500 B.R. 288
1st Cir. BAP2013Background
- Zizza, a Massachusetts attorney, filed two state-court personal injury actions (Duffy and Sapienza) after automobile accidents.
- She filed a voluntary Chapter 13 petition on March 6, 2011 and failed to disclose the two lawsuits on Schedule B and the Statement of Financial Affairs.
- Shortly after filing, she dismissed her first personal injury attorney, then engaged Guerrera to pursue the Duffy suit without court approval of employment.
- Zizza amended Schedule B in Sept. 2011 to add assets but again did not disclose the lawsuits; Sapienza lawsuit settled for $20,000 later that year.
- Trustee moved to dismiss/convert in Oct. 2012 for bad-faith conduct; Zizza informed counsel only after plan payment issues arose; she amended Schedule B/C in Oct. 2012 to list the suits as assets and exemptions.
- At a Jan. 22, 2013 hearing, the bankruptcy court converted the case to Chapter 7 for lack of good faith; Zizza challenged but the court denied reconsideration and affirmed the conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bad faith supported conversion under §1307(c). | Zizza argues no bad faith and that conversion was wrongful. | Trustee argues failure to disclose assets and lack of good faith justify conversion. | Conversion affirmed; evidence supports lack of good faith. |
| Whether failure to disclose lawsuits constitutes bad faith under totality of circumstances. | Advances belief that suits were not viable and reliance on counsel. | Disclosures were required; failure shows bad faith regardless of counsel’s involvement. | Yes, disclosure duty violated; supports bad faith finding. |
| Whether the absence of an evidentiary hearing requires reversal. | Should have an evidentiary hearing before converting. | No automatic right to an evidentiary hearing; hearing decision within court’s discretion. | No abuse of discretion; no mandatory hearing required. |
Key Cases Cited
- In re Sullivan, 326 B.R. 204 (1st Cir. BAP 2005) (totality of circumstances test for good faith in Chapter 13)
- In re Cabral, 285 B.R. 563 (1st Cir. BAP 2002) (good faith and misrepresentation considerations in §1307 analysis)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (Supreme Court 2007) (good faith and discretion in Chapter 7 dismissal/conversion)
- In re Torres Martinez, 397 B.R. 158 (1st Cir. BAP 2008) (two tranches of good faith in Chapter 13: petition and plan)
- In re Abijoe Realty Corp., 943 F.2d 121 (1st Cir. 1991) (defined notice/hearing requirement in §102(1)(A))