Marrama v. Citizens Bank of Massachusetts
Marrama filed a chapter 7 bankruptcy petition. Seven months earlier, he had transferred a piece of real estate worth $85,000 into a trust. In his chapter 7 filings, Marrama represented that the trust had no value and that he had not made any transfers of real estate in the previous year. When the chapter 7 bankruptcy trustee questioned Marrama about the trust, he responded by moving to convert his chapter 7 bankruptcy petition into a chapter 13 bankruptcy petition in bankruptcy court. Chapter 13 allows a bankrupt person to retain more of his assets by paying off his debts with salary over a number of years. Citizens Bank, a creditor of Marrama, opposed the conversion, arguing that Marrama had filed a bad faith bankruptcy petition by intentionally trying to conceal an asset, and therefore he should not be allowed to convert his bankruptcy petition to save the asset. Marrama maintained that the language of Bankruptcy Code § 706(a), which states that “[t]he debtor may convert a case under [chapter 7] to a case under chapter 11, 12, or 13 at any time,” gives him the right to convert regardless of bad faith.
The bankruptcy court denied the conversion because of Marrama’s bad faith petition. The bankruptcy appeal panel affirmed the lower court’s decision. Marrama appealed to the United States Court of Appeals for the First Circuit, which upheld the panel’s ruling. The court held that, considering that the goal of bankruptcy court is to prevent people from abusing the bankruptcy process, the court can deny conversion for bad faith. The word “may” in § 706(a) can be conditional, and “at any time” just means that a person can petition to convert at any time.
The question presented, therefore, is whether the right to convert a chapter 7 bankruptcy case to another chapter can be denied notwithstanding
the plain language of the statute and the legislative history.