirements regarding motion, notice and a hearing indicate the § 706(a) right to convert is not absolute. . . . [E]xtreme circumstances evidencing a debtor’s bad faith and abuse of the bankruptcy process, as well as futility in converting to Chapter 13, warrant denial of a debtor’s motion to convert under § 706(a) . . . . Debtor has ignored court orders to appear in person, failed to file required pleadings, and refused to cooperate with the Chapter 7 Trustee . . . . [H]e has no disposable income with which to fund a Chapter 13 plan. . . . Debtor is not entitled to convert to Chapter 13.”); In re Porter, 276 B.R. 32, 36–39 (Bankr. D. Mass. 2002) (Conversion from Chapter 7 to Chapter 13 denied when debtor failed to disclose prepetition transfers of real property to family members and feasibility of plan depends on gratuitous contributions from those family members. “[S]ome courts interpret the statute literally as giving the debtor an unrestricted right to convert. Others, including the First Circuit, hold that the right of conversion bestowed in § 706(a) is not unlimited, although it should be denied only in extreme circumstances. . . . These courts generally deny conversion where the debtor acted in subjective bad faith and where conversion would be objectively futile. . . . Equally egregious are circumstances where the courts find that conversion would amount to an abuse of process, or other gross inequity. . . . [T]he misrepresentations in the Debtor’s Schedules, and the tenuous nature of the Plan with its significant family contributions, coupled with the Debtor’s filing of the Motion to Convert to escape the effects of the Chapter 7 Trustee’s pending adversary proceedings, constitute circumstances sufficiently extreme to warrant denial of the Debtor’s Motion.”).

 

59  223 B.R. 582 (Bankr. M.D. Fla. 1998).

 

60  223 B.R. at 584–86. Accord In re Wampler, 302 B.R. 601, 605–06 (Bankr. S.D. Ind. 2003) (Conversion from Chapter 7 to Chapter 13 is denied because debtor understated value of a lawsuit and sought conversion after receiving larger proceeds. Debtor listed class action against Rent-a-Center in Chapter 7 schedules. Debtor indicated that the recovery could be as high as $10,000. Debtor received $15,265.42 and informed the Chapter 7 trustee. When trustee indicated he would seek turnover, debtor moved to convert to Chapter 13. “[T]he Court firmly believes that the statute was intended to give only the honest debtor an opportunity to voluntarily repay his debts via conversion from Chapter 7. . . . [T]he Court concludes that it has the discretion to deny a § 706(a) motion to convert upon a showing of bad faith or where conversion is sought for an illegitimate purpose. . . . [T]he Court will consider the timing of the motion to convert, the debtor’s motive in filing the motion, and whether the debtor has been forthcoming with the bankruptcy court and creditors; whether the debtor can propose a confirmable chapter 13 plan; the impact on the debtor of denying conversion weighed against the prejudice to creditors caused by conversion; the effect of conversion on the efficient administration of the bankruptcy estate; and whether conversion would further an abuse of the bankruptcy process. . . . [T]he Debtor’s Conversion Motion was filed in bad faith. Clearly, the Debtor is attempting to keep the Recovery out of the hands of her creditors. . . . [T]he Debtor does not appear to need the unique protection offered by Chapter 13; she is not attempting to cure any arrearage related to a home mortgage, nor does she have any nondischargeable debts that would be eliminated by Chapter 13’s ‘superdischarge.’ Thus, there is no benefit to the Debtor that otherwise outweighs the detriment to her creditors.” Debtor was a single mother not receiving child support with a net income of $306 per week and the class action proceeds were safely parked in a certificate of deposit.); In re Brown, 293 B.R. 865, 870–71 (Bankr. W.D. Mich. 2003) (Conversion from Chapter 7 to Chapter 13 is denied based on lack of good faith when debtor repeatedly failed to appear and testify during the Chapter 7 case, failed to timely pay the filing fee and refused the Chapter 7 trustee access to real property, and when the motion to convert is “simply the Debtor’s latest attempt to manipulate the bankruptcy process and prevent the sale of the Okemos property.” With respect to § 706(a): “If a chapter 13 petition may be dismissed for lack of good faith, it is logical to conclude that conversion from chapter 7 to chapter 13 may also be denied in the absence of good faith.”); In re Gallagher, 283 B.R. 604 (Bankr. M.D. Fla. 2002) (Debtor’s motion to convert Chapter 7 case to Chapter 13 after discharge is denied because purpose of conversion was to gain control of the proceeds from a lawsuit that the Chapter 7 trustee settled and conversion would only benefit the debtor or the debtor’s attorney.); In re Caruso, 272 B.R. 254, 256 (Bankr. D. Neb. 2001) (Conversion by debtor from Chapter 7 to Chapter 13 is denied when purpose of conversion was to deal with potentially nondischargeable debt and to avoid sale of property by Chapter 7 trustee. “In the present case, the only reason the debtor has converted to Chapter 13 is to avoid a determination of nondischargeability for fraud. The debtor listed certain real property as her own, when it is relatively clear that it is not hers. . . . When the trustee . . . attempted to sell the property . . . then, and only then, did the debtor attempt this conversion to Chapter 13. . . . The conversion to Chapter 13 appears to have been done in bad faith and, even if such conversion is not in bad faith, it is bad public policy to permit a debtor to obtain the protection of the Bankruptcy Code, including the automatic stay and the discharge of most, if not all, of the claims against the debtor, and then permit the debtor to proceed in Chapter 13, retaining all claimed property interests, and treating the potentially nondischargeable debt as a general unsecured claim with little or no payment from the Chapter 13 plan.”); In re Pakuris, 262 B.R. 330, 335–36 (Bankr. E.D. Pa. 2001) (Conversion from Chapter 7 to Chapter 13 after discharge is not absolute and is denied when purpose is to wrest control from the Chapter 7 trustee of the settlement of litigation with the debtor’s ex-spouse. Debtor did not disclose litigation with ex-spouse concerning distribution of property. Based on an anonymous letter, Chapter 7 trustee reopened Chapter 7 case to administer the asset and sought approval of a property settlement agreement. The debtor responded with a motion to convert to Chapter 13. “[A] review of the facts of the particular case is appropriate when considering an objection to a § 706(a) motion. The Third Circuit Court of Appeals has held that chapter 13 petitions must be filed in good faith. In re Lilley, Jr., 91 F.3d 491, 496 (3d Cir. 1996). It follows that conversion to a chapter 13 case must likewise be sought in good faith since the bankruptcy court can reconvert the case to chapter 7 under 11 U.S.C. § 1307(c) for cause. . . . [T]he debtor’s so-called ‘absolute’ right of conversion under § 706(a) must be read in conjunction with (and tempered by) Code Sections 706(d) and 1307(c). In deciding a contested motion to convert under § 706(a) this Court will consider the totality of the circumstances . . . . [T]he debtor’s motivation for conversion is not to repay her creditors, but to regain control of the equitable distribution part of her marital litigation. . . . [T]he debtor placed herself voluntarily into a chapter 7 proceeding and has obtained the benefits of the proceeding, including a chapter 7 discharge. . . . [H]aving accepted the benefits of her chapter 7, the debtor’s attempt to avoid the consequences thereof, by converting to chapter 13 at this time, demonstrates a failure to meet the good faith requirement.”); In re Johnson, 262 B.R. 75, 79 (Bankr. E.D. Ark. 2001) (Conversion from Chapter 7 to Chapter 13 is denied based on evidence that the debtor is concealing assets and acting in bad faith. Debtor moved to convert after the Chapter 7 trustee filed an adversary proceeding to recover fraudulent transfer of real property to the debtor’s daughter. “[T]he Bankruptcy Court ‘possess[es] inherent equitable powers to protect the process when the debtor attempts to convert to a reorganization chapter for an improper purpose.’ . . . [C]onversion from chapter 7 to 13 may be denied for lack of good faith as an abuse of process. . . . [T]he Debtor in this case has failed to disclose assets, filed grossly inaccurate schedules, failed to file tax returns, misrepresented his interests in various types of property, and given false or misleading answers in his statement of financial affairs and in testimony before this Court. . . . Under these extreme circumstances, the motion to convert from chapter 7 to chapter 13 will be denied.”); In re Thornton, 203 B.R. 648, 652 (Bankr. S.D. Ohio 1996) (Chapter 7 debtor’s right to convert to Chapter 13 is not absolute where debtor demonstrated bad faith during Chapter 7 case and in prepetition dealings with creditors. Chapter 7 trustee and Chapter 13 trustee opposed Chapter 7 debtor’s motion to convert to Chapter 13. Chapter 7 petition and schedules were inaccurate. Debtor undervalued a residence, undervalued household goods, failed to list cars and collectibles, lied about the sale of jewelry and failed to list debts in prepetition loan applications. “[A] debtor may be prevented from converting when sufficient evidence exists of the debtor’s lack of good faith. . . . [T]he Sixth Circuit’s good faith test requires consideration of the totality of circumstances. . . . [F]ailing to report significant assets . . . lying about jewelry and collectibles . . . combined with the Debtors’ prepetition conduct of procuring loans . . . by overvaluing their assets and devaluing their liabilities . . . no plan proposed by the Debtors can meet the good faith requirements of § 1325(a)(3).” In an alternative holding, “even if the court were to hold that Debtors have an ‘absolute right’ to convert to Chapter 13, this right would be meaningless. Section 1307 states that a creditor may convert a Chapter 13 case to Chapter 7 for ‘denial of confirmation of a plan under section 1325 of this title.’ . . . The court is not prepared to require the Debtors to submit to an illogical set of conversions that will return them to their present status simply to affirm a rule that is in fact not so absolute.”).

 

61  See, e.g., In re Dixon, 241 B.R. 234 (Bankr. M.D. Fla. 1999) (After conversion from Chapter 7 to Chapter 13, appropriate challenge to debtors’ good faith is objection to plan, not a motion to reconvert to Chapter 7 when trustee believes that debtors converted to prevent the Chapter 7 trustee from receiving settlement proceeds from a personal injury claim.).

 

62  In re Straugh, 41 B.R. 757 (Bankr. W.D. Pa. 1984). Accord In re Sully, 223 B.R. 582, 586 (Bankr. M.D. Fla. 1998) (“In order to be eligible for Chapter 13, the Debtor must be able to propose a feasible plan pursuant to 11 U.S.C. § 1325(a)(6). The inability to comply with the feasibility requirement of § 1325(a)(6) is sufficient grounds to deny conversion. . . . The record reflects that he does not have any disposable income upon which he can base a Chapter 13 plan.”).

 

63  In re Dews, 243 B.R. 337, 340 (Bankr. S.D. Ohio 1999).

 

64  See In re Oblinger, 288 B.R. 781, 786–87 (Bankr. N.D. Ohio 2003) (Conversion from Chapter 7 to Chapter 13 can be denied based on extreme circumstances, but more common issues such as good faith and the disposable income test are properly addressed at confirmation rather than as conditions for conversion. “[T]he facts of this case appear common: Debtor’s sudden epiphany and desire to repay her creditors, prompted by the discovery of substantial equity in Debtor’s property and the Chapter 7 Trustee’s resulting push to liquidate that equity. . . . More troubling to the court is that Debtor’s original schedules I and J showed no disposable income . . . . Ms. Oblinger now reports that she has disposable income . . . . This material change in her reported disposable income . . . raises nagging concerns . . . . [H]owever, . . . these concerns do not approach abuse of process or other ‘extreme circumstances.’ Rather, they are issues of good faith, best interests of creditors, best efforts of Debtor and feasibility relevant to whether any Chapter 13 plan Ms. Oblinger actually proposes should be confirmed. . . . [T]his court joins with those courts that generally hold that these types of issues should be addressed in the context of a complete record developed in a confirmation hearing . . . not in the context of a hearing on the propriety of conversion in the first instance.”); In re Carter, 285 B.R. 61, 65 (Bankr. N.D. Ga. 2002) (“In the event an objection is filed to a debtor’s motion to convert from Chapter 7 to Chapter 13, a bankruptcy court must have the discretion to deny the motion due to ‘extreme circumstances’ or the ineligibility of a debtor for relief under Chapter 13. . . . [T]he Court would consider evidence that a debtor is seeking to avoid payment of debts, rather than to make an honest effort to repay them. . . . [I]ssues regarding the ultimate success of a Chapter 13 plan, such as feasibility, whether the plan has been filed in good faith, and whether the plan will satisfy the additional requirements for confirmation, should be resolved at a confirmation hearing rather than on a motion to convert.”); In re Krishnaya, 263 B.R. 63, 71 (Bankr. S.D.N.Y. 2001) (There is a “presumptive right” to convert from Chapter 7 to Chapter 13 under § 706(a), but that right is not absolute; the desire to avoid dischargeability litigation and a slim chance of confirming a plan are not sufficient reasons to preclude conversion. “[The creditor’s] assertions with respect to the Debtor’s potential inability to confirm a Chapter 13 plan are nonfrivolous, and may have ultimate merit, but . . . consideration of issues governed by Section 1325 of the Code is premature, and more appropriately postponed for determination by the chapter 13 Court once the case is in chapter 13.”); In re Little, 245 B.R. 351, 355 (Bankr. E.D. Mo.) (That “the Debtor has not shown a reasonable possibility that a repayment plan can be confirmed” is not a “compelling circumstance” sufficient to deny conversion from Chapter 7 to Chapter 13.), appeal dismissed as moot, 253 B.R. 427 (B.A.P. 8th Cir. 2000).