530 B.R. 650
N.D. Tex.2015Background
- Debtor Regina N. H. Foster filed a voluntary Chapter 7 petition on July 2, 2012; Areya Holder was the Chapter 7 trustee.
- On October 28, 2014, Debtor moved to convert the case from Chapter 7 to Chapter 11 under 11 U.S.C. § 706(a); the trustee objected and an evidentiary hearing was held December 15, 2014.
- The bankruptcy judge found Debtor pursued Chapter 7 to stave off foreclosure and sought conversion primarily to preserve the homestead/mortgage and living expenses rather than to pay general unsecured creditors.
- The judge found inconsistent, self‑serving positions by Debtor, an admitted breach of fiduciary duty giving rise to a creditor claim by her children, no ability to fund a Chapter 11 plan, and that conversion would be futile, duplicative, and an abuse of process.
- The bankruptcy court denied conversion on December 23, 2014; Debtor appealed to the district court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court could deny conversion under § 105(a) to prevent abuse of process | Debtor (Foster) argued Law v. Siegel precludes using equitable § 105(a) power to defeat an otherwise absolute right to convert under § 706(a) | Trustee/Bankruptcy court argued Marrama and circuit precedent permit denying conversion when conversion would be futile or prevent an abuse of process | Held: Denial affirmed — court may refuse futile conversion consistent with Law and Marrama dictum limited to preventing futile/delayed outcomes required by the Code |
| Whether Law v. Siegel overrules Marrama so conversion cannot be denied on equitable grounds | Debtor contended Law constrains § 105(a) and prevents circumventing § 706(a) conversion right | Court: Law limits Marrama’s broader dictum but permits denying conversion when conversion would be futile because debtor cannot qualify under the target chapter | Held: Law narrows Marrama but does not bar denial of futile conversions; bankruptcy court acted within power |
| Whether record supports bankruptcy court findings absent transcript | Debtor implied findings lacked evidentiary support | Trustee argued appellant failed to include hearing transcript so findings must be presumed correct | Held: Without transcript, appellate court presumes bankruptcy court’s factual findings correct; Appellant failed to show error |
Key Cases Cited
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (discusses bad‑faith basis to deny conversion and § 105(a) dictum)
- Law v. Siegel, 134 S. Ct. 1188 (2014) (limits equitable uses of § 105(a) and constrains Marrama’s dictum)
- In re Jacobsen, 609 F.3d 647 (5th Cir. 2010) (futility ground for denying conversion under Marrama framework)
- In re National Gypsum Co., 208 F.3d 498 (5th Cir. 2000) (standards for appellate review of bankruptcy findings and conclusions)