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FILED

OCT 26 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOTFOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. SC-14-1388-JuKlPa

)

JASON SCOTT BROWN, ) Bk. No. 13-11913

)

Debtor. )

______________________________)

)

JASON SCOTT BROWN, )

)

Appellant, )

)

v. ) M E M O R A N D U M*

)

THOMAS H. BILLINGSLEA, JR., )

Chapter 13 Trustee, )

)

Appellee. )

______________________________)

Submitted Without Oral Argument

on July 23, 2015**

Filed - October 26, 2015

Appeal from the United States Bankruptcy Court

for the Southern District of California

Honorable Margaret M. Mann, Bankruptcy Judge, Presiding

_________________________

Appearances: Michael G. Doan of Doan Law Firm on brief for

appellant; Todd Headden on brief for appellee.

______________________________

* This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

** The parties to this appeal filed a motion and stipulation

for submission of the appeal on the briefs. By order entered on

May 13, 2015, the Panel determined that oral argument was not

needed and that this appeal is suitable for submission on the

briefs and record without oral argument pursuant to Rule 8012.

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Before: JURY, KLEIN,*** and PAPPAS, Bankruptcy Judges.

Debtor Jason Scott Brown (Debtor) appeals from the

bankruptcy court’s order converting his chapter 131 case to one

under chapter 7. We AFFIRM.

I. FACTS

On July 20, 2012, Debtor’s father died intestate. On

June 13, 2013, probate was initiated. Debtor was the personal

representative of the probate estate. In this capacity, Debtor

filed documents in the state court probate proceedings which

stated that his three brothers each assigned and abandoned to

him their beneficial interests in the father’s estate. Debtor

also arranged to sell his father’s home which was the only

significant asset owned by the probate estate. The sale of the

home closed on December 16, 2013, and generated net proceeds of

$65,812. 

Three days before the closing, on December 13, 2013, Debtor

filed a bare bones chapter 13 petition. Thomas H. Billingslea

was appointed the chapter 13 trustee (Trustee). Eleven days

later, Debtor filed his schedules and chapter 13 plan which

proposed $520 monthly payments over thirty-six months. The plan

*** Hon. Christopher M. Klein, Chief United States Bankruptcy

Judge for the Eastern District of California, sitting by

designation.

1 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure and “Civil Rule” references are to the Federal Rules of

Civil Procedure.

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paid three secured creditors in full and proposed a 0% dividend

for unsecured creditors.

In Schedule B, Debtor listed an anticipated inheritance of

$2,500 which he claimed fully exempt in Schedule C. In

Schedule F, Debtor listed unsecured claims in the amount of

$33,499. At the time Debtor filed his petition he was

unemployed and collecting social security. Debtor indicated

that he was renting garage space to run an automotive repair

business and expected his income to increase within the next

year.

At the § 341(a) meeting, Debtor’s counsel and Trustee’s

counsel signed a pre-confirmation modification to the chapter 13

plan (PCM). The PCM resolved Trustee’s objection to the length

of the plan by requiring Debtor to turn over $3,224 in probate

proceeds within forty-five days of receipt because the plan

needed to pay a car creditor more funds. 

On April 11, 2014, the probate estate closed and Debtor

distributed to himself $55,487.97 as the sole beneficiary of his

father’s estate. Debtor did not amend his schedules at this

time to include the increased inheritance or claim any further

exemption in the amount received.

In late April, Trustee objected to Debtor’s plan and moved

to dismiss his case. Trustee argued that since Debtor’s plan 

did not make the non-exempt portion of the inheritance proceeds

available to pay creditors it failed the best interest of

creditors test under § 1325(a)(4). Trustee further asserted

that any confirmation order should be contingent upon Debtor’s

forwarding a check to Trustee’s lockbox account in the amount of

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$37,569 and a PCM increasing the pro-rata pot for payment to the

general unsecured creditors to $34,563. 

Attached to Trustee’s objection was the petition for final

distribution from the probate estate. This document showed that 

Debtor’s brothers each filed assignments of their beneficial

interests in the inheritance to Debtor with the probate court on

August 7, 2013, and that $55,487.97 was available for

distribution. 

On May 9, 2014, Debtor’s counsel resigned from the Doan Law

Firm and a new attorney was assigned to his bankruptcy case.

On the same day, Debtor filed a response to Trustee’s

objection. Debtor asserted that his equitable share of his

father’s estate was $12,372 and fully exempt. Thus, according

to Debtor, his plan did not need to be modified. In the

attached declaration, Debtor stated that he and his three

brothers were each entitled to 25% of the inheritance. Debtor

requested the bankruptcy court to confirm his plan as proposed

or, in the alternative, allow him additional time to negotiate

an alternative plan. 

On May 20, 2014, Trustee filed a status report noting that

Debtor was the sole beneficiary of his father’s estate because

his siblings assigned their interest to him. Despite this

assignment, Debtor now asserted a contrary position — that his

three brothers “would receive their fair share.” In light of

this development, Trustee requested the bankruptcy court to

refrain from granting any request for voluntary dismissal

without a hearing to allow Trustee to consider conversion.

The bankruptcy court held an initial hearing on Trustee’s

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objection to Debtor’s plan on May 27, 2014. The matter was

continued to July 8, 2014, to allow the parties to present

additional evidence regarding distribution of the father’s

estate.

Trustee subsequently filed an amended objection to Debtor’s

plan and sought conversion to chapter 7 instead of dismissal. 

Trustee maintained that conversion was appropriate because

Debtor failed to disclose his inheritance which was an abuse of

the bankruptcy system under the holding in Rosson v. Fitzgerald

(In re Rosson), 545 F.3d 764, 767 (9th Cir. 2008). Trustee also

renewed his request that Debtor turn over the non-exempt portion

of the funds and provide a PCM increasing the pro-rata to

unsecured creditors to $34,563 so that the plan complied with

the best interest of creditors test. If Debtor refused to

comply, Trustee requested the court to convert the case to

chapter 7 for a panel trustee to seek turnover of the funds and

request any other remedies available to the trustee. Attached

to the amended objection were Debtor’s brothers’ assignments of

their beneficial interest in the inheritance to Debtor and a

document showing Debtor had received $55,487.97 from the probate

estate on April 1, 2014.

On June 17, 2014, Debtor’s counsel filed a status report

advising the court that Debtor had misunderstood that the

inheritance funds were property of his estate and that he could

propose a 100% plan once he objected to a certain creditor’s

claim. 

Trustee later filed a status report stating that Debtor

appeared to acknowledge that the inherited property was part of

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the bankruptcy estate and that the unsecured creditors should be

provided a substantial pro-rata payment. Trustee also stated

that Debtor’s counsel indicated that he needed additional time 

to present a confirmable and feasible plan which provided the

necessary pro-rata payments. 

In a June 26, 2014 amended status report, Trustee again

expressed his concern that while Debtor was trying to formulate

a confirmable plan, the liquid assets of his estate would

continue to diminish. Trustee requested Debtor to deposit the

remaining funds in his counsel’s client trust account, provide a

declaration concerning the transfers to his brothers, and

provide bank statements and cancelled checks. If Debtor failed

to deposit $37,569 into his counsel’s client trust account by

the hearing, Trustee requested immediate conversion to

chapter 7. 

At the July 8, 2014 continued hearing on Trustee’s

objection to confirmation of Debtor’s plan, without being sworn

in, Debtor explained to the court that his share of the

inheritance went into his business and the balance was paid in

cash to two brothers and by check to a third brother. The

bankruptcy court did not make any findings of bad faith at that

hearing, stating that it would require an adversary proceeding

or an evidentiary proceeding to decide whether Debtor acted in

bad faith. Nonetheless, the court opined that since the only

apparent source of assets to pay creditors had been dissipated,

Debtor’s pursuit of the chapter 13 plan could not be in good

faith. The bankruptcy court also found that cause existed for

conversion because a chapter 7 trustee would be better suited to

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investigate Debtor’s transfers to his brothers and bring any

fraudulent transfer claims. 

Debtor’s counsel represented to the court that he had been

unable to provide an accounting since several of the transfers

were to Debtor’s brothers in cash. Further, when the bankruptcy

court indicated that it would convert the case, Debtor’s counsel

asserted Debtor’s right under § 1307(b) to dismiss his case. 

The bankruptcy court then ordered conversion of the case,

finding there was an abuse of the bankruptcy process, relying on

In re Rosson. When Debtor’s counsel requested an opportunity to

distinguish Rosson, the court stated: “You have that

opportunity. You may object to the order in the ordinary

course.”

On July 25, 2014, the bankruptcy court entered the order

converting Debtor’s chapter 13 case to chapter 7 under § 1307(c)

for cause. The order provided in part: 

After inquiry by the Court regarding Debtor’s

inheritance of $55,487.97; the Court finds Debtor's

actions constituted an abuse of the bankruptcy system

and were not filed in good faith.

The Court grants the Trustee’s motion to convert to

chapter 7 under section 1307(c) for cause for the

following reasons:

1) Debtor’s proposed plan (Docket # 11) as modified by

Pre-Confirmation Modification form (Docket # 24)

provides a 0% dividend to the general unsecured

creditors;

2) Debtor has provided no evidence indicating that a

modified plan is feasible;

3) Debtor ignored the entered Pre-Confirmation

Modification form (Docket #24) whereby Debtor would

turnover $3,224 within 45 days of receipt of the

inheritance and thus is in default on his plan

payments;

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4) Despite knowledge to the contrary, Debtor did not

correct inaccurate schedules; and,

5) Debtor intentionally spent money of the estate and

transferred the funds to relatives. As such, an

independent party is needed to evaluate whether the

estate should bring fraudulent conveyance actions

[against] these parties.

6) The Court finds that the “best interest of the

creditors” is served by conversion to chapter 7.

Debtor filed an amendment to his schedules on August 8,

2014, updating the value of the inheritance and claiming his

exemption.

On August 11, 2014, Debtor filed a notice of appeal from

the bankruptcy court’s order converting his case. 

On the same day, Debtor filed a motion for reconsideration,

the substance of which was that § 1307(c) required both a

finding of cause and that conversion be in the best interest of

the creditors and the estate. Debtor maintained that the

bankruptcy court’s findings at the initial conversion hearing

did not expressly state any of the grounds set forth in

§ 1307(c) for cause. Debtor also argued that since most of the

inheritance was transferred pre-conversion, the inheritance was

no longer part of the estate under § 348(f)(1)(A).

After a hearing on the matter, the bankruptcy court

supplemented its previous findings of fact and conclusions of

law in a memorandum decision denying Debtor’s motion for

reconsideration.2 The court found that the undisputed facts

2 In essence, Debtor’s motion was a request for

clarification and reconsideration. Under Civil Rule 52(b),

incorporated by Rule 7052, the bankruptcy court had discretion to

amend its findings - or make additional findings - and amend the

(continued...)

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demonstrated three separate statutory grounds for conversion

under § 1307(c). That section provides in relevant part: 

(c) Except as provided in subsection (f) of this

section, on request of a party in interest or the

United States trustee and after notice and a hearing,

the court may convert a case under this chapter to a

case under chapter 7 of this title, or may dismiss a

case under this chapter, whichever is in the best

interests of creditors and the estate, for cause,

including--

(1) unreasonable delay by the debtor that is

prejudicial to creditors; 

. . . .

(4) failure to commence making timely payments under

section 1326 of this title; 

. . . . 

(5) denial of confirmation of a plan under

section 1325 of this title and denial of a request

made for additional time for filing another plan or a

modification of a plan; . . . .

First, the bankruptcy court determined that its findings at

the prior conversion hearing supported a determination of cause

under § 1307(c)(4); i.e., Debtor’s failure to turn over the one

time plan payment of $3,224 within 45 days of receipt of the

inheritance as required under the PCM. Instead, the court

observed that Debtor spent the money, could not account for it,

and blamed his counsel. 

Next, the bankruptcy court found cause for conversion under

§ 1307(c)(5). The court noted that at the July 8, 2014 hearing,

it denied confirmation of Debtor’s plan and denied Debtor’s

request to modify the plan to render it a 100% plan. The

2(...continued)

conversion order accordingly.

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bankruptcy court found the undisputed evidence showed that

Debtor could not fund a 100% plan since he transferred the

inheritance funds and he otherwise lacked cash flow to fund a

100% plan. In that regard, the court pointed out that Debtor’s

amended schedules filed after conversion reflected that his net

monthly income from his business at the time of conversion was

$2,052.17. According to the court, this was insufficient to

cover his previous living expenses of $2,266 set forth in his

original Schedule J. 

Finally, the bankruptcy court found cause existed under

§ 1307(c)(1) due to Debtor’s delay in confirming a plan that had

been prejudicial to creditors. The court observed that Debtor’s

case had been pending for seven months, during which time Debtor

received funds belonging to the estate of $55,487.97, an amount

sufficient to pay his creditors in full. Yet, during a three

month period, Debtor may have spent all of the money despite

Trustee’s pending claims to it and has never accounted for it. 

The court found that the loss of the money was clear prejudice.

The bankruptcy court then concluded it did not need to

reconsider its finding that conversion was in the best interests

of creditors. The court simply noted that conversion would

result in the appointment of a chapter 7 trustee who would have

standing to assert avoiding powers against Debtor and his

brothers. The court also rejected Debtor’s argument that

conversion would not be in the best interests of creditors since

the inheritance was already spent. According to the bankruptcy

court, this premise did not apply when Debtor acted in bad

faith.

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The bankruptcy court also considered the test for bad faith

set forth in Drummond v. Welsh (In re Welsh), 711 F.3d 1120,

1129 n.45 (9th Cir. 2013) (citing Leavitt v. Soto

(In re Leavitt), 171 F.3d 1219 (9th Cir. 1999)):

1. whether the debtor misrepresented facts in his

petition or plan, unfairly manipulated the Bankruptcy

Code, or otherwise filed his petition or plan in an

inequitable manner;

2. the debtor’s history of filings and dismissals;

3. whether the debtor only intended to defeat state

court litigation; and

4. the presence of egregious behavior.

The court found factors 1 and 4 were amply supported by the

evidence and that the other two factors were not applicable. 

As to factor one, the bankruptcy court found that whether

Debtor was misguided or not, he intentionally spent the

inheritance rather than pay his creditors despite Trustee’s

demands and Debtor was less than candid in his bankruptcy

disclosures in pursuing this aim. The court found the facts

similar to those in Rosson in that substantial property of the

estate was gone because Debtor ignored Trustee’s demands for the

inheritance and Debtor failed to provide an accounting.

The bankruptcy court also explained that ample evidence of

concealments supported its finding that Debtor intentionally

abused the bankruptcy system: (1) Debtor made inaccurate

statements that his inheritance was only worth $2,500, when he

had arranged the sale of property that generated $65,812 in

proceeds, and he had possession of this money before his

schedules were filed; (2) Debtor proposed a 0% plan when the

funds he now admits he was entitled to receive would have paid

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his creditors in full; (3) his claim that his brothers were

entitled to 75% of the inheritance was inconsistent when the

evidence showed Debtor had filed the brothers’ waivers with the

probate court, and these waivers were the reason Debtor alone,

not his brothers, received the probate estate net funds. Debtor

never explained why he filed these waivers himself, if he always

intended to respect his parents’ will; (4) Debtor never provided

an accounting of the funds that he had given his brothers and

was evasive when the court asked him about these gifts; and

(5) although Debtor blamed his counsel for his misguided

actions, Debtor alone was responsible for his conduct and acted

intentionally, particularly since there was no evidence showing

counsel’s knowledge that Debtor was holding over $65,000 in

inheritance when Debtor had scheduled the inheritance at $2,500. 

In the end, the court denied Debtor’s motion for reconsideration

by an order entered September 23, 2014.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (O).3 We have jurisdiction under

28 U.S.C. § 158.4

3 The bankruptcy court correctly concluded that it had

jurisdiction over Debtor’s motion for clarification and

reconsideration despite the fact Debtor had filed a premature

notice of appeal. Under Rule 8002(b), the notice of appeal

became effective with entry of the bankruptcy court’s order which

resolved the motion for reconsideration.

4 Debtor did not amend his notice of appeal to include the

order denying his motion for reconsideration. Nonetheless, we

conclude that his notice of appeal incorporates the bankruptcy

court’s supplemental findings of fact and conclusions of law

(continued...)

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III. ISSUE

Did the bankruptcy court abuse its discretion in converting

Debtor’s chapter 13 case to chapter 7?

IV. STANDARDS OF REVIEW

We review an order regarding conversion of a case for abuse

of discretion. In re Rosson, 545 F.3d at 771; Levesque v.

Shapiro (In re Levesque), 473 B.R. 331, 336 (9th Cir. BAP 2012).

We apply a two-part test to determine whether the

bankruptcy court abused its discretion. United States v.

Hinkson, 585 F.3d 1247, 1261–62 (9th Cir.2009) (en banc). 

First, we “determine de novo whether the [bankruptcy] court

identified the correct legal rule to apply to the relief

requested.” Id. Second, we examine the bankruptcy court’s

factual findings for clear error. Id. at 1262 and n. 20. We

must affirm the bankruptcy court’s factual findings unless we

determine that those findings are “(1) ‘illogical,’

(2) ‘implausible,’ or (3) without ‘support in inferences that

may be drawn from the facts in the record.’” Id.

Bad faith is a factual finding reviewed for clear error.

Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth),

455 B.R. 904, 914 (9th Cir. BAP 2011).

4(...continued)

which clarified or amended its previous findings on the

underlying conversion order. Further, Trustee had notice of the

issues on appeal and an opportunity to brief the issues that

arise out of both the underlying conversion order and the order

denying reconsideration. Accordingly, we discern no prejudice

from Debtor’s failure to amend his notice of appeal. See United

States v. Arkison (In re Cascade Rds., Inc.), 34 F.3d 756, 761-

762 n.5 (9th Cir. 1994).

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V. DISCUSSION

A. Legal Standards: Conversion for “Cause”

On request of a party in interest and after notice and a

hearing, the bankruptcy court may convert a chapter 13 case to

chapter 7, or may dismiss a case, whichever is in the best

interests of creditors and the estate, for cause. § 1307(c). 

Section 1307(c) sets forth a non-exclusive list of factors which

constitute “cause” for conversion or dismissal including 

unreasonable delay by the debtor that is prejudicial to creditors

(§ 1307(c)(1)); failure to commence making timely payments under

§ 1326 (§ 1307(c)(4)); and denial of confirmation of a plan under

§ 1325 and denial of a request made for additional time for

filing another plan or a modification of a plan (§ 1307(c)(5)). 

Section 1307(c) establishes a two-step analysis for dealing

with questions of conversion and dismissal. “First, it must be

determined that there is ‘cause’ to act. Second, once a

determination of ‘cause’ has been made, a choice must be made

between conversion and dismissal based on the ‘best interests of

the creditors and the estate.’” Nelson v. Meyer (In re Nelson),

343 B.R. 671, 675 (9th Cir. BAP 2006).

In addition to the non-exclusive statutory list of factors

under § 1307(c), the filing of a chapter 13 case in bad faith may

constitute cause for conversion. See In re Leavitt, 171 F.3d at

1224 (citing Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9th

Cir. 1994) (discussing bad faith in the context of chapter 13

case dismissal)). In determining whether cause exists based on a

bad faith filing, the bankruptcy court must assess the totality

of the circumstances. In re Eisen, 14 F.3d at 470. This

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assessment includes consideration of the following four factors:

1. whether the debtor misrepresented facts in his

petition or plan, unfairly manipulated the Bankruptcy

Code, or otherwise filed his petition or plan in an

inequitable manner;

2. the debtor's history of filings and dismissals;

3. whether the debtor only intended to defeat state

court litigation; and

4. the presence of egregious behavior.

In re Welsh, 711 F.3d at 1129 n.45. “The bankruptcy court is not

required to find that each factor is satisfied or even to weigh

each factor equally.” Khan v. Curry (In re Khan), 523 B.R. 175,

185 (9th Cir. BAP 2014) (citing Meyer v. Lepe (In re Lepe),

470 B.R. 851, 863 (9th Cir. BAP 2012)(in the context of a good

faith determination at plan confirmation, the Panel noted that

two of the Leavitt factors were inapplicable to the case on

appeal)). Rather, “[t]he . . . factors are simply tools that the

bankruptcy court employs in considering the totality of the

circumstances.” In re Khan, 523 B.R. at 185. 

So long as the bankruptcy court applied these legal

standards to the facts, it was for the bankruptcy court, as the

trier of fact, to determine whether there was “cause” for

conversion based on either § 1307(c) or bad faith grounds and to

determine whether conversion was in the best interest of

creditors and the estate.

B. “Cause” For Conversion Under § 1307(c)

1. Section 1307(c)(1)

Under § 1307(c)(1), the bankruptcy court may convert a

chapter 13 case to one under chapter 7 “. . . . for cause,

including . . . (1) unreasonable delay by the debtor that is

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prejudicial to creditors.” Debtor argues that this provision

does not apply because first, there was no unreasonable delay

that was prejudicial to creditors when he was current on plan

payments the entire time and second, a PCM could have been

entered at the July 8, 2014 hearing allowing a 100% plan and

immediate disbursal to creditors. 

We are not convinced. The bankruptcy court’s conclusion

that there was unreasonable delay which was prejudicial to

creditors was adequately supported by inferences drawn from the

facts presented at the underlying hearings. The record shows

Debtor’s case was pending for seven months during which time he

received funds of $55,487.97. The non-exempt portion of those

funds was sufficient to pay his unsecured creditors in full. 

Yet, despite Trustee’s numerous requests for him to turn over the

funds, Debtor disbursed the bulk of the money to his brothers and

then spent the rest. On these facts, it was not error for the

court to conclude that Debtor’s creditors suffered prejudice from

the loss of the money.

Indeed, nowhere does Debtor contend on appeal that the

bankruptcy court’s findings were clearly erroneous. Instead,

Debtor focuses on his “proposed” 100% plan and “timely” payments. 

Debtor’s focus is improper. First, the record shows that Debtor

never affirmatively “proposed” or “filed” a plan modification. 

Rather, Debtor’s counsel stated both in a pleading and at oral

argument that Debtor anticipated objecting to a certain proof of

claim and, if successful, Debtor “believed” that he could propose

and complete a plan that paid 100% of all allowed claims. 

Second, even if Debtor had affirmatively proposed such a plan, it

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was unconfirmable on its face when Debtor’s income was

insufficient to support the payments. Finally, the record

reflects that Debtor never made the $3,224 payment to Trustee

under the PCM. Therefore, contrary to his belief, he did not

make all the payments under his plan in a timely manner. 

Accordingly, the bankruptcy court did not err in finding “cause”

for conversion under § 1307(c)(1). 

2. Section 1307(c)(4) 

Under § 1307(c)(4), the bankruptcy court may convert a

chapter 13 case to one under chapter 7 “. . . . for cause,

including . . . (4) failure to commence making timely payments

under [§] 1326 of this title.” Section 1326, in turn, provides

that “[u]nless the court orders otherwise, the debtor shall

commence making payments not later than 30 days after the date of

the filing of the plan . . . in the amount . . . proposed by the

plan to the trustee.” 

Debtor maintains that § 1307(c)(4) cannot be a basis for

conversion of his case because he was current and timely on his

plan payments. Debtor further asserts that he did not turn over

the $3,224 to Trustee on the advice of counsel. In any event,

Debtor contends that his failure to pay the $3,224 to Trustee

does not matter since the PCM has no relation to § 1307(c)(4). 

These arguments fail.

Under § 1323 the debtor may modify the plan at any time

prior to confirmation. After the debtor files a modification,

“the plan as modified becomes the plan.” § 1323(b). Therefore,

the PCM required Debtor to make a payment of $3,224 to Trustee

within forty-five days of his receipt of the inheritance. Debtor

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does not dispute that he failed to make the payment as required

by the PCM. The requirement to make plan payments under

§ 1307(c)(4) applies when a debtor commences making payments but

then pays less than the plan requires. See In re Mallory,

444 B.R. 553, 558 (S.D. Tex. 2011) (citing In re Jenkins, 2010 WL

56003, at *2 (Bankr. S.D. Tex. Jan. 5, 2010) (finding cause for

dismissal of a case in which the debtor commenced making the

payments required in the proposed plan but paid an amount less

than required)). Therefore, the bankruptcy court did not err in

finding “cause” for conversion of Debtor’s case under

§ 1307(c)(4).

3. Section 1307(c)(5)

Under § 1307(c)(5), the bankruptcy court may convert a

chapter 13 case to one under chapter 7 “. . . . for cause,

including . . . (5) denial of confirmation of a plan under

section 1325 of this title and denial of a request made for

additional time for filing another plan or a modification of a

plan.” 

Debtor asserts that § 1307(c)(5) requires both a denial of

confirmation and a denial of a request made for additional time

to file another plan or modification of a plan. Debtor maintains

that the bankruptcy court never denied his request for additional

time to file a modified plan and thus this section does not

apply.

Debtor correctly states that under § 1307(c)(5) two elements

must exist to constitute “cause” for conversion: (1) denial of

confirmation; and (2) denial of a request for time to file a new

or a modified plan. In re Nelson, 343 B.R. at 675–76.

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We are persuaded that the second element of

§ 1307(c)(5) requires, at a minimum, that the court

must afford a debtor an opportunity to propose a new or

modified plan following the denial of plan

confirmation. Because the court did not offer the

debtor such an opportunity, the second element of

§ 1307(c)(5) was not satisfied. It follows that there

was no ‘cause’ to dismiss or convert the chapter 13

case under that authority.” Id. at 676.

Here, Debtor “proposed” a modified plan following the denial

of confirmation of his plan that proposed no payments to the

unsecured creditors. This proposal was in a pleading filed in

opposition to Trustee’s motion for conversion and made orally at

the conversion hearing. Although Debtor never affirmatively

filed a modified plan, the bankruptcy court found that Debtor

provided no evidence that his modified plan was feasible when his

income would not support a 100% plan and the inheritance, which

was the only source for 100% payment, was gone. While we held in

Nelson that the Bankruptcy Code contemplates that chapter 13

debtors “be afforded more than one opportunity to confirm a

Chapter 13 plan before the case is dismissed or converted

following denial of plan confirmation,” this does not mean the

bankruptcy court must grant infinite second chances to a debtor

when a modified plan fails confirmation standards on its face. 

See Nelson, 343 B.R. at 678. Any further continuance would have

been futile. We thus conclude that the bankruptcy court applied

the correct legal standards under § 1307(c)(5) and did not err in

finding “cause” for conversion.

C. Cause For Conversion: Bad Faith

The bankruptcy court explicitly found that under the four

factor test for determining bad faith set forth in Leavitt, two

of the four factors were present: (1) whether the debtor

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misrepresented facts in his petition or plan, unfairly

manipulated the Bankruptcy Code, or otherwise filed his petition

or plan in an inequitable manner and (2) the presence of

egregious behavior.

On appeal, Debtor argues that he never misrepresented facts

in his petition and plan. He valued his inheritance based on his

estimate of its worth. Further, Debtor maintains that he gave

notice to Trustee and the court of his intent to distribute the

inheritance to his brothers and, once he realized the legal

significance of the inheritance waivers in relation to bankruptcy

law, he proposed a 100% plan and amended his schedules. 

Debtor also contends that there was no egregious behavior. 

He filed his schedules in good faith, never concealed any assets,

and disclosed the inheritance in his schedules. Debtor asserts

that he “fully cooperated” with Trustee5 at all times and any

delay in amending his schedules was a direct result of his former

attorney resigning from the Doan Firm. In short, according to

Debtor, he acted in good faith throughout the entire process. 

Finally, Debtor argues that there was no testimony under oath and

an evidentiary hearing and, thus, the bankruptcy court based its

findings on speculation and assumptions.

In its bad faith analysis, the bankruptcy court opined that

the facts here were very similar to those in Rosson and Marrama

5 This contention is not supported by the record when Debtor

failed to turn over the funds despite numerous requests by

Trustee for him to do so. Furthermore, Trustee states in his

responsive brief that Debtor was not forthcoming with information

about the probate estate as all the information obtained was the

result of Trustee’s research and investigation.

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v. Citizens Bank of Mass., 549 U.S. 365, 368 (2007). In Rosson,

after filing a chapter 13 petition, Rosson assured the court and

his creditors that he would soon be receiving several hundred

thousand dollars in an arbitration award and that he would use

that money to fund his proposed Chapter 13 plan. When the money

finally came in, however, Rosson failed to deliver it to the

chapter 13 trustee as the bankruptcy court had ordered him to do. 

Upon discovering that the arbitration proceeds had not been

delivered to the trustee, the bankruptcy court found that Rosson

was “rebelliously” “horsing around” with estate assets and, on

its own motion, converted the chapter 13 case to one under

chapter 7. Before the court filed the formal conversion order,

Rosson invoked his right to voluntarily dismiss his chapter 13

petition under § 1307(b). The bankruptcy court denied the

request for dismissal and converted the case and its decision was

affirmed on appeal. 

In Marrama, the debtor filed a chapter 7 case and 

misrepresented the value of his principal asset, a house in

Maine, and also denied that he had transferred the property

during the preceding year. Marrama later admitted that he

transferred the property to a newly created trust for no

consideration seven months prior to his filing to protect the

property from his creditors. The chapter 7 trustee stated his

intention to recover the Maine property as an estate asset. 

Thereafter, Marrama sought to convert the proceeding to

chapter 13, but the trustee and respondent bank, Marrama’s

principal creditor, objected, contending that the request to

convert was made in bad faith and would constitute an abuse of

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the bankruptcy process. At the hearing on conversion, Marrama

explained that his statements about the Maine property were

attributable to “scrivener’s error,” and that he filed under

chapter 7 because he was unemployed and now that he was employed

he was eligible to proceed under chapter 13. The bankruptcy

judge denied Marrama’s request, finding under the totality of the

circumstances he had acted in bad faith.

On appeal, Debtor attempts to distinguish his case from the

bad faith conduct in Rosson and Marrama. Unlike Rosson, Debtor

maintains there was no court order for the turnover of the

inheritance funds. Moreover, unlike Rosson who failed to provide

any explanation of what happened to the missing funds, Debtor

maintains that he told the court at the July 8, 2014 hearing

exactly how the funds were disbursed. Finally, unlike Marrama,

Debtor maintains that he never lied to the court or took efforts

to conceal what he had done. Rather, the spending and transfer

of the inheritance took place with full disclosure. 

We are not persuaded by these arguments. As an initial

matter, the bankruptcy court properly considered the Leavitt four

factors for determining bad faith which are simply tools in the

bad faith totality of circumstances analysis. Thus, the

bankruptcy court applied the correct legal standards and only its

factual findings are at issue. We conclude there was no clear

error in the bankruptcy court’s finding of bad faith. 

In re Ellsworth, 455 B.R. at 914 (bad faith is a factual finding

reviewed for clear error). The facts Debtor points to as

evidence of his good faith as contrasted to those in Rosson and

Marrama do not make the bankruptcy court’s bad faith findings

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clearly erroneous. 

The bankruptcy court made numerous findings regarding

Debtor’s bad faith. The court found Debtor’s failure to provide

an accounting of the inheritance funds was bad faith as in

Rosson. The court also considered Debtor’s explanation for

disbursing the funds to his brothers, but found that his

explanation did not justify his actions when Trustee had made

demands on Debtor to place the funds in Trustee’s lockbox account

or deposit the funds in his counsel’s client trust account. The

bankruptcy court’s finding of bad faith derives further support

from several inconsistencies in Debtor’s disclosures. For

example, the evidence showed that Debtor already had the proceeds

from the sale of his father’s house at the time he filed his

schedules. Yet Debtor disclosed that he anticipated receiving

only $2500 from the probate estate. There is no explanation in

the record from Debtor as to how he came up with the $2500

number. Another example is that Debtor claimed his brothers were

entitled to 75% of the inheritance but his brothers had filed

waivers of their beneficial interests with the probate court. A

fair inference from these inconsistencies is that Debtor wanted

to withhold any non-exempt amount of the inheritance from his

unsecured creditors.

Debtor also argues that the bankruptcy court’s

interpretation of the facts is incomplete and not persuasive

evidence of bad faith because the court took no testimony and did

not conduct an evidentiary hearing. We reject these contentions. 

Debtor neither requested an evidentiary hearing, nor has he

identified what material facts are in dispute or what facts were

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not before the bankruptcy court which would influence its

decision. See Romley v. Sun Nat’l Bank(In re The Two “S” Corp.),

875 F.2d 240, 242 (9th Cir. 1989) (no purpose served by

evidentiary hearing if all facts are before bankruptcy court and

not disputed). 

In short, the record shows that there was sufficient

evidence before the bankruptcy court to support a finding of bad

faith. In reality, Debtor’s main complaint on appeal is that the

bankruptcy court misinterpreted the evidence before it. However,

when the evidence gives rise to competing interpretations, each

plausible, “the factfinder’s choice between them cannot be

clearly erroneous.” Anderson v. City of Bessemer City, N.C.,

470 U.S. 564, 574 (1985). In sum, the bankruptcy court relied on

substantial evidence in the record when determining Debtor’s bad

faith, and its factual inferences were permissible.

D. Best Interests of Creditors And The Estate 

On appeal, Debtor argues that the conversion was not in the

best interests of creditors and the estate because, had the case

remained in chapter 13 with a 100% dividend, creditors would have

been receiving payments since July 8, 2014. Debtor further

asserts that conversion cannot be in the best interests of

creditors since the inheritance has been eliminated as an asset

of the estate under § 348(f), thereby rendering the chapter 7

case a “no asset” case. Last, Debtor maintains that upon

dismissal, the creditors would have been free to immediately

collect against him and their security. Now, they will never be

able to collect due to the new “no asset” estate. In essence,

Debtor’s argument is that the creditors will fare worse under

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chapter 7. 

Once again, these arguments do not demonstrate error. When

a case under chapter 13 is converted to a case under another

chapter, “property of the estate of the converted case shall

consist of all property of the estate as of the date of filing of

the petition, that remains in the possession of or is under the

control of the debtor on the date of conversion. . . .”

§ 348(f)(1)(A). Under this section, all non-exempt assets in the

chapter 13 case would become property of the chapter 7 estate

unless the debtor had authority to dispose of the asset, either

by court order or pursuant to the Bankruptcy Code. Here, there

was no court order authorizing Debtor to dispose of the property

nor was Debtor’s conduct authorized under the Bankruptcy Code. 

Moreover, § 348(f)(1)(A) “was never designed to be a safe harbor

for Debtors who fraudulently and surreptitiously dispose of

property of the estate while in chapter 13.” Wyss v. Fobber

(In re Fobber), 256 B.R. 268, 279 (Bankr. E.D. Tenn. 2000). 

There is also no evidence in the record that showed Debtor’s

unsecured creditors had any avenue for prompt payment if Debtor’s

case was dismissed. As a consequence, we fail to see how

dismissal was more advantageous than conversion. Because the

inheritance was a potentially valuable asset and appointment of a

disinterested chapter 7 trustee would facilitate pursuit and

possible recovery of that asset to pay creditors, it is axiomatic

that conversion of Debtor’s case was in the best interests of the

creditors and the estate.

E. Absolute Right To Dismiss

To the extent Debtor argues that he has an absolute right to

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dismiss his case under § 1307(b) he is mistaken. The Ninth

Circuit in Rosson held that a chapter 13 debtor’s right of

voluntary dismissal under § 1307(b) was not absolute, but was

qualified by the authority of a bankruptcy court to deny

dismissal on grounds of bad faith conduct or “to prevent an abuse

of process.” 545 F.3d at 774 (citing § 105(a)).

VI. CONCLUSION

Having found no error, we AFFIRM.

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