Debtors appealed order converting case.  The 9th Cir. BAP affirmed the order.

In a state court action, the Debtor, in his capacity as Trustee of a Trust, was found to have embezzled assets totaling over $600,000.  Before the state court judgment was actually entered, the Debtors (a married couple) filed a Chapter 11 case.  The Debtors had essentially no debt besides the debt to the trust embezzlement Creditor. The Debtors had assets sufficient to fund a 100% plan if necessary. The Debtors filed a Plan, but the Disclosure Statement was not approved based upon lack of information. Creditor filed a Motion to Dismiss or Convert pursuant to Section 1112(b).  The bankruptcy court granted the Motion, based largely upon a review of the state court proceedings, as a bad faith filing. The bankrutpcy court also estimated the Creditor's claim for purposes of voting under Section 502(c)(1).  The Debtors appealed this order as well, and the BAP dismissed this appeal as moot since it affirmed the order converting the case.