Wendy M Dale, 610 B.R. 524

Wendy M. Dale filed Chapter 7 on November 8, 2018; her pending employment suit against Red Hat (filed June 6, 2018) was estate property.
In her original schedules she valued the employment claim at $32,000,000; she later amended schedules to value it at $0 and claimed a North Carolina exemption, prompting trustee objections and a limitation of the exemption to the statutory cap.
Trustee moved to approve a compromise: Red Hat to pay $54,450 total (with $10,000 to the estate for trustee time/expense and the balance to the estate) to resolve the employment claims.
Debtor opposed the proposed settlement as grossly undervaluing the claim and, after the trustee moved to compromise, filed to convert the Chapter 7 case to Chapter 13 to regain control of the lawsuit and propose a plan.
Trustee opposed conversion, arguing Dale lacks the ‘‘regular income’’ required under §109(e), cannot propose a feasible Chapter 13 plan (Ascendium student-loan claim remains allowed), and that the conversion was not filed in good faith.
The court denied the conversion (finding lack of regular income, bad faith, and authority under §105(a) to refuse conversion) and approved the trustee’s compromise as within the range of reasonableness.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether debtor may convert Chapter 7 to Chapter 13	Dale: absolute right to convert; she now has employment and can fund a 3–5 year plan and would pay creditors at least as much as Chapter 7	Trustee: Dale lacks required "regular income," cannot fund a confirmable plan (allowed claims include a $61,656.76 student-loan claim and the $54,450 liquidation amount), and the conversion is bad-faith to regain control of the lawsuit	Denied: conversion denied — debtor lacks regular income under §109(e), motion filed in bad faith under §1307(c), and denial appropriate under §105(a) given misrepresentations and intent to abuse process
Whether trustee’s proposed settlement of Employment Action for $54,450 should be approved	Dale: settlement is unreasonable, trustee undervalues the claim (she asserted up to $32 million) and failed to pursue full value	Trustee: settlement reflects assessment of litigation risks, evidentiary weaknesses, collection issues, cost/duration of litigation, and is within a reasonable range for creditors’ interests	Allowed: court applied informed, independent judgment (considering probability of success, collection difficulties, complexity/cost/delay, and creditors’ interests) and found the compromise within the range of reasonableness

Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007) (conversion right limited by qualification as a chapter debtor; bad faith and §105(a) authority)
Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968) (bankruptcy court must employ informed, independent judgment in approving settlements)
In re Bond, 16 F.3d 408 (4th Cir. 1994) (standard for bankruptcy court’s review of compromises)
In re Cajun Elec. Power Corp., 119 F.3d 349 (5th Cir. 1997) (court need not conduct a mini-trial when approving settlements)
In re American Reserve Corp., 841 F.2d 159 (7th Cir. 1987) (bankruptcy court well positioned to assess equities and reasonableness of compromise)