Opinion
CASE NUMBER 18-55697-LRC
05-31-2019
IN THE MATTER OF: CASSANDRA JOHNSON LANDRY, aka CASSANDRA LANDRY, DEBTOR.
IT IS ORDERED as set forth below:
IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE ORDER DENYING DEBTOR'S MOTION TO CONVERT
Before the Court is Debtor's Motion to Convert from Chapter 7 to Chapter 13 (the "Motion"). (Doc. 154). The Court held a hearing on the Motion on March 28, 2019.
Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on April 3, 2018. (Doc. 1). On September 13, 2018, Debtor voluntarily converted her case from Chapter 13 to Chapter 7. Debtor now seeks reconversion of her case to Chapter 13. Debtor does not explain why she would like to reconvert other than stating her "intention of maintaining and sustaining [Debtor's] personal property in the bankruptcy." (Doc. 154). Melissa Davey, the former Chapter 13 trustee (the "Former Chapter 13 Trustee"), opposes the Motion on the basis that it was filed in bad faith.
"The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title." 11 U.S.C. § 706(a). In Marrama v. Citizens Bank of Mass., 549 U.S. 365, 371-72 (2007), the Supreme Court held that a Chapter 7 debtor does not have an absolute right to convert to Chapter 13. Rather, the right to convert is tempered by § 706(d), which provides that "'[n]othwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.'" Id. at 372. Accordingly, a court may deny a debtor's first request to convert from Chapter 7 to 13 where cause would exist to dismiss the case under § 1307(c). Id. at 373.
The Court has even greater discretion to deny a motion to reconvert. In re Povah, 455 B.R. 328, 340 (Bankr. D. Mass. 2011). Unlike a debtor requesting conversion, which Marrama held could only be denied in "extraordinary cases[,]" Marrama, 549 U.S. at 375 n.11, a debtor who seeks to reconvert to Chapter 13 bears the burden of establishing good faith and the feasibility of reorganization. In re Reid, 2019 WL 1004707, at *3 (Bankr. D. Md. Feb. 26, 2019); see also Povah, 455 B.R. at 341. This interpretation balances the competing bankruptcy policies of giving the debtor every chance to voluntarily repay her debt and protecting creditors from the delay attendant to a fruitless effort to reconvert. Here, Debtor has failed to demonstrate the good faith and feasibility that would warrant the Court's exercising its discretion to reconvert this case to Chapter 13.
In fact, as the Former Chapter 13 Trustee has noted, there is a split of authority as to whether § 706(a) even permits reconversion. Compare In re McLawhorn, 2014 WL 4948120, at *1 (Bankr. E.D. N.C. Oct. 2, 2014) (holding a debtor may not reconvert), In re Muth, 378 B.R. 302, 302-03 (Bankr. D. Colo. 2007) (same), In re Hardin, 301 B.R. 298, 300 (Bankr. C.D. Ill. 2003) (same), and In re Baker, 289 B.R. 764, 767 (Bankr. M.D. Ala. 2003) (same), with In re Reid, 2019 WL 1004707, at *3 (Bankr. D. Md. Feb. 26, 2019) (holding that reconversion is permitted), In re Dahl, 2016 WL 104975, at *3 (Bankr. D. Minn. Jan. 8, 2016) (same), In re Harris, 497 B.R. 652, 665 (Bankr. D. Mass. 2013) (same), In re Povah, 455 B.R. 328, 340 (Bankr. D. Mass. 2011) (same), and In re Johnson, 376 B.R. 763 (Bankr. D.N.M. 2007) (same).
First, Debtor's motivation for seeking reconversion demonstrates a lack of good faith. Chapter 13 is a tool for debtors to voluntarily repay their debts over time. It is not simply an alternative forum within which debtors may challenge all of their debts with no intention of paying any creditors. In re Mitrano, 472 B.R. 706, 711 (E.D. Va. 2012) (affirming dismissal of Chapter 13 case where the debtor had attempted to use it "as an alternative forum to litigate claims"). The Former Chapter 13 Trustee reported that during Debtor's 341 Meeting of Creditors, before she voluntarily converted to Chapter 7, Debtor testified that she intended to dispute every secured creditor listed in her Chapter 13 plan. (For the Record ("FTR"), at Aug. 14, 2018, 2:34 PM). Debtor continues to dispute those claims and has not identified a single creditor that would be repaid if this case was reconverted to Chapter 13. (FTR, at Mar. 28, 2019, 11:40 AM). Given that Debtor intends to use Chapter 13 as a vehicle to dispute the claims of her secured creditors rather than repay her debt over time, the Court finds that the Motion was not filed in good faith.
The Court's conclusion is further supported by Debtor's conduct in this case. Bankruptcy courts have found that denying conversion due to a lack of good faith is appropriate when there is a clear record of delay or disruptive behavior. See Cobb v. Husley (In re Cobb), 216 B.R. 676, 679-80 (Bankr. M.D. Fla. 1998) (finding that debtor's frivolous filings demonstrated a lack of good faith). Such conduct may involve filing duplicative and frivolous pleadings. In re Truong, 2009 WL 2929261, at *5 (Bankr. S.D. N.Y. Sept. 3, 2009). In this case, Debtor has filed multiple pleadings wherein she claims that neither she nor her property are subject to the laws of the United States. (See Submission of Fraud, Doc. 137; Motion to Investigate Fraud, Doc. 147). Similar arguments, made by so-called "sovereign citizens," have been summarily rejected as frivolous. See, e.g., United States v. Sterling, 738 F.3d 228, 233 n.1 (11th Cir. 2013); United States v. Benabe, 654 F.3d 753, 761-67 (7th Cir. 2011). These filings demonstrate that Debtor has no intent to use Chapter 13 for the legitimate purpose of reorganizing.
In addition to these arguments, Debtor has also filed a number of "common law liens." (Docs. 167, 168, 169). These liens, which are common practice in the "Sovereign Citizen Movement," are groundless and not supported by bankruptcy or non-bankruptcy law. See, e.g., U.S. v. Hart, 701 F.2d 749, 750 (8th Cir. 1983) (affirming invalidation of "Common-law Liens"); U.S. v. Barker, 19 F. Supp. 2d 1380, 1383-84 (S.D. Ga. 1998) (collecting cases finding similar common-law liens are invalid); see also Liens by 'Sovereign Citizens' a Headache for State Officials, NPR (Apr. 26, 2013), https://www.npr.org/templates/story/story.php?storyId=215838773 (last visited Apr. 26, 2019).
Turning to the feasibility of any reorganization, the history of this case raises doubts about whether Debtor could propose a confirmable Chapter 13 plan. Before Debtor voluntarily converted to Chapter 7, the Former Chapter 13 Trustee listed numerous objections to Debtor's proposed Chapter 13 plan. (Docs. 31, 60). Debtor has not filed an amended plan or explained how she intends to resolve the Former Chapter 13 Trustee's objections.
Furthermore, Debtor has failed to demonstrate that Chapter 13 would serve the best interest of her creditors. To have a confirmable Chapter 13 plan, the debtor must demonstrate that unsecured creditors would receive "not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7[.]" 11 U.S.C. § 1325(a)(4). In this case, the Chapter 7 Trustee reported that he has discovered a previously undisclosed life insurance policy worth as much as $115,000. (FTR, at March 28, 2019, 11:43 AM; see also Doc. 156). To satisfy the confirmation requirements, Debtor would be required to propose a plan to pay her creditors the amount they would receive if the Trustee liquidated the life insurance policies, and Debtor has not demonstrated a willingness or an ability to do so. Further, reconversion would needlessly delay distributing funds to creditors, who will receive payment faster and with less risk in a Chapter 7 case.
Finally, Debtor's remaining in Chapter 7 will also ensure the best outcome for all interested parties. The Chapter 7 Trustee can investigate Debtor's financial affairs, administer the estate's assets, object to fraudulent claims, and pursue any meritorious causes of action on behalf of the estate. See 11 U.S.C. § 704(1), (5). Allowing Debtor to reconvert to Chapter 13 would not serve a legitimate bankruptcy purpose and would only further delay this case, causing prejudicial harm to Debtor's creditors. Accordingly, for the above stated reasons,
IT IS HEREBY ORDERED that Debtor's Motion to Reconvert to Chapter 13 (Doc. 154) is DENIED.
Date: May 31, 2019
/s/ _________
Lisa Ritchey Craig
U.S. Bankruptcy Court Judge
END OF DOCUMENT
Distribution List
Attached list of creditors
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