Tuesday, December 6, 2011

Bankruptcy Procedure: Conversion v. Dismissal

       A debtor in a Chapter 13 plan is allowed to dismiss her case at any time (Code §1307(b)) and allowed to convert her case to a Chapter 7 Bankruptcy at any time (Code §1307(a).  However, even though the Code states that one cannot be forced to remain in a Chapter 13 Bankruptcy and can either dismiss or convert the Chapter 13 Case, the procedure for each is quite different. 
      Rule 1017(f)(2) states that if a Debtor wishes to convert or dismiss her case under 1307(b) then it shall be by a motion governed by Rule 9013, which requires Notice, Motion, and a Hearing.  However, Rule 1017(f)(3) states that if a Debtor wishes to convert or dismiss her case under 1307(a), then all the Debtor has to do is file a notice of conversion; No motion, no hearing.  

       A closer look at this procedural process reveals an oddity in the requirements. The Bankruptcy Code specifically allows a debtor to voluntarily dismiss her case whenever she wants, and this right to dismiss is quite strong because the Code precludes any attempt to waive the right, yet the debtor must file a motion and have a hearing asking the Bankruptcy Court to dismiss the case; however, to convert the Chapter 13 case, the only requirement is Notice to the Court and parties, even though the right to convert is watered down.  For example, to convert a case to Chapter 7 from Chapter 13, the debtor must qualify to file Bankruptcy, must qualify for Chapter 7 under the Means Test, and must be in good faith (The Bankruptcy Code does not ask for good faith; this qualification was read into law by the Supreme Court 5-4 in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)).   Therefore it seems backwards that the unconditional right (dismissal) of the debtor requires more procedural process than the watered-down right (conversion) of the debtor.

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