A chapter 13 debtor has an unfettered right to dismiss under Section 1307(b) if the case has not previously been “converted” to chapter 13 under Section 706.

To protect a debtor’s right to dismiss, the Ninth Circuit Bankruptcy Appellate Panel narrowly interpreted the concept of a prior conversion from chapter 7.

The debtors confirmed a five-year, full-payment chapter 13 plan. They spoke no English, but that was just the beginning of their problems. Their lawyer stopped communicating with them and later resigned from the bar.

After performing on the plan for four years, the debtors became disgruntled with the plan because they were paying an installer of a solar power system that wasn’t working. Unable to obtain advice from their lawyer, they followed the advice of a non-lawyer friend and stopped making plan payments.

The chapter 13 trustee filed a motion for conversion to chapter 7, which the court granted because the debtors had not responded. (Remember, the lawyer had resigned from the bar and had not advised the debtors about their rights in the face of the dismissal motion.)

After the conversion of their chapter 13 case to chapter 7, the debtors hired a new lawyer, who filed a motion under Rule 60(b) to set aside the conversion order for mistake or excusable neglect. Without going into details, take it as a given that the bankruptcy court granted the motion.

At the hearing, the bankruptcy judge told the debtor’s counsel that he was “converting” the case from chapter 7 back to chapter 13 and that the debtors therefore would have no right to dismiss under Section 1307(b).

The order, however, only said that the court was granting the Rule 60(b) motion to set aside conversion to chapter 7 and said nothing about converting the case to chapter 13. By that time, the debtors were in the 56th month of their plan, and their monthly payments would be almost $9,000.

Back in chapter 13, the debtors filed a notice of dismissal under Section 1307(b). “On request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title,” the subsection says that “the court shall dismiss a case under this chapter [13].”

The bankruptcy court routinely dismissed the chapter 13 case, but the bankruptcy court vacated dismissal on the chapter 7 trustee’s motion to vacate. The chapter 7 trustee was aiming to sell the debtor’s home, which had equity above the homestead exemption.

The debtors filed a motion for reconsideration, this time asking the bankruptcy court to reconsider vacating the dismissal order. The bankruptcy court denied the reconsideration motion, reasoning that the debtors had converted the case from chapter 7 to chapter 13 and had no right to dismiss under Section 1307(b).

The debtors appealed and won in an August 12 unsigned, nonprecedential opinion by the BAP.

In order to lose the right to dismiss a chapter 13 case, the BAP said that “orders converting a case under § 706 must be clear,” but the “order here is not a model of clarity.”

The panel noted that the order putting the case back into chapter 13 resulted from the debtors’ motion that only sought relief under Rule 60(b). Furthermore, the order itself only referred to granting a motion under Rule 60(b) and said nothing about conversion. The only references to conversion were to the judge’s statements from the bench. In addition, the bankruptcy court only evaluated the motion under the standards for Rule 60(b).

Turning to governing law, the panel said that the “absolute right to dismiss under § 1307(b) cannot be limited by the bankruptcy court and is subject only to the limitation in the statute . . . . Because conversions to chapter 13 impact a debtor’s statutory right to dismiss, orders converting the case must be clear.”

When there are conflicts between the judge’s oral statements and the court’s order, the panel said that “the written order prevails.”

Allowing the debtors to escape chapter 13, the BAP reversed the bankruptcy court’s order denying the debtors’ motion for reconsideration, because “the order vacated the prior conversion and returned Debtors to chapter 13.”