{"id":3092,"date":"2022-01-06T22:54:00","date_gmt":"2022-01-06T22:54:00","guid":{"rendered":"https:\/\/socal.law\/?p=3092"},"modified":"2022-06-21T19:04:54","modified_gmt":"2022-06-21T19:04:54","slug":"debtors-motion-to-dismiss-v-creditors-motion-to-convert-in-chapter-13-the-9th-circuits-ruling-in-in-re-nichols","status":"publish","type":"post","link":"https:\/\/socal.law\/debtors-motion-to-dismiss-v-creditors-motion-to-convert-in-chapter-13-the-9th-circuits-ruling-in-in-re-nichols\/","title":{"rendered":"Debtor\u2019s Motion to Dismiss v. Creditor\u2019s Motion to Convert In Chapter 13\u2014The 9th Circuit\u2019s Ruling in In Re Nichols"},"content":{"rendered":"\n
On September 1, 2021, the Ninth Circuit issued its ruling in the case of In Re <\/em>Nichols<\/em>. The Circuit Court held that a debtor has an absolute right\u2014without exception\u2014to dismiss his Chapter 13 bankruptcy case under Section 1307 (b) of the Bankruptcy Code. In reaching its holding, the Ninth Circuit departed from an established precedent that when the bankruptcy court is confronted with a debtor\u2019s motion to dismiss under Section 1307 (b) on the one hand, and a creditor\u2019s motion to convert under Section 1307 (c) on the other, the court may<\/em> convert the case from Chapter 13 to a Chapter 7 proceeding if there is evidence of bad faith or abuse of the bankruptcy process by the debtor. In Re Nichols<\/em> is a significant and impactful holding in the Ninth Circuit because it informs all bankruptcy practitioners and creditors that even when a debtor has abused the bankruptcy process and engaged in bad faith, the debtor may escape the consequences of his actions by filing a motion to dismiss, which, according to In re Nichols<\/em>, the court must<\/em> grant.<\/p>\n\n\n\n
The Relevant Statutes & Prior Law<\/h5>\n\n\n\n
The relevant statutes are Sections 1307 (b) and (c) of the Bankruptcy Code. Section 1307 (b) states in pertinent part:<\/p>\n\n\n\n
On request of the Debtor at any time<\/strong><\/em>, 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<\/strong><\/em>.<\/strong> Any waiver of the right to dismiss under this subsection is unenforceable.<\/p>\n\n\n\n
(emphasis added).<\/p>\n\n\n\n
In comparison, Section 1307 (c) of the Code states:<\/p>\n\n\n\n
Except as provided in subsection (f) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court<\/strong><\/em> <\/strong>may convert a case under this chapter<\/strong><\/em> to a case under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause<\/strong><\/em>, including\u2014 [omitted].<\/p>\n\n\n\n
(emphasis added).<\/p>\n\n\n\n
The prior leading case on this subject was Marrama v. Citizens Bank<\/em>, 549 U.S. 365 (2007) (\u201cMarrama<\/u><\/em>\u201d). In Marrama<\/em>, the primary question was whether a debtor\u2019s bad-faith conduct permitted the bankruptcy court to deny the debtor\u2019s motion to convert from a Chapter 7 to a Chapter 13 bankruptcy under Section 706 (a) of the Bankruptcy Code. The paradox was that Section 706 (a) granted the debtor a one-time unqualified right to convert from a Chapter 7 to a Chapter 13; however, Section 706 (d) specified that the debtor\u2019s absolute right was conditioned on his ability to qualify as a debtor under Chapter 13.[1]<\/a><\/p>\n\n\n\n