§ 141.5 — Conversion Sua Sponte

Revised: June 10, 2004

[1]

Section 1307(c) contemplates conversion “on request of a party in interest or the United States trustee.”1 It is not obvious that a bankruptcy judge is a party in interest. At least one court has held that it is without authority to convert a Chapter 13 case to Chapter 7 absent a request from a real party.2 Other courts have concluded it is within the power of a bankruptcy court to order conversion sua sponte.3

[2]

Under some circumstances, the 1986 amendments to 11 U.S.C. § 105(a) might be construed to support sua sponte conversion from Chapter 13 to Chapter 7. The section states that “no provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte taking any action . . . to enforce or implement court orders or rules, or to prevent an abuse of process.”4 On the right facts, conversion by the court might fit the conditions in § 105(a).

[3]

But § 105(a) is not without limitations. In Barbieri v. RAJ Acquisition Corp. (In re Barbieri),5 the U.S. Court of Appeals for the Second Circuit reversed the sua sponte conversion of a Chapter 13 case on the ground that the debtors’ absolute right to dismiss under § 1307(b) trumped whatever broad power the bankruptcy court might exercise under § 105(a).6

[4]

The procedure for sua sponte conversion is troublesome. Presumably, the bankruptcy judge would initiate conversion, but there is no evidence in any reported decision that judges respect Bankruptcy Rule 1017(f)(1) by filing motions to convert. Perhaps an order to show cause or similar procedure would be the commencing document. Who gives notice and to whom? Who represents the bankruptcy judge at a hearing on sua sponte conversion to Chapter 7? Unless a creditor or the trustee assumes the mantle of the court, the confrontation between the debtor and the judge/prosecutor is difficult to fit into ordinary patterns of adversary process.


 

1  11 U.S.C. § 1307(c).

 

2  Griswold v. Banco Cent. (In re Lozano), 42 B.R. 971 (D.P.R. 1984).

 

3  Toles v. Powers (In re Toles), No. 3:99-CV-1517-G, 1999 WL 1261453, at *2 (N.D. Tex. Dec. 28, 1999) (Citing Hammers v. IRS (In re Hammers), 988 F.2d 32 (5th Cir. 1993), “when read in conjunction with section 105(a), section 1307(c) grants a bankruptcy court . . . the power to convert sua sponte a Chapter 13 into a Chapter 7.”). Accord In re Rementer, 58 B.R. 723 (Bankr. D. Del. 1986); In re Gale, 8 B.R. 960 (Bankr. D. Md. 1981); In re Seman, 4 B.R. 568 (Bankr. S.D.N.Y. 1980).

 

4  11 U.S.C. § 105(a).

 

5  199 F.3d 616 (2d Cir. 1999).

 

6  See § 330.1 [ Absolute Right of Debtor? ] § 151.2  Absolute Right of Debtor? for discussion of the debtor’s absolute right to dismiss a Chapter 13 case.