Argument of Speaker
Mr. Speaker: Justice Stevens has the opinion in 05-996, Marrama v. Citizens Bank of Massachusetts.
Argument of Justice Stevens
Mr. Stevens: This is a bankruptcy case.
The petitioner filed a voluntary petition to discharge his debts under Chapter 7 of the Bankruptcy Code.
In verified schedules attached to his petition, petitioner made several statements about his principal asset; a house in Maine that turned out to be misleading or inaccurate.
After petitioner’s examination of the meeting of creditors required by the code, the trustee of the state indicated his intention to recover the Maine property as an asset of the state.
Petitioner then moved to convert his case to a case under Chapter 13.
Proceeding under Chapter 13, enables a debtor with regular income to retain possession of his property and to discharge his debts as he completes payment of a plan approved by the bankruptcy court.
The bankruptcy court denied petitioner’s conversion request on the ground that the motion had been made in bad faith.
Both the Bankruptcy Panel for the First Circuit and the First Circuit Court of Appeals affirmed.
We granted certiorari to decide whether a Chapter 7 debtor has an absolute right to convert to Chapter 13, not withstanding or finding by the bankruptcy court that the conversion motion was brought in bad faith.
We affirm, Section 706(a) of the Bankruptcy Code provides that a debtor may convert a case under Chapter 7 to a case under Chapter 11, 12 or 13 at any time, if the case had not previously been converted, relying primarily on this language as well as the language in the house in Senate Committee reports on the provision.
Petitioner argues that he has an unqualified one time right to convert to Chapter 13, we disagree.
Under Section 706(d) of the code, a Chapter 7 debtor may not convert to Chapter 13 unless he is eligible to be a Chapter 13 debtor.
Under 1307(c), Section 1307(c) provides a non-exhaustive list of reasons that constitute cause for dismissal of a Chapter 13 debtor’s case because bankruptcy courts routinely pre-petition bad faith conduct as one such cause.
It follows that a Chapter 7 debtor, who has been determined to have acted in bad faith, maybe deemed ineligible to convert to Chapter 13.
In addition, Section 105(a) of the court which provides that a bankruptcy court may take any action necessary or appropriate to prevent an abusive process authorizes the court to deny a motion to convert to Chapter 13, when due to the debtor’s bad faith conduct, the Chapter 13 case is destined for immediate dismissal or re-conversion to Chapter 7.
Justice Alito has filed a dissenting opinion in which the Chief Justice, Justice Scalia and Justice Thomas have joined.
