Opinion
Case No. 03-61599.
September 4, 2007
MEMORANDUM OF DECISION
In this Chapter 7 case, which has not been previously been converted, Debtors filed a motion on June 8, 2007, to convert the case to a case under Chapter 13 under 11 U.S.C. § 706(a), which provides that the "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 to a case under section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this section is unenforceable." The Trustee filed an objection setting Debtors' motion for hearing, alleging that Marrama v. Citizens Bank of Mass., ___ U.S. ___, 127 S.Ct. 1105, 1107, 166 L.Ed.2d 956 (2007) holds that the debtor's right to convert to chapter 13 is not absolute and can be overcome by a showing of bad faith.
A hearing on Debtors' motion to convert was held after due notice at Great Falls on August 28, 2007. Debtors appeared represented by attorney Randy L. Tarum, and Debtor Judy Bartelt testified. The Trustee Gary S. Deschenes appeared in opposition. No exhibits were admitted. The Trustee's motion for turnover of Costello class action proceeds of the estate in the amount of $34,188.82 previously was granted by Order entered on June 14, 2007, (Docket No. 26), but that Order was held in abeyance until Debtors' motion to convert to Chapter 13 could be heard and decided.
The Debtor Judy Bartelt testified that she suffers from a terminal medical condition, and Debtors wish to convert to Chapter 13 to add additional debts which can be paid pursuant to a Chapter 13 Plan, and leave something for her husband should he survive her to negotiate with any remaining creditors. Debtors believe that a Chapter 13 Trustee can perform the distribution more quickly than under the present Chapter 7 case.
The Trustee objected to conversion on the grounds Debtors are seeking to convert the case post-discharge, in bad faith, citing Marrama v. Citizens Bank of Mass., ___ U.S. ___, 127 S.Ct. 1105, 1107, 166 L.Ed.2d 956 (2007). The Supreme Court in Marrama held that 11 U.S.C. § 706(d), 11 U.S.C. § 109(e), 11 U.S.C. § 1307(c), 11 U.S.C. § 105(a), and a court's inherent power to sanction "abusive litigation practices", all provide court's with authority to deny a motion to convert a case to Chapter 13 "in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical" "honest but unfortunate debtors". 127 S.Ct. at 1109-1112. At hearing this Court concluded that it did not find bad faith by the instant Debtors in filing their motion to convert to Chapter 13.
The record in this case shows that regardless of which Chapter it proceeds under, it is a surplus case. The Costello settlement proceeds attributable to these Debtors total $34,188.82, which are already subject to a motion for turnover to the Trustee. Tarum stated that Debtors' Chapter 13 Plan will provide for distribution of 100% of the allowed claims which may be filed. Additional protection to the parties is available in that the turnover of settlement proceeds is subject to this Court, and the Court hereby deems it appropriate that all Costello settlement proceeds in the instant case should be turned over directly to the Chapter 13 Trustee for administration.
The Court noted its opinion at the hearing that Chapter 13 was not the best way for these Debtors to proceed, and suggested that the parties confer and arrange for a partial distribution, taking the Debtors' motion to convert under advisement at the hearing to provide the parties time to confer. However, on September 4, 2007, Debtors filed a notice reiterating that they did not wish to proceed under Chapter 7, and that they wish to convert the case to Chapter 13.
Based upon the Trustee's failure to show bad faith by these Debtors under the holding of Marrama after notice and a hearing, and Debtors' right to convert under § 706(a), the Court finds that the Trustee's objection is without merit and Debtors are entitled to conversion of this case to Chapter 13, except that the Court will order the Costello settlement proceeds attributable to these Debtors turned over to the standing Chapter 13 Trustee Robert G. Drummond for administration in accordance with the Debtors' Chapter 13 Plan.
IT IS ORDERED a separate Order shall be entered in conformity with the above overruling the Trustee's objection (Docket No. 25), and granting the Debtors' motion to convert this case to Chapter 13 (Docket No. 24).