465 B.R. 683
Bankr. N.D. Ga.2012Background
- Proudfoot seeks to convert Debtor Gordon's Chapter 7 case to Chapter 11; Debtor opposes on multiple grounds including constitutional challenges.
- Gordon's debts are primarily business debts; he owns underwater rental condos, a home with little equity, a Jaguar to reaffirm, and other non-consumer obligations.
- Debtor's income is high and inconsistent; Court adjusts Schedule I/Schedule J to estimate monthly net income at least $13,846, with potential higher projections depending on bonuses and expenses.
- Proudfoot argues conversion is in creditors' best interests to maximize the estate; Debtor argues conversion is unnecessary and claims constitutional issues bar it.
- Court conducts a § 706(b) analysis, concludes conversion is appropriate, and proceeds to address constitutional challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 706(b) apply to an individual non-consumer debtor? | Proudfoot contends § 706(b) applies to individuals with non-consumer debts. | Gordon argues § 706(b) was not intended to cover individuals and would violate constitutional protections. | Yes; § 706(b) applies to individual non-consumer debtors. |
| Is conversion to Chapter 11 in the debtor's best interests given ability to pay? | Proudfoot asserts debtor can pay via a Chapter 11 plan, maximizing creditor recoveries. | Gordon contends conversion is not in his best interests and would unnecessarily burden him. | Conversion is in the creditors' and estate's best interests given ability to pay. |
| Are the constitutional challenges to § 706(b) ripe or applicable on the facts? | N/A (standing/ripe issues argued by debtor; government weighs standing). | Gordon argues conversion and application of § 706(b) to individuals infringe the Thirteenth Amendment and Anti-Peonage Act. | Constitutional challenges are not ripe/standing lacking; mere conversion is not involuntary servitude. |
Key Cases Cited
- Toibb v. Radloff, 501 U.S. 157 (1991) (statutory interpretation; constitutional questions avoided if possible)
- U.S. v. Kozminski, 487 U.S. 931 (1988) (involuntary servitude requires compulsion by coercion or sanction)
- Clyatt v. U.S., 197 U.S. 207 (1905) (peonage involves compulsory service based on indebtedness)
- Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (current monthly income and disposable income calculations in bankruptcy)