MARIAN F. HARRISON, Bankruptcy Judge.
This matter is before the Court upon the debtor's expedited motion to convert her case from Chapter 7 to Chapter 11. For the following reasons, which represent the Court's findings of fact and conclusions of law, pursuant to Fed. R. Civ. P. 52(a)(1), as incorporated by Fed. R. Bankr. P. 7052, and made applicable by Fed. R. Bankr. P. 9014(c), the Court finds that the motion should be denied.
The debtor, who is 80 years old and retired, filed a Chapter 7 petition on October 19, 2012. Prior to filing for bankruptcy protection, the debtor's son, Virgil Gordon, II, used the debtor to guarantee loans for his businesses, which were later dissolved. The debtor's son set up a trust on behalf of the debtor (with himself as beneficiary upon the debtor's death) and was instrumental in the filing of her bankruptcy petition. At this point in the case, it is clear that the debtor's son did not have the debtor's best interest at heart and that his actions led to the debtor's financial crisis. The debtor testified that in 2012 she trusted her son and thought that he had the most business knowledge of her five children. The debtor is currently estranged from her son and testified that she has removed his name from any legal documents he was on and removed him from her will.
When the debtor divorced in 2007, she was granted possession of property located at 1304 South 43
The debtor has drafted a plan which provides that the debtor will sell her assets that, upon such sale, shall enable all of her creditors to be paid in full. At a minimum, the debtor plans to sell her interest in the AutoZone property, however, there is no current appraisal as to the value of that property.
The debtor proposes to pay unsecured creditors, with an aggregated claim of $1,110,583.36, 100% with 3% interest by the end of four years. Under the plan, a trust account would be opened and controlled exclusively by a disbursing agent, who has not been named or approved. Presumably, this account would include funds already collected by the Chapter 7 Trustee, approximately $750,000, as well as the debtor's future income. On the effective date, the disbursing agent would pay to unsecured creditors $300,000 from the trust account. The balance owed to unsecured creditors would then be paid through the sale of any remaining assets within a four-year period.
In addition to rental income from the AutoZone property ($7873.17), an annuity ($519.17), and Social Security ($374.00), the debtor proposes to draw $4000.00 a month from the trust account in order to meet her monthly expenses, which include personal expenses ($2843.00), a car payment ($697.88), the mortgage payment on her residence ($2460.43), and the mortgage payment on the AutoZone property ($6634.17). The 80-year-old debtor is retired and has no prospect of employment.
The Chapter 7 Trustee has liquidated the majority of the debtor's assets, and the only remaining asset with potential equity is the AutoZone property. PennyMac Loan Services, LLC, (hereinafter "PennyMac"), has a pending motion for relief on the debtor's residence, and it appears that the debtor owes more on the mortgage than the property is worth. The same appears to be true with regard to the debtor's vehicle.
Section 706(a) of the Bankruptcy Code allows a debtor to convert a case from Chapter 7 to another chapter if the case has not previously been converted and the debtor is eligible to be a debtor under the chapter to which it is to be converted. The right to convert, however, is not absolute where cause may exist to convert or dismiss under the chapter to which the debtor seeks conversion or when denial of a conversion motion would serve to prevent "an abuse of process."
The debtor has the initial burden to show: (1) there has been no prior conversion in the case, (2) the debtor is eligible for relief under 11 U.S.C. § 109, and (3) conversion is to achieve a purpose permitted under the proposed chapter.
The debtor met her initial burden, so the issue becomes whether cause or bad faith have been established. When determining whether a debtor should be allowed to convert a case from Chapter 7 to Chapter 11, courts consider the "for cause" factors set forth in 11 U.S.C. § 1112(b) or whether the debtor has acted in bad faith.
Unfortunately, the Court finds that cause to dismiss or convert under 11 U.S.C. § 1112(b)(4) does exist. First, the Court finds that there is a substantial or continuing loss to the estate.
In addition, even if the debtor were able to confirm a plan, there is little chance that she would be able to effectuate it.
This is a sad situation, and the Court is sympathetic to the debtor. However, it is clear that allowing the debtor to convert her case to Chapter 11 will only delay the inevitable, and creditors have already had to wait almost three years to get paid.
For the foregoing reasons, the Court finds that the motion to convert should be denied.
An appropriate order will enter.