Can a judge convert a completed chapter 13 to chapter 7

[AlbanyMan]

I am pro se. I completed my Chapter 13 payments, trustee issued the final account and default hearing held on discharge with no opposition. Pre-Petition I was hurt, did not know I had a possible Personal Injury Claim. The claim surfaced about 18months after plan completion, but before discharge was entered. Judge issued an order to show cause under 105(a) and converted my case to chapter 7 over my opposition. I am appealing. Does anyone have any feedback or know of case law? Nothing is ever simple.

[despritfreya]

Must admit, I have never had this situation in any of the cases the Firm has handled. Typically any post petition personal injury claim that my clients have are either disclosed or, depending upon the $$ involved, the client elects to dismiss the 13.

Let me think about what options you might have. If I have any suggestions, will post them.

In the mean time:

1. Did you try to pursue the cause of action?
2. If the answer to 1 above is "no", has the statute of limitations run?
3. If the answer to 1 above is “yes”, what was the outcome?

Since this was an asset of the bk estate (after acquired property is an asset in a 13), you needed to tell the court about it. If you pursued the claim you do have a problem.

Des.

[AlbanyMan]

Thanx for the fast reply. Here is the entire shortened history. Injured in an unusual situation while my truck was being repoed. Sheriff came said I interfered with a valid repo (altho I was current as of the day before). It happened in my own yard. I applied and received NYS No Fault. Filed Chapter 13 3 months later. I fully disclosed the No Fault and everyone knew plan payments were from the no fault. I had no idea that my injury was as extensive as it was, had no idea or ever considered it as a potential claim or asset and did not understand the Schedule B terms Contigent etc. so nothing regarding a personal injury action was listed on initial schedules. Plan was confirmed and under 1329 later modified and the modification returned all estate assets to the debtor. The personal injury lawyer was on the fense if there was anything there, he had the case to see where my medical issues went and if he could find witnesses. About 18 months following plan completion the Personal Injury lawyer filed a claim in state court. This was in Aug 2010. During that time I was dealing with my own illness, one parent in Hospice and the other having major bladder cancer surgery. I did not even think to look and see if I was required to report this right away. In late October 2010 or Early November the Personal Injury Lawyer informs me the Defendant is moving for dismissal on Estoppel grounds for my failure to list as an asset in my BK and that I should inform the Trustee and Court as my case was still open. I explained my Bk was over and the Court was only holding my discharge at my request, for release at any time, to protect me from a secured creditor I was actively involved with in an adversary proceeding. I proceeded to write the Trustee a letter and informed her of the situation and my thoughts regarding any possible recovery. There was no response, which I took as her agreement. After 30 days I decided to file an Amended Schedule B and I stated almost verbatim what I told the Trustee. I DID NOT FILE A SCHEDULE C. 33 days later and the court issued an OTC for failing to properly disclose a pre-petition asset and why the case should not be dismissed with prejudice based upon 105(a). The personal injury lawyer did an affirmation to the court. He said despite filing the claim in state court, he still was not convinced there was a claim and he only did it too see what discovery brought out. Which supports my understanding. Well the judge hit the roof over the other attorney filing a so called baseless suit and converted me to chapter 7 and said I could not use pro se as a defense. the fact that I had filed multiple bankruptcies and the very particular lanuage used. The court stated I prejudiced the creditors and attempted to restrict the courts jurisdiction over the potential asset. He was hearing nothing. I really thought I was doing the right thing. I am appealing. Even the Chapter 7 Trustee is not pursuing an appeal he could win if he were to seek it on a state level. 105(a) is broad, but man it seems the worst that should have happened was disallowance of the amendment. No exemption means no bad faith. I left it for the Trustee and Creditors to fight over.

I am suing in an adversary proceeding to hold my mortgage company to the binding effect of my confirmed plan.

I appreciate any feedback. Hope I answered and clairified.

RT

[despritfreya]

I am not sure where all this goes and I do not have any “words of wisdom”.

The asset (cause of action) was a pre petition asset and, as you now know, needed to be disclosed on Schedule B. The fact that your modified plan was confirmed thus vesting property back to you is not relevant. Assets not disclosed are never returned to the debtor. Further, it is more likely than not that regardless of vesting, your Trustee would have required language in the Order Confirming that left the cause of action in the bk estate. Therefore, any proceeds from the litigation would have belonged to your creditors (unless there was an available exemption). Even your state court attny may have a problem since he never filed an Application to be appointed as Special Counsel. If the attny was paid for his services he could be forced to disgorge the $$. I have no doubt that the Judge was ticked off at him for this very reason.

You might have “gotten away with it” (and I don’t mean that in a bad way, just couldn’t think of any other way to put it) except the defendant’s attny was smart enough to check Schedule B and discover your failure to disclose.

It sounds like you have a lot of history with the bk court (multiple filings) and that is playing a part in the Judge’s dislike for what happened. The question is whether or not converting to a 7 is a bad thing. What were you trying to accomplish in the 13?

Your post is a bit confusing. I thought you were still making Plan payments but you were post confirmation. You now indicate that you had completed payments and are waiting for your discharge. . . a discharge that you requested be delayed for some reason. You mentioned that you are involved in an adversary against your lender. Is this something that can be handled outside of bk. . . in state court? Or is it something unique to bk like stripping off a 2nd which you can’t do in a 7?

The bottom line is that the Court has the right to convert a case to a Chapter 7 if it finds that such conversion is in the best interest of the creditors or to carry out the provisions of the Code (105 issue). There is case law that states that such conversion can happen even if the debtor seeks a dismissal of a 13. Sounds like that is what happened. You may be appealing that decision but the standard used in “winning” the appeal is that you must show that the Judge’s actions were an “abuse of discretion” which, since a bk court has discretion in these matters, is unlikely to be met.

Again, I wish I could be of more help but I simply have no suggestions. . . at least not at this time.

Des.

[justbroke]

I was just studying cases such as this, in my need to find information on the affect of discharge in a "no asset" case on unscheduled debt. In all of the cases like yours, the fact came down to it was an omitted claim that should have been on Schedule B.

As Des says, the Court (on it's own accord or on motion by the Trustee or party in interest) can certainly convert a case to Chapter 7. This is only done where there appears to be issues in the paperwork and where the unsecured creditors could benefit. Your only defense to the conversion may be that the statute of limitations has run out and there is no benefit to the unsecured creditors. However, if they find that you purposefully omitted the claim, that's an area of the law you don't want to be found guilty of.

It also reads as though you knew that there might be a claim, sometime before you completed your plan and motioned for a discharge. It was at the point that you even thought about consulting a personal injury attorney, that you should have amended the schedules to reflect this. While it was certainly not intentional on your part to hide it, you did in fact, hide it... to the "likely" detriment of the Estate and your unsecured creditors.

By the way, your State court case for Estoppel is right out of the books! It was listed in so many cases that I recently read, that it wasn't even funny anymore. I'm sure you learned a lot about estoppel and why that is a great defense for the defendant.

I believe you find yourself where some attorneys who "play" with the court and find themselves subject to Rule 11 (FRBP 9011) violations. The judge could even sanction you, but that's usually reserved for attorneys.

There is no advice from me on this one. This is where a pro se debtor dabbled in Chapter 13 while trying to pursue a State Court action without notifying the Bankruptcy Court or the Trustee. If I were the BK Judge, I would have hit the roof as well. Your attorney and you tried to circumvent the Bankruptcy Court... even though you were just "testing" the waters on the personal injury case. My judge would probably have sanctioned you both.