ELECTRONIC CITATION: 2004 FED App. 0007P (6th Cir.)
File Name: 04b0007p.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: JOHN FRANKLIN COPPER, )
)
Debtor. )
_____________________________________ )
)
ATHENA CHEN COPPER and the )
ESTATE OF SUMIKO YAMAOKA, )
)
Plaintiffs-Appellees, )
)
v. ) No. 04-8002
)
JOHN FRANKLIN COPPER, )
)
Defendant-Appellant. )
_____________________________________ )
Appeal from the United States Bankruptcy Court
for the Western District of Tennessee, Western Division, at Memphis.
Bankruptcy Case No. 02-23450-L, Adv. Case No. 02-0610.
Argued: August 4, 2004
Decided and Filed: September 24, 2004
Before: AUG, GREGG, and HOWARD, Bankruptcy Appellate Panel Judges.
__________________
COUNSEL
ARGUED: Ted I. Jones, VAUGHN, HALL, JONES & VanDEVEER, Memphis, Tennessee,
for Appellant. R. H. Chockley, Memphis, Tennessee, for Appellee. ON BRIEF: Ted I.
Jones, VAUGHN, HALL, JONES & VanDEVEER, Memphis, Tennessee, for Appellant.
Mimi Phillips, Memphis, Tennessee, for Appellee.
____________________
OPINION
____________________
J. VINCENT AUG, JR., Chief Bankruptcy Appellate Panel Judge. The Debtor, John
Franklin Copper, appeals the bankruptcy court’s denial of his motion to convert his chapter
7 case to one under chapter 13.
I. ISSUE ON APPEAL
Whether the plain language of 11 U.S.C. § 706(a) provides a debtor with a one-time
absolute right to convert a case filed under chapter 7 of the Bankruptcy Code to one under
chapter 13.
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this
appeal. The United States District Court for the Western District of Tennessee has
authorized appeals to the BAP. A "final order" of a bankruptcy court may be appealed by
right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the
litigation on the merits and leaves nothing for the court to do but execute the judgment."
Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989)
(citations omitted).
“[O]rders denying a debtor’s request to convert from Chapter 7 to Chapter 13
pursuant to § 706(a) are final orders.” Cabral v. Shamban (In re Cabral), 285 B.R. 563,
571 (B.A.P. 1st Cir. 2002); see also Miller v. U.S. Trustee (In re Miller), 303 B.R. 471, 472
(B.A.P. 10th Cir. 2003) (order denying debtor’s motion to convert from chapter 7 to chapter
13 is final, appealable order); see generally Kuntz v. Shambam (In re Kuntz), 233 B.R. 580,
580-81 (B.A.P. 1st Cir. 1999).
Questions of law are reviewed de novo. Corzin v. Fordu (In re Fordu), 201 F.3d
693, 696 n.1 (6th Cir. 1999). Under a “de novo” standard of review, the reviewing court de-
cides an issue independently of, and without deference to, the trial court’s determination.
Razavi v. Commissioner, 74 F.3d 125, 127 (6th Cir.1996). “Whether a bankruptcy court
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properly denied a debtor’s request for conversion is a question of law requiring de novo
review on appeal.” In re Kuntz, 233 B.R. at 581 (citing Martin v. Martin (In re Martin), 880
F.2d 857, 858 (5th Cir. 1989)); In re Miller, 303 B.R. at 473.
The bankruptcy court’s factual findings are reviewed for clear error. Fed. R. Bankr.
P. 8013 & 7052; Fed. R. Civ. P. 52(a). “A finding of fact is clearly erroneous ‘when
although there is evidence to support it, the reviewing court, on the entire evidence, is left
with the definite and firm conviction that a mistake has been committed.’” United States
v. Mathews (In re Mathews), 209 B.R. 218, 219 (B.A.P. 6th Cir. 1997) (quoting Anderson
v. City of Bessemer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985)). A determina-
tion that a debtor has or has not acted in good faith constitutes a finding of fact reviewed
under the “clearly erroneous” standard. Alt v. United States (In re Alt), 305 F.3d 413, 419
(6th Cir. 2002); Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123, 1127 (6th Cir. 1990).
III. FACTS
The bankruptcy court’s Memorandum Order entered November 3, 2003, denied the
Debtor’s motion to convert his chapter 7 case to one under chapter 13. The order also
concluded that the Debtor is not entitled to a discharge pursuant to 11 U.S.C.
§ 727(a)(4)(A). The Debtor’s appeal states, however, that the sole issue presented on this
appeal is whether or not the bankruptcy court erred in failing to allow the Debtor to convert
his case to one under chapter 13 pursuant to § 706(a) of the Bankruptcy Code. Therefore,
we need not consider whether the bankruptcy court properly determined that the Debtor
is not entitled to a discharge.
In making its decision to deny the Debtor’s discharge, the bankruptcy court made
a detailed review and analysis of the Debtor’s pre- and post-petition conduct. The court
relied on those same findings in making its determination that the Debtor’s request to
convert should be denied because it was not made in good faith.
Over the past nine years, the Debtor has taken evasive action to avoid paying his
ex-wife, Athena Chen Copper, amounts she was awarded under the parties’ divorce
decree. The bankruptcy court’s Memorandum Order outlines this history in detail.
Borrowing substantially from the Memorandum Order, the facts of this case are as follows:
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The Debtor is a Stanley J. Buckman Distinguished Professor of International Studies
at Rhodes College in Memphis, Tennessee, a post he has held since 1984. He is a world-
renowned expert on China and Taiwan, has authored some 25 books on Asian affairs, and
travels to Taipei frequently as the guest of various educational and governmental agencies.
The Debtor’s income from Rhodes College for 2003 was $89,000. In addition, the Debtor
received income from various activities such as teaching, lecturing and writing.
The Debtor and Ms. Copper were married in 1967 and divorced on October 15,
1993. In the divorce proceeding, Ms. Copper was awarded $2,000 per month in alimony
in futuro and interests in several annuity contracts. In addition, the Debtor was ordered to
pay Ms. Copper’s parents the sum of $70,657.60, representing sums found to be taken
from Ms. Copper’s parents, and interest accrued on those amounts.
In February 1997, Ms. Copper learned that the Debtor had converted the value of
some of the annuity contracts awarded to her, some $152,211.65, to his own use. The
Debtor was found to be in civil contempt of court and ordered to return the misappropriated
funds plus attorney fees to Ms. Copper. The Debtor’s efforts to prevent Ms. Copper from
collecting the amounts due to her include the following:
In January 1997, Ms. Copper had a garnishment issued directed to Rhodes College
seeking to collect the amounts owed to her from the Debtor’s salary. The Debtor
responded by filing a Motion to Set Installment Payments on Garnishment. The motion
was granted, but the Debtor never made any installment payments.
On July 1, 1997, the Debtor filed a chapter 7 petition, which was dismissed on
July 23, 1997, upon the Debtor’s failure to timely complete the filing of documents.
On August 12, 1997, the Debtor filed his second chapter 7 petition. That petition
was dismissed on September 29, 1998, when the bankruptcy court refused to exercise
jurisdiction over the case pursuant to 11 U.S.C. § 305(a)(1), upon a finding that the case
was “in essence, a two-party dispute.”
On July 12, 2000, the Debtor filed his third bankruptcy petition. During the twenty-
two months between the dismissal of the second petition and the filing of the third petition,
the Debtor did not make any payments to Ms. Copper. During that same time period, Ms.
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Copper again sought payment through garnishment proceedings, the Debtor again
responded with a motion to set installment payments, and as noted again filed a petition
for chapter 7 relief. That petition was dismissed on August 25, 2000, when the Debtor
failed to appear for the meeting of creditors.
Ms. Copper again attempted to dispose of the state court motion to set installment
payments. However, on December 6, 2000, before the state court motion could be heard,
the Debtor filed his fourth bankruptcy petition under chapter 7. That case was also
dismissed on February 15, 2001, when the Debtor again failed to attend the meeting of
creditors.
After dismissal of the fourth bankruptcy petition, Ms. Copper was finally successful
in getting a hearing on the Debtor’s state court motion to set installment payments. The
motion was denied and the garnishment reinstated on September 28, 2001. The Debtor
responded by filing a fifth petition under chapter 7 on November 8, 2001. That case was
dismissed on January 8, 2002, when the Debtor failed to file required documents to
complete the filing.
On January 17, 2002, Ms. Copper had the garnishment reissued and, on
February 25, 2002, the Debtor filed the instant chapter 7 case, his sixth bankruptcy petition.
Ms. Copper filed the adversary action in this case asserting that the debts owed to her are
nondischargeable pursuant to 11 U.S.C. § 523(a)(5), (6) and/or (15) and that the Debtor’s
discharge should be denied pursuant to § 727(a)(4)(A). After the adversary case had been
pending for fourteen months, on the Friday before that trial was to start on the following
Monday, the Debtor filed his motion to convert his case to one under chapter 13.
The bankruptcy court held its ruling on the motion to convert until the conclusion of
the submission of evidence on the dischargeability issues.
In the Memorandum Order the bankruptcy court states that “[i]n the course of trial,
the Court discovered a number of serious false statements in the schedules and statement
of financial affairs filed by the Debtor in this case.” Copper v. Copper (In re Copper), Ch.
7 Case No. 02-23450-L, Adv. No. 02-0610, slip op. at 5 (Bankr. W.D. Tenn. Oct. 31, 2003).
The next four pages of the bankruptcy court’s Memorandum Order highlight the false
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statements and inconsistencies made by the Debtor in this case both in his schedules and
during his trial testimony.1 Even though the Debtor gave several explanations for the
multitude of false statements and inconsistencies, the bankruptcy court determined that
none of the explanations was credible. The bankruptcy court stated:
The Court found the Debtor to be a very difficult
witness. He refused, for example, to acknowledge the
authenticity of his signature on his bankruptcy petition or on a
Consent Order entered in the state court dealing with the
payment of [two creditors], claiming that the signatures could
have been stamped. He claimed that he does not know what
Chapter 7 is, even though he has filed five Chapter 7 petitions.
At times, the Debtor seemed to be calculating the likelihood
that his statements could be verified. At other times he
seemed to be inventing excuses and explanations on the spot.
The Debtor seemed to have virtually no appreciation or respect
for the gravity of the proceedings initiated by him in the
Bankruptcy Court. Given the very high level of the Debtor’s
education and stature within the educational and international
communities, the Court found the Debtor’s cavalier attitude
and lack of candor to be surprising and offensive.
Id. at 10. Apparently, the Debtor’s bad conduct also had as negative an impact on the
divorce proceedings as it has had on the proceedings in the bankruptcy court. During the
two-week trial involving the divorce, the trial judge made the following observations:
Extensive proof was taken over a two week trial, most of which
had to do with the property owned by the parties and the
1
Some of the Debtor’s false statements include failing to schedule substantial
assets, failing to disclose his full income and scheduling debts he did not owe. For
example, according to the bankruptcy court’s calculations, the Debtor was awarded
property (both real and personal) valued at more than $290,000 under the Final Decree.
By contrast, the schedules filed by the Debtor in the present case represent that the Debtor
has total assets of only $3,330.00. As noted by the bankruptcy court, the Debtor had been
continuously employed as a professor at Rhodes College during the nine years between
the Final Decree and the filing of the present case. The Debtor’s schedules also list
liabilities of $234,417.01. Of that amount, $200,000.00 appears to represent amounts
owed to the Appellee. At trial, the Debtor admitted that two other debts listed, in respective
amounts of $8,700.00 and $15,000.00, were no longer owed. The Debtor’s schedules also
state that he is divorced, when in fact he remarried in 1995. The schedules include
liabilities owed by his current spouse, but disclose neither her assets nor her $40,000.00
annual income.
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extent to which the defendant [the Debtor] had infringed upon
the marital property by secreting accounts in banks and other
places and not disclosing the amount of marital assets to the
plaintiff. The testimony offered by the defendant was riddled
by inconsistencies to the extent that the Court is unable to
believe any of the testimony offered by the defendant in his
own behalf.
Id. at 3 (quoting Memorandum Opinion of the trial judge in the divorce proceedings
between Debtor and Ms. Copper).
The Panel also notes that at oral argument, the Debtor’s counsel advised the Panel
that his client was the most sanctioned debtor in the district and that counsel himself is
probably the most sanctioned attorney in the district. Counsel did not attempt to persuade
the Panel that any sanctions received by either himself or his client were unjustified but
presented the statement as if it were a badge of honor. Counsel further conceded that
during the Debtor’s testimony given at the trial of this matter his client was “swimming
around the truth.” Then, as if to clarify, counsel advised this Panel that his client had in fact
told some “egregious lies” during the trial of the adversary proceeding. Counsel’s
admissions leave this Panel wondering whether the Debtor was even swimming in the
same pool as the truth. Obviously, the bankruptcy court’s findings regarding the Debtor’s
complete lack of credibility are well founded.
In making the decision to deny the Debtor’s motion to convert, the bankruptcy court
stated:
The motion was filed the Friday before trial commenced on
Monday, some seventeen months after the filing of the Chapter
7 petition. The Court does not believe that the Debtor has had
a sudden change of heart and now wants to repay [Ms.]
Copper. To the contrary, his testimony at trial indicates that he
never intends to repay her unless forced to do so. The Court
believes that the Debtor and his counsel wanted to avoid the
determination of the dischargeability of these debts and the
entitlement of the Debtor to a discharge. The Debtor may also
have hoped to obtain a discharge of his obligations by paying
less than the full amount owed. The Debtor will not be
permitted to manipulate the Bankruptcy Code in this manner.
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Id. at 15. The bankruptcy court then went on to in essence find that it would be futile to
convert the Debtor’s case to one under chapter 13 because a chapter 13 plan must be
proposed in good faith and the Debtor was not capable of making such a proposal:
The pattern of abuse exhibited by the Debtor over the past
nine years leaves little room for doubt that the Debtor’s
proposal was not made in good faith. . . . Further, the Court
has little confidence that any schedules the Debtor would file
in connection with a converted case could be relied upon to
determine whether the Debtor’s plan meets the best interests
of creditors’ test or whether the Debtor has proposed to devote
all of his disposable income to his repayment plan. . . . [A]
Chapter 13 plan for this Debtor would be little different than the
installment payment plans he has sought and obtained in
another court but failed to honor.
Id. at 15-16. Based on these findings, the bankruptcy court denied the Debtor’s motion to
convert and the Debtor filed his appeal.
Stated as succinctly as possible, the Debtor’s argument in this case is that no matter
how reprehensible or abhorrent his actions have been, he still has an absolute, one-time
right to convert his chapter 7 case to a chapter 13 case. We do not agree.
IV. DISCUSSION
The Bankruptcy Code provides:
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. Any waiver of the right to convert a case
under this subsection is unenforceable.
11 U.S.C. § 706(a).
Federal Rule of Bankruptcy Procedure 1017(f)(2) provides that “[c]onversion . . .
under §[] 706(a), . . . shall be on motion filed and served as required by Rule 9013.”
Bankruptcy Rules 2002 and 9013 provide that conversion from chapter 7 to chapter 13
must be made by a motion and that parties are entitled to 20 days’ notice of the motion.
Fed. R. Bankr. P. 2002(a)(4) and 9013.
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There are two lines of cases interpreting § 706(a). One line does in fact hold that
the debtor has an absolute right to convert from a chapter 7 to a chapter 13 providing that
(i) the case has not already been converted from a chapter 11, 12 or 13 and (ii) the debtor
meets the financial eligibility requirements of § 109(e) to be a chapter 13 debtor. These
cases find that the bankruptcy court does not have the power to deny conversion.
Pequeno v. Schmidt, 307 B.R. 568 (S.D. Tex. 2004) (providing detailed outline of cases
on both sides of the issue). The Bankruptcy Appellate Panel for the Tenth Circuit has
noted:
The stated policy behind § 706(a) is to provide the debtor with
“the one-time absolute right of conversion . . . [in order to give]
the debtor . . . the opportunity to repay his debts. . . .” S. Rep.
No. 95-989, at 94 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,
5880. Pursuant to the plain language of § 706, a debtor may
convert at any time if the following two elements are met: (1)
the debtor has not previously converted his case; and (2) the
debtor meets the eligibility requirements of the chapter to
which the debtor wishes to convert.
Miller v. U.S. Trustee (In re Miller), 303 B.R. 471, 473 (B.A.P. 10th Cir. 2003) (alteration
in original); see also Martin v. Martin (In re Martin), 880 F.2d 857, 858 (5th Cir. 1989) (right
to convert is absolute);2 see also In re Gibbons, 280 B.R. 833 (Bankr. N.D. Ohio 2002)
(same). The Debtor before this Panel has not previously converted his case and the
2
Interestingly, the Fifth Circuit case of In re Martin has been cited by both sides of
the argument, probably because of the following language:
[T]he cases also support our conclusion that a debtor’s
right to convert under section 706(a) is, as indicated by the
statute and its legislative history, an absolute one. The courts
refuse to interfere with the right in the absence of extreme
circumstances. Because Martin does not allege facts which if
true would provide an adequate ground to deny the debtor’s
motion to convert, we agree with the district court’s conclusion
that the bankruptcy court erred in denying the conversion.
In re Martin, 880 F.2d at 859 (emphasis added). Arguably, the above emphasized
language leaves open the question of whether the Fifth Circuit would find the right to
convert is absolute or is subject to the limited exception that it takes extreme
circumstances for the right to be denied.
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Appellees do not dispute that the Debtor meets the income and expense limitations of
§ 109(e). However, the bankruptcy court determined that the Debtor was not entitled to
convert his case due to his bad faith.
In re Miller finds that the debtor there had an absolute right to convert even though
there was substantial evidence of abuse of the system. The panel’s resolution in In re
Miller indicated that the best place to deal with abuse of process caused by the conversion
was during the confirmation phase of the debtor’s plan. Id. at 475 (citing Mason v. Young
(In re Young), 237 F.3d 1168 (10th Cir. 2001). This line of cases also finds that the
converted case can be reconverted on the basis of the debtor’s bad faith.
While one might consider it frivolous to convert only to recon-
vert, such a procedure allows one to comply with both the
Congressional mandate of Section 706(a) and the duty to
protect the bankruptcy process from abuse.
Pequeno, 307 B.R. at 580.
The other–and in our opinion, more reasoned–line of cases, holds that the right to
convert is not absolute and that in extreme circumstances conversion can be denied.
“[T]he trend in other jurisdictions, if indeed one is discernable, is to judicially recognize an
exception to the right to convert in situations of bad faith.” Id. at 578. See Kuntz v.
Shambam (In re Kuntz), 233 B.R. 580, 585 (B.A.P. 1st Cir. 1999) (debtor’s one-time right
to conversion may be denied in “extreme circumstances” constituting bad faith); Martin v.
Cox, 213 B.R. 571, 572-73 (E.D. Ark. 1996) (conversion denied due to falsification of
documents, failure to disclose assets and other information, false representations in
another court, and other misconduct); In re Wampler, 302 B.R. 601, 605-06 (Bankr. S.D.
Ind. 2003) (conversion denied due to factors including timing of motion, motive for motion,
debtor not being forthcoming with court and creditors, and lack of need for chapter 13); In
re Oblinger, 288 B.R. 781, 785 (Bankr. N.D. Ohio 2003) (court “tends to agree with those
cases holding that conversion might . . . be denied under ‘extreme circumstances,’ such
as a debtor’s abuse of process,” but finding that such circumstances did not exist in that
case); In re Johnson, 262 B.R. 75 (Bankr. E.D. Ark. 2001) (acknowledging opposing
precedent but finding that more persuasive view is that conversion from chapter 7 to
chapter 13 can be denied in extreme circumstance for lack of good faith as an abuse of
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process); In re Lesniak, 208 B.R. 902, 906-07 (Bankr. N.D. Ill. 1997) (conversion denied
because schedules were “fraught with discrepancies” and because of lack of motivation
to pay debts); In re Thornton, 203 B.R. 648, 652-53 (Bankr. S.D. Ohio 1996) (conversion
denied due to omissions of assets, false testimony, and prepetition conduct); see also
Finney v. Smith (In re Finney), 992 F.2d 43, 45 (4th Cir. 1993) (debtor’s fraud and filing of
motion to convert only after discharge was denied justified immediate reconversion to
chapter 7); In re Eugene Alexander, Inc., 191 B.R. 920, 923-24 (Bankr. M.D. Fla. 1994)
(finding that chapter 7 debtor has right to convert to chapter 11 but conversion should not
be permitted if “cause” exists to convert case back to chapter 7 or to dismiss. “To permit
conversion to Chapter 11 in those circumstances would be futile and a wasted act.”).
While the United States Court of Appeals for the Sixth Circuit has not directly
addressed this issue, the denial of a motion to convert for bad faith is consistent with Sixth
Circuit precedent. For example, the Sixth Circuit has held that a bankruptcy court may
dismiss a chapter 13 petition that was not filed in good faith. Alt v. United States (In re Alt),
305 F.3d 413, 418-19 (6th Cir. 2002). “If a chapter 13 petition may be dismissed for lack
of good faith, it is logical to conclude that conversion from chapter 7 to chapter 13 may also
be denied in the absence of good faith.” In re Brown, 293 B.R. 865, 870 (Bankr. W.D.
Mich. 2003) (after discussing Alt). Accordingly, this Panel agrees with the court in Brown
and holds that “[i]f, upon its review of the facts, the bankruptcy court finds that the debtor’s
request for conversion was made in bad faith or represents an attempt to abuse the bank-
ruptcy process, the court may deny the requested conversion.” Id.
The Sixth Circuit has adopted a “totality of the circumstances” analysis in evaluating
whether a debtor should be permitted to commence a chapter 13 case, Alt, 305 F.3d at
419 (quoting Society Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588, 591 (6th Cir.
1992)), and the same analysis should apply in evaluating whether a debtor should be
permitted to convert a case to chapter 13, Thornton, 203 B.R. at 652. The Sixth Circuit in
Alt listed some of the factors that a bankruptcy court might find appropriate to be con-
sidered under the facts of a particular case, and stated: “We have also emphasized that
good faith is a fact-specific and flexible determination.” Alt, 305 F.3d at 419 (citing Metro
Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030, 1032-33
(6th Cir.1988)).
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The bankruptcy court in the appeal before this Panel found that the motion to
convert was motivated solely by a desire to avoid a determination that the Debtor was not
entitled to a discharge (or that his obligations to Ms. Copper are nondischargeable) and not
by a desire to repay his creditors, and that the motion thus represented an improper
attempt to “manipulate the Bankruptcy Code.” In re Copper, Ch. 7 Case No. 02-23450-L,
Adv. No. 02-0610, slip op. at 15. The court also relied on the “pattern of abuse exhibited
by the Debtor over the past nine years,” the belief that “the Debtor has always had the
ability to repay the obligations owed to [Ms.] Copper,” and misrepresentations in the
Debtor’s schedules. Id. at 15-16. These findings are clearly supported by the evidence.
Indeed, at argument counsel for the Debtor all but admitted a lack of good faith, relying
solely on his legal position that good faith is irrelevant under § 706(a) of the Code.
Accordingly, those findings were not clearly erroneous and support the bankruptcy court’s
conclusions that the Debtor’s actions constitute bad faith and abuse of process such as will
justify the denial of a motion to convert under § 706(a).
In deciding that this second line of cases is the one that is the more well-reasoned
and the one that this Panel will follow, it is not enough that we determine that our ruling is
the best one to prevent abuse of the bankruptcy system. We must also consider the
Debtor’s argument that the plain language of § 706(a) does not permit us to adopt this
position but provides the Debtor with a one-time absolute right to convert. See Norwest
Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S. Ct. 963, 969 (1988) (bankruptcy
courts cannot use their equitable powers to override the plain language of a provision of
the Bankruptcy Code). We do not agree that the language of § 706(a) has such an effect.
As one bankruptcy court has noted, neither the language of the statute itself nor the
legislative history gives a debtor the absolute right to convert. See In re Starkey, 179 B.R.
687, 691-92 (Bankr. N.D. Okla. 1995). We agree with the cases finding that the phrase in
§ 706(a) providing that the debtor may convert “at any time” refers to a time frame. The
phrase does not mean “regardless of circumstances.” Id. at 692; In re Oblinger, 288 B.R.
at 785 (by use of the phrase “at any time,” Congress disavowed a time component in
determining a motion to convert from chapter 7 to chapter 13).
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Further, the language protecting the debtor from any waiver of the right to convert
“is meant to prevent frustration of the Bankruptcy Code by standard provisions in contracts
of adhesion . . . . This sentence does not apply to any impairment of the right to convert
for reasons of the debtor’s own misconduct or comparable circumstances, more in the
nature of estoppel than waiver.” In re Starkey, 179 B.R. at 692
Finally, it is also relevant that § 706(a) uses the word “may” meaning “might” or
“used to express possibility” or “used to express opportunity or permission.” Random
House Unabridged Dictionary 1189 (2d ed. 1993). If Congress had intended to leave the
bankruptcy courts with absolutely no discretion in the matter, it would have used the more
mandatory phrase of “shall be able to convert.” See 11 U.S.C. § 1307(b) (“On request of
the debtor at any time . . . the court shall dismiss a case under this chapter.”); In re Ponzini,
277 B.R. 399, 404 (Bankr. E.D. Ark. 2002); In re Marcakis, 254 B.R. 77, 81-82 (Bankr.
E.D.N.Y. 2000); In re Hauswirth, 242 B.R. 95, 96 n.2 (Bankr. N.D. Ga. 1999).
Therefore, we find that the plain language of § 706(a) does not grant an absolute
right to convert.
The language that specifically refers to debtors having a one-time absolute right to
convert appears only in the legislative history. In re Miller, 303 B.R. at 475 (citing cases).
Courts relying on the legislative history, however, must read and interpret the history as a
whole. That language states:
Subsection (A) of this section gives the debtor the one-time
absolute right of conversion of a liquidation case to a reorgani-
zation or individual repayment case. If the case has already
once been converted from chapter 11 or 13 to chapter 7, then
the debtor does not have that right. The policy of the provision
is that the debtor should always be given the opportunity to
repay his debts, and a waiver of the right to convert a case is
unenforceable.
S. Rep. No. 95-989, at 94 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5880 (emphasis
added). Thus, the legislative history suggests a one-time absolute right to convert but that
phrase cannot be implemented without also looking at the policy, stated in that same
legislative history, behind permitting the debtor an absolute right to convert. That is that
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“the debtor should always be given the opportunity to repay his debts.” The bankruptcy
court here found that the Debtor never intends to pay his debt to Ms. Copper and that he
is abusing the bankruptcy system to thwart all of her efforts to attempt to collect the debt.
As evidence of this, the bankruptcy court points out that the Debtor has been given the
opportunity in the past to make payments under installment plans and utterly failed to
comply with those plans. Permitting the Debtor in this case to convert to a chapter 13 turns
on its head the policy reason for providing a debtor with such a right. “The rationale for
readily granting conversion under § 706 is to encourage debtors to repay their debts;
however, Congress did not intend to allow or condone abuse of the bankruptcy process.”
In re McNallen, 197 B.R. 215, 219 (Bankr. E.D. Va. 1995) (citing In re Starkey, 179 B.R.
at 694 (“This Court will grant conversion under § 706 readily–but not so readily as to allow
and condone abuse.”)). Neither will this Panel permit such abuses of the bankruptcy
system as those attempted by this Debtor.
V. CONCLUSION
The decision of the bankruptcy court is AFFIRMED.
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