All posts in Chapter 13

The 9th Circuit has vacated the Flores ruling by a three judge panel and ordered the case to be reheard en banc.   Flores is the case that ruled that an above median debtor with negative income per the means test does not have to have a five year plan.  It followed its prior ruling in Kagenveama and said that the Supreme Court in Lanning v. Hamilton did not reverse that portion of the Kagenveama ruling.   Go get ’em Nancy Clark.  I’ll be there.  Here is the order.   When I will post the briefing schedule and hearing date when I get them.

Taylor v. Danielson (In re Taylor),Case No. 5:11-cv-01879-GHK (USDC C.D. Cal, April 2012)

Issue:              Is there an absolute right to convert a case filed under Chapter 13 to Chapter 7?

Holding:         Yes, 11 U.S.C § 1307 provides an absolute right to convert a case filed under Chapter 13 to Chapter 7.

Judge George H. King

Debtors filed Chapter 13 on May 11, 2011.  During the life of the Chapter 13 case, the Court pointed out issues of plan feasibility.  The Court continued the Plan Confirmation Hearing to October 5, 2011.  On October 4, 2011, the debtors filed their Notice of Conversion of Bankruptcy Case from Chapter 13 to Chapter 7 (“Notice of Conversion”).  Despite their Notice of Conversion, the Bankruptcy Court dismissed the debtors’ case for failure to make payments and failure to file secured debt payment declarations.

The debtors appealed to the District Court raising the issue of whether section 1307 provides an absolute right to convert a case filed under Chapter 13 to Chapter 7.  The debtors argued that under section 1307 the Debtors have an absolute  right to convert their case from Chapter 13 to Chapter 7; and that the date of filing of the Notice of Conversion becomes the date of the conversion order.

The District Court reversed.  The Court of Appeals held that a debtor’s right to convert  under section 1307 is absolute, as there is no danger of the debtor escaping the consequences of bad faith conduct or for abuse of process.

The 9th Circuit has long held the right to convert from Chapter 13 to Chapter 7 is absolute.  The Court distinguished  In re Marrama, 549 U.S. 365 (2007) which held that conversion from Chapter 7 to Chapter 13 is not an absolute right, and can be forfeited for cause, which includes bad faith; and In re Rosson, 545 F. 3d 764 (9th Cir. 2008) which held there is no absolute right to dismissal of a Chapter 13 case.  The scenarios in Marrama (conversion from Chapter 7 to Chpater 13) and Rosson (dismissal of Chapter 13) are different from the case at hand, as the Court maintains jurisdiction over the debtor and the debtor cannot escape the consequences of bad faith conduct or abuse of process when the debtor’s case is converted from Chapter 13 to Chapter 7.  Instead, the Court agreed with the decision in In re DeFrantz, 454 B.R. 108 (9th Cir. BAP 2011) which held there is an absolute right to conversion from Chapter 13 to Chapter 7.

Finally, the Court held the absolute right is in conformity with Bankruptcy Rule 1307(a) which highlights the difference between conversion from Chapter 7 to Chapter 13 and vice versa, stating that a “Chapter 13 case shall be converted without court order when the debtor files a notice of conversion…” § 1307(a).

By Carolyn M. Afari, Esq.

Practice tip:  Cash Collateral Issues in Chapter 13 – if you believe that your client’s rental property may be subject to a note that give the secured creditor an interest in the rents generated by the property (cash collateral), you may wish to seek a stipulation for use of the rent as soon as the case is filed.  If you can’t get a stipulation, file a motion with the court.  Normally, this is a chapter 11 issue, but it has been appearing in chapter 13 matters on a regular basis.

Practice tip:  All of the chapter 13 trustees are now sending out Notices of Final Cure Payments pursuant to Rule 3002.1 sections f,g,h and i.  The secured creditor for the primary residence has a mandatory duty to respond to these Notices.  Please review their responses when you receive them and file a motion if your client disagrees with the secured creditor’s response.

Aki Koyama
Staff Attorney to Kathy Dockery, Chapter 13 Trustee

Practice tip:  If your employed client shows fluctuations in pay, please always conduct a year to date analysis using your client’s most recent paycheck stub to determine your client’s average monthly income.  If the year to date analysis would not be an accurate calculation of your client’s projected income, please indicate on Schedule I why this is so.

Practice tip:  In paragraph II(A)(2) of the mandatory chapter 13 plan, please always show the percentage at 100% as this tells our office how much of the plan payment we can use to pay your fees.

Practice tip: If you have a married couple filing bankruptcy and one of the spouses is a homemaker, please indicate homemaker in the employment section rather than indicating “unemployed.”  If you indicate unemployed, our assumption will be that the unemployed spouse is seeking employment and our line of questioning at the 341(a) will follow this assumption.

Aki Koyama
Staff Attorney to Kathy Dockery, Chapter 13 Trustee

Just to refresh your memory, we posted this news when it happen (9/10/12).  Since then the tee has petitioned for an en banc rehearing.  We are still waiting to hear from the 9th re: the en banc rehearing.  I will let you know the result of the petition for re-hearing once we receive it.  I do not believe they petitioned for a stay pending consideration of the rehearing.  Therefore, it is binding on our bk judges (please feel free to correct me if I am wrong).

Thank you,  Nancy B. Clark

Editors Note:  Flores is the 9th Circuit Case that said a 5 year plan is not required of an above-median debtor who has no disposable income per the means test.

Below are some statistics I have compiled from Kathy Dockery’s website.  In four days of hearings with Judge Klein and Judge Bason, there were 500 matters on calendar of which 29% were confirmed, 12% dismissed and 54% continued.