Ely Yao

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	ELY YAO, 	No. 7-10-15540 JA
Debtor.
MEMORANDUM OPINION
Debtor seeks to re-convert this Chapter 7 bankruptcy case to Chapter 13 and resume
making the remaining payments under his prior confirmed Chapter 13 plan. See Debtor’s
Motion for Reconversion of Chapter 7 Case to Chapter 13 and to Reinstate Confirmed Plan (11
U.S.C. 706(c), FRBP 1017(f)(1)) (“Motion to Reconvert”) – Docket No. 72. 1 The Chapter 13
Trustee (the “Chapter 13 Trustee” or “Trustee”) 2 opposes the motion, arguing that the confirmed
Chapter 13 plan ceased to exist upon the Debtor’s voluntary conversion to Chapter 7 and cannot
be reinstated upon reconversion to Chapter 13. See Chapter 13 Trustee’s Objection to Debtor’s
Motion to Reconvert from Chapter 7 to Chapter 13 (“Objection”) – Docket No. 75. The Court
heard oral argument on the Motion to Reconvert and took the matter under advisement. The
Court rejects the Trustee’s argument that the confirmed chapter 13 plan becomes a nullity upon
conversion to Chapter 7, and will, therefore, grant the Motion to Reconvert.
FACTS AND PROCEDURAL HISTORY 3
Debtor, Ely Yao, filed a voluntary petition under Chapter 13 of the Bankruptcy Code on
November 1, 2010. See Docket No. 1. He filed a Chapter 13 plan on November 24, 2010 (the
Plan”). See Docket No. 15. The Plan proposed payments of $510.00 per month for a period of
1 In support of the Motion to Reconvert, Debtor filed a Declaration of Ely Yao in Support of Conversion to Chapter
13 (“Declaration”) – Docket No. 80. The Chapter 13 Trustee objected to the Declaration, reiterating her argument
that the Debtor cannot reinstate the original, confirmed Chapter 13 plan to pick up where he left off. See Chapter 13
Trustee’s Objection to Debtor’s Affidavit and Motion to Reconvert from Chapter 7 to Chapter 13 – Docket No. 82.
2 Although the services of the Chapter 13 Trustee were terminated upon conversion to Chapter 7, making her the
former Chapter 13 Trustee relative to this bankruptcy case, for ease of reference the Court refers to her as the
Chapter 13 Trustee or the “Trustee.”
3 With the parties’ consent, the Court took judicial notice of the documents filed in the Debtor’s bankruptcy case and
admitted the Declaration into evidence for purposes of deciding the Motion to Reconvert.
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twelve months, followed by payments of $810.00 per month for the next twelve months, and
then payments of $1,070.00 per month for a period of thirty-four months, with an additional
balloon payment in the last month of the plan term, if necessary, to complete the plan. Id. The
Plan proposed to pay a tax claim due to the State of New Mexico Taxation and Revenue
Department (“NMTR”) with no interest. Id. The Plan drew objections from the following
parties: the Chapter 13 Trustee; NMTR; and the Internal Revenue Service (“IRS”). See Docket
Nos. 18, 19, and 20. NMTR also filed a supplemental objection, asserting that the Debtor’s
Gross Receipts, Compensation Use, and Employee Withholding (“CRS”) reports were missing
from Yao Professional Services for the second half of 2005 and the first half of 2006. See
Docket No. 22.
The Court entered an order on April 18, 2011 confirming the Plan. See Order Amending
and Confirming Chapter 13 Plan – Docket No. 37. (The Plan, together with the order confirming
the plan, are called the “Confirmed Plan”). The Confirmed Plan resolved the objections of the
Chapter 13 Trustee, NMTR, and the IRS, and provided, among other things, for payment of the
secured claims of NMTR and IRS with interest at 4% and payment of the priority claims of
NMTR and IRS with no interest. The Confirmed Plan also increased the monthly payments for
the last thirty-four months of the fifty-eight month plan to $1,300.00. Id.
After making payments under the terms of the Confirmation Order for fifty-four months
totaling more than $54,000, the Debtor voluntarily converted his Chapter 13 case to Chapter 7 by
filing Debtors’ [sic.] Notice of Conversion from Chapter 13 to Chapter 7 (11 U.S.C. 1307(a),
FRBP 1017(f)(3)) (“Conversion Notice”) on June 22, 2015. See Docket No. 65. At the time of
conversion there remained four payments under the plan of $1300.00 each totaling $5,200.
Conversion of the case from Chapter 13 to Chapter 7 terminated the services of the Chapter 13
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Trustee. Edward Mazel was appointed as Chapter 7 Trustee in the converted Chapter 7 case.
See Docket No. 68. The Chapter 13 Trustee then filed a final report and account. See Chapter
13 Standing Trustee’s Final Report and Account – Docket No. 70. The Chapter 7 Trustee held
and concluded the meeting of creditors and issued a report of no distribution on July 20, 2015.
See Docket No. 71. The Debtor has not received a Chapter 7 discharge.
Approximately two months after filing the Conversion Notice, Debtor filed the Motion to
Reconvert on August 25, 2015. See Docket No. 72. Debtor give notice of the Motion to
Reconvert to all parties in interest that included notice of the applicable 21-day objection period.
No party in interest objected to reconversion except the Chapter 13 Trustee. Debtor represented
in his Motion to Reconvert that he had saved the payments that would have otherwise been due
under the Confirmed Plan, would immediately submit those payments to the Chapter 13 Trustee
upon reconversion, and would make the remaining payments as they become due under the
Confirmed Plan. See Docket No. 72.
In his Declaration, Debtor stated that he chose to convert his case to Chapter 7 because he
“was concerned that [he] was not going to be able to make all the payments required to finish my
plan” and did not want the “payments over the past 4 years to count for nothing if [his] case was
dismissed.” 	Declaration p. 1. At the time of conversion, the claims of NMTR and IRS were not
fully paid; after conversion, Debtor contacted NMTR in an effort to arrange for payment of the
remaining tax claims. Id. Debtor wishes to reinstate his Confirmed Plan to “simplify the
situation with the tax agencies.” Id.
At the time of conversion only four payments remained in the plan term under the
Confirmed Plan. With the consent of the Chapter 13 Trustee, Debtor deposited funds in the
amount of $5,200 into Court’s registry on January 14, 2016, which represent the aggregate
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amount of the four monthly payments to complete the Confirmed Plan had no conversion to
Chapter 7 occurred. See Order Allowing Debtor to Pay Funds into Court Registry Pending
Reconversion of Case to Chapter 13 and Reinstatement of Chapter 13 Plan (“Order Authorizing
Deposit into Court Registry”) – Docket No. 86. If the case is not reconverted to Chapter 13 or
the Confirmed Plan is not reinstated, the Debtor may request that the funds held in the Court’s
registry be disbursed to him. Id.
DISCUSSSION
The Chapter 13 Trustee’s primary objection to reconversion of this bankruptcy case to a
case under Chapter 13 rests on the premise that, upon conversion of a Chapter 13 case to Chapter
7, a confirmed Chapter 13 plan becomes a nullity and cannot be reinstated. As a result, even if
the Debtor were allowed to reconvert to Chapter 13, the Trustee contends that the Debtor must
begin the Chapter 13 process anew by attending a § 341 meeting of creditors, providing updated
information about his financial circumstances, and proposing a new plan that complies with the
requirements of 11 U.S.C. § 1325. Thus, according to the Trustee, if this case is reconverted to
Chapter 13, Debtor may not complete the Chapter13 process by simply making the four
payments outstanding under the Confirmed Plan.
It is important to note that the Trustee does not object to reconversion to Chapter 13 on
the ground that reconversion to Chapter 13 is prohibited per se,4 or that Debtor would be unable
4 Courts do not agree whether it is even possible for a debtor to reconvert a Chapter 7 case to Chapter 13 after a prior
voluntary conversion from Chapter 13 to Chapter 7. Compare, In re Muth, 378 B.R. 302 (Bankr.D.Colo. 2007)
(reconversion not permitted); In re Fry, 2008 WL 4682266, *2 (Bankr.D.Kan. Oct. 14, 2008) (bankruptcy court
lacks discretion to allow a debtor to reconvert to Chapter 13 if the debtor has previously converted the case from
Chapter 13 to Chapter 7); and In re Carter, 84 B.R. 744, 747 (D.Kan. 1988) (“debtor’s right to convert is lost once it
has been exercised”) with Povah v. Hansbury and Finn, Inc. (In re Povah), 455 B.R. 328 (Bankr.D.Mass. 2011)
(debtor may reconvert under appropriate circumstances); In re Johnson, 376 B.R. 763 (Bankr.D.N.M. 2007) (court
has discretion to allow reconversion); and In re Hollar, 70 B.R. 337 (Bankr.E.D.Tenn. 1987) (interpreting § 706(a)
to mean that the “absolute right” to convert is lost when a case has been previously converted, but that permissive
conversion is still available provided the debtors are otherwise eligible for Chapter 13 relief). See also, In re Noll,
491 B.R. 550, 552 (Bankr.E.D.Wis. 2013) (observing that “[w]ith BAPCPA’s enactment of the means test to prevent
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in the reconverted case to comply with the terms of the Confirmed Plan or to complete plan
payments in a period not to exceed 60 months from Debtor’s commencement of this bankruptcy
case under Chapter 13. In addition, because no party in interest other than the Chapter 13
Trustee filed a timely objection to the Motion to Reconvert, all parties in interest other than the
Chapter 13 Trustee waived the right to object to reconversion for any reason.
Conversion from Chapter 7 to Chapter 13 is governed by 11 U.S.C. § 706. It provides, in
relevant part: 5
(a) The 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 of this title. Any waiver of the right to convert a
case under this subsection is unenforceable.
. . . .
(c) The court may not convert a case under this chapter to a case under chapter 12
or 13 of this title unless the debtor requests or consents to such conversion.
(d) Notwithstanding any other provision of this section, 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.
11 U.S.C. § 706.
In In re Green, 169 B.R. 480 (Bankr.S.D.Ga. 1994), the bankruptcy court found that the debtor’s
earlier conversion from Chapter 13 to Chapter 7 “nullified” the confirmation order entered while
the case was pending under Chapter 13; consequently the debtor could not, upon reconversion to
Chapter 13, “simply pick up where she left off under the original plan” but, instead, was required
to present a new plan that satisfied all confirmation requirements under 11 U.S.C. § 1325.
Green, 169 B.R. at 481 and 482. This Court disagrees with the Green court’s conclusion that
abusive Chapter 7 cases, reconversion is appropriate upon a finding of abuse under § 707(b)(1)”) (citing Advanced
Control Systems, Inc. v. Justice, 639 F.3d 838 (8 th Cir. 2011)). Because no party objected on this ground, the Court
expressly declines to decide whether 11 U.S.C. § 706(a) bars reconversion altogether.
5 Subsection (b) concerns conversion to chapter 11. See 11 U.S.C. § 706(b) (“On request of a party in interest and
after notice and a hearing, the court may convert a case under this chapter to a case under chapter 11 of this title at
any time.”).
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conversion from chapter 13 to Chapter 7 voids or nullifies a confirmation order entered while the
case was pending under Chapter 13.
Section 348, which governs the effect of conversion from one chapter to another,
provides in relevant part:
Conversion of a case from a case under one chapter of this title to a case under
another chapter of this title constitutes an order for relief under the chapter to
which the case is converted, but . . . does not effect a change in the date of the
filing of the petition, the commencement of the case, or the order for relief.
11 U.S.C. § 348(a).
Conversion from Chapter 13 to Chapter 7 also “terminates the service” of the Chapter 13
Trustee. 11 U.S.C. § 348(e). But nothing in 11 U.S.C. § 348 expressly nullifies or voids a
confirmation order entered while the case was pending under Chapter 13. Instead, upon
conversion from Chapter 13 to Chapter 7, the statutory provisions under Chapter 13 simply no
longer apply. See Harris v. Viegelahn, 135 S.Ct. 1829, 1838, 191 L.Ed.2d 783 (2015) (observing
that the provisions of Chapter 13 have “no force . . . for they ceased to apply once the case was
converted to Chapter 7”). “When a debtor exercises his statutory right to convert the case [from
Chapter 13 to Chapter 7] . . . no Chapter 13 provision holds sway.” Id.
Thus, 11 U.S.C. § 1327(a), which provides that a confirmed plan binds the debtor and all
creditors to its provisions and gives the plan its res judicata effect, no longer applies following
conversion from Chapter 13 to Chapter 7. Harris v. Viegelahn, 135 S.Ct. at 1838 (upon
conversion, “the Chapter 13 plan was no longer ‘bind[ing]’”) (quoting 11 U.S.C. § 1327(a)). See
also In re Doyle, 11 B.R. 110, 111 (Bankr.E.D.Pa. 1981) (after conversion from Chapter 13 to
Chapter 7 “the chapter 13 plan and the order confirming that plan are no longer in force”).6
Creditors cannot enforce the terms of a confirmed Chapter 13 plan following conversion to
6 The Green court relied on Doyle to conclude that conversion from Chapter 13 to Chapter 7 “nullified” the
confirmation order. Green, 169 B.R. at 481-82.
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Chapter 7, but the plan and the order confirming plan nevertheless still exist. Thus conversion
does not nullify, void, vacate or otherwise terminate the plan or the order confirming the chapter
13 plan. The confirmed Chapter 13 plan is simply no longer binding following conversion to
Chapter 7 because the provisions of Chapter 13 no longer apply. Upon reconversion, the
Chapter 13 Trustee is reappointed and 11 U.S.C. § 1327(a) once again becomes applicable to
bind the debtor and creditors to the terms of the existing plan that was confirmed before
conversion to Chapter 7.
The Trustee also asserts that Debtor has not established that he is acting in good faith by
seeking to reconvert to Chapter 13. See Docket No. 75. In Marrama v. Citizens Bank of
Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), the Supreme Court
considered whether there is a limitation on a debtor’s right to convert under 11 U.S.C. § 706(a).
The Supreme Court determined that 11 U.S.C. § 707(d), which conditions conversion on the
debtor’s ability to be a debtor under another chapter, must be applied together with 11 U.S.C.
§1307(c), which provides for dismissal or conversion “for cause.” Marrama, 549 U.S. at 371-
373. 	It reasoned further that because a case may be dismissed under 11 U.S.C. § 1307(c) based
on a debtor’s bad faith, a finding of bad faith is “tantamount to a ruling that the individual does
not qualify as a debtor under Chapter 13.” Id. at 374. As a result, in Marrama, the debtor’s pre-
petition bad-faith conduct prevented him from converting from Chapter 7 to Chapter 13 under §
706(a).
After Marrama, a Court may refuse to grant a debtor’s motion to convert from Chapter 7
to Chapter 13 under § 706(a) (even if there has been no prior conversion) if the debtor’s bad faith
would prevent him from proceeding under Chapter 13. See In re Joung, 2011 WL 2413633, *2
(Bankr.D.N.M. June 10, 2011) (“[U]nder Marrama, a debtor can forfeit his or her right to
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convert under 11 U.S.C. § 706(a) when the debtor’s bad faith conduct is sufficient to warrant
dismissal of a converted chapter 13 case.”). In other words, if the converted case would result in
dismissal under § 1307(c) due to the debtor’s bad faith conduct, the debtor will not be allowed to
convert from Chapter 7 to Chapter 13. Although Marrama was primarily concerned with pre-
petition bad faith conduct, the “bad faith” ground for dismissal under § 1307(c) is not limited to
pre-petition conduct. See In re Lanham, 346 B.R. 211, 214 (Bankr.D.Colo. 2006)
(acknowledging that bad faith, though not specifically listed in § 1307(c), may constitute “cause”
for dismissal, and stating that “[l]ack of good faith is shown when a debtor files a petition
without intending to perform the statutory obligations of a debtor under the Bankruptcy Code or
when a debtor’s conduct before or during a case constitutes an abuse of the provisions, purpose,
or spirit of the chapter under which relief is sought.”) (citation omitted).
If reconversion to Chapter 13 is not per se barred, reconversion likewise implicates good
faith considerations under the Marrama standard. See In re Buccolo, 2009 WL 2132435, *9-*10
(D.N.J. July 13, 2009) (analyzing reconversion under Marrama standards, including feasibility
(as part of § 1307(c), which references plan confirmation requirements under § 1325) and the
debtor’s good faith).7 Here, Debtor’s good faith in seeking bankruptcy relief in the first instance
has not been questioned. 	Similarly, his good faith in proposing the original plan has also
already been established through confirmation while the case was first pending under Chapter
13. The Debtor filed the Motion to Reconvert within approximately two months of the
7 Courts permitting discretionary reconversion typically scrutinize the facts and circumstances surrounding the
debtor’s request for reconversion, including the debtor’s good faith. See, e.g., In re Anderson, 354 B.R. 766, 769
(Bankr.D.S.C. 2006) (“The court has discretion to order a second conversion but should scrutinize the debtor’s
circumstances, bona fides, and ability to succeed with the purposes of conversion. The court should weigh the
interests of the debtor, the estate and all creditors and address such motion on a case by case basis.”); Povah, 455
B.R. at 341 (reconversion requires the court to closely scrutinize the debtor’s circumstances, “and the debtor also
must establish both good faith and feasibility of any plan of reorganization”); Buccolo, 2009 WL 2132435 at *1
(affirming bankruptcy court’s denial of debtor’s motion to reconvert based on findings that the proposed Chapter 13
plan was not feasible and was not proposed in good faith).
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conversion date, and was prepared at that time to pay the full amount of the payments due under
the prior confirmed plan. 	Had the Debtor not converted to Chapter 7, his anticipated plan
completion date would have been in September of 2015. 8 Because he was prepared to complete
the payments due under the Confirmed Plan in August of 2015, reconversion to Chapter 13 does
not cause undue prejudice to creditors. Admittedly, several more months have passed since the
filing of the Motion to Reconvert, but the Debtor is not responsible for that delay. In short, the
Debtor’s conduct throughout this bankruptcy case, including the circumstances surrounding
Debtor’s request to reconvert to Chapter 13, do not indicate that the Debtor has acted in bad faith
so as to require dismissal under 11 U.S.C. § 1307(c) upon reconversion to Chapter 13.
CONCLUSION
Based on the foregoing, the Court concludes that the Debtor may reconvert his Chapter 7
case to Chapter 13 and complete the payments under the original confirmed Chapter 13 plan.
Upon reconversion, the Chapter 13 Trustee will be reappointed. The existing plan again
becomes binding because the provisions of chapter 13, including 11 U.S.C. § 1327(a), become
applicable upon conversion to Chapter 13. The Court’s holding is narrow and unique to the
Debtor’s particular circumstances. The Debtor had only four of fifty-eight payments remaining
under his confirmed Chapter 13 plan. He filed a motion to reconvert within two months of
conversion. He had the ability to make all four payments immediately upon reconversion.
8 Having filed his petition for relief under Chapter 13 of the Bankruptcy Code on November 1, 2010 and his Chapter
13 plan on November 24, 2010, Debtor’s first plan payment was due in December 2010. See 11 U.S.C. § 1326(a)(1)
(“Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the
date of the filing of the plan or the order for relief, whichever is earlier”). His confirmed plan called for 58 monthly
payments. At the time he converted to Chapter 7 in June of 2015, only four plan payments remained due. The
Court makes no determination as to when the plan period commenced and ended. See 8 Collier on Bankruptcy ¶
1322.18[2] (Alan N. Resnick and Henry J. Sommer, eds., 16th ed. 2012) (noting that “there is some doubt as to when
the three-year and five-year periods begin and end[,]” and observing that “at least one court of appeals has held that
the five-year maximum period for plan payments does not commence until confirmation of the plan.”) (citing West
v. Costen, 826 F.2d 1376 (4 th Cir. 1987) (remaining citation omitted)).
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There was no need for further modification of the plan upon reconversion. There is no evidence
that the Debtor has proceeded in bad faith. Finally, because no other objections were raised, this
decision does not address the more problematic issue of whether 11 U.S.C. § 706(a) bars
reconversion regardless of a debtor’s good faith and particular circumstances. 	The Court will
enter a separate order consistent with this Memorandum Opinion.
______________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: March 31, 2016
COPY TO:
Christopher L Trammell
Attorney for Debtor
3900 Juan Tabo NE
Albuquerque, NM 87111-3984
Kelley L. Skehen
Chapter 13 Trustee
625 Silver Avenue SW, Suite 350
Albuquerque, NM 87102-3111
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