In re Clark
| Decision Date | 03 November 2022 |
| Docket Number | 21-11774-JCO |
| Parties | In re: DANIEL JASON CLARK, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Alabama |
MEMORANDUM ORDER AND OPINION SETTING ASIDE DISCHARGE AND CONVERTING CASE TO CHAPTER 13
This matter came before the Court on the Debtor's Motion to Convert his case to Chapter 13 (doc. 77) and the Objections by the Chapter 7 Trustee (doc. 79) and the United States (doc. 82). Proper notice of hearing was given and appearances were noted on the record. Based on the pleadings, the record and the statements of counsel at the hearing, the Court finds that the Debtor's Motion to Convert is due to be GRANTED for the reasons below.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§1334 and 157, and the Order of Reference of the District Court dated August 25, 2015. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
The Debtor, Daniel Jason Clark ("Clark") filed chapter 7 bankruptcy on September 30, 2021. Clark's petition did not reflect any prior bankruptcy proceedings or any assets for the Trustee to administer. (Doc. 1). The Trustee later learned that Clark's wife passed away on or about November 28, 2021, leaving all of the property which she owned at the time of her death to him. (Doc. 79 at 12). As a result, the Trustee, filed a Notice of Assets on June 30 2022 and sent a letter dated August 4, 2022, to Clark's counsel advising of the Estate's interest in any bequest devise, inheritance, life insurance, or death benefit acquired within 180 days of the bankruptcy filing. (Docs. 64, 79 at 7-8). An order discharging the Debtor denoting the proceeding as a "No Asset Case" was inadvertently entered on July 7, 2022. (Doc. 70).[1]
On August 29, 2022, the Debtor moved to Convert his Chapter 7 case to Chapter 13. The Motion to Convert states in part, "... Due to the Debtor's financial circumstances and the circumstances of his bankruptcy, the Debtor desires to be in Chapter 13." (Doc. 77). The Chapter 7 Trustee opposed conversion stating that: (1) on information and belief, there are substantial assets which would likely yield a 100% dividend to unsecured creditors; (2) Clark had not filed the appropriate amendments; (3) it was unlikely that Clark could propose a feasible Chapter 13 plan; and (4) Clark could seek to dismiss after conversion to the detriment of the unsecured creditors. (Doc. 79). The United States objected as well, adopting the Trustee's arguments and further stating that the Debtor had failed to file his tax returns or pay his taxes.
At the hearing, in response to the pending objections, Debtor's counsel represented that: (1) Clark has been dealing with the tragic, unexpected loss of his wife; (2) Clark wants to sell the house and pay his creditors; (3) Clark believes he can handle things more efficiently and less expensively in Chapter 13; and (4) conversion will allow Clark to deal with claim objections and his tax issues. Debtor's counsel also stated that Clark will be able to make Chapter 13 payments until the house sells because he has family help and that he expects that the house will sell quickly.
The Trustee's position, that any bequest, devise inheritance, life insurance, or death benefit acquired by the Debtor within 180 days of the bankruptcy petition is property of the estate, does not seem to be in dispute. This is consistent with the plain language of 11 U.S.C. §541 which states in part:
Thus, the only issue in controversy is whether the Debtor may convert his bankruptcy from chapter 7 to chapter 13.
Section 706 of the Bankruptcy Code provides chapter 7 debtors broad ability to convert to chapter 13. 11 U.S.C §706(a). It states in part:
11 U.S.C. §706(a),(d).
Thus, absent a prior conversion, Chapter 7 debtors may generally convert to chapter 13 at any time as long as they qualify to be a chapter 13 debtor. In re Griggs, 181 B.R. 111 (Bankr. N.D.Ala. 1994); In re Wade, 598 B.R. 34 (Bankr. N.D.Ga. 2019). Courts have noted the analysis only requires that: (1) the debtor is an individual with regular income whose debts do not exceed applicable limits; and (2) the converted case would not be subject to immediate dismissal for cause, including bad faith. See 11 U.S.C. 109(e); 11 U.S.C. §1307(c); In re Marrama, 549 U.S. 365, 127 S.Ct. 1105 (2007), In re Daughtrey, 896 F.3d 1255 (11th Cir. 2018). Denial of conversion should be limited to extraordinary circumstances and is only warranted in extreme cases amounting to abuse. See In re Fulmer, 535 B.R. 854, 862 (Bankr. M.D. Ala. 2015).
When assessing allegations of bad faith generally, courts in this Circuit consider eleven factors.[2] In re Kitchens, 702 F.2d 885,888 (11th Cir. 1983); see also In re Brown, 742 F.3d 1309, 1317 (11th Cir. 2014)("While Kitchens does not use this phrase, it basically adopts a approach for determining good faith or lack thereof.") However, in the context of motions to convert from Chapter 7 to 13, some courts have declined to evaluate whether a chapter 13 plan will satisfy additional requirements for confirmation. See In re Carter, 285 B.R. 61, 65 (Bankr. N.D.Ga. 2002)(citing In re Krishnaya, 263 B.R. 63 (Bankr.S.D.N.Y.2001) (). Instead, courts look for evidence that the Debtor is seeking to avoid payments rather than make an honest effort to repay them. In re Carter at 65.
Clark meets the basic requirements to convert to chapter 13. The record reflects that this case has not been converted previously. Clark is an individual and his debts do not exceed the applicable debt limit. Even if Clark is not presently working, his schedules reflect that he was employed when he filed the petition. Further, Clark's counsel explained that he receives family assistance and intends to liquidate assets to fund his chapter 13 and pay his creditors. The court finds that Clark's recent, unexpected, and tragic loss of his spouse, justifies affording him some latitude with regard to his present employment status. Under the circumstances, the court accepts counsel's proffer that Clark receives assistance from family as a sufficient showing of regular income to satisfy Section 109(e).
Additionally, if converted, the case would not likely be subject to immediate dismissal. See 11 U.S.C §1307. Although the objections filed by the Trustee and the United States raise various concerns including: feasibility, failure to file tax returns, and Clark's delay in handling bankruptcy and probate matters, the Court does not find such arguments dispositive at this time. Indisputably to proceed in chapter 13, the Debtor must file his tax returns and satisfy the requirements for confirmation. See 11 U.S.C.§1308; 11 U.S.C.§1325. That said, individuals who need to file tax returns, pay taxes, address feasibility concerns, and resolve many other issues regularly file chapter 13 petitions. The court employs its discretion in those cases and often allows debtors a chance to handle such matters. Clark should be afforded the same opportunity. Consistent with the reasoning of In re Carter and In re Krishnaya, the court finds that under the facts of this case, consideration of § 1325 arguments is more appropriately postponed for determination after the case is converted to chapter 13.
Further, the court cannot conclude, on the evidence before it, that Clark has acted in bad faith. The fact that Clark may not have expeditiously attended to personal business and probate matters, is not necessarily indicative of his intent or future performance. Such delays and lack of diligence after the tragic, post-petition loss of his spouse are understandable. Clark's counsel expressed valid reasons for his request to convert, including his desire to handle the sale of the house as efficiently and inexpensively as possible as well as deal with claim objections and tax issues. Considering the totality of the circumstances, the court concludes that there is insufficient evidence of bad faith or abuse to warrant departure from the general provisions of §706 allowing chapter 7 debtors broad ability to convert to chapter 13.
The Trustee's argument that Clark may seek to dismiss this case upon conversion to avoid paying his creditors is contrary to the applicable provision of the Bankruptcy Code. See 11 U.S.C §1307(b). In addition, mere accusatory allegations, without more,...
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