Levesque v. Shapiro (In re Levesque)

Citation:
BAP No. NV-11-1742-DKiPa (B.A.P. 9th Cir. June 25, 2012)
Tag(s):
Ruling:
AFFIRMING the Bankruptcy Court, the Ninth Circuit Bankruptcy Appellate Panel held that the chapter 7 trustee had standing to appear with respect to Debtors' motion to reopen their chapter 7 case and motion to convert the chapter 7 case to one under chapter 11, and the Bankruptcy Court did not abuse its discretion in denying Debtors' motion to convert, where Debtors did not disclose a personal injury claim in their chapter 7 case; where a discharge was granted and the case closed; where Debtors subsequently filed a personal injury action to recover damages; and where the chapter 7 trustee joined the motion to reopen the chapter 7 case, but opposed the motion to convert. (1) The chapter 7 trustee had standing to appear and be heard with respect to the motions because it would be incongruous to permit a debtor who has failed to disclose assets to use this failure (and the subsequent erroneous closing of the case) as a shield against reopening the case; the distinction between "trustee" and "former trustee" is semantic rather than substantive, and does not effect a talismanic change in the trustee's legal status. (2)The Bankruptcy Court did not abuse its discretion in denying Debtors' motion to convert the reopened case to one under chapter 11 because § 706(a) (providing that a "debtor may convert a case under [chapter 7] to a case under chapter 11 . . ."), read in conjunction with the Supreme Court's decision in Marrama, does not give a debtor an absolute right to convert to one of the reorganization chapters; that Debtors wished to convert to chapter 11 instead of chapter 13, as was the case in Marrama, is not a relevant distinction. By using the Marrama standard, the Bankruptcy Court applied the correct legal standard in denying Debtors' motion to convert. Moreover, the Bankruptcy Court did not abuse its discretion when it denied the motion because it was very careful in its findings of fact to support denial of the motion---that Debtors did not tell the truth and signed things under oath and under penalty of perjury that were not true.
Procedural context:
Debtors filed a chapter 7 bankrupty case. After Debtors received their discharge, the chapter 7 trustee was discharged from his duties and the case was closed by final decree. Thereafter, Debtors filed a personal injury action. (Debtors had not disclosed this claim in their schedules or at the meeting of creditors.) Several months after the personal injury action was filed, Debtors filed, in the same pleading, motions to reopen the chapter 7 case and to convert it to one under chapter 11. The Bankruptcy Court granted the motion to reopen the chapter 7 case, but denied the motion to convert the case to one under chapter 11. Debtors appealed, and the Bankruptcy Appellate Panel for the Ninth Circuit AFFIRMED, recognizing a split of authority on a discharged chapter 7 trustee's standing to be heard on a motion to reopen the case, and adopting what appears to be the majority approach of recognizing the trustee's standing in that context.
Facts:
Debtors were involved in a car accident that resulted in substantial personal injuries to them. At some point thereafter, Debtors filed a chapter 7 case. In their schedules, Debtors did not list any unliquidated claims against third parties. Similarly, under penalty of perjury in a bankruptcy questionnaire, they answered that they were not owed money for any reason; that they did not have any claim against anyone not listed in their schedules; and that they had not filed nor do did they have a reason to file any lawsuit against any person for any reason. At the meeting of creditors, Debtors testified that their schedules were true and accurate. After receiving their discharge, Debtors filed suit to recover on their injuries sustained in the accident. Subsequently, Debtors, through new counsel, filed motions to reopen their chapter 7 case and to convert it to a case under chapter 11. The chapter 7 trustee joined Debtors' motion to reopen, but opposed their motion to convert it to one under chapter 11, basing his opposition on Debtors' failure to disclose the personal injury claim. The bankruptcy court granted Debtors' motion to reopen their bankruptcy case, but denied their motion to convert it to one under chapter 11. Debtors appealed.
Judge(s):
DUNN, KIRSCHER, and PAPPAS

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