Kevin R. Huennekens, United States Bankruptcy Judge.
Before the United States Bankruptcy Court for the Eastern District of Virginia (the "Court") is the Motion to Convert Chapter 7 to Chapter 13 Under Section 706(a) [ECF No. 23] (the "Motion to Convert") filed by Jennifer Fletcher ("Mrs. Fletcher") and Matthew Fletcher ("Mr. Fletcher" and together with Mrs. Fletcher, the "Debtors") in this Chapter 7 bankruptcy case (the "Current Case"). For the reasons set forth below, the Court grants the Motion to Convert with respect to Mr. Fletcher but finds that Mrs. Fletcher is ineligible to be a debtor in bankruptcy. Therefore, the Court denies the Motion to Convert as to Mrs. Fletcher and dismisses her from the Current Case.
On August 2, 2016, Mrs. Fletcher, by counsel, filed a voluntary petition in this Court under Chapter 13 of Title 11 of the United States Code (the "Bankruptcy Code"), commencing case number 16-33816-KRH (the "Prior Chapter 13 Case"). Mr. Fletcher was not a debtor in the Prior Chapter 13 Case.
On February 20, 2017, Lakeview Loan Servicing, LLC ("Lakeview") filed a Motion for Relief from Automatic Stay and Co-Debtor Stay Pursuant to 11 U.S.C. § 1301 (C)(3) [Case No. 16-33816-KRH, ECF No. 39] (the "Motion for Relief from Stay") in the Prior Chapter 13 Case, seeking relief with respect to certain real property located at 10004 Erlwood Court, Fredericksburg, VA 22407 (the "Real Property"). To resolve the Motion for Relief from Stay, on April 6, 2017, the Court entered an Order Modifying Automatic Stay and Co-Debtor Stay [Case No. 16-33816-KRH, ECF No. 43] (the "Consent Order").
The Consent Order provided a payment schedule for the cure of a post-petition arrearage and required the regular contractual payments be maintained on the Real Property. In the event of a subsequent payment default, the Consent Order permitted Lakeview to "mail a notice of default to the debtor." Consent Order at ¶ 3.
On December 21, 2017, Lakeview filed a Notice of Default [Case No. 16-33816-KRH, ECF No. 49], alleging that Mrs. Fletcher was in default of the Consent Order. But Lakeview did not file a certificate of default, and no order terminating the automatic stay or co-debtor stay was
Five days after the Current Case was filed, Mrs. Fletcher filed a Notice of Dismissal of Case Under Section 1307(b) [ECF No. 51] in the Prior Chapter 13 Case, asking the Court to enter an order "dismissing her case and closing the estate as soon as practicable." This matter was never brought to the Court's attention or set for hearing, and no proposed dismissal order was submitted to the Court. Five months later, on February 6, 2019, Mrs. Fletcher filed a second Notice of Dismissal of Case Under Section 1307(b) [ECF No. 53] (the "Motion to Dismiss"), asking the Court for the same relief.
The same day Mrs. Fletcher filed her second Motion to Dismiss the Prior Chapter 13 Case, the Debtors filed the Motion to Convert in the Current Case. The Debtors seek to convert the Current Case to one under Chapter 13 of the Bankruptcy Code pursuant to section 706(a). On April 3, 2019, the Court held a hearing on the Motion to Convert. At the conclusion of the hearing, the Court took the matter under advisement, with the Debtors to submit supplemental briefing on whether section 109(g)(2) of the Bankruptcy Code barred Mrs. Fletcher from being a debtor in the Current Case, regardless of chapter. The Debtors submitted their memorandum of law
Section 706 controls the conversion of a Chapter 7 case to a case under another chapter of the Bankruptcy Code. Subsection (a) of section 706 provides, in relevant part, that a "debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307." 11 U.S.C. § 706(a). Notwithstanding subsection (a), "a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter." Id. § 706(d). Accordingly, a debtor's right to convert a case to chapter 13 is expressly conditioned on a debtor's "ability to qualify as a `debtor' under
Section 109 governs "[w]ho may be a debtor." 11 U.S.C. § 109. Subsection (g) applies to cases under all chapters and provides in pertinent part:
Id. § 109(g)(2).
In In re Sole, Judge Adams of this Court considered all three of these competing approaches to interpreting section 109(g)(2). 233 B.R. 347, 348-50 (Bankr. E.D. Va. 1998). The Court noted that interpretation of section 109(g)(2) had "not been addressed by the Fourth Circuit, nor ha[d] the matter been clarified by the District or Bankruptcy Courts for the Eastern District of Virginia." Id. at 348. Judge Adams explained first the equitable approach, which he observed requires "balancing the equities" of a case. Id. at 348-49; see also In re Brown, 534 B.R. 673, 676 (Bankr. E.D. Va. 2015). Courts using the equitable approach avoid applying section 109(g)(2) to limit debtor eligibility in cases where doing so would produce "absurd results that could not have been intended by Congress." In re Howard, 311 B.R. 230, 232 (Bankr. E.D. Wis. 2004).
Judge Adams turned next to the strict approach, which applies the plain language of section 109(g)(2) to "dictate[ ] a broad rule of dismissal." In re Sole, 233 B.R. at 349 (citing Andersson v. Sec. Fed. Sav. & Loan of Cleveland (In re Andersson), 209 B.R. 76 (6th Cir. BAP 1997); In re Keziah, 46 B.R. 551 (Bankr. W.D.N.C. 1985)). Courts that have adopted the strict approach hold that section 109(g)(2)'s eligibility constraint "is triggered anytime a voluntary dismissal follows the filing of a motion for relief." Id. at 348. Finally, Judge Adams turned to the causal approach, which looks for a "causal connection between the motion for relief and the dismissal of the case." In re Brown, 534
In re Sole, 233 B.R. at 350 (citing In re Duncan, 182 B.R. 156, 159 (Bankr. W.D. Va. 1995)).
Judge Adams was "convinced that this latter interpretation of Section 109(g)(2), rather than a strict interpretation, reflects both Congressional intent and the most natural and obvious reading of the statute." Id. The court held that "on a motion to dismiss based upon Section 109(g)(2) we will look for a causal connection between a motion for relief from the automatic stay and a debtor's subsequent request and receipt of a voluntary dismissal. Absent a causal connection, section 109(g)(2) is not triggered." Id. Utilizing this approach, the Court denied the trustee's motion to dismiss, finding "no causal connection between the agreed relief from stay and the much later voluntary dismissal of the debtors' first case." Id.
Since the issuance of the Sole decision, neither the District Court for the Eastern District of Virginia nor the Fourth Circuit have addressed the issue.
Turning to the facts of the Current Case, there is no question that Mr. Fletcher has the right to convert his bankruptcy case to Chapter 13. Accordingly, the Court grants the Motion to Convert with respect to Mr. Fletcher. Whether Mrs. Fletcher may convert her bankruptcy case depends on whether she is ineligible to be a debtor under section 109(g)(2). If the Court finds that section 109(g)(2) does apply, then not only is Mrs. Fletcher unable to convert her case, Mrs. Fletcher will not be able to proceed in the Current Case under any chapter.
Mrs. Fletcher requested and obtained the voluntary dismissal of the Prior Chapter 13 Case approximately two years after Lakeview filed its Motion for Relief from Stay. Thus, Mrs. Fletcher meets the plain language of section 109(g)(2). But under the causal approach to section 109(g)(2), the Court must look "for a causal connection between a motion for relief from the automatic stay and a debtor's subsequent request and receipt of a voluntary dismissal" in order to determine if Mrs. Fletcher is eligible to be a debtor in the Current Case. In re Sole, 233 B.R. at 350.
The Debtors do correctly point out that the Court may consider the "length of time between events" in determining whether a causal connection exists between a motion for relief from the automatic stay and a motion to voluntarily dismiss.
The timeline of events in this case and the admissions made by the Debtors establish a direct causal connection between the Motion for Relief from Stay, the impending foreclosure, the filing of the Current Case, and Mrs. Fletcher's voluntary dismissal of the Prior Chapter 13 Case. This connection is precisely what section 109(g)(2) was enacted to prevent. The statute not only bars Mrs. Fletcher from asserting her right to convert this case but also from being a debtor under the Bankruptcy Code.
For the foregoing reasons, Mr. Fletcher is eligible to convert the Current Case under section 706(a), but Mrs. Fletcher is