The receipt of a chapter 7 discharge does not automatically bar a debtor from converting a case to chapter 13, according to District Judge Nancy G. Edmonds of Detroit.
On the other hand, the right to move to convert does not ensure conversion, Judge Edmonds said in her November 14 opinion.
The debtor owned real property. Four days before receiving her general discharge in chapter 7, the debtor transferred a half interest in the property to her daughter for no consideration. Believing that the trustee would attempt to avoid the transfer, the debtor filed a motion four months after discharge to set aside the discharge order and convert the case to chapter 13.
Finding no grounds for a so-called motion for reconsideration under Federal Rule 60(b), the bankruptcy court refused to vacate the discharge or convert the case to chapter 13.
The debtor appealed but did challenge the ruling under Rule 60(b). Rather, the debtor argued that receipt of discharge is not a bar to conversion to chapter 13. Judge Edmonds agreed in her five-page opinion.
Judge Edmonds cited Marrama v. Citizens Bank, 549 U.S. 365 (2007), where the Supreme Court held under Section 706(a) that the bankruptcy court has discretion to deny conversion of a chapter 7 case to chapter 13 if shown the debtor’s bad faith.
Referring to Marrama, Judge Edmonds said that the bankruptcy court had not analyzed the debtor’s good faith in filing the conversion motion.
Furthermore, there is a split of authority on a related issue. Judge Edmonds cited several courts for holding that a discharge precludes conversion to chapter 7. However, she cited other courts that disagree.
Judge Edmonds was persuaded by cases holding that discharge does not bar conversion. She remanded the case with instructions for the bankruptcy court to consider the debtor’s “potential abuse of the bankruptcy process,” since discharge is not an automatic bar to conversion. She also directed the bankruptcy court to consider whether the debtor was eligible for chapter 13.
Observation
Marrama may no longer be good law following Law v. Siegel, 571 U.S. 415 (2014), where the Supreme Court held that a bankruptcy court may not use its equitable powers under Section 105(a) to contravene express provisions of the Bankruptcy Code.
Although Marrama may not be grounds for denial of conversion following Law v. Siegel, the debtor’s ineligibility for chapter 13 might still bar conversion.
The receipt of a chapter 7 discharge does not automatically bar a debtor from converting a case to chapter 7, according to District Judge Nancy G. Edmonds of Detroit.
On the other hand, the right to move to convert does not ensure conversion, Judge Edmonds said in her November 14 opinion.
The debtor owned real property. Four days before receiving her general discharge in chapter 7, the debtor transferred a half interest in the property to her daughter for no consideration. Believing that the trustee would attempt to avoid the transfer, the debtor filed a motion four months after discharge to set aside the discharge order and convert the case to chapter 13.
Finding no grounds for a so-called motion for reconsideration under Federal Rule 60(b), the bankruptcy court refused to vacate the discharge or convert the case to chapter 13.
The debtor appealed but did challenge the ruling under Rule 60(b). Rather, the debtor argued that receipt of discharge is not a bar to conversion to chapter 13. Judge Edmonds agreed in her five-page opinion.