Mitrano v. United States, 472 B.R. 706 (April 16, 2012)
United States District Court for the Eastern District of Virginia – Alexandria Division
In this case, Judge Leone M. Brinkema considered the appeal of a Chapter 13 debtor who was appealing the decision of the bankruptcy court to convert his case to a Ch. 7, rather than allowing him to dismiss the case pursuant to Bankruptcy Code Section 1307(b)
In this case, the debtor filed suits or appeals in state courts of New Hampshire, Vermont, Virginia, and Maryland as well as in two federal courts, the District of New Hampshire and the Eastern District of Virginia. The Debtor’s original bankruptcy was filed in West Virginia and transferred to the Eastern District of Virginia, where he is currently in jail for failing to pay restitution of over $500,000.00 for past child support.
The questions of law presented in this matter is whether a debtor has an absolute right to dismiss a case under Section 1307(b) which provides that “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 court shall dismiss a case under this chapter [Chapter 13]. . .”
Judge Brinkema noted that section 1307(b) as language similar to section 706(a), which the Supreme Court addressed in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007). Section 706(a) provides that a Chapter 7 debtor “may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted. . . “ Judge Brinkema pointed out that the Court emphasized that because the bankruptcy system is mean to protect the “honest but unfortunate debtor,” and a bad-faith debtor does not have an absolute right to convert his case under Section 706(a). Id. at 374. The Supreme Court further held that “nothing in the test of either section 706 or 1307 (or the legislative history of either provision) limits the authority of the court to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor.” “On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate ‘to prevent an abuse of process described in section 105(a) of the Code. . .” Id at 374-75.
Judge Brinkema found that section 1307(c) allows the court to convert a Ch. 13 case to a Ch. 7 case “for cause” and that bad faith in filing a Ch. 13 plan qualifies as “cause” under the statute. In re Uzaldin, 418 B.R. 166, 173 (Bank.E.D.Va 2009) The underlying [bad faith] inquiry is based on fundamental fairness. The non-exhaustive factors includes: the nature of the debt, whether the debt would be non-dischargeable in a chapter 7 proceeding; the timing of the petition; how the debt arose; the debtor’s motive in filing the petition; how the debtor’s actions affected creditors; the debtor’s treatment of creditors before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditor. Id. at 173-74.
Judge Brinkema agreed with the Supreme Court that “through bad-faith or fraudulent conduct, a debtor may forfeit certain rights otherwise available under the bankruptcy code. Concluding, Judge Brinkema decided that, “in light of the bankruptcy court’s power to “prevent an abuse of process,” see section 105(a), there is no principled reason to allow bad faith debtors access to dismissal under section 1307(b) while disallowing conversion under section 706(a). A Court may consider “the debtor’s history of filings and dismissals in determining whether a Chapter 13 proceeding should be dismissed for cause due to bad faith.” In re Brown, 399 B.R. 162 (Bankr.W.D.Va. 2009)
Judge Brinkema upheld the bankruptcy court’s decision to deny the debtors motion to dismiss and converted the case to Chapter 7.
