(Published) - In re Burgher, Case No. 12-14410-SBB

In a case of first impression in the Tenth Circuit, the Bankruptcy Court rules that &sect;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 &sect;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.<br /><br /> 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.<br /><br /> 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.<br /><br /> The United States Trustee filed a Motion to Dismiss to which the Debtors objected arguing that pursuant to the language of &sect;707(b)(1), &sect;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 &sect;707(b) and after discussing the three different approaches bankruptcy courts have taken in deciding this question, the Court rules that &sect;707(b) does apply to cases converted to Chapter 7 from Chapter 13.<br /><br /> 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 &sect;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 &sect;707(b) to apply to cases converted to Chapter 7 with equal force.