September 13, 2019

Converting a Chapter 13 to a Chapter 7 Absent the Debtor's Consent: Marrama, Law v. Siegel and 1307

Traditionally, a chapter 13 debtor had an absolute right of dismissal of a chapter 13 case.  When the Supreme Court issued its Marrama decision in 2007, that all changed.  In Marrama, the Supreme Court ruled that an inherent good faith requirement exists for all bankruptcy filings despite lack of a statutory basis.  While Marrama was decided in a slightly difference context, the Marrama ruling created a body of law at the bankruptcy court and appellate level that prohibited a chapter 13’s dismissal upon a debtor’s request if lack of good faith was shown.  A showing of lack of good faith would result in the chapter 13 being converted to a chapter 7, even against the debtor’s will and consent.  This radically changed how debtors and creditors treated a chapter 13 filing which had traditionally be subject to unilateral dismissal for any reason.  Then the Supreme Court in 2014 issued its ruling in Law v. Siegel, which receded from its Marrama holding.  How it receded and impacted this body of law has been the subject of further dispute and analysis.  Bankruptcy court had to once again consider the issue of the “absolute” right of a chapter 13 debtor’s right to dismissal, now in light to two related Supreme Court holdings.  This panel addresses the current state of law, as well as practical considerations for navigating this area.  This program is relevant to anyone with a creditor practice, a business practice, or a consumer debtor practice.