Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Debtors who abused the bankruptcy process can’t convert their Chapter 7 case to Chapter 13, the U.S. Bankruptcy Court for the Central District of California held Jan. 10 ( In re Santos , 2017 BL 8706, Bankr. C.D. Cal., No. 6:13-bk-13557-MH, 1/10/17 ).
Michael & Maricar Santos asked for conversion after the court ordered them to turn over their house in Chino Hills, Calif. The couple had already received a “standard discharge” of debts in their Chapter 7 case, but their estate property hadn’t yet been liquidated, Judge Mark D. Houle’s opinion said.
Because “the Chapter 7 case is not fully administered,” there “is no benefit to the estate in exchange for the Debtors’ discharge,” the court said.
The Santos’ "attempt to retain the benefits of the bankruptcy process, without fulfilling their corresponding duties, constitutes an unfair manipulation of the Bankruptcy Code,” the court said.
Before 2007, some courts interpreted Bankruptcy Code Section 706(a) as giving debtors an absolute, one-time right to conversion, but “after a discharge has been obtained,” historically “the majority of courts have not,” Houle’s opinion said.
Following Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), the court determined that it has the authority to deny conversion “for cause,” and abuse of the process is “cause.” “Cause” doesn’t require fraudulent intent or any bad conduct by the debtors, the court said.
For a detailed discussion of Marrama, see Bloomberg Law: Bankruptcy Treatise, pt. VII, ch. 226 (D. Michael Lynn et al. eds., 2016).In Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.
Jeffrey B. Smith, Long Beach, Calif., represented the Santos’. Law Offices of Wesley H. Avery, APC, Pasadena, Calif., represented Trustee Larry D. Simons, Riverside, Calif.
To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)