519 B.R. 860
Bankr. D. Wyo.2014Background
- Debtor filed a voluntary Chapter 11 on Oct 18, 2013 while incarcerated; power of attorney by spouse allowed her to act for Debtor before the court.
- Bank sought conversion to Chapter 7 under §1112(b) alleging bad faith, substantial loss, mismanagement, failure to timely file reports, and failure to attend the §341 meeting.
- Debt is secured by Bear Claw Ranch and properties at 5, 23, and 20 Columbus Drive; appraised values shown for liquidation analysis.
- Debtor’s spouse, via POA, prepared petition/schedules and operated the bankruptcy finances; Debtor anticipated large post-release income and an active plan.
- Estate has near break-even cash flow with subsidies from Sistrunk; Debtor intends to liquidate assets and pay creditors from proceeds.
- Bank’s collateral equity cushion was over $2.8 million but eroding daily; debtor argued for liquidation under Chapter 11 rather than reorganization.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the case should be converted for cause under §1112(b) | Bank argues cause due to bad faith and ongoing losses. | Debtor argues unusual circumstances and plan viability. | Converted case denied; unusual circumstances exist, but motion denied. |
| Whether Debtor filed in bad faith | Bank alleges bad faith to preserve property value. | Debtor credible; admitted aim to halt foreclosure and liquidate assets. | No bad faith found. |
| Whether there is substantial and continuing loss or no rehabilitation | Bank claims continuing loss/diminution. | Debtor can liquidate and rehabilitate via sale proceeds. | There is ongoing loss but rehabilitation not foreclosed; liquidation possible. |
| Whether there was gross mismanagement of the estate | Bank asserts post-petition mismanagement and reporting failures. | Debtor and Sistrunk handled finances; reporting lapses occurred. | Gross mismanagement found; cause to convert established on this ground. |
| Whether debtor unexcusedly failed to satisfy filing/reporting requirements | Bank notes missed/late post-petition reports and tax returns. | Extensions and later compliance; some reports filed late. | Late/missed reports established cause to convert under §1112(4)(F). |
Key Cases Cited
- In re Vaughan Company, Realtors, 2013 WL 2244285 (Bankr.N.M. 2013) (background on §1112(b) unusual circumstances)
- In re L & T Machining, Inc., 2013 WL 3368984 (Bankr.Kan. 2013) (§1112(b) factors and good faith)
- In the Matter of Little Creek Development Company, 779 F.2d 1068 (5th Cir.1986) (equitable considerations in bankruptcy)
- In re Rent-Rite Super Kegs West Ltd., 484 B.R. 799 (Bankr.D.Colo.2013) (precedent on chapter 11 conversion standards)
- In re Builders Group & Dev. Corp., 2014 WL 1873412 (Bankr.D.P.R. 2014) (relevant §1112 considerations)
- In re Patel, 2012 WL 3764523 (Bankr.W.D.Ark. 2012) (case on reporting and administration duties)
- In re Halal 4 U LLC, 2010 WL 3810860 (Bankr.S.D.N.Y. 2010) (illustrative on mismanagement)