In re: Anselmo Cabral and Alma Cabral, CC-20-1061-LST

Debtors filed chapter 13 on June 11, 2015; a 60‑month plan was confirmed and they performed under it for ~4½ years before Mr. Cabral lost work and they could not afford plan payments.
On counsel’s advice Debtors converted to chapter 7; at conversion unsecured allowed claims totaled $30,458.91 and the trustee believed the Debtors’ Los Angeles home had about $128,587 of non‑exempt equity.
After conversion the trustee retained counsel to administer the estate and signaled an intention to pursue the residence equity for creditors.
Debtors moved to dismiss the chapter 7, asserting they would not have converted if they had known the home equity was at risk and proposing to dismiss, refile chapter 13, and pay 100% to unsecured creditors over five years (supported by declarations and paystubs).
The U.S. Trustee and chapter 7 trustee opposed, arguing dismissal would prejudice creditors because the trustee anticipated liquid assets for prompt payment, dismissal would delay payment and increase nonpayment risk, and a later refiling could exploit a pending California homestead exemption increase.
The bankruptcy court denied dismissal (relying on In re Bartee); the BAP affirmed, holding dismissal would prejudice creditors and the court did not abuse its discretion.

Issue	Debtors' Argument	Trustee / UST Argument	Held
Whether the bankruptcy court abused its discretion in denying the motion to dismiss the chapter 7 case for cause under § 707(a)	Conversion based on bad legal advice; Debtors will refile chapter 13 and pay creditors 100% over five years (supported by declarations/paystubs)	Dismissal would prejudice creditors because trustee expects available estate assets (home equity) to pay unsecured claims; dismissal delays payment, increases nonpayment risk, and may enable Debtors to claim larger homestead exemptions later	Affirmed: no abuse of discretion; dismissal would prejudice creditors and Debtors’ good faith / promises do not overcome that prejudice

In re Bartee, 317 B.R. 362 (9th Cir. BAP 2004) (denial of dismissal affirmed where trustee anticipated estate assets to pay unsecured creditors; debtor promises were speculative)
In re Hickman, 384 B.R. 832 (9th Cir. BAP 2008) (§ 707(a) cause analyzed under totality of circumstances)
Leach v. United States (In re Leach), 130 B.R. 855 (9th Cir. BAP 1991) (equitable considerations are irrelevant if dismissal would cause plain legal prejudice to creditors)
In re Hall, 15 B.R. 913 (9th Cir. BAP 1981) (dismissal improper where trustee’s claims/objections could lead to distributions to unsecured creditors)
Simon v. Amir (In re Amir), 436 B.R. 1 (6th Cir. BAP 2010) (prejudice exists when dismissal removes estate assets from court control)
In re Komyathy, 142 B.R. 755 (Bankr. E.D. Va. 1992) (dismissing an asset case relieves trustee and constitutes legal prejudice to creditors)
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir. 2011) (abuse of discretion standard and review principles)
United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (defining abuse of discretion as findings that are not "illogical, implausible or without support in the record")