Dennis Lynn Swartz, Jr. and Wendy May Swartz
24-14190
| Bankr. E.D. Pa. | Jun 30, 2025Background
- The Swartzs, a physically disabled couple, filed for Chapter 7 bankruptcy to address a heavy debt burden, after acquiring an expert appraisal of their home to ensure there was no significant non-exempt equity.
- The Chapter 7 trustee disagreed with the Swartzs' valuation and intended to administer the case as an asset case, planning to liquidate the home.
- The Swartzs filed a motion to convert to Chapter 13 to prevent the forced sale of their home, which the trustee opposed, alleging bad faith and undervaluation.
- An evidentiary hearing was held to determine the true value of the property, pitting the Swartzs’ certified appraiser against the trustee’s real estate agent.
- The Swartzs have stable income from social security and veterans’ disability, own the home and one car, and have unsecured debts over $280,000; their monthly finances leave little disposable income.
- The court found the Swartzs’ valuation of $584,000 credible and rejected the trustee’s higher valuation as unreliable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Property Value | Trustee: The property is worth ~$750,000, so there is significant equity to benefit creditors | Swartzs: The property is $584,000 per certified appraisal, with little to no non-exempt equity | Property valued at $584,000; Swartzs’ valuation adopted |
| Bad Faith/Right to Convert | Trustee: Swartzs acted in bad faith by seeking conversion only after asset designation | Swartzs: Acted in good faith, conversion was a response to the trustee’s liquidation intent | No bad faith; Swartzs acted in good faith; conversion permitted |
| Confirmability of a Chapter 13 Plan | Trustee: With high property value, Swartzs can't meet Chapter 13 requirements | Swartzs: Plan is confirmable because there is little or no non-exempt equity; income can fund plan | Plan possible and not prejudicial to creditors; conversion allowed |
| Prejudice/Efficiency | Trustee: Sale benefits creditors, promotes efficient administration | Swartzs: Denial would harm disabled homeowners; creditors would see no significant benefit | Impact on debtors outweighs any minimal prejudice; conversion promotes fairness and efficiency |
Key Cases Cited
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (right to convert under §706 is not absolute; bad faith can preclude conversion)
- In re Perlin, 497 F.3d 364 (bad faith in bankruptcy must be egregious, involving concealment or fraud)