Arenas v. U.S. Trustee (In re Arenas)

Arenas v. U.S. Trustee (In re Arenas), Case No. CO-14-046 (10th Cir. B.A.P. Aug. 21, 2015)
A debtor engaged in the marijuana business legally under state law, but in violation of federal law, cannot obtain relief in the federal bankruptcy court. Engaging in federal criminal conduct demonstrated a lack of good faith that would bar confirmation of a chapter 13 plan and was cause to dismiss the chapter 7 case. Administering the debtor's estate would require a trustee to either violate federal law by possessing and selling marijuana assets (chapter 7) or administer and distribute funds derived from the debtor's actions in violation of federal law (chapter 13).
Procedural context:
Appeal from the bankruptcy court for the District of Colorado dismissing debtors' chapter 7 case and denying motion to convert to chapter 13 for cause, including delay prejudicial to creditors.
Debtor is licensed in Colorado to grow and dispense medical marijuana, in violation of federal law. Debtors filed chapter 7 after a state court judgment was entered against them and later attempted to convert to chapter 13. The majority of the Debtors' income originated from rental income and direct profits associated with the medical marijuana business. The United States Trustee filed an objection to the conversion and a motion to dismiss the case for cause.
Cornish, Nugent, and Somers

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