Brown v. Billingslea (In re Brown)

Ninth Circuit Bankruptcy Appellate Panel Case No. SC-14-1388-JuKlPa (October 26, 2015)
The Ninth Circuit Bankruptcy Appellate Panel ("BAP") applied the two-part test to determine whether the bankruptcy court abused its discretion: first, determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested and second, we examine the bankruptcy court’s factual findings for clear error. The bankruptcy court did not err in its findings related to conversion to Chapter 7pursuant to 11 U.S.C. Secs. 1307(c)(1), (4), and (5). Two of the four facts to determine bad faith were present; therefore, the bankruptcy court did not err in its finding of bad faith
Procedural context:
The Debtor appeals the bankruptcy court's order converting the Chapter 13 case to Chapter 7.
Debtor's father died intestate and Debtor was the personal representative. In the state court probate proceeding, the Debtor filed a notice that his three brothers abandoned their interest in their father's estate to the Debtor. The Debtor sold the father's home, which was essentially the probate estate's primary asset. Three days before the sale of the real property was to close, the Debtor filed a "bare bones" Chapter 13 bankruptcy. The Chapter 13 Plan proposed a 0% dividend to unsecured creditors. In the Debtor's Schedule B, the Debtor listed an anticipated inheritance of $2,500 and claimed it fully exempt. As of the petition date, the Debtor asserted that he was unemployed and collecting social security. the probate estate closed, and the Debtor distributed to himself over $55,000; however, he did not amend his scheduled to reflect the distribution. The Chapter 13 Trustee filed a motion to dismiss the Chapter 13, which was later withdraw based on the Debtor's later assertion that each of his brothers would "get their fair share." The Chapter 13 Trustee then sought conversion of the Chapter 13 case to Chapter 7. The bankruptcy court held a hearing on the Chapter 13 Trustee's objection to Chapter 13 plan. The bankruptcy court found that cause existed to convert the case to Chapter 7. The Debtor filed a motion to reconsider asserting that the bankruptcy court did not find that both there was cause for conversion and it was in the best interest of creditor since there was no finding of bad faith pursuant to 11 U.S.C. Sec. 348(f) the post-petition, but preconversion transfers were not property of the Estate. The bankruptcy court denied the motion to reconsider expanding on cause pursuant to 11 U.S.C. Secs. 1307(c)(1), (4), and (5).
JURY, KLEIN (sitting by designation) and PAPPAS, Bankruptcy Judges

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