Sui v. Marshack (In re Sui)

Not for Publication
The Bankruptcy Appellate Panel affirmed a bankruptcy court's decision to reconvert a chapter 13 case to chapter 7 based on debtor's bad faith conduct instead of dismissing the chapter 13 case. The panel found that conversion was in the best interest of creditors and the right to a mandatory conversion from chapter 13 to chapter 7 under sec. 1307 is not present where the case was previously converted pursuant to sec. 706. However, the panel dismissed the appeal on the bankruptcy court's allowance of chapter 7 administrative claims finding that the bankruptcy court's decision was an interim approval of fees.
Procedural context:
The appeal to the Bankruptcy Appellate Panel came after the bankruptcy court reconverted the debtor's chapter 13 case to one under chapter 7 instead of granting the debtor's request to dismiss his chapter 13 case and after the court approved the fees of chapter 7 trustee and his counsel.
Debtor, pro se, commenced a chapter 7 case on July 27, 2011. The chapter 7 trustee Richard Marshack thereafter, sought employment of bankrutpcy counsel to pursue certain transfer of real property from the Debtor to his ex-wife the trustee believed to be fraudulent. Trustee indicated that the recovery of this asset would generate substantial benefit to general unsecured creditors because of the significant equity on the property. Subsequently, Trustee commenced an avoidance action to recover the real property. The Trustee also discovered that the Debtor was a plaintiff in a number of lawsuits against Debtor's HOA and a party called Southside Towing that were not disclosed in his petition and schedules. Trustee took over these lawsuit as trustee for the Debtor's bankruptcy estate. There were allegations as well that the Debtor, which purportedly divorced from his ex-wife, continue to live together in the same residence. Debtor sought dismissal of his chapter 7 case in view of the foregoing actions taken by the Trustee arguing that all but one unsecured creditor have been paid in full. The motion was denied for lack of cause. After an unsuccessful second attempt at dismissing his chapter 7 case, the Debtor sought to conversion to one under chapter 13 which the Court granted. In chapter 13, the chapter 7 trustee and his counsel filed administrative claims in chapter 13 which Debtor opposed arguing that the fees are unreasonable and unnecessary. Debtor also sought dismissal of his chapter 13 case. The court rejected Debtor's position arguing that the absolute right to convert to chapter 7 from a chapter 13 case under sec. 1307 does not apply when the case was converted previously under sec. 706. The court, instead, reconverted the case to chapter 7 finding cause given the Debtor's failure to disclose pertinent assets of the estate and abuse of the bankruptcy process, In addition, the bankruptcy court approved the chapter 7 fees requested by the trustee and his counsel.
An appeal came from a decision of the Hon. Catherine BAUER, bankruptcy judge for the Central District of California The appeal came before Bankruptcy Appellate Panel judges: Ralph KIRSCHER, Jim PAPPAS and Randall DUNN.

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