612 B.R. 323
Bankr. W.D. Pa.2020Background
- Debtor Donald R. Cenk filed a Chapter 13 case and proposed a plan that paid secured claims and priorities but yielded a minimal dividend to general unsecured creditors; Schedule J showed a monthly net deficit despite large plan payments.
- Debtor amended schedules to disclose a prior cash sale of Florida real estate and transfers of substantial proceeds to his brother and girlfriend; wife Michelle Cenk raised allegations of concealment, undervaluation, and improper insider transfers.
- Michelle Cenk (the estranged wife) previously pursued dismissal for bad faith; she later filed Chapter 7 and the Chapter 7 trustee preserved claims and objected to plan confirmation in the Debtor’s Chapter 13 case.
- The Chapter 13 trustee and Michelle sought conversion to Chapter 7 to preserve potential avoidance recoveries; the Debtor moved to dismiss under 11 U.S.C. § 1307(b), claiming an "absolute right" to dismissal.
- The trustee declined to file a conversion motion (relying on an unpublished district decision), no evidentiary hearing was requested, and the court found the record insufficient to prove bad faith.
- The Court granted the Motion to Dismiss, concluding dismissal was required on the record presented and declined to impose conversion or future-filing restrictions absent proof of bad faith.
Issues
| Issue | Cenk (Debtor) — Argument | Michelle Cenk (Respondent) — Argument | Held |
|---|---|---|---|
| Whether a Chapter 13 debtor has an absolute statutory right to dismiss under § 1307(b) | § 1307(b) commands dismissal on debtor request; "shall dismiss" is mandatory | § 1307(b) should yield to courts' power to deny dismissal where debtor acted in bad faith to avoid creditor remedies | Court follows prior district decision: § 1307(b) dismissal is required on this record; acknowledges circuit split and Marrama tension but grants dismissal here |
| Whether bad-faith conduct can bar dismissal or permit conversion to Chapter 7 to protect creditors | Bad faith allegations do not negate the statutory dismissal right | Bad faith (e.g., concealment, fraudulent transfers) forfeits dismissal right and justifies conversion to Chapter 7 | Court recognizes Marrama and contrary circuit authority but finds no evidence of bad faith here; leaves unresolved whether bad faith can ever bar dismissal |
| Whether the court should convert case or impose filing restrictions to preserve avoidance claims and creditor remedies | Dismissal forfeits avoidance claims but debtor asserts state-law remedies remain; requests dismissal due to inability to fund plan | Conversion preserves estate claims and creditor recoveries; trustee favored conversion | Because no party proved bad faith or entitled creditor relief, court denied conversion and declined to impose future-filing restrictions; granted dismissal |
Key Cases Cited
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (examines bad-faith-related limits on conversion and debtor qualification for Chapter 13)
- Law v. Siegel, 571 U.S. 415 (rejects broad use of § 105 or equitable powers to contravene express Code provisions)
- Harris v. Viegelahn, 135 S. Ct. 1829 (recognizes nonwaivable statutory right to convert Chapter 13 to Chapter 7 under § 1307(a))
- Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647 (5th Cir.) (holds debtor's dismissal right is subject to bad-faith exception)
- Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764 (9th Cir.) (adopts bad-faith qualification on § 1307(b) dismissal right)
- Molitor v. Eidson (In re Molitor), 76 F.3d 218 (8th Cir.) (recognizes bad-faith exception to dismissal)
- Barbieri v. RAJ Acquisition Corp. (In re Barbieri), 199 F.3d 616 (2d Cir.) (holds § 1307(b) right to dismiss is absolute)
- In re Ross, 858 F.3d 779 (3d Cir.) (discusses court authority to impose filing restrictions for bad-faith filings)