In re Shockley
Decision Date | 29 January 1996 |
Docket Number | Bankruptcy No. 94-20573-7. |
Parties | In re Ronald Allen SHOCKLEY, d/b/a Fly Fisherman's Gallery, and Donna Charmayne Shockley, Debtors. |
Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana |
John D. Stephenson, Gregory A. Luinstra, Jardine, Stephenson, Blewett & Weaver, P.C., Great Falls, Montana, for Susinno.
James A. Patten, Billings, Montana, for Debtors.
In this Chapter 11 case, the United States Small Business Administration (SBA) and office of the U.S. Trustee filed motions to dismiss or convert this case to Chapter 7 on grounds the Debtors are unable to effectuate a confirmed Plan of Reorganization. The Debtors filed a consent to the motion for dismissal, but not conversion. On the day set for hearing on each motion, January 25, 1996, the Debtors filed a separate Chapter 7 petition, No. 96-20151-7. At hearing, the Debtors confessed a confirmable Plan of reorganization could not be proposed, the Debtor had surrendered all assets to the SBA, and Debtors sought dismissal because they desire a discharge in the newly filed Chapter 7 case, since Debtors filed a previous Chapter 7 case in 1989, when they received a discharge. The Debtors argue that conversion of the pending Chapter 11 case to Chapter 7 would prevent discharge in this case under 11 U.S.C. § 727(a)(8), the so-called six-year bar. Two creditors appeared in opposition to dismissal because of a pending agreements made in the Chapter 11 estate concerning assets consisting of wildlife prints and stamps allegedly owned by each creditor.
This Chapter 11 case has been pending since April 20, 1994. The present case shows 147 separate docket entries. The office of U.S. Trustee and creditor Susinno state conversion rather than dismissal is proper because of the controversy which exists between Susinno and SBA as to the right to the collateral in the primary assets of the estate consisting of various artworks. The creditor Pennsylvania Fish and Boat Commission argues along the same lines, that a stipulation concerning its claim and assets required certain actions by the Debtors, which have not been performed.
The recent filing of the Chapter 7 case brings into play the rule set forth in In re Borg, 105 B.R. 56, 58 (1989) in which this Court held:
Other recent cases support the Borg holding. See, In re Keen, 121 B.R. 513 (Bankr.W.Ky. 1990) and In re Delaware Valley Broadcasters, Ltd. Part., 166 B.R. 36 (Bankr.Del.1994). A limited exception was allowed in In re Grimes, 117 B.R. 531 (9th Cir. BAP 1990), which is criticized by Keen and Delaware Valley and is explained in In re Henke, 127 B.R. 255, 266 n. 1 (1991), holding:
This court\'s decision in In re Borg, 105 B.R. 56 (Bankr.Mont.1989) is consistent with Grimes in that the facts in Borg show a discharge had not been entered in the pending cases when the Debtor filed a new Chapter 12 case. Grimes holds that a debtor who has been granted a discharge under one chapter of Title 11 may file a subsequent petition under another chapter even though this first case remains open.
In the case sub judice, the discharge has not been entered, which was also the fact in Borg. Thus, under Borg the second Chapter 7 bankruptcy petition of the Debtors is a nullity if this pending case is not dismissed.
Dismissal or conversion is provided for in § 1112(b) which sets forth a non-exclusive list of factors including:
The test under § 1112(b) as to whether the case should be converted or dismissed is what is in the best interest of the creditors and the estate. That matter rests in the sound discretion of the court. In re Mechanical Maintenance, Inc., 128 B.R. 382 (Bankr. E.D.Pa.1991).
In this case, the Debtors have enjoyed Chapter 11 protection for about two years, and have been through protracted litigation with a number of creditors, including Susinno and Pennsylvania. The Debtors' only argument against conversion is that it will deny them a discharge under the converted Chapter 7 case under § 727(a)(8).2 But for that fact, conversion would be simple because the Debtors themselves have sought Chapter 7 relief. Under the Code, the six years begins to run as of the date the first case is "commenced," i.e. filed, and ends as of the date that the subsequent proceeding is begun by the filing of the petition. Under § 348(a) of the Code, when a case is converted from Chapter 11 to Chapter 7, such does not effect a change in the date of the filing of the petition. The previous Chapter 7 case was filed by the Debtor on November 2, 1989, and discharge entered March 20, 1990. Since the pending petition was filed April 20, 1994, the six-year rule would prevent another discharge in this case, but not in the case No. 96-20151-7.
The Debtors' position regarding the discharge problem ignores the plain language of § 1112(b). As stated in In re Superior Siding & Window, Inc., 14 F.3d 240, 242 (4th Cir.1994) after citing § 1112(b):
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