461 B.R. 593
9th Cir. BAP2011Background
- Debtors filed chapter 13 while disputing who could enforce the note and deed of trust on their Mammoth Lakes residence.
- Debtors conceded a secured debt existed but contested U.S. Bank's standing and the proper creditor to receive payments.
- Debtors filed a second amended plan attempting to treat the secured claim as unsecured and withheld payments pending claim resolution.
- Bankruptcy court denied confirmation of the second amended plan and later converted the case to chapter 7 for cause.
- Court allowed consolidation of the claim objection and adversary proceeding but ultimately found lack of good faith and delay justifying conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the court abuse its discretion denying confirmation? | Thoreau de la Salle claim plan premised on disputed claim; payments not feasible. | U.S. Bank's secured claim not provided for; plan unconfirmable under §1322/§1325; bad faith delay. | No abuse; plan failed to provide for secured claim and feasibility. |
| Did U.S. Bank have standing as a party in interest to seek dismissal or conversion? | Bank lacked proper standing due to disputed claim and adversary issues. | Bank remained a creditor and thus a party in interest under §1307(c) to seek conversion. | Bank had standing as a creditor/party in interest to seek conversion. |
| Was the conversion to chapter 7 proper under §1307(c)? | Conversion premature and prejudicial; unresolved claim dispute and ongoing adversary proceedings. | Delay, failure to propose a plan, and lack of good faith warranted conversion for creditors' best interests. | Yes; conversion was proper for cause and in creditors’ best interests. |
Key Cases Cited
- In re Eisen, 14 F.3d 469 (9th Cir. 1994) (totality of circumstances for bad faith and dismissal decisions)
- In re Ellsworth, 455 B.R. 904 (9th Cir. BAP 2011) (two-step §1307(c) abuse of discretion framework; good faith)
- In re Johnston, 149 B.R. 158 (9th Cir. BAP 1992) (creditor as party in interest for conversion/dismissal)
- In re Torres Martinez, 397 B.R. 158 (1st Cir. BAP 2008) (analogous consideration of standing in bankruptcy contexts)
- USAA Fed. Sav. Bank. v. Thacker (In re Taylor), 599 F.3d 880 (9th Cir. 2010) (standing and procedural posture in bankruptcy appeals)
- Brown v. Sobczak (In re Sobczak), 369 B.R. 512 (9th Cir. BAP 2007) (standing de novo review standard)