United States Court of Appeals
For the First Circuit
No. 04-9009
IN RE ROBERT LOUIS MARRAMA,
Debtor
ROBERT LOUIS MARRAMA,
Appellant,
v.
CITIZENS BANK OF MASSACHUSETTS AND
MARK G. DEGIACOMO, CHAPTER 7 TRUSTEE,
Appellees.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Howard, Circuit Judge,
Cyr and Stahl, Senior Circuit Judges.
David G. Baker for appellant.
Mark G. DeGiamomo, with whom Olga L. Bogdanov and Murtha
Cullina LLP were on brief for appellee Mark G. DeGiacomo.
Jack J. Mikels, Michael A. Wirtz, Janell E. DeGennaro, and
Jack Mikels & Associates on brief for appellee Citizens Bank of
Massachusetts.
Lynn F. Riley, with whom Gary Klein, Roddy, Klein & Ryan, and
John Rao, National Consumer Law Center, were on brief for Amicus
Curiae, National Association of Consumer Bankruptcy Attorneys.
October 31, 2005
CYR, Senior Circuit Judge. Robert Louis Marrama appeals
from the bankruptcy court order which rejected his petition to
convert these proceedings from chapter 7 to chapter 13, based on
its determination that Marrama had attempted to conceal assets from
creditors. We affirm.
I
BACKGROUND
In August 2002, Marrama transferred residential real
estate in York, Maine, having an unencumbered value of $85,000, to
a revocable spendthrift trust, for no consideration, and designated
himself sole beneficiary and his girlfriend sole trustee.
Marrama's acknowledged intent was to protect the property from the
claims of creditors. Seven months later, he submitted a voluntary
chapter 7 petition, together with a statement of financial affairs
wherein he (i) disclosed that he was the Trust’s beneficiary, (ii)
listed the value of its res as zero, (iii) denied making any
property transfers within one year preceding the filing of the
chapter 7 petition, and (iv) asserted that the IRS owed him no tax
refunds.1 Whereas, Marrama was due a tax refund exceeding $11,000.
1
Moreover, in accompanying financial statements, Marrama
claimed a homestead exemption in his Gloucester, Massachusetts
residence. In affirming the bankruptcy court finding that Marrama
had acted in bad faith, the Bankruptcy Appellate Panel (“BAP”)
noted that the homestead exemption appeared invalid on its face,
since Marrama simultaneously claimed to be residing in Maine and to
have received rental income from the Massachusetts property since
May 2003, thus contradicting his assertion that it was a
“residence” eligible for exemption. In the interim, however, the
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In June 2003, the chapter 7 trustee questioned Marrama
regarding these apparent discrepancies. Rather than responding,
Marrama filed notice in the bankruptcy court, pursuant to
Bankruptcy Code § 706(a), seeking to convert the chapter 7 case to
a chapter 13 debt-restructuring proceeding, based upon his
contention that, more recently, he had acquired additional rental
income and gainful employment. The chapter 7 trustee opposed the
conversion on the ground that Marrama intentionally failed to
disclose in his schedules the preferential transfer of the Maine
property into the trust some seven months prior to his chapter 7
petition, as well as his anticipated federal tax refund. The
debtor contended that these misstatements and omissions were
inadvertent.
Following a non-evidentiary hearing, the bankruptcy court
refused to permit the conversion to chapter 13, on the ground that
the deceptive statement of financial affairs demonstrated Marrama's
“bad faith.” Marrama appealed to the BAP, which affirmed. In re
Marrama, 313 B.R. 525 (BAP 1st Cir. 2004).2 The present appeal
bankruptcy court has ruled that the Marrama homestead exemption
claim is valid, see In re Marrama, 307 B.R. 332, 338-39 (Bankr. D.
Mass. 2004), hence we do not rely on this evidence in determining
whether the bankruptcy court erred in finding bad faith.
2
Following the Marrama appeal, the Maine property was sold,
see In re Marrama, 316 B.R. 418, 421-22 (BAP 1st Cir. 2004)
(holding that Marrama’s power to revoke the trust became property
of the chapter 7 estate, exercisable by the chapter 7 trustee), and
Marrama was denied a chapter 7 discharge, Citizens Bank of Mass. v.
Marrama (In re Marrama), No. 03-11987, 2005 WL 1106919, at *5 (D.
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fails as well.
II
DISCUSSION
On an appeal from a BAP decision, we review de novo the
legal determinations of the bankruptcy court, and its findings of
fact for clear error. See Brandt v. Repco Printers &
Lithographics, Inc. (In re Healthco Int'l, Inc.), 132 F.3d 104,
107-08 (1st Cir. 1997).
A. Section 706(a) and “Bad Faith” Conversion
The initial issue on appeal is whether Bankruptcy Code §
706(a) confers any discretion upon the bankruptcy court to forfend
against “bad faith” conversions to chapter 13, or the debtor has an
“absolute” right to convert. Interpretation of subsection 706(a)
presents a pure issue of law, engendering de novo review. See HSBC
Bank USA v. Branch (In re Bank of New England Corp.), 364 F.3d 355,
361 (1st Cir.), cert. denied, 125 S. Ct. 318 (2004). Subsection
706(a) provides:
The debtor may convert a case under this
chapter [viz., chapter 7] 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) (emphasis added). Thus, section 706 imposes two
Mass. May 9, 2005) (finding that Marrama had “intent to defraud”
creditors, see Bankruptcy Code § 727(a)(2)).
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plainly expressed limitations upon a debtor’s right to convert:
the debtor (i) must not previously have converted the case; and
(ii) must meet the eligibility requirements for the chapter to
which he intends to convert, see 11 U.S.C. § 706(d). With respect
to a conversion to chapter 13, for example, the debtor must have a
regular income, unsecured debts less than $307,675, and secured
debts less than $922,975. See id. § 109(e).
As always, first we must inquire whether the plain
language of subsection 706(a) resolves the interpretive issue, and,
if so, its manifest meaning must control. See In re BankVest
Capital Corp., 360 F.3d 291, 297 (1st Cir.), cert. denied, 124 S.
Ct. 2874 (2004). At the outset it must be noted that subsection
706(a) is to be viewed in light of a fundamental canon of the
Bankruptcy Code: a bankruptcy court sitting in equity is duty bound
to take all reasonable steps to prevent a debtor from abusing or
manipulating the bankruptcy process to undermine the essential
purposes of the Bankruptcy Code, including the principle that all
the debtor’s assets are to be gathered and deployed in a bona fide
effort to satisfy valid claims. See United States v. Mourad, 289
F.3d 174, 178 (1st Cir. 2002) (noting that Bankruptcy Code § 105(a)
enables the bankruptcy court to “tak[e] any action or mak[e] any
determination necessary or appropriate to . . . prevent an abuse of
[the bankruptcy] process”). Whether or not the Bankruptcy Code §
105(a) anti-abuse provision alone would warrant the bankruptcy
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court’s decision to deny Marrama a subsection 706(a) conversion,
that provision indeed looms large in determining whether Congress
envisioned that subsection 706(a) be construed as withholding all
discretion where the bankruptcy court is confronted with a patently
abusive motion to convert:
Those who seek the shelter of the bankruptcy
code [must] not play fast and loose with their
assets or with the reality of their affairs.
The statutes are designed to insure that
complete, truthful, and reliable information
is put forward at the outset of the
proceedings, so that decisions can be made by
the parties in interest based on fact rather
than fiction. As we have stated, "[t]he
successful functioning of the bankruptcy act
hinges both upon the bankrupt's veracity and
his willingness to make a full disclosure."
Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir. 1987)
(citation omitted). Absent plain language to the contrary in
subsection 706(a), therefore, we would be loathe indeed to
disregard such an overarching legislative policy.
Turning to the particular language utilized in subsection
706(a), we can discern no evidence that the Congress intended to
override the presumptive power and responsibility of the bankruptcy
court to weed out abuses of the bankruptcy process at any stage in
the bankruptcy proceedings. Subsection 706(a) simply provides that
the debtor “may” convert. The word “may” has at least two
connotations. It can simply denote that a debtor has the option to
convert, or not convert. On the other hand, “may” often suggests
conditionality, signifying that the event or status described is in
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no sense to be considered a foregone conclusion. Thus, the phrase
“may convert” reasonably may suggest that the right to convert is
merely presumptive, and may be exercised only if the debtor meets
the preconditions for eligibility established in Bankruptcy Code §
109(e), or even then only in the absence of other exceptional
circumstances. See In re Finney, 992 F.2d 43, 45 (4th Cir. 1993)
(holding subsection 706(a) right not “absolute,” but subject to
bad-faith exception); Martin v. Martin (In re Martin), 880 F.2d
857, 859 (5th Cir. 1989); In re Kuntz, 233 B.R. 580, 585 (BAP 1st
Cir. 1999). In other words, the debtor “may” succeed in an
attempted conversion, but not necessarily in all conceivable
instances.
Although Congress’s mere use of the word “may” might not
be conclusive in itself as to the existence or scope of the
bankruptcy court’s discretionary authority to deny a conversion,
the statutory interpretation proffered by the trustee is bolstered
as well by a comparison between Bankruptcy Code § 706(a) and §
1307(b), for example, which provides that “[o]n request of the
debtor at any time, if the case has not been converted under
section 706, 1112, or 1208 of this title, the court shall dismiss
a case under this chapter.” (Emphasis added.) Subsection 1307(b)
demonstrates that Congress well understood how to draft statutory
language which left no (or at least considerably less) discretion
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in the bankruptcy court to deny a chapter 13 debtor’s request.2
The fact that subsection 706(a) contains no such imperative
language strongly suggests that it confers a more restricted right
upon the debtor, and that the bankruptcy court presumptively
retains its discretionary prerogative to deny conversion in some
circumstances. See Citizens Awareness Network, Inc. v. United
States, 391 F.3d 338, 346 (1st Cir. 2004) (“Congress's use of
differential language in various sections of the same statute is
presumed to be intentional and deserves interpretive weight.”).3
2
Our comparative analysis of subsections 706(a) and 1307(b)
should not be construed as endorsing any particular interpretation
of the latter section, such as one which would preclude the
bankruptcy court from exercising its discretion to refuse to
dismiss the chapter 13 case upon debtor's request. That issue is
not before us to decide. See, e.g., Sckolnick v. Harlow, 820 F.2d
13, 15 (1st Cir. 1987) ("[C]hapter 13 proceedings are wholly
voluntary, and are subject to dismissal at any time at the debtor's
request."). For present purposes, it suffices to note that the
phrase “shall dismiss” is unquestionably a comparatively stronger
imperative than “may convert.”
3
The trustee points as well to Federal Rule of Bankruptcy
Procedure 1017(f)(2), which requires that the debtor file a
“motion” to convert under subsection 706(a), and to Rule
2002(a)(4), which requires that written notice of a hearing on such
a motion be served 20 days prior to the hearing. The trustee
argues that the fact that the debtor must file a “motion,” rather
than a mere “notice,” suggests that the debtor’s right to convert
is conditional, not absolute. Ultimately, however, we find the
applicability of Rules 1017(f)(2) and 2002(a)(4) inconclusive.
Unquestionably, subsection 706(a) provides that the debtor’s right
to convert is at least conditioned upon some factual
determinations, including the absence of any prior conversions to
chapter 13, and the debtor's ability to meet the eligibility
requirements to file a chapter 13 petition in the first instance,
see 11 U.S.C. §§ 706(d); 109(e) (e.g., unsecured debts less than
$307,675). Since parties in interest might contest such factual
matters, at the very least the mere fact that the debtor must file
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Similarly, use of the phrase “at any time” in subsection
706(a) simply means that the debtor may seek to convert at any
time during the pendency of the bankruptcy case, or in other words,
that no artificial time constraints should impede an election to
convert. Obviously, however, the temporal permissiveness of the
phrase “at any time” hardly equates to the more broad
circumstantial permission which Congress could have conferred, for
example, by employing a phrase such as “regardless of the
circumstances.” See In re Copper, 314 B.R. 628, 636-37 (BAP 6th
Cir. 2004); In re Young, 269 B.R. 816, 822 (Bankr. W.D. Mo. 2001);
In re Starkey, 179 B.R. 687, 692 (Bankr. N.D. Okla. 1995).
Marrama points to the second sentence in subsection
706(a), which provides that “[a]ny waiver of the right to convert
a case under this subsection is unenforceable,” as evidence that
Congress intended that the debtor not be able to divest himself of
the right to convert, even where he allegedly abuses the bankruptcy
process. Once again, however, in context this sentence functions
strictly as a consumer protection provision against adhesion
contracts, whereby a debtor’s creditors might be precluded from
a “motion” under § 706(a) hardly demonstrates that Congress
necessarily envisioned that the bankruptcy court might also
condition conversion upon the debtor’s “good faith.” See In re
Croston, 313 B.R. 447, 452-53 (BAP 9th Cir. 2004). We would
observe, however, that invocation of Rules 1017(f)(2) and
2002(a)(4) is in no sense incompatible with an interpretation which
includes debtor “bad faith” among the conceivable contested matters
to be addressed at a hearing.
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attempting to prescribe a waiver of the debtor’s right to convert
to chapter 13 as a non-negotiable condition of its contractual
agreements. See In re Copper, 314 B.R. at 637; cf. Bankruptcy Code
§ 522(e) (referring to a similarly-worded exemption waiver, which
was made “unenforceable,” as one “executed in favor of a
creditor”). Subsection 706(a) contains no intimation that the
debtor should be accorded protection against his own willful
misconduct, such as an intentional abuse of the bankruptcy process.
See In re Starkey, 179 B.R. at 692 (noting that such debtor
misconduct is more akin to an “estoppel,” than a “waiver”).
In construing subsection 706(a), it is important to bear
in mind that the bankruptcy court has unquestioned authority to
dismiss a chapter 13 petition – as distinguished from converting
the case to chapter 13 – based upon a showing of “bad faith” on the
part of the debtor. See In re Cabral, 285 B.R. 563, 571-72 (BAP
1st Cir. 2002); see also In re Alt, 305 F.3d 413, 418-19 (6th Cir.
2002). We can discern neither a theoretical nor a practical reason
that Congress would have chosen to treat a first-time motion to
convert a chapter 7 case to chapter 13 under subsection 706(a)
differently from the filing of a chapter 13 petition in the first
instance.
The plain language of subsection 706(a) in no sense
undermines the presumptive authority of the bankruptcy court to
take reasonable steps to thwart debtor abuse of the bankruptcy
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process. However, even assuming arguendo that subsection 706(a)
were ambiguous, we would look to the statute’s “historical context,
its legislative history, and the underlying policies that animate
its provisions." In re Weinstein, 272 F.3d 39, 48 (1st Cir. 2001);
see In re LAN Tamers, Inc., 329 F.3d 204, 210 (1st Cir. 2003)
(noting that court may rely upon legislative history to corroborate
meaning derived from plain statutory language).
The present controversy over the meaning of subsection
706(a) is traceable not to the plain language of subsection 706(a),
but largely to its legislative history, which describes the
debtor’s right to conversion as “absolute,” or as a “matter of
right”:
Subsection (a) of this section gives the
debtor the one-time absolute right of
conversion of a liquidation case to a
reorganization or individual repayment plan
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 provisions is that the debtor
should always be given the opportunity to
repay his debts.
H.R. Rep. No. 95-595, at 380 (1977); S. Rep. No. 95-989, at 94
(1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5880.
The term “absolute” is problematic, if taken out of
context, in that it implies that the debtor’s conversion right is
unconditional. We are not at liberty to take the term so
literally, however, since subsections 706(a) and 109(e) make clear
that numerous conditions exist which might defeat the debtor’s
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motion to convert. See 9 Lawrence W. King, Collier on Bankruptcy
¶ 1017.05[1], at 1017-9 to 1017-10 (1998) (“Section 706(a) permits
the debtor, as a matter of right, to convert a liquidation case to
a case under chapter 11, 12, or 13 if the case has not previously
been converted from one of those chapters to chapter 7.”) (emphasis
added). Therefore, in context the term “absolute” likely
constitutes a recognition either that the debtor may convert once
as a matter of right, but may not engage in successive conversions,
or that the debtor’s right to conversion cannot be waived by
contract.
It is the pronounced policy of subsection 706(a) “that
the debtor should always be given the opportunity to repay his
debts,” H.R. Rep. No. 95-595, at 380, thus should be given one
chance to effectuate a viable chapter 13 plan. It is plainly
implicit in this legislative observation, however, that such an
opportunity is to be accorded only to honest debtors. See In re
Spencer, 137 B.R. 506, 512 (Bankr. N.D. Okla. 1992) (“Where
conversion to [chapter] 13 amounts to an attempt to escape debts
rather than to repay them, the reason for the rule ceases – and
there the rule ceases also.”); see also In re Marcakis, 254 B.R.
77, 81 (Bankr. E.D.N.Y. 2000). Nothing in the legislative history
remotely negates nor undermines the overarching principle that the
bankruptcy courts are duty bound to take all reasonable steps to
preclude debtors from abusing or manipulating the bankruptcy
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process in order to undermine the essential purposes of the
Bankruptcy Code.
Marrama advances two additional policy-related arguments.
First, he notes the supposed irony that the bankruptcy reform
legislation recently enacted by Congress aims to encourage more
debtors to file chapter 13 petitions and thus undertake voluntary
repayment of their debts, whereas the bankruptcy court here
prematurely short-circuited his nascent attempt to do so. See
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. 109-8, § 215, 119 Stat. 23 (2005). This argument is
unpersuasive. The language of subsection 706(a) remains unchanged
under the new act, and Marrama has not suggested that there is any
other specific Bankruptcy Code amendment which would affect our
interpretation of subsection 706(a). Rather, the purport of the
bankruptcy reform legislation is to compel some debtors presently
eligible to file chapter 7 debt-liquidation cases to opt for the
less debtor-friendly, debt-restructuring chapter 13 regime, thus
making it impossible for those debtors to obtain an absolute
discharge of their debts. See In re Hill, 328 B.R. 490, 500
(Bankr. S.D. Tex. 2005) (discussing reform bill). A legislative
policy aimed at encouraging able debtors to undertake the voluntary
repayment of their lawful credit obligations plainly is not served
where the bankruptcy court has determined, as a threshold finding
of fact, that the debtor is utilizing his subsection 706(a)
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conversion rights to advance an ongoing scheme to retain his non-
exempt assets from bona fide creditors.
Finally, Marrama notes that the Code accords the
bankruptcy court discretion to reconvert a chapter 13 case to
chapter 7 at a subsequent stage in the proceedings where the debtor
has acted in “bad faith,” see In re Copper, 314 B.R. at 365, and
therefore that subsection 706(a) should not be construed as
authorizing a largely duplicative remedy. We disagree. First, it
would ill serve general policies aimed at promoting the efficient
administration of bankruptcy cases to insist that a bankruptcy
court – already confronted with clear evidence of a debtor’s bad
faith – must indulge in the technical formality of converting the
chapter 7 case to chapter 13, knowing full well that eventually the
case must be reconverted by reason of that same evidence of bad
faith. See Kowal v. Malkemus (In re Thompson), 965 F.2d 1136, 1145
(1st Cir. 1992) (noting “the important policy favoring efficient
bankruptcy administration”). Absent some plausible policy
justification for such pointless spinning of judicial wheels, we
cannot construe subsection 706(a) as requiring it.
Moreover, these two remedies are neither inherently nor
necessarily duplicative. Thus, for example, the bankruptcy court
could invoke its power to reconvert a case, even though the debtor
did not submit the subsection 706(a) conversion motion in bad
faith, but subsequent to the conversion the debtor engaged in bad-
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faith conduct which justified reconversion to chapter 7. Congress
may well have envisioned – altogether reasonably – that the
bankruptcy court could nip in the bud manipulative conduct on the
part of a “bad faith” debtor at the moment of conversion, pursuant
to subsection § 706(a), rather than only after the case has been
converted.
For all these reasons, we conclude that subsection 706(a)
permits the bankruptcy court to deny a chapter 13 debtor’s
subsection 706(a) motion to convert where the court determines that
the debtor engaged in bad faith conduct. We now turn to an
assessment of the determination of bad faith made by the bankruptcy
court.
B. The Finding of “Bad Faith”
Marrama maintains that the bankruptcy court erred in
finding that he acted in “bad faith” by attempting to conceal
assets from creditors by means of misrepresentations and material
omissions of fact in his chapter 7 schedules. Marrama contends
that (i) the schedules merely failed to disclose his recent
transfer of the Maine property into the trust, yet did not conceal
the existence of the property itself; (ii) the former omission was
merely the result of scrivener error, with no intent to conceal;
(iii) the statement, in Schedule B – that the res property had no
value – was not false, notwithstanding its stated market value of
$85,000, in that Marrama harbored a good-faith belief that the
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“spendthrift” nature of the trust prevented it from becoming
property of the chapter 7 estate in the first instance; and (iv)
the bankruptcy court determination is not supported by competent
evidence, since the court did not convene an evidentiary hearing.
As “good faith” is a fact-intensive determination to be
made on a case-by-case basis, we review the instant finding as to
“bad faith” for clear error only. See In re Sullivan, 326 B.R.
204, 212 (BAP 1st Cir. 2005). A finding of fact cannot constitute
clear error where competent record evidence supports it, nor is a
reversal in order unless the court is “left with the definite and
firm conviction that a mistake has been committed.” In re Hannigan,
409 F.3d 480, 482 (1st Cir. 2005) (citation omitted). In assessing
the totality of the circumstances, the bankruptcy court may
consider, inter alia, (i) the accuracy of the debtor’s financial
statements; (ii) any other attempts by the debtor to mislead the
bankruptcy court or manipulate the bankruptcy process; (iii) the
type of debt sought to be discharged; (iv) whether the debt is
dischargeable in chapter 7; and (v) the debtor's motivation in
seeking to convert to chapter 13. See Sullivan, 326 B.R. at 212.
As the bankruptcy court determination that Marrama
engaged in “bad faith” conduct is amply supported by the record,
there can have been no clear error. The bankruptcy court is
entitled to demand utmost good faith and honesty from debtors in
the preparation of their schedules and statements of affairs. See
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Hannigan, 409 F.3d at 483. “The successful functioning of the
bankruptcy [code] hinges both upon the bankrupt's veracity and his
willingness to make a full disclosure.” In re Tully, 818 F.2d at
110. Thus, concealment of assets is a long-recognized ground for
rejecting a motion to convert a case. See, e.g., In re Kuntz, 233
B.R. at 583 (collecting cases); In re Porter, 276 B.R. 32, 37-38
(Bankr. D. Mass. 2002) (denying debtor's motion to convert, due to
failure to disclose transfer of assets within one year of filing
bankruptcy petition).
The instant case comports in all material respects with
the classic profile of playing fast and loose with the bankruptcy
process. First, Marrama engaged in prepetition transfers of
valuable property with the acknowledged intention of insulating the
transfers from creditors, submitted a chapter 7 petition, then
omitted to mention these same assets and transfers in the
bankruptcy schedules, presumably in the expectation that the
chapter 7 trustee would not discover their concealment. As the
effort at camouflage failed, Marrama moved to convert the case to
chapter 13, predicated upon the uncorroborated assertion that he
was receiving regular income sufficient to entitle him to
protection under chapter 13. Conveniently, the instant conversion
(which Marrama characterizes as an “absolute” matter of right
impregnable to challenge either by the trustee or the bankruptcy
court) would divest the chapter 7 trustee of any authority to act
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in behalf of the estate to safeguard its assets. See Bankruptcy
Code § 348(e), 11 U.S.C. § 348(e). Thus, in the event the debtor
were to succeed in securing confirmation of a chapter 13 plan, he
could reacquire his interest in “property of the estate,” as well
as the concealed property.
Confronted with the profile presented by the instant
case, the bankruptcy court readily could conclude that the Marrama
disclosures demonstrated abundant indicia of intentional
concealment. Question 10 unambiguously required Marrama to “[l]ist
all other property, other than property transferred in the ordinary
course of business or financial affairs of the debtor, transferred
either absolutely or as security within one year immediately
preceding the commencement of this case.” Marrama responded:
“None.” The contention by counsel that Marrama simply forgot to
include the transfer of the Maine residence – which occurred a mere
seven months before the chapter 7 petition filing – severely
strains credulity. Not only was the Maine residence among
Marrama’s most valuable assets ($85,000), but Marrama conceded at
the creditors’ meeting that the transfer was made with the specific
intent to avoid the claims of his creditors. See, e.g., In re
Weeden, 306 B.R. 449, 459 (Bankr. W.D.N.Y. 2004) (discrediting
similar excuse by “intelligent, educated and financially
sophisticated individual” for failure to disclose in Question 10
response a transfer proximate in time to the filing of the
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bankruptcy petition); In re Carlson, 231 B.R. 640, 656 (Bankr. N.D.
Ill. 1999) (inferring fraudulent concealment where omitted transfer
involved property transferred for no consideration and with
specific intent to avoid creditors’ claims against it). Further,
by listing the value of the transferred property (or the trust res)
as zero, Marrama made it less likely that the trustee would
discover the preferential transfer, inasmuch as Marrama had made it
appear that the trust may have never been funded.
The contention that Marrama honestly disclosed that the
trust property value was zero strains credulity as well. Schedule
B explicitly requires that the “current market value of debtor’s
interest in the property” be listed, rather than its value to the
bankrupt estate.4
Finally, we reject the contention that, absent an
evidentiary hearing, there was insufficient record support for the
“bad faith” finding by the bankruptcy court. Marrama neither
requested an evidentiary hearing, nor has he yet identified what
additional material evidence could or would have been adduced at
4
We note as well that Marrama’s asserted legal basis for
stating that the Maine property never became part of the bankrupt
estate is highly questionable. See, e.g., Aylward v. Landry (In re
Landry), 226 B.R. 507, 510 (Bankr. D. Mass. 2002) (“[A] spendthrift
trust is ineffective against creditors if the settlor creates a
trust for the settlor's own benefit and retains the power to amend,
revoke or invade the principal of the trust.”); see also In re
Marrama, 316 B.R. at 421 (noting that, under Maine law, settlor
retains power to revoke trust at any time, and this revocation
power vests in the chapter 7 trustee).
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such a hearing. See Cabral, 285 B.R. at 577 (affirming, despite
lack of evidentiary hearing on ground that “[n]either counsel to
the Debtor nor the Trustee indicated that there were facts in
dispute or requested an opportunity to present evidence at the
hearing”).
Affirmed.
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