Breaking Legal News - POSTED: 2007/02/21 17:11
In Marrama v. Citizens Bank of Massachusetts, the Court ruled 5-4 that a debtor's right to convert a Chapter 7 bankruptcy to a case under Chapter 13 is not absolute. Marrama initially filed a bankruptcy petition under Chapter 7 but then attempted to convert his case to a Chapter 13 petition in order to preserve his interest in an $85,000 piece of property. Citizens Bank challenged the conversion, and the bankruptcy court refused to allow the conversion due to Marrama's bad faith. The Supreme Court upheld the lower court decision from the US Court of Appeals for the First Circuit, concluding "that the courts in this case correctly held that Marrama forfeited his right to proceed under Chapter 13." The Court wrote:
Nothing in the text of either §706 or §1307(c) (or the legislative history of either provision) limits the authority of the court to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate "to prevent an abuse of process" described in §105(a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under §706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.