South-Western Legal Studies in Business

Bad Faith by Bankrupt Forfeits Right to Convert from Chapter 7 to Chapter 13
Description Supreme Court held that when a Chapter 7 bankrupt was shown to have hidden assets, the bad faith behavior allows the court to prohibit the petitioner from converting to Chapter 13, which was a right otherwise.
Topic Bankruptcy
Key Words Chapter 7, Chapter 13, Conversion, Objection, Bad Faith
C A S E   S U M M A R Y
Facts Marrama filed a Chapter 7 petition, thereby creating an estate of all his property “wherever located and by whomever held.” Citizens Bank is the principal creditor. Marrama made statements that were misleading. He transferred valuable property into a trust before filing. When that was discovered, the trustee moved to attach the property as part of the estate. Marrama then requested to covert to a Chapter 13 bankruptcy. The creditor and trustee objected as the conversion was made in bad faith and was an abuse of the process. The bankruptcy court and appeals courts agreed. Marrama appealed.

Affirmed. The debtor forfeited his right to proceed under Chapter 13, by conversion from Chapter 7, by engaging in pre-petition bad faith conduct that established cause to warrant dismissal from Chapter 13, rendering him unqualified to be a debtor under Chapter 13. While there is a right of conversion from 7 to 13 under the code, that right is lost by bad faith conduct. Bankruptcy courts must have authority to prevent abuse of process.

Citation Marrama v. Citizens Bank of Massachusetts, 127 S.Ct. 1105 (2007)

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