In re Donald and Jane Nichols

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. AZ-20-1032-TaLB (9th Circuit, Aug 12,2020) Published
Tag(s):
Ruling:
Chapter 13 debtors do not have an absolute right to dismiss their bankruptcy case. Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764 (9th Cir. 2008), is binding authority that a debtor's right to dismiss a chapter 13 bankruptcy case under § 1307(b) is not absolute if the debtor has acted in bad faith in its bankruptcy case or if dismissal would result in an abuse of the bankruptcy process.
Procedural context:
The debtors appealed from the bankruptcy court's order converting their chapter 13 case to a chapter 7 proceeding and granting creditors' motion to convert the case.
Facts:
The chapter 13 debtors, Donald Hugh Nichols and Jane Nichols (the "Nichols"), signed a plea agreement on behalf of their son. In the plea agreement, the Nichols agreed to pay part of the federal restitution award entered against their son in favor of Marana Stockyard & Livestock Market, Inc., and its owners, Clay and Karen Parsons (the “Parsons; ” and, collectively with Marana Stockyard, “Creditors”). The Nichols' obligation under the plea agreement was satisfied by transferring title to their home and other real property (the "Properties") to the Creditors. Certain parties that were defrauded by the Nichols’ son then sued the Nichols, alleging they were participants in their son's criminal activities. The Nichols filed a third-party complaint against the Parsons, seeking rescission of the transfer of the Properties for fraud in the inducement. Shortly afterwards, the Nichols filed their bankruptcy petition and chapter 13 plan. The Nichols, however, failed to comply with the Bankruptcy Code (e.g., failing to file tax returns for 2014 through 2017; and failing to file operating reports) and did not move towards plan confirmation for over 17 months. Notwithstanding the chapter 13 trustee's objections to their plan, the Nichols never amended their plan. Nine months after the Nichols filed their chapter 13 petition, the Creditors moved to convert the Nichols' case to a chapter 7 case under § 1307(c) and (e). The chapter 13 trustee joined in the motion. The bankruptcy court granted the conversion motion, but agreed that the conversion would not occur if the Nichols submitted their tax returns and a stipulated order of confirmation within 30 days. The Nichols appealed the conversion order and moved to dismiss their chapter 13 case under § 1307(b). They also moved for a stay pending appeal. Creditors and the Arizona Department of Revenue opposed the Nichols' motion to convert. After a hearing, the Nichols' motion to dismiss was denied and the case was converted to a chapter 7 proceeding. The bankruptcy court concluded that the right to convert under § 1307(b) is not absolute and that the Nichols had improperly used chapter 13 to stall creditors.
Judge(s):
TAYLOR, LAFFERTY, and BRAND, Bankruptcy Judges

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