472 B.R. 706
E.D. Va.2012Background
- Mitrano filed a May 2010 Chapter 13 petition in the Southern District of West Virginia, while incarcerated.
- On June 13, 2011, the case was transferred to the Eastern District of Virginia; Mitrano later resided in Virginia and owned property there.
- Mitrano proposed three Chapter 13 plans; the latest (May 18, 2011) contemplated minimal ongoing payments and post-release funds, with no clear post-release term.
- The claims register showed unsecured, secured, and priority claims totaling substantial amounts, but did not reflect a $517,406.32 restitution judgment for child support.
- On July 29, 2011, the United States moved to Convert or Dismiss the Chapter 13 case, arguing bad faith, incomplete disclosures, and insufficient income to repay.
- The bankruptcy court granted conversion to Chapter 7, finding Mitrano acted in bad faith; Mitrano appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court erred by converting rather than dismissing under §1307(b). | Mitrano asserts an absolute right to dismissal under §1307(b). | Government argues bad faith can justify conversion under §1307(c), and Marrama permits restricting dismissal. | Conversion upheld; dismissal right limited by bad faith. |
| Whether bad faith supports conversion under §1307(c). | Mitrano contends no bad-faith basis existed to convert. | Government shows Mitrano’s misstatements and evasiveness demonstrate bad faith warranting conversion. | Yes, bad faith established; conversion appropriate. |
| Whether the record supports a finding of bad faith under the totality of circumstances. | Mitrano challenges the court’s reliance on his filing history and schedules. | Court properly considered repeated evasiveness, underreporting, and child-support related conduct as evidence of bad faith. | Record supports bad faith; supports conversion. |
Key Cases Cited
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (U.S. 2007) (bad-faith debtors may forfeit right to dismissal or conversion)
- In re Uzaldin, 418 B.R. 166 (Bankr.E.D.Va. 2009) (bad-faith as a factor in determining §1307(c) cause)
- In re Kestell, 99 F.3d 146 (4th Cir. 1996) (bad-faith in Chapter 13 as cause to convert)
- In re Rosson, 545 F.3d 764 (9th Cir. 2008) (bankruptcy court authority to deny dismissal for bad faith)
- Deans v. O’Donnell, 692 F.2d 968 (4th Cir. 1982) (Congress never intended Chapter 13 to shield nonpayment plans; honesty in debt repayment)