# Donald R Johnson and Linda A Johnson

> United States Bankruptcy Court, D. Colorado · December 15, 2021

URL: https://www.frixlaw.com/law-library/cases/10455344

## Case

- **Court:** United States Bankruptcy Court, D. Colorado
- **Decided:** December 15, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
Bankruptcy Judge Thomas B. McNamara

In re:
Bankruptcy Case No. 20-15951 TBM
DONALD R. JOHNSON and LINDA A. Chapter 7
JOHNSON,

Debtors.
______________________________________________________________________

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO CONVERT CASE
FROM CHAPTER 7 TO CHAPTER 13
______________________________________________________________________

I. Introduction.

Through the Bankruptcy Code,1 Congress established two main types of
consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is what most people think
of when they hear the word “bankruptcy.” It is a type of liquidation. In Chapter 7, the
debtor turns over most non-exempt assets to a fiduciary — the Chapter 7 trustee —
who then liquidates such assets and distributes the proceeds for the benefit of creditors.
Typically, after a fairly short time, the debtor receives a discharge of most of the
debtor’s debts and moves on. Contrawise, Chapter 13 is a type of reorganization.
Chapter 13 “affords individuals receiving regular income an opportunity to obtain some
relief from their debts while retaining their property.” Bullard v. Blue Hills Bank, 575
U.S. 496, 498 (2015). The quid pro quo is the Chapter 13 plan. A debtor must propose
and obtain Court approval of a “plan under which [the debtor] pay[s] creditors out of . . .
future income.” Hamilton v. Lanning, 560 U.S. 505, 508 (2010). If the debtor makes “all
payments under the plan,” the debtor earns the right to a discharge and a “fresh start”
free from most prior financial burdens. The Chapter 13 bargain is tough. Most Chapter
13 cases do not make it all the way to completion and discharge.

In this bankruptcy case, the Debtors, Donald R. Johnson and Linda A. Johnson
(together, the “Debtors”), filed for protection under Chapter 7. The first stages of the
case went well. The Debtors obtained their Chapter 7 discharge. However, many
months into the bankruptcy case, the Chapter 7 trustee, Simon E. Rodriguez (the
“Chapter 7 Trustee”) determined that he might be able to sell their home (for an amount
in excess of the Debtors’ mortgage, closing costs, and the Debtors’ exemption) resulting
in a potential return for creditors. The Debtors did not want to lose their home. So, they
filed a “Motion to Convert” requesting authorization to switch from Chapter 7 liquidation

1 All references to the “Bankruptcy Code” are to the United States Bankruptcy Code, 11 U.S.C.
§101 et seq. Unless otherwise indicated, all references to “Section” are to sections of the Bankruptcy
Code.
to Chapter 13 reorganization and thereby retain their home. They relied on Section
706(a) which generally allows a debtor to “convert” a case from Chapter 7 to Chapter 13
“at any time.”

This case presents a dispute over the Debtors’ ability to convert from Chapter 7
to Chapter 13. At first blush, Section 706(a) might seem to allow a bankruptcy debtor
an “absolute right” to convert from Chapter 7 to Chapter 13. However, a key Supreme
Court decision, Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), says
otherwise. Under Marrama, the Debtors must show that they are eligible (per Section
109(e)) to obtain relief under Chapter 13. The Chapter 7 Trustee disputes the Debtors’
eligibility. And, he goes further. Relying on Marrama, the Chapter 7 Trustee also
contends that the Debtors’ attempted switch to Chapter 13 constitutes “bad faith” which
justifies denial of conversion.

Ultimately, the Court must decide whether the Debtors may convert from Chapter
7 to Chapter 13. After analyzing the facts and law, the Court concludes that the Debtors
are eligible to obtain relief under Chapter 13 and that their effort to convert does not
constitute “bad faith.” As a result, the Debtors may convert to Chapter 13. Of course,
that does not end the story because the Debtors still have a long way to go. They must
propose and confirm a Chapter 13 plan to pay their creditors. And, then they will need
to complete their Chapter 13 plan.

II. Jurisdiction and Venue.

The Court has jurisdiction over the matter in dispute in this bankruptcy case
pursuant to 28 U.S.C. § 1334. The conversion issue is a core proceeding under
28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate) and
157(b)(2)(O) (other proceedings affecting the liquidation of the assets of the estate or
the adjustment of the debtor-creditor relationship). Venue is proper in this Court
pursuant to 28 U.S.C. §§ 1408 and 1409. No party has contested this Court’s
jurisdiction or venue.

III. Procedural Background.

The Debtors filed for bankruptcy protection under Chapter 7 on September 4,
2020.2 Simon E. Rodriguez was appointed as the Chapter 7 Trustee for the Debtors’
bankruptcy estate. A few months later, the Court entered an “Order of Discharge”
discharging most of the Debtors’ debts.3 Thereafter, the Chapter 7 Trustee determined
that there might sufficient equity in the Debtors home (located at 12109 E. Arizona
Drive, Aurora, Colorado (the “Property”)) to fund distributions to creditors. Accordingly,
the Chapter 7 Trustee issued a “Notice of Possible Dividends.4 He also sought and

2 Docket No. 1. Unless otherwise indicated, the Court will refer to particular documents contained
in the CM/ECF docket for this Bankruptcy Case using the convention: “Docket No. ___.”
3 Docket No. 32.
4 Docket No. 37.
obtained Court authorization to employ a real estate broker and to access the Property
for possible sale.5 But, so far, the Chapter 7 Trustee has not sold the Property.

Instead, faced with the Chapter 7 Trustee’s actions and possible sale of the
Property, the Debtors elected to file their “Motion to Convert Case under Chapter 7 to
Case under Chapter 13.”6 As the title of the Motion to Convert suggests, the Debtors
sought to convert their bankruptcy proceeding to Chapter 13 to retain the Property.
Citing Section 706(a), the Debtors cursorily averred only: “Debtor [sic] is eligible to be a
debtor under Chapter 13 of the Code and desires to convert this case to a case under
that chapter.”7 Thereafter, the Chapter 7 Trustee submitted an “Objection” to the Motion
to Convert.8 The Chapter 7 Trustee advanced three grounds for opposing conversion:
(1) “the Debtors do not have an absolute right to convert”; (2) “the Debtors are
proceeding in bad faith”; and (3) “the Debtors are not eligible for relief under Chapter
13.”9 Based upon the contested Motion to Convert and Objection, the Court conducted
a preliminary hearing during which “the parties agreed that an evidentiary hearing is
required to resolve the issues . . . .”10 So, the Court set the dispute for trial on
November 10, 2021.

About a week before the trial on the conversion dispute, the Debtors and the
Chapter 7 Trustee jointly submitted their “Stipulated Facts for Hearing.”11 The
Stipulated Facts are unusually extensive and consist of 18 separate paragraphs with
numerous additional subparts and two charts. Contemporaneously with the filing of the
Stipulated Facts, the Debtors and the Chapter 7 Trustee also jointly presented an
“Agreed Motion to Convert Hearing on November 10, 2021 from an Evidentiary Hearing
to Oral Argument on the Stipulated Facts.”12 In the Motion to Vacate Trial, the Debtors
and the Chapter 7 Trustee stated:

The Debtors and the [Chapter 7] Trustee agree the
Stipulated Facts eliminate the need for the scheduled
evidentiary hearing. Instead, the Debtors and the [Chapter
7] Trustee respectfully request the Court convert the hearing
set for November 10, 2021 to an oral argument, applying the
Stipulated Facts to the relevant law in this matter.13

Thus, both parties waived their right to an evidentiary hearing and instead asked the
Court to rely factually only on the Stipulated Facts. The Court concurred.14 Consistent
with the foregoing, on November 10, 2021, the Court received oral argument from the

5 Docket Nos. 39, 41, 44, and 47.
6 Docket No. 49, the “Motion to Convert.”
7 Id.
8 Docket No. 51, the “Objection.”
9 Id.
10 Docket No. 55.
11 Docket No. 60, the “Stipulated Facts.”
12 Docket No. 61, the “Motion to Vacate Trial.”
13 Id.
14 Docket No. 62.
Debtors and the Chapter 7 Trustee based solely on the Stipulated Facts.15 Thereafter,
the Court took the matter under advisement. In the interim, the Court has reviewed all
of the Stipulated Facts and evaluated the legal arguments. The disputed issues are ripe
for decision.

IV. Factual Findings.

At the request of the Debtors and the Chapter 7 Trustee, the Court relies on the
Stipulated Facts for the factual record. Accordingly, the Court makes the following
findings of fact under Fed. R. Civ. P. 52(a)(1), as incorporated by Fed. R. Bankr. P.
7052 and 9014(c), which findings simply quote the Stipulated Facts:

1. Donald R. Johnson and Linda A. Johnson filed their voluntary
petition under Chapter 7 (the “Petition”) on September 4, 2020 (the “Petition Date”).
Debtors received their Chapter 7 discharge on December 14, 2020.

2. The Debtors filed two (2) previous bankruptcy cases – a Chapter 13 case
in 2001 under Case Number 01-22968-SBB, which case was ultimately converted to a
Chapter 7; and a Chapter 13 case in 2006 under Case Number 06-12796-SBB. The
Debtors obtained discharges in both cases.

3. Simon E. Rodriguez is the duly appointed and acting trustee in this case.

4. Debtors moved to convert their case to a case under Chapter 13 of the
Bankruptcy Code, to which the Trustee objected. Debtors did not attach a proposed
plan to the conversion motion, and, other than as described below, have not provided
the Trustee with a proposed plan.

5. In the Statement of Financial Affairs and Schedules filed with their petition,
the Debtors scheduled an ownership interest in real property located at 12109 E.
Arizona Drive, Aurora, CO 80012 (the “Property”). The Debtors listed the value of the
Property as $400,000.00 and identified a $306,076.00 mortgage against the Property.

6. For purposes of this Motion to Convert and the Objection thereto, the
parties agree the value of the Property is $475,000.00. As of September 7, 2021, the
mortgage balance against the Property was $299,008.20.

7. The Debtors were in COVID-19 related forbearance on their mortgage
payments from April 7, 2020 through March 19, 2021.

8. The Debtors were a month past due on the mortgage as of the September
7, 2021 statement.

15 Docket No. 64.
9. The Debtors are entitled to a homestead exemption in the sum of
$105,000.00.

10. On June 10, 2021, the Trustee moved to employ Trelora Realty to list and
sell the Property. The Application was approved by Order of the Court entered June 28,
2021, without any objection from the Debtors. In the Affidavit attached to the Trustee’s
Application, Trelora states it would accept a flat fee of $3,000.00 to list and sell the
Property. The buyer’s commission is at the Trustee’s discretion, but not more than
2.8%, and more likely 2.0%.

11. The Debtors moved to convert the case in order to save the Property.

12. On Debtors’ Schedule I, they disclosed monthly net income in the sum of
$5,073.14. On Debtors’ Schedule J, they disclosed monthly expenses of $5,070.26.
Based on Debtors’ Schedules I and J, they had net disposable income of $2.88 on the
Petition Date. Debtors have not amended those schedules.

13. Notwithstanding the Schedules, Debtors’ income has changed since the
Petition Date in the following ways:

a. Mr. Johnson began receiving social security. He received a lump
sum payment of $27,874.00 on November 2, 2020; received monthly payments of
$1,866.00 from November 2020 through June 2021; and currently receives monthly
social security payments of $1,742.00 per month.

b. Mr. Johnson’s pension income decreased from $1,073.00 per
month to $833.00 per month now. Mr. Johnson also receives Veteran’s Disability in the
sum of $243.93 per month.

c. Mrs. Johnson works as a nurse for Home Care RN, Inc. (“Home
Care”). She started working at Home Care shortly before the Petition Date. At Home
Care, the Debtor provides in-home nursing care to patients, and is paid a flat rate per
visit, which ranges between $20 and $90 per visit depending on the visit type. On the
Petition Date, and because the pandemic was in full swing, the Debtor’s income
was lower than usual.

d. Since the Petition Date, Mrs. Johnson’s income has increased
because of an increased demand for her services with Home Care. While Mrs.
Johnson’s income fluctuates, she states the $3,485.00 gross paycheck received on
August 11, 2021 is a representative paycheck of her current regular pay for a two-week
period.

14. Since the Petition Date, the Debtors’ expenses have changed in the
following ways:
a. When Mr. Johnson received his lump sum distribution from Social
Security in the sum of $27,874.00 on November 2, 2020. At the end of November 2,
2020, the Debtors had $25,253.36 in their US Bank Account ending 8219. Two weeks
later, the balance of the account was down to $13,472.77. On September 16, 2021, at
the end of the last statement available to the Trustee, the Debtors had just $1,909.44 in
the account. The Debtors have less than $1,000.00 in all other accounts. The Debtors
spent $2,838.52 on auto repairs on November 9, 2020. They applied the following
payments toward their mortgage: $4,000.00 on November 5, 2021, $2,000.00 on
November 18, 2020, and $2,000.00 on December 3, 2020. They spent $2,000.00 to
open a secured credit card on December 11, 2020.

b. Over their last six (6) bank statements in the US Bank Account
ending 8219, the Debtors have had the following deposits and withdrawals:

Statement Period Deposits Withdrawals Net Amount
3/16/21-4/15/21 $13,798.87 $12,934.45 $ 864.42

4/16/21-5/17/21 $10,331.25 $10,957.84 -$ 626.59
5/18/21-6/15/21 $10,697.00 $12,606.81 -$1,909.81

6/16/21-7/16/21 $11,959.95 $11,310.80 $ 649.15
7/17/21-8/16/21 $ 9,156.52 $11,229.64 -$2,073.12

8/17/21-9/16/21 $11,776.23 $10,546.86 $1,229.37

c. In addition to the expenses in the US Bank account ending 8219,
the Debtors also have approximately $200 in expenses each month which come out of
their Denver Community Credit Union Account ending 671.

d. Post-petition and on December 4, 2020, the Debtors opened a
secured credit card with US Bank. The credit card was used for trips to: Las Vegas,
Florida, Cripple Creek, Black Hawk, Waterworld, and to get their daughter back to
Colorado from North Carolina. A summary of the charges, payments and running
balance on the credit card are as follows:

Statement Period Charges Payments Running Balance
12/4/20-1/5/21 $0 $0 $0
3/4/21-4/2/21 $1,006.86 $ 806.86 $ 200.00
4/3/21-5/4/21 $1,445.92 $ 692.97 $ 952.95
5/5/21-6/2/21 $ 932.77 $1,152.95 $ 732.77
6/3/21-7/2/21 $1,875.15 $1,000.00 $1,607.92
7/3/21-8/3/21 $ 581.71 (includes interest) $ 873.00 $1,316.63
8/4/21-9/2/21 $ 778.20 (includes interest) $1,100.00 $ 994.83
9/3/21-10/4/21 $1,791.42 $1,200.00 $1,586.25

15. During the last year, the Debtors have incurred additional debt of
$1,586.25.

16. The Debtors will have the following reductions in their expenses:

a. After the Petition Date, the Debtors paid off their car loan with
LendMark which is $338.00 per month.

b. After the Petition Date, the Debtors’ son took over the loan payment
for a vehicle in the sum of $426.00 per month. The Debtors’ son, however, did not take
over the loan itself. The Debtors remain obligated on that debt.

17. While the Debtors have not filed a proposed Chapter 13 Plan yet, they
expect to propose payments of $450.00 per month to the Chapter 13 Trustee for a
period of sixty (60) months.

18. If the Property sells for $475,000.00, the following distributions will be
made at closing:

a. Buyers’ commission of 2% which amount is equal to $9,500.00;

b. Trelora’s commission of $3,000.00;

c. Estimated Closing Costs of $3,000.00;

d. Mortgage of $306,000.00 (for purposes of this Motion to Convert
and Objection thereto, the Trustee is giving the Debtors credit in this calculation for the
principal balance on the Petition Date);

e. Homestead Exemption of $105,000.00; [and thus]

f. Total amount paid to the Estate: $48,500.00

V. Legal Analysis.

A. General Legal Framework.

In the Motion to Convert, the Debtors request conversion from Chapter 7 to
Chapter 13 pursuant to Section 706 which provides, in relevant part:
(a) The debtor may convert a case under this chapter
[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.

. . . .

(d) Notwithstanding any other provision of this section, a
case may not be converted to a case under another chapter
of this title unless the debtor may be a debtor under such
chapter.

With respect to Section 706(a), it is common ground that the Debtors have not
previously converted their bankruptcy case under Sections 1112, 1208, or 1307. So,
what remains of the statutory text as applied here is simply that the Debtors “may
convert a case under [Chapter 7] to a case under [Chapter 13].” Congress provided no
express standard for such conversion in Section 706(a).

Until early 2007, many courts construed Section 706(a) as an “absolute” one-
time right to convert from Chapter 7 to Chapter 13. See Calder v. Job (In re Calder),
973 F.2d 862, 867 (10th Cir. 1992) (“the Bankruptcy Rules cannot override the absolute
statutory right to convert pursuant to § 706(a).”); see also Martin v. Martin (In re Martin),
880 F.2d 857, 859 (5th Cir. 1989) (“Congress intended to encourage such conversions
and to give the debtor an absolute one-time right to convert . . . .”); Pequeno v. Schmidt
(In re Pequeno), 126 Fed. Appx. 158, 163 (5th Cir. 2005) (unpublished) (“The statutory
language makes it clear that the right to convert is absolute and unqualified.”); Miller v.
U.S.Tr. (In re Miller), 303 B.R. 471, 473 (10th Cir. BAP 2003) (“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 . . . .’”).

However, the conversion landscape changed when the Supreme Court
announced its seminal decision on the topic: Marrama, 549 U.S. 365. The Marrama
case involved a Chapter 7 debtor who “made a number of statements about his
principal asset, a house in Maine, that were misleading or inaccurate.” Id. at 368. For
example, the debtor claimed that his house had a value of “zero” whereas the property
actually “had substantial value.” Id. The debtor asserted that he had not made any
non-ordinary course transfers of property in the year preceding his bankruptcy; but, in
fact, the debtor transferred his house to a “newly created trust for no consideration” in
order to “protect the property from his creditors.” Id. The debtor also wrongfully claimed
a homestead exemption in another property and lied about a tax refund related to such
other property. Id. at 369 n.3. When the Chapter 7 trustee initiated efforts to recover
the house for the bankruptcy estate, the debtor moved to convert his bankruptcy case to
Chapter 13 relying on Section 706(a). Notwithstanding the debtor’s own false reporting
and concealment, he argued that “he had an absolute right to convert his case from
Chapter 7 to Chapter 13 under the plain language of § 706(a) of the Code.” Id. at 370.

In Marrama, the Supreme Court rejected the “absolutist” approach and found that
the debtor “forfeited his right to proceed under Chapter 13.” Id. at 371. The Supreme
Court pointed out that Section 706(d) acts as a limit on conversion under Section 706(a)
and requires that a debtor be eligible for Chapter 13 per the eligibility requirements of
Section 109(e) and also not subject to immediate dismissal or conversion under Section
1307(c) “for cause” including “bad faith.” Id. at 372-74. Regarding “bad faith”
circumstances, the Supreme Court held:

Nothing in the text of either § 706 or § 1307(c) . . . limits the
authority of the court to take appropriate action [including
denial of conversion from Chapter 7 to Chapter 13] in
response to fraudulent conduct by the atypical litigant who
has demonstrated that he is not entitled to the relief available
to the typical debtor.

Id. at 374-75. The Supreme Court approved the denial of conversion for “bad faith”
under the Marrama facts and also provided some helpful general guidance for trial
courts regarding the parameters for “bad faith”:

We have no occasion here to articulate with precision what
conduct qualifies as “bad faith” sufficient to permit a
bankruptcy judge to dismiss a Chapter 13 case or to deny
conversion from Chapter 7. It suffices to emphasize that the
debtor’s conduct must, in fact, be atypical. Limiting
dismissal or denial of conversion to extraordinary cases is
particularly appropriate in light of the fact that lack of good
faith in proposing a Chapter 13 plan is an express statutory
ground for denying plan confirmation.

Id. at 375 n.11.

Subsequent to Marrama, eligibility for conversion from Chapter 7 to Chapter 13
under Section 706(a) “is dependent on two things: first whether the debtor is eligible to
be a debtor under chapter 13 under 11 U.S.C. § 109(e); and second, whether the case,
if converted, would be dismissed under 11 U.S.C. § 1307(c) [for bad faith or otherwise].”
In re McDonald, 508 B.R. 187, 204 (Bankr. D. Colo. 2014). See also In re Norwood,
2013 WL 4099834, at *7 (Bankr. D. Colo. Aug. 8, 2013) (same).

B. The Debtors Are Eligible to Be Chapter 13 Debtors Under Section 109(e).

Section 109(e) establishes the basic eligibility requirements for Chapter 13
cases:
Only an individual with regular income that owes, on the date
of the filing of the petition, noncontingent, liquidated,
unsecured debts of less than $419,275 and noncontingent,
liquidated, secured debts of less than $1,257,850, or an
individual with regular income and such individual's spouse,
except a stockbroker or a commodity broker, that owe, on
the date of the filing of the petition, noncontingent, liquidated,
unsecured debts that aggregate less than $419,275 and
noncontingent, liquidated, secured debts of less than
$1,257,850 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e). Parsing the text, there are two main requirements: (1) the debtor
must be an “individual with regular income”; and (2) the debtor’s debts must not exceed
certain debt limits.

1. The Debtors Are Individuals With Regular Income.

The Court’s first eligibility task is to assess whether the Debtors have shown that
they are “individual[s] with regular income.” Clearly, the Debtors are “individuals”
because they are natural persons, not corporate entities. The phrase “individual with
regular income” is further defined by Section 101(30) as meaning:

. . . . individual whose income is sufficiently stable and
regular to enable such individual to make payments under a
plan under chapter 13 of this title.

11 U.S.C. § 101(30).

Factually, the Debtors established that when they filed for bankruptcy on
September 4, 2020, they had combined monthly income of $5,073.14 and monthly
expenses of $5,070.26.16 Thus, their income and expenses almost matched leaving
only $2.88 in net disposable income.17 Although (for reasons unknown to the Court) the
Debtors have not amended their Schedules I and J, the Stipulated Facts showed that
their financial position has improved.18

16 Stip. Fact No. 12.
17 Stip. Fact No. 13.
18 Potentially, there is an open legal issue whether the Court should assess Chapter 13 eligibility as
of the petition date or as of the date of possible conversion to Chapter 13. Most courts seem to focus on
the circumstances at conversion. In re Mercado, 376 B.R. 340 (Bankr. M.D. Fla. 2007); see also,
Norwood, 2013 WL 4099834, at *8 (considering “most recent Schedule I” income rather than limiting
analysis to petition date but not discussing debate). Many of the Stipulated Facts advanced by the
Debtors and the Chapter 7 Trustee as relevant pertain to the Debtors’ post-petition changes in income
and expenses. During closing argument, the Debtors and the Chapter 7 Trustee argued mostly about the
Debtors’ current income and expenses. Neither party advocated for using only the petition date to assess
eligibility in the context of conversion. Under these circumstances, the Court accepts the parties’ implicit
position that Chapter 13 eligibility should be determined based upon facts as of the time of conversion.
Just months after the bankruptcy filing, Mr. Johnson (who is retired) began
receiving monthly Social Security payments. Although the Social Security payments
have varied a bit, they currently add up to an additional $1,742.00 each month.19
Meanwhile, Mr. Johnson’s pension income decreased from $1,073.00 to $833.00 per
month.20 And, he started to receive Veteran’s Disability payments of $243.93 each
month.21 Thus, Mr. Johnson’s currently monthly income is: $2,818.93 ($1,742.00 +
$833.00 + 243.93 = $2,818.93). That amount is much higher than when Mr. Johnson
filed for bankruptcy protection. Mrs. Johnson is a nurse who works in home care. Her
income also has increased. When she filed for bankruptcy, “the pandemic was in full
swing, [so her] income was lower than usual.”22 Currently, she makes about $6,970.00
gross per month.23 Assuming $1,002.36 in payroll deductions (which is the amount on
Mrs. Johnson’s unamended Schedule I), her current monthly income is about
$5,967.64. Thus, together, the Debtors have current monthly income of approximately
$8,786.57 (as compared to just $5,073.14 when they filed for bankruptcy).

Unfortunately, the Court did not receive much specific updated information
concerning the Debtors’ expenses. As noted previously, when they filed for bankruptcy,
the Debtors’ monthly expenses were $5,070.26.24 In the interim, they paid off an
automobile loan “with LendMark which [was] $338.00.”25 So that is a net positive. And,
their son “took over a loan payment for a vehicle in the sum of $426.00 per month.26
However, since the Debtors “remain obligated on that debt,” the Court does not deem it
appropriate to eliminate that expense in the analysis. The Debtors have incurred
additional debts since the bankruptcy on credit cards in the aggregate amount of
$1,586.25.27 Beyond that, there is no evidence that the Debtors’ regular, recurring
monthly expenses have changed.

Notwithstanding, the Chapter 7 Trustee points the Court to summaries of the
Debtors’ bank account activity apparently suggesting that the Debtors have spent too
much (at least according to the Chapter 7 Trustee’s subjective view) in the last year
while the Debtors were in bankruptcy.28 The Chapter 7 Trustee references money
spent for trips to “Las Vegas, Florida, Cripple Creek, Black Hawk, Waterworld, and to
get their daughter back to Colorado from North Carolina.”29 However, as debtors in
Chapter 7, the Debtors were under no obligation to rein in their post-petition spending

19 Stip. Fact No. 13(a).
20 Stip. Fact No. 13(b). There seems to be a discrepancy in the Stipulated Facts because Mr.
Johnson’s Schedule I showed pension income of $1,200.50, not $1,073.00. However, at the parties’
request, the Court accepts the Stipulated Facts as dispositive.
21 Id.
22 Stip. Fact No. 13(c).
23 Stip. Fact No. 13(d). Stip. Fact No. 13(d) identifies “$3,485.00 gross” as her income. However,
at oral argument, the parties agreed that Mrs. Johnson is paid that amount twice a month.
24 Stip. Fact No. 12.
25 Stip. Fact No. 16(a).
26 Stip. Fact No. 16(b).
27 Stip. Fact Nos. 14(d) and 15.
28 Stip. Fact Nos. 14(a)-(c). The actual bank account statements were not introduced into evidence.
29 Stip. Fact No. 14(d).
(albeit that it might have been wise to do so). And, just because they apparently took
numerous trips in 2020 and 2021 (before they decided to try to convert to Chapter 13)
does not mean that such expenses will regularly recur if the Debtors are able to convert
to Chapter 13. In any event, the Chapter 7 Trustee also asks the Court to consider
cash flows through the Debtors’ main bank account during six months in 2021.30
According to the Stipulated Facts, the Debtors had just $1,909.44 in the bank account
as of September 16, 2021.31 Based on a summary chart, the Debtors deposited
between $9,156.52 and $13,798.87 per month into their main bank account while
withdrawing between $10,546.86 to $12,934.45 per month.32 In three of such months,
the Debtors withdrew more than they deposited. And, in the other three months, they
withdrew less than they deposited. Which proves what exactly? The Court does not
know and has no specifics regarding the source and use of the funds in the bank
account.

The Debtors bore the burden to show that they have “income [that] is sufficiently
stable and regular to enable such individual to make payments under a plan under
chapter 13 of this title.” 11 U.S.C. § 101(30). They met their burden. The Debtors have
current monthly income of about $8,786.57. Mr. Johnson’s income comes from monthly
Social Security, pension, and Veteran’s Disability payments. Although he is retired and
so is not a wage earner, his monthly Social Security, pension, and Veteran’s Disability
payments qualify as income for purposes of Chapter 13 eligibility under Section 109(e).
Bibb Cnty. Dep’t of Fam. & Child. Servs. v. Hope (In re Hammonds), 729 F.2d 1391,
1393-95 (11th Cir. 1984) (welfare benefits qualify as income for Chapter 13 eligibility
purposes); Norwood, 2013 WL 4099834, at *9 (Social Security benefits can be a source
of regular income [under Section 109(e)]”); In re Dawson, 13 B.R. 107, 109 (Bankr. M.D.
Ala. 1981) (“persons who receive pension, welfare, and various government-provided
benefits qualify as individuals with regular income”). Mrs. Johnson’s income comes
from regular pay for employment. On the expenses side, the best evidence the Court
has about the Debtors’ regular recurring expenses is that they total about $5,070.26 per
month or maybe less (since the Debtors paid off an automobile loan). The difference
between such income and such expenses means that the Debtors are likely to be able
to fund a Chapter 13 plan of at least $450.00 per month in payments to the Chapter 13
Trustee as they apparently intend.33 Thus, the Debtors pass the initial Section 109(e)
Chapter 13 eligibility hurdle of being “individual[s] with regular income.”

2. The Debtors’ Debts Do Not Exceed Chapter 13 Eligibility Limits.

The Court’s second eligibility task is to assess debt limits. Section 109(e)
dictates that Chapter 13 can only be used by debtors whose aggregate (noncontingent
and liquidated) unsecured debt is less than $419,275.00 and whose aggregate
(noncontingent and liquidated) secured debt is less than $1,257,850.00. The Debtors

30 Stip. Fact No. 14(b).
31 Stip. Fact No. 14(a). Stip. Fact No. 14(a) contradicts Stip. Fact No. 14(b) which shows a different
amount ($1,229.37) in the same bank account as of September 16, 2021.
32 Stip. Fact No. 14(b).
33 Stip. Fact No. 17.
satisfy both tallies. According to the Debtors’ Schedule E/F, their unsecured debt is
$240,173.75 (including priority unsecured debt of $1,387.00 and non-priority unsecured
debt of $238,786.75), which amount is about 57% of the Chapter 13 unsecured debt
cap. Meanwhile, the Debtors’ Schedule D secured debt amounts to $329,822.00, which
is about 26% of the Chapter 13 secured debt limit. According to the Claims Register,
the filed claims are actually far less than the foregoing. So, anyway the issue is
analyzed, the Debtors fall below the Chapter 13 debt limits.

3. The Debtors Are Eligible to File for Protection under Chapter 13.

The Debtors have shown that they are “individuals[s] with regular income”
according to Section 101(30). And, their unsecured and secured debts fall well below
the Chapter 13 debt caps. Accordingly, the Debtors are eligible to file for Chapter 13
under Section 109(e).

C. The Conversion Motion Has Not Been Filed in Bad Faith.

Even if the Debtors are eligible for protection under Chapter 13, the Supreme
Court’s Marrama decision dictates that conversion from Chapter 7 to Chapter 13 may
be denied if the Debtors are proceeding in “bad faith” such that any Chapter 13 case
would be subject to immediate dismissal or conversion under Section 1307(c) “for
cause” including “bad faith.” Marrama, 549 U.S. at 372-74. The party opposing
conversion (in this case, the Chapter 7 Trustee) bears the burden of proving “bad faith.”
In re Love, 957 F.2d 1350, 1355 (7th Cir. 1992) (party asserting lack of good faith under
Section 1307(c) bears the burden of proof); McDonald, 508 B.R. at 205 (party
contesting conversion from Chapter 7 to Chapter 13 on the basis of bad faith bears the
burden); Norwood, 2013 WL 4099834, at *7 (“burden is placed on an objecting party to
show that the debtor is attempting to convert the case in bad faith”).

1. Conversion Legal Standard: Totality of the Circumstances Based on
the Gier Factors.

Generally, “in determining whether a Chapter 13 petition has been filed in bad
faith under Section 1307(c), the bankruptcy court must consider the ‘totality of the
circumstances.’” In re Gier, 986 F.2d 1326, 1329 (10th Cir. 1993) (citing Love, 957 F.2d
at 1354-55); see also McDonald, 508 B.R. at 204 (“The issue of seeking conversion in
bad faith is a question of fact determined by the totality of the circumstances.”). The
“totality of the circumstances” approach focuses on whether there has been an “abuse
of the provisions, purposes, or spirit of [the Bankruptcy Code].” Gier, 986 F.2d at 1328;
cf. Flygare v. Boulden, 709 F.2d 1344, 1347 (10th Cir. 1983) (“[A] finding of good faith
[under Section 1325(a)] requires an inquiry, on a case-by-case basis, into whether the
plan abuses the provisions, purposes or spirit of Chapter 13.”). Binding appellate
precedent from the United States Court of Appeals for the Tenth Circuit (the “Tenth
Circuit”) endorses the following as relevant factors to be considered in a Section
1307(c) bad faith inquiry:
[1] the nature of the debt, including the question of whether
the debt would be nondischargeable in a Chapter 7
proceeding; [2] the timing of the petition; [3] how the debt
arose; [4] the debtor’s motives in filing the petition; [5] how
the debtor’s action’s affected creditors; [6] the debtor’s
treatment of creditors both before and after the petition was
filed; and [7] whether the debtor has been forthcoming with
the bankruptcy court and the creditors.

Gier, 986 F.2d at 1329 (quoting Love, 957 F.2d at 1357). Such factors routinely are
applied by Bankruptcy Courts within the Tenth Circuit when considering contested
motions to convert from Chapter 7 to Chapter 13 under Marrama. See Alexander v.
Hardeman (In re Alexander), 363 B.R. 917, 925 (10th Cir. BAP 2007) (recognizing Gier
factors as “the Tenth Circuit’s most comprehensive discussion of bad faith vis a vis §
1307”); McDonald, 508 B.R. at 205 (“Gier remains good law for determining bad faith
under § 1307(c) in this Circuit.”). While applying the totality of the circumstances
standard using the Gier factors, the Court also recognizes that denial of conversion is
appropriate only in “extraordinary cases.” Marrama, 549 U.S. at 375 n.11.

2. The Court Need Not Consider the Other Flygare and Cramner
Factors.

The Court will apply the “totality of the circumstances” standard utilizing the
seven Gier factors. The Court’s application is tempered by the recognition that denial of
conversion is appropriate only in extraordinary circumstances. Nevertheless, a short
detour into other factors is necessary because the Chapter 7 Trustee advocated that the
Court also consider the so-called Flygare and Cranmer factors.

The Tenth Circuit has employed slightly different tests for considering bad faith
(or the lack of good faith) at the various distinct stages of a Chapter 13 proceeding. See
Norwood, 2013 WL 4099834, at *11. As set forth above, unequivocally, the Gier factors
govern determinations of bad faith when a motion to dismiss or convert a case is
brought under Section 1307(c). However, the Tenth Circuit adopted a list of eleven
factors (many similar and overlapping) to be considered during the confirmation process
in evaluating whether a Chapter 13 “plan has been proposed in good faith” under
Section 1325(a)(3). Flygare, 709 F.2d 1344. The Flygare factors are:

(1) the amount of the proposed payments and the amount of
the debtor's surplus; (2) the debtor's employment history,
ability to earn and likelihood of future increases in income;
(3) the probable or expected duration of the plan; (4) the
accuracy of the plan's statements of the debts, expenses
and percentage repayment of unsecured debt and whether
any inaccuracies are an attempt to mislead the court; (5) the
extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified; (7) the
type of debt sought to be discharged and whether any such
debt is non-dischargeable in Chapter 7; (8) the existence of
special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief
under the Bankruptcy Reform Act; (10) the motivation and
sincerity of the debtor in seeking Chapter 13 relief; and (11)
the burden which the plan's administration would place upon
the trustee.

Id. at 1347-48 (quoting U.S. v. Estus (In re Estus), 695 F.2d 311, 317 (8th Cir. 1982));
see also Mason v. Young (In re Young), 237 F.3d 1168, 1174-75 (10th Cir. 2001)
(reconfirming Flygare factors for Section 1325(a) good faith evaluation); Robinson v.
Tenantry (In re Robinson), 987 F.2d 665, 668 (10th Cir. 1993) (same); Pioneer Bank v.
Rasmussen (In re Rasmussen), 888 F.2d 703, 703-04 (10th Cir. 1989) (same). The
Flygare list is “not exhaustive, and the weight given each factor will necessarily vary
with the facts and circumstances of each case.” Flygare, 709 F.2d at 1348.

The Flygare decision pre-dates changes to the Bankruptcy Code — including to
Sections 1325(b)(1) and (2) — made by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005) (“BAPCPA”).
However, even post-BAPCPA, the Tenth Circuit confirmed the vitality of Flygare. The
key post-BAPCPA decision is Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314
(10th Cir. 2012), in which the appellate panel endorsed the Flygare factors and
instructed:

The good faith determination is made on a case-by-case
basis considering the totality of the circumstances. Flygare
v. Boulden, 709 F.2d 1344, 1347 (10th Cir. 1983). In
evaluating a debtor’s good faith, courts should consider
eleven non-exclusive factors [from Flygare] as well as any
other relevant circumstances.

Cranmer, 697 F.2d at 1318-19. However, after listing the Flygare factors, the Tenth
Circuit recognized a “more narrow focus” post-BAPCPA in relation to “ability to pay.”
The appellate court stated:

Since Flygare was decided, however, the Bankruptcy Code
was amended to include 11 U.S.C. § 1325(b). . . . Section
1325(b)’s “‘ability to pay’ criteria subsumes most of the Estus
factors” and, therefore, the good faith inquiry now “has a
more narrow focus.” . . . A bankruptcy court must consider
“factors such as whether the debtor has stated his debts and
expenses accurately; whether he has made any fraudulent
misrepresentation to mislead the bankruptcy court; or
whether he has unfairly manipulated the Bankruptcy Code.”
Cranmer, 697 F.3d at 1319 n.5 (internal citations omitted).

The Chapter 7 Trustee seems to suggest that the Court should consider the
seven Gier factors, the eleven Flygare factors, and the three Cranmer factors to decide
the Motion to Convert. That is a lot of factors. Several Colorado bankruptcy decisions
have analyzed all the various factors; but they did so in cases in which disputed Chapter
13 plans also were pending. For example, in McDonald, the court was faced with both
a Marrama conversion challenge and an argument that “the Debtors did not file their
Second Amended [Chapter 13] Plan in good faith as required under § 1325(a)(3).” 508
B.R. at 206. Under the heading “The Debtors did not file their Conversion Motion in
Good Faith,” the McDonald court analyzed only the seven Gier factors implicated by
Sections 706(a)-(d) and 1307(c). But in another part of the opinion captioned “The
Debtors did not file their Second Amended Plan in good faith,” the court separately
evaluated the Flygare and Cranmer factors per Section 1325(a)(3). In Norwood, the
court followed the same approach applying the Gier factors to a Marrama conversion
challenge under Sections 706(a)-(d) and 1307(c) and separately considering the
Flygare and Cranmer factors per Section 1325(a)(3) in relation to the pending Chapter
13 plan. Norwood, 2013 WL 4099834, at *11-17.

In this case, the Debtors have not yet filed a Chapter 13 plan. Instead, they have
only sought to convert their case from Chapter 7 to Chapter 13 after which, if
successful, they will be required to file a Chapter 13 plan. Under these circumstances,
the Court concludes that it need not consider and analyze all the Flygare and Cranmer
factors in addition to the directly applicable Gier factors. The Court reasons as follows.
First, since the Debtors have not yet filed a Chapter 13 plan, the Court cannot
effectively evaluate any unfiled potential Chapter 13 plan for confirmation under Section
1325(a) at this stage. It would be entirely premature. Second, conducting a speculative
confirmation analysis under Section 1325(a) is not particularly relevant or useful. That
is because in Marrama, the Supreme Court determined that a motion to convert from
Chapter 7 to Chapter 13 could be denied if the case would be subject to immediate
dismissal or reconversion under Section 1307(c) “for cause” including “bad faith.”
Marrama, 549 U.S. at 372-5. But, the Supreme Court did not suggest that the
bankruptcy court should conduct a mini-confirmation hearing or analysis under Section
1325(a). Quite to the contrary, the Supreme Court distinguished conversion and
confirmation issues:

It suffices to emphasize that the debtor’s conduct must, in
fact, be atypical. Limiting dismissal or denial of conversion
to extraordinary cases is particularly appropriate in light of
the fact that good faith in proposing a Chapter 13 plan is an
express statutory ground for denying plan confirmation.
11 U.S.C. § 1325(a)(3); see In re Love, 957 F.2d at 1356
(“Because dismissal is harsh . . . the bankruptcy court should
be more reluctant to dismiss a petition [under Section
1307(c)] . . . for lack of good faith than to reject a plan for
lack of good faith under Section 1325(a)”).

Marrama, 549 U.S. at 375 n.11. See also McDonald, 508 B.R. at 205 (“The Supreme
Court embraced the . . . distinction between the standards for good faith in proposing a
Chapter 13 plan under § 1325(a)(3) and for dismissing or converting a case under §
1307(c), which has a more stringent standard for lack of good faith . . . .”). Third,
adopting the seven Gier factors, the eleven Flygare factors, and the three Cranmer
factors for every Marrama conversion challenge would be entirely untenable. Twenty-
one is way too many factors and would lead the Court into an unnecessary factor
swamp. So, the Court sticks with the already fairly complex totality of the circumstances
standard utilizing only the seven Gier factors. At the same time, the Court is mindful of
the Supreme Court’s admonition that denial of conversion is appropriate only in
“extraordinary cases.”

3. The Chapter 7 Trustee Did Not Meet His Burden of Showing that the
Debtors Filed the Motion to Convert in Bad Faith.

a. The Gier Factors Yield Mixed Results.

As set forth above, in assessing whether the totality of the circumstances proves
bad faith, the Court considers the seven Gier factors. 986 F.2d at 1329.

The first Gier factor is “the nature of the debt, including the question of whether
the debt would be nondischargeable in a Chapter 7 proceeding.” No creditor has
objected to the Motion to Convert. So, no specific debt is at issue. However, the overall
creditor make-up can be derived from the Debtors’ Schedule D and E/F as well as the
Claims Register. In terms of secured claims, the Debtors’ largest debt is $306,076.00
owed to their mortgage lender on the Property, which is the Debtors’ principal
residence.34 The Property is worth $475,000.00; so, the Debtors have substantial
equity in the Property. The Debtors also owe money (about $23,746.00) on three loans
secured by vehicles. With respect to unsecured debt, the Debtors listed 37 creditors
owed about $238,786.75 on their Schedule E/F. According to the Claims Register, 22
creditors filed claims totaling $181,325.06.00. The largest general unsecured claim is
$142,544.71 for student loans. Student loan debt is generally non-dischargeable in
both Chapter 7 and Chapter 13. 11 U.S.C. §§ 523(a)(8), 727(b) and 1328(c). The
Debtors already have obtained their discharge and there is no pending action to
determine the dischargeability of any specific debt. As the Chapter 7 Trustee
acknowledges, the Debtors’ receipt of a discharge in Chapter 7 is not a per se bar to
conversion to Chapter 13. Young, 237 F.3d at 1173. Having considered the foregoing
facts about the Debtors’ debt, nothing about the debt picture or dischargeability
suggests that the Debtors have engaged in bad faith.

34 Stip. Fact No. 5.
The second Gier factor is “the timing of the petition.” In this dispute, the timing
issue focuses on the timing of the Motion to Convert. The Debtors filed for protection
under Chapter 7 on September 4, 2020. But, then they waited almost a year (until July
20, 2021) to file the Motion to Convert. And, the Motion to Convert was filed in
response to the Chapter 7 Trustee’s efforts to potentially sell the Property. This timing
suggests possible bad faith. Norwood, 2013 WL 4099834, at *13 (“Debtor filed his
Conversion Motion on the eve of hearings to resolve . . . a motion made by the Trustee
to sell Debtor’s Hawaii Property. The timing strongly indicates that the Conversion
Motion was filed in bad faith.”).

The third Gier factor is “how the debt arose.” As noted previously, since no
creditor has objected to the Motion to Convert, no specific debt is at issue. And the
general make-up of the debt is typical: a home loan; car loans; student loans; medical
bills; utility bills; and amounts owed on credit cards. This factor does not point to bad
faith.

The fourth Gier factor is “the debtor’s motives in filing the petition.” In the context
of potential conversion, the inquiry focuses on the Debtors’ motives in filing the Motion
to Convert. And there is no doubt about the reason. As set forth in Stipulated Fact No.
11, “[t]he Debtors moved to convert the case in order to save the Property,” which is
their family residence. The Chapter 7 Trustee suggests such motive is bad faith. The
Court concludes otherwise. Many consumer bankruptcy cases are filed under Chapter
13 to save homes. It happens every day. Indeed, as the Supreme Court started,
Chapter 13 “affords individuals receiving regular income an opportunity to obtain some
relief from their debts while retaining their property.” Bullard, 575 U.S. at 498.
Retaining or “sav[ing]” property is the entire design. So, trying to secure relief under
Chapter 13 “to save the Property” is not at all indicative of bad faith. See In re Lane,
2011 WL 3205782, at *3 (Bankr. D. Colo. July 26, 2011) (noting “the only reason for the
proposed conversion of their case to Chapter [13] is to shield [real property] from
liquidation” but deciding “the motivation to prevent the liquidation of certain assets [real
property] is not evidence of bad faith.”).

The fifth Gier factor is “how the debtor’s action’s affected creditors.” The sixth
Gier factor is similar: “the debtor’s treatment of creditors both before and after the
petition was filed.” There is no evidence that the Debtors mistreated creditors either
before or after they filed for bankruptcy protection. They are not serial bankruptcy
filers.35 However, it is possible that creditors may be adversely affected by conversion
to Chapter 13. The Debtors and the Chapter 7 Trustee have stipulated that the
Property is worth $475,000.00. If the Chapter 7 Trustee were able to sell the Property
in the Chapter 7 case, the estate would net approximately $48,500.00 (after the
payment of real estate commissions, closing costs, liens, and the Debtors’ homestead

35 The Chapter 7 Trustee points out that the Debtors filed for bankruptcy protection 21 years ago
and again 15 years ago. Stip. Fact No. 2. However, those cases are so remote in time from the current
case as to be irrelevant. The Debtors cannot be considered to be serial bankruptcy filers which might
subject them to higher scrutiny. See, e.g., 11 U.S.C. §§ 362(c)(3) and (c)(4) (establishing special
automatic stay rules for debtors with other bankruptcy cases “pending with the preceding 1-year period”).
exemption).36 So, after further reductions for administrative expenses and Chapter 7
Trustee fees, the Chapter 7 Trustee likely would be able to make a meaningful and fairly
prompt distribution to general unsecured creditors. But, in Chapter 13, the Debtors
propose to make payments of $450.00 per month to the Chapter 13 Trustee for a period
of 60 months.37 (Presumably, the Debtors will also propose to make their monthly
mortgage and car payments too.) Part of the Chapter 13 bargain is the “best interests
of creditors test” which requires that “the value . . . . of property to be distributed under
the plan . . . [on] each allowed unsecured claim is not less than the amount that would
be paid . . . under chapter 7 . . . .” 11 U.S.C. § 1325(a)(4). Chapter 13 payments of
$450.00 per month to the Chapter 13 trustee might not be enough to meet the test but
that remains to be seen.38 And, even if the Debtors achieve confirmation of a Chapter
13 plan, it seems likely that distributions to unsecured creditors would be delayed in
comparison to payments under Chapter 7. So, this factor cuts in favor of a bad faith
determination.

The final and seventh Gier factor is “whether the debtor has been forthcoming
with the bankruptcy court and the creditors.” They have. There is no evidence that the
Debtors concealed assets or lied on their Statement of Financial Affairs or Schedules.
During closing arguments, counsel for the Chapter 7 Trustee conceded the point. The
lack of any malfeasance suggests that the Debtors are not proceeding in bad faith.

To summarize, only two of the Gier factors suggest that the Debtors may have
engaged in bad faith by virtue of filing the Motion to Convert. All the other Gier factors
are either neutral or point the other way. Thus, the Chapter 7 Trustee failed to meet his
burden to prove, under a totality of the circumstances standard, that the Motion to
Convert was filed by the Debtors in bad faith.

b. The Chapter 7 Trustee Did Not Establish that the Debtors’
Conduct is Atypical and that their Case is Extraordinary.

As an additional overlay to the Court’s conversion analysis, the Court recognizes
that the Supreme Court has narrowly circumscribed the circumstances in which a
motion to convert from Chapter 13 to Chapter 7 may be denied for alleged bad faith. In
Marrama, the Supreme Court stated: “It suffices to emphasize that the debtor’s conduct
must, in fact, be atypical. Limiting . . . denial of conversion to extraordinary cases is
particularly appropriate . . . .” Marrama, 549 U.S. at 375 n.11.

The Debtors’ conduct in this case does not rise to the level of misconduct that
took place in Marrama. In Marrama, the debtor “made a number of statements about
his principal asset, a house in Maine, that were misleading of inaccurate.” Marrama,
549 U.S. at 368. The Debtors in this case did no such thing. From the beginning, they
fully disclosed their ownership of the Property and listed a high value for it

36 Stip. Fact No. 18.
37 Stip. Fact No. 17.
38 As explained previously, the Court concludes that it need not make definitive Chapter 13
confirmation conclusions at this stage since no Chapter 13 plan has even been filed.
($400,000.00). The value of the Property appears to have increased since the
bankruptcy filing by an additional $75,000.00. In Marrama, the debtor concealed that he
transferred his house to a “newly created trust for no consideration” in order to “protect
the property from his creditors.” Id. Nothing of the sort happened in this case. The
Debtors were not engaged in a brazen scheme to hide the Property from their creditors.
In Marrama, the debtor wrongfully claimed a homestead exemption in rental property
and also lied about an anticipated tax refund. Again, no similar circumstances are
present in this case.

In the end, this is not an “extraordinary case[]” justifying denial of conversion from
Chapter 7 to Chapter 13 under the Marrama framework. See Lane, 2011 WL 3205782
(debtors permitted to convert from Chapter 7 to Chapter 13 to attempt to save real
property). There is no evidence of “fraudulent conduct by the atypical litigant.”
Marrama, 549 U.S. at 374. Instead, the Debtors appear to be “honest but unfortunate.”
And, the circumstances of this case are quite typical. The Debtors are merely trying to
save their home by converting to Chapter 13 and engaging in the hard bargain of paying
their creditors over three to five years through a Chapter 13 plan. They have every right
to try to obtain such relief in Chapter 13 although, ultimately, they will need to meet all
the confirmation requirements under Section 1325(a). Maybe the Debtors will succeed.
Or, maybe not. But the Debtors have the right to try Chapter 13. Their efforts are not
an abuse of the provisions, purpose, or spirit of Chapter 7, Chapter 13, or the
Bankruptcy Code. Rather, the Debtors are endeavoring to avail themselves of the
benefits of Chapter 13 which Congress afforded to honest but unfortunate debtors.
Their conduct is not bad faith.

VI. Conclusion.

For the reasons set forth above, the Court GRANTS the Motion to Convert. It is
further ORDERED:

1. The Debtors shall file a proposed Chapter 13 Plan and a Certificate of
Service evidencing compliance with L.B.R. 3015-1(b)(3) and (4), as
applicable, on or before January 3, 2022.

2. The Chapter 7 Trustee, within 30 days of the date of this Order, shall file
and transmit to the United States Trustee:

a. an account of all receipts and disbursements made in the Chapter 7
case, and

b. a report on the administration of the case pursuant to 11 U.S.C. §
704(a)(9).

3. The Chapter 7 Trustee forthwith shall turnover to the Debtors all records
and property of the estate remaining in the Trustee's custody and control.
4. The Chapter 7 Trustee or any other party entitled to compensation may
file an Application for Compensation and Reimbursement of Expenses
within 30 days of the date of this Order.
5. The Debtors, within 14 days from the date of this Order, shall file the
Statements and Schedules required by Fed. R. Bankr. P. 1007(b), if such
documents have not already been filed.
DATED this 15th day of December, 2021.
BY THE COURT:
Amat
LH!
Thomas B. McNamara, /
United States Bankruptcy Judge

21

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10455344. Public record. Not legal advice.