In re Trepetin, Case No. 20-11718-MMH

• Decision Date: 07 July 2020
• Docket Number: Case No. 20-11718-MMH
• Citation: 617 B.R. 841
• Parties: IN RE: Gregory TREPETIN, Debtor.
• Court: U.S. Bankruptcy Court — District of Maryland

617 B.R. 841

IN RE: Gregory TREPETIN, Debtor.

Case No. 20-11718-MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed July 7, 2020

Michael Stephen Myers, The Law Office of Michael S. Myers, LLC, Robert B. Scarlett, Scarlett, Croll & Myers, P.A, Baltimore, MD, for Debtor

Marc E. Albert, Stinson LLP, Washington, DC, for Trustee

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

Chapter 11 of the U.S. Bankruptcy Code¹ offers businesses and individuals an opportunity to reorganize their financial affairs, including their business operations. The process allows the debtor to stay in possession of its assets while working with its creditors to develop a plan that achieves a beneficial result for all, or as many stakeholders as possible. The process can, however, be lengthy and expensive; in fact, it may be cost-prohibitive for some debtors that would otherwise benefit from a chapter 11 case. Congress recognized this dilemma, which often impacts smaller entities and individual business owners more significantly than others, and enacted the Small Business Reorganization Act of 2019 ("SBRA").

SBRA creates a new subchapter of chapter 11 of the Code ("Subchapter V"). Subchapter V in turn offers small business debtors, including individuals, a streamlined process and tailored tools for confirming a plan. To help facilitate the process, Subchapter V establishes certain deadlines that a debtor must meet to keep its case on track. These deadlines run from the date of the order for relief in the bankruptcy case but neither Subchapter V nor section 348(b) of the Code specifically adjust these deadlines when a case is converted to chapter 11 from another chapter of the Code. That is the procedural posture of this case.

The Debtor's motion seeking extensions of the SBRA deadlines requires the Court to grapple with a simple but important question: Is SBRA available to a debtor who first files a bankruptcy case under a chapter other than chapter 11 of the Code, but then determines that it is eligible for, and could benefit from, Subchapter V? For the reasons set forth below, the Court answers this question in the affirmative and sets extended deadlines for the Debtor under sections 1188 and 1189 of the Code. To hold otherwise would preclude a debtor, who has not engaged in any dilatory or wrongful conduct, from utilizing provisions of the Code specifically designed to help small businesses and their creditors.

I. Relevant Background

The Debtor is an individual who operates a small business. The Debtor filed a chapter 7 case on February 10, 2020. ECF 1. The Debtor appears to have complied with his obligations under chapter 7 of the Code and to have been eligible for a discharge under section 727 of the Code.² The Chapter 7 Trustee entered a Report of No Distribution to Creditors, suggesting that the Debtor's chapter 7 case was a no asset case, on June 2, 2020. ECF 43. The only event of note in the Debtor's chapter 7 case was a motion for relief from stay filed by a creditor, which remains pending. ECF 22, 26, 62.

The Debtor filed a Motion to Convert Chapter 7 Case to Chapter 11 Subchapter V, and Request to Extend Deadlines (the "Conversion Motion") on June 11, 2020. ECF 46. By the Conversion Motion, the Debtor asked the Court to convert his chapter 7 case to one under Subchapter V, pursuant to section 706 of the Code. The Debtor also requested an extension of (i) the 60-day deadline for the Court to hold a status conference under section 1188 of the Code, and (ii) the 90-day deadline for the Debtor to file his plan under section 1189 of the Code. The Court granted the Debtor's request to convert his case to one under chapter 11, and the Debtor thereafter filed an amended petition electing to proceed under Subchapter V. ECF 48, 52. The Court deferred its decision on the requested deadline extensions to provide an opportunity for notice and hearing and supplemental briefing by the Debtor. ECF 48, 51. The Court has reviewed all of the relevant papers in this case, and the matter is now ripe for resolution.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a) and its Local Rule 402, the United States District Court for the District of Maryland has referred this case to the Court. This matter is a statutorily core proceeding under 28 U.S.C. §§ 157(b)(1) and (b)(2). The Court has constitutional authority to enter final orders in this matter.

Various sections of the Code allow a debtor to convert a pending bankruptcy case from one chapter to another chapter of the Code, provided that the debtor is eligible to be a debtor under the new chapter. The Debtor made his conversion request under section 706 of the Code, which provides that "[t]he 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 under section 1112, 1208, or 1307 of this title." 11 U.S.C. § 706. The Court entered an order granting the Debtor's request to convert his case to one under chapter 11. That action raises issues concerning the impact of the conversion on matters decided prior to conversion, pending, and to take place in this chapter 11 case.

Section 348 of the Code generally provides that the order for relief in the original case continues, with the same date, as an order for relief under the new chapter. 11 U.S.C. § 348(a). The order for relief does not take on the date of the conversion order, except in a few specific instances. For example, section 348(b) states that "[u]nless the court for cause orders otherwise, in sections 701(a), 727(a)(10), 727(b), 1102(a), 1110(a)(1), 1121(b), 1121(c), 1141(d)(4), 1201(a), 1221, 1228(a), 1301(a), and 1305(a) of this title, ‘the order for relief under this chapter’ in a chapter to which a case has been converted under section 706, 1112, 1208, or 1307 of this title means the conversion of such case to such chapter." 11 U.S.C. § 348(b). Notably, section 1121 of the Code, identified in section 348(b), speaks to the time period for the filing of a plan in a standard chapter 11 case. Section 1121 is not applicable in a Subchapter V case. 11 U.S.C. § 1181(a). Rather, the filing of a plan in a Subchapter V case is governed by, among other things, section 1189 of the Code.

The Court considers the Debtor's requested extension of the section 1188 and 1189 deadlines against this backdrop.

III. Analysis

The filing of a bankruptcy petition, which constitutes the order for relief in a voluntary bankruptcy case, triggers a number of events and deadlines in a bankruptcy case. For example, the petition triggers an automatic stay of most actions and proceedings against the debtor, the debtor's property, and property of the estate. 11 U.S.C. § 362(a). It also creates the bankruptcy estate, which is augmented with certain postpetition property in chapter 11 cases. 11 U.S.C. §§ 541, 1115, 1186. Moreover, the debtor must take certain actions, such as assuming or rejecting executory contracts and unexpired leases or filing a plan within a certain number of days from the date of the petition or order for relief. See, e.g. , 11 U.S.C. §§ 365, 1121, 1189. Consequently, the date of the order for relief in any bankruptcy case, including a converted case, is important in determining the rights and duties of the debtor and its creditors.

This statement is particularly true in a Subchapter V case, as the debtor is the only party who may file a plan and has only a limited amount of time to do so. Indeed, in a conversion situation as that before the Court, the Subchapter V case may be over before it even begins if certain deadlines cannot be extended.³ The Court considers the impact of a conversion order on a Subchapter V case and the Court's ability to extend the relevant Subchapter V deadlines in turn below.

A. The Statutory Deadlines and Conversion

Two statutory deadlines under Subchapter V are relevant to this case and the Debtor's pending extension request. First, section 1188(a) of the Code requires the Court to hold a status conference in the Debtor's case "not later than 60 days after the entry of the order for relief under this chapter." 11 U.S.C. § 1188(a). Second, section 1189(b) of the Code mandates that the Debtor file its plan "not later than 90 days after the order for relief under this chapter." 11 U.S.C. § 1189(b).

Each of the statutory deadlines at issue may be extended under certain circumstances. For example, section 1188(b) provides that "[t]he court may extend the period of time for holding a status conference under subsection (a) if the need for an extension is attributable to circumstances for which the debtor should not justly be held accountable." 11 U.S.C. § 1188(b). Likewise, section 1189 states, in relevant part, that "the court may extend the [90-day deadline] if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable." 11 U.S.C. § 1189. The Debtor posits that the conversion of his bankruptcy case from a chapter 7 to a chapter 11 case makes it impracticable for him to comply with these deadlines. He states, among other things, that he "should not be justly held accountable for needing an extension of the deadline[s]." ECF 46, at 2.

As an initial matter, the Court observes that the question before it would be resolved easily if the Debtor had converted his case to chapter 11 and was not a small business debtor. As noted above, section 348(b) resets a debtor's exclusive period for filing a plan in a standard chapter 11 case. Congress did not, however, make that same exception for chapter 11 plans under either section 1121(e) (in a small business case) or section 1189 (in a Subchapter V case). Although the omission of section 1121(e) might be understandable given the 300-day overall deadline imposed on small business cases under section 1121(e)(2),⁴ it arguably is less aligned with the...