In a case of first impression in the Tenth Circuit, the Bankruptcy Court rules that §707(b) of the Bankruptcy Code applies to cases converted from Chapter 13 to Chapter 7, as well as to cases filed under Chapter 7. Because the Debtors failed to show eligibility under §707(b) for Chapter 7 relief upon conversion from Chapter 13, the Debtors' failure to perform under their Chapter 13 plan necessitated a dismissal of their case.
The Debtors' confirmed Chapter 13 plan provided for payment to creditors in the following order: (1) Debtors' counsel, (2) non-dischargeable tax debts, (3) secured lenders on Debtors' residence and secured lenders on Debtors' vehicles; and (4) then Class Four non-priority unsecured creditors, to be paid $10,680.70 on filed poofs of claim totaling $29,019.19.
Two and four months into the Debtors' five year plan, and after payments in full to all classes of creditors, except for Class Four non-priority unsecured creditors, the Debtors filed a Notice of Conversion to Chapter 7. Class Four creditors had received nothing under the Debtors' Chapter 13 plan.
The United States Trustee filed a Motion to Dismiss to which the Debtors objected arguing that pursuant to the language of §707(b)(1), §707(b) dismissals applies only to cases initially filed under Chapter 7 and not to cases converted to Chapter 7 from Chapter 13. After reviewing the statutory language and goals of §707(b) and after discussing the three different approaches bankruptcy courts have taken in deciding this question, the Court rules that §707(b) does apply to cases converted to Chapter 7 from Chapter 13.
The Court finds that in light of the (a) larger context of the bankruptcy scheme, and particularly, the effects of conversion on a case pursuant to §348(a); (b) procedures prescribed in Rule 1019(2) of the Federal Rules of Bankruptcy Procedure regarding conversion; and (c) the overarching goals of BAPCPA of avoiding abuse of the Bankruptcy Code, and specifically, relief under Chapter 7― the most logical and compelling conclusion is that Congress intended §707(b) to apply to cases converted to Chapter 7 with equal force.