Jacobsen v. Moser, et al

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Jacobsen v. Moser, et al

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REVISED July 12, 2010 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
United States Court of Appeals Fifth Circuit

N o . 09-40023

FILED
June 16, 2010 Lyle W. Cayce Clerk

I n the Matter of: ROBERT EDWIN JACOBSEN, D ebtor

R O B E R T EDWIN JACOBSEN, A p p e lla n t v. C H R I S T O P H E R MOSER, Chapter 7 Trustee; JOHN SRAMEK; B E R N A D E T T E SRAMEK; TIMOTHY E CARLSON, CPA, a professional c o r p o r a tio n , A p p e lle e s

A p p e a l from the United States District Court fo r the Eastern District of Texas

B e fo r e KING, BARKSDALE, and ELROD, Circuit Judges. K I N G , Circuit Judge: R o b e r t Edwin Jacobsen filed a petition for relief under Chapter 13 of the B a n k r u p t c y Code. During Jacobsen's bankruptcy case, the Chapter 13 Trustee

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No. 09-40023 m o v e d to convert the case to Chapter 7 for cause under 11 U.S.C. § 1307(c). In r e s p o n s e , Jacobsen moved to dismiss his case under 11 U.S.C. § 1307(b). Following a hearing, the bankruptcy court found that Jacobsen had acted in bad fa it h and abused the bankruptcy process, denied his motion to dismiss, and c o n v e r t e d the case to Chapter 7. Jacobsen appeals, asserting that he has an a b s o lu t e right to dismiss under § 1307(b) and, alternatively, that the finding of b a d faith was clearly erroneous. Although the plain language of 11 U.S.C. § 1307(b) can be read to confer an absolute right to dismiss, the Supreme Court's d e c is io n in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), c o m p e ls us to hold that the right to dismiss under 11 U.S.C. § 1307(b) is subject t o a limited exception for bad-faith conduct or abuse of the bankruptcy process, a n d we therefore affirm. I . BACKGROUND R o b e r t Edwin Jacobsen is a licensed real estate broker in the State of C a lifo r n i a . He married his wife, Alise Malikyar, in 1999. At the time this a p p e a l was filed, Malikyar worked as a hair stylist in California. Jacobsen filed a petition for relief under Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 101 e t seq., on May 25, 2007, in the Bankruptcy Court for the Eastern District of T e x a s . Although a pending lawsuit had been filed in California state court a g a in s t both Jacobsen and Malikyar by John and Bernadette Sramek (c o lle c t iv e ly , the "Srameks"), Malikyar did not file a petition for bankruptcy r e lie f as a co-debtor.1 A fte r obtaining an extension of time, Jacobsen filed his required b a n k r u p t c y schedules and Statement of Financial Affairs on June 25, 2007. In h is schedules, Jacobsen disclosed his ownership of three mortgaged properties: a residence in Frisco, Texas, in which he claimed a homestead exemption, and
The Srameks' lawsuit alleged fraud and misrepresentation in connection with a real estate transaction in California.
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No. 09-40023 t w o leased residential properties in Plano, Texas.2 Jacobsen also claimed

o w n e r s h ip of various other items of personal property, including all the stock of H u m b o lt Equities LLC, valued at $1,000, and a promissory note owed by REJ P r o p e r tie s , Inc., with a face value of $1,000,000. Jacobsen listed eight secured c la im s totaling $613,717.54, including two judgment liens: a $35,000 claim by C o r y Nichols and a $47,530 claim by Timothy E. Carlson, CPA, PC ("Carlson"). Jacobsen did not identify any property to which the judgment liens attached. Jacobsen also listed unsecured claims totaling $224,711.80 that were n o n c o n t in g e n t , liquidated, and undisputed. He listed the Srameks individually a s pursuing a civil lawsuit against him for $1,627,536.38; Jacobsen marked this c la im as contingent, unliquidated, and disputed.3 I n his Statement of Financial Affairs, Jacobsen listed under the category " O t h e r transfers" the sale, on September 15, 2006, of the outstanding shares of t h e British American Yacht Corporation ("British American"). He claimed that t h e sale was for a total consideration of $5,000, of which his share was $2,500. No other transactions were listed. Under "Prior address of debtor," Jacobsen lis t e d the address 2324 Tice Valley Blvd., Walnut Creek, CA 94595 (the "Tice V a lle y Property"). Jacobsen reported that he lived at the Tice Valley Property fr o m 1999 until the end of 2005, at which time he lived on a sailboat in the C a r ib b e a n for approximately six months. In describing his business activities, J a c o b s e n reported four business interests: (1) his self-employment as a real e s t a t e investor and broker; (2) Humble [sic] Equities II, LLC, a real estate b u s in e s s of which Jacobsen was the sole member; (3) REJ Properties, Inc., a real e s t a t e business of which Jacobsen was the president and sole shareholder until

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Jacobsen proposed to assume the unexpired leases of the two residences in Plano.

That claim was the subject of our decision in Jacobsen v. Sramek (In re Jacobsen), No. 09-40660, 2010 WL 271419 (5th Cir. Jan. 25, 2010) (per curiam), affirming the bankruptcy court's decision to overrule Jacobsen's objections to the Srameks' proof of claim.

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No. 09-40023 t h e corporation's sale in May 2005; and (4) British American, a yacht charter b u s in e s s he ran with his wife. In the section for listing spouses and former s p o u s e s , Jacobsen misspelled Malikyar's name as "Malekyar"; this was the first t im e her name appeared on any filings in the Chapter 13 case. O n July 20, 2007, Jacobsen, the Srameks, Carlson, and the Chapter 13 T r u s t e e attended the meeting of creditors prescribed by 11 U.S.C. § 341. At this m e e t in g , it was revealed that there were numerous real properties in both Texas a n d California titled in Malikyar's name and that the Tice Valley Property was p r o c e e d in g to sale. The Chapter 13 Trustee responded by filing an adversary p r o c e e d in g to enjoin the sale (the "Adversary Proceeding"). At a hearing in the A d v e r s a r y Proceeding, Jacobsen disclosed that he had a nonexempt property in t e r e s t in the Tice Valley Property. The bankruptcy court subsequently entered a n order restraining the sale of the Tice Valley Property. W h ile the Adversary Proceeding was progressing, the Chapter 13 case c o n t in u e d . On August 2, 2007, the Chapter 13 Trustee filed a motion to convert t h e case from Chapter 13 to Chapter 7 for cause under § 1307(c); the Srameks a n d Carlson joined in that motion. Later that day, Jacobsen responded by filing a motion to dismiss the Chapter 13 case under § 1307(b). The bankruptcy court h e ld a hearing on the motions at which Jacobsen was the sole witness testifying. D u r in g Jacobsen's examination at the hearing, it became clear that J a c o b s e n 's schedules and his Statement of Financial Affairs contained in a c c u r a c ie s and deficiencies. Regarding real property, Jacobsen testified that in the weeks leading up to his petition, a home in Lafayette, California (the " B e lla Vista Property") had been purchased and titled in Malikyar's name. He fu r t h e r testified that about two weeks before filing his petition, he had executed a quitclaim deed, conveying any interest he had in the Bella Vista Property to M a lik y a r . Neither the Bella Vista Property nor the quitclaim deed was

id e n tifie d in Jacobsen's schedules or his Statement of Financial Affairs. At the 4

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No. 09-40023 t im e of the hearing, Jacobsen was living with Malikyar at the Bella Vista P r o p e r t y . In addition, the Tice Valley Property, although listed as a prior a d d r e s s on the Statement of Financial Affairs, was not listed in Jacobsen's s c h e d u le s . While Jacobsen included three Texas properties in his schedules, he o m it t e d six rental properties in Allen and Plano, Texas, that were titled in M a lik y a r 's name. J a c o b s e n explained in testimony that he neglected to include property held in Malikyar's name because he believed that, under a prenuptial agreement and a postnuptial agreement the two had executed, those properties were separately o w n e d by Malikyar. These agreements, dated July 17, 1999, and September 11, 2 0 0 1 , respectively, purport to leave all property acquired before marriage as s e p a r a t e property and to render property acquired during marriage the separate p r o p e r t y of the spouse in whose name it was acquired. Jacobsen acknowledged in his testimony that these agreements were not recorded in the relevant c o u n t ie s in California or Texas.4 He was also unable to explain why, at the e a r lie r hearing in the Adversary Proceeding regarding the sale of the Tice Valley P r o p e r ty , neither he nor his attorney mentioned or produced either the p r e n u p t ia l or postnuptial agreement. J a c o b s e n suggested that Malikyar was able to purchase the Bella Vista P r o p e r ty using income derived from her hair styling business, but he then t e s t ifie d that she had not been engaged in that business until after the date his p e t it io n was filed. Jacobsen also testified that Malikyar, who is from

A fg h a n is t a n , speaks little English, and that he manages the properties titled in h e r name. Jacobsen's testimony also revealed that he was the beneficiary and t r u s t e e of a trust called the Jacobsen Trust, but he did not believe that the trust

Both California and Texas require that marital property agreements be recorded to be effective against third parties without notice. See CAL. FAM. CODE § 852(b) (West 2004); TE X . FAM. CODE § 4.106(b) (Vernon 2006).

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No. 09-40023 h e ld any assets. Jacobsen testified that he had invested $75,000 in a business v e n t u r e with his cousin who lived in Oslo, Norway, to produce shea butter; his in v e s t m e n t money was derived from the proceeds from the sale of a c o n d o m in i u m he owned in Acapulco, Mexico. Neither of those interests was l i s t e d on Jacobsen's schedules. Jacobsen insisted that the misspelling of his w ife 's name was unintentional, as was the misspelling of Humbolt Equities on h is Statement of Financial Affairs.5 Despite the errors and omissions, Jacobsen d id not amend his schedules or his Statement of Financial Affairs. F o llo w in g the hearing, the bankruptcy court denied Jacobsen's motion to d is m is s and granted the Chapter 13 Trustee's motion to convert. In re Jacobsen, 3 7 8 B.R. 805, 811 (Bankr. E.D. Tex. 2007). The court found that Jacobsen's right t o dismiss the Chapter 13 case was qualified by an exception for bad faith, id. at 8 1 0 ­ 1 1 , that Jacobsen's conduct established bad faith, id. at 811, and that J a c o b s e n 's bad faith constituted cause for converting the case to Chapter 7, id. While the case was on appeal to the district court, the bankruptcy court entered a judgment in the Adversary Proceeding, agreed to by Jacobsen and Malikyar, d e c la r in g that the three properties listed in Jacobsen's schedules and seven p r o p e r t ie s held in Malikyar's name were equal or joint management community p r o p e r t y and therefore property of Jacobsen's bankruptcy estate. The district c o u r t affirmed the judgment of the bankruptcy court converting Jacobsen's case t o Chapter 7. Jacobsen timely appealed.6 I I . JURISDICTION AND STANDARD OF REVIEW W e have jurisdiction under 28 U.S.C. § 158(d) over the appeal of an order

According to Jacobsen, the only assets held by Humbolt Equities are five unimproved lots in Lake Tahoe, California, with a total value of approximately $1,000. Subsequent to this appeal being taken, the bankruptcy court sanctioned Jacobsen for his conduct throughout the case. See In re Jacobsen, No. 07-41092, 2009 WL 3245418, at *16 (Bankr. E.D. Tex. Sept. 30, 2009). That action does not influence our decision here.
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No. 09-40023 c o n v e r t in g a bankruptcy case from Chapter 13 to Chapter 7 for cause under § 1307(c). Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 770 (9th Cir. 2008); M o lito r v. Eidson (In re Molitor), 76 F.3d 218, 219 (8th Cir. 1996). " W h e n a court of appeals reviews the decision of a district court, sitting as a n appellate court, it applies the same standards of review to the bankruptcy c o u r t's findings of fact and conclusions of law as applied by the district court." Kennedy v. Mindprint (In re ProEducation Int'l, Inc.), 587 F.3d 296, 299 (5th Cir. 2 0 0 9 ) (alterations and internal quotation marks omitted). "Issues of statutory in t e r p r e t a t io n are [questions of law] reviewed de novo." Szwak v. Earwood (In r e Bodenheimer, Jones, Szwak, & Winchell L.L.P.), 592 F.3d 664, 668 (5th Cir. 2 0 0 9 ). A bankruptcy court's determination that a debtor has acted in bad faith is a finding of fact reviewed for clear error. See Humble Place Joint Venture v. F o r y (In re Humble Place Joint Venture), 936 F.2d 814, 816 (5th Cir. 1991) (citing L ittle Creek Dev. Co. v. Commonwealth Mortgage Corp. (In re Little Creek Dev. C o .), 779 F.2d 1068 (5th Cir. 1986)). The decision to convert a Chapter 13 case t o Chapter 7 under § 1307(c) is reviewed for abuse of discretion. In re McDonald, 1 1 8 F.3d 568, 569 (7th Cir. 1997). I I I . DISCUSSION J a c o b s e n argues on appeal that the bankruptcy court lacked the authority t o order conversion to Chapter 7 under § 1307(c) in light of his motion to dismiss u n d e r § 1307(b). He contends in the alternative that the bankruptcy court's fin d in g of bad faith was clearly erroneous and cannot support conversion under § 1307(c). A. S e c t i o n 1307 T h e question of whether there is an exception to a debtor's right to dismiss u n d e r § 1307(b) for bad-faith conduct or abuse of process is an issue of first

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No. 09-40023 im p r e s s io n in this circuit.7 Before we undertake an independent analysis, we fir s t survey the approaches taken by other courts, examine the Supreme Court's d e c is io n in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), and e v a lu a te how courts have changed their analysis in response to Marrama. 1. S t a t u t o r y Framework

S e c t io n 1307(b) provides that "[o]n request of the debtor at any time, if the c a s e has not been converted under section 706, 1112, or 1208 of this title, the c o u r t shall dismiss a case under this chapter. Any waiver of the right to dismiss u n d e r this subsection is unenforceable." s u b s e c t io n provides that: E x c e p t as provided in subsection (e) of this section, on request of a p a r t y 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 u n d e r chapter 7 of this title, or may dismiss a case under this c h a p t e r , whichever is in the best interests of creditors and the e s t a t e , for cause . . . . I d . § 1307(c). Section 1307(c) then provides a nonexhaustive list of acts and o m is s io n s that constitute "cause," none of which is directly applicable here. 2. C i r c u i t Split 11 U.S.C. § 1307(b). The next

F o r many years, the courts have been divided over whether a debtor's right t o dismiss under § 1307(b) was absolute or was qualified by an exception for bad fa it h or abuse of process. The Ninth Circuit initially suggested in dicta that the r ig h t to dismiss was absolute, see Nash v. Kester (In re Nash), 765 F.2d 1410, 1 4 1 3 (9th Cir. 1985) (noting, outside the context of bad faith, that the right to d is m is s under § 1307(b) is absolute); see also In re Rosson, 545 F.3d at 772 n.9 (s u g g e s tin g that the language in In re Nash was "likely dicta"), and its
In an earlier case, the district court affirmed a bankruptcy court denial of a Chapter 12 debtor's request for dismissal under 11 U.S.C. § 1208(b) and grant of a creditor's motion to convert the case to Chapter 7. Foster v. N. Tex. Prod. Credit Ass'n (In re Foster), 121 B.R. 961, 961 (N.D. Tex. 1990), aff'd without op., 945 F.2d 400 (5th Cir. 1991). Our affirmance under Fifth Circuit Rule 47.6 is discussed below.
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No. 09-40023 b a n k r u p t c y appellate panel (BAP) agreed, see Beatty v. Traub (In re Beatty), 162 B .R . 853, 857 (B.A.P. 9th Cir. 1994) ("[A] court must dismiss the case upon the d e b to r 's request for dismissal under section 1307(b) if that request is made prior t o the effective time of an order converting the case to Chapter 7."). Other courts t o o k this view as well. See In re Harper­Elder, 184 B.R. 403, 404­05 (Bankr. D .D .C . 1995) (citing cases on both sides of the division and concluding that the r i g h t to dismiss under § 1307(b) is absolute). These courts reasoned that the p la in text of the statute did not permit a contrary conclusion, see, e.g., id. at 4 0 5 ­ 0 6 , and that an exception should not be implied where the debtor was m e r e ly forgoing the protections of the Bankruptcy Code, see, e.g., id. at 407. These courts also considered the voluntary nature of Chapter 13 bankruptcy and c o n c lu d e d that an absolute right to dismiss was consonant with the principle t h a t a debtor cannot be compelled to commit post-petition earnings to complete a confirmed repayment plan. See, e.g., id. at 408; see also In re Armstrong, 408 B .R . 559, 571 (Bankr. E.D.N.Y. 2009) (discussing post-petition earnings and v o lu n ta r in e s s ). O t h e r courts, however, disagreed and held that § 1307(b) is subject to an e x c e p t io n where a Chapter 13 debtor acts in bad faith or abuses the bankruptcy p r o c e s s . The most significant of these decisions was that of the Eighth Circuit in Molitor v. Eidson (In re Molitor), 76 F.3d 218 (8th Cir. 1996). The court c o n s id e r e d its prior decision in Graven v. Fink (In re Graven), 936 F.2d 378 (8th C ir . 1991), which held that the analogous provisions in Chapter 12--11 U.S.C. § 1208(b) and (d)--conferred a right to dismiss that was qualified by an e x c e p t io n where the debtor committed fraud.8 The In re Graven court read

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Section 1208 provides, in relevant part: (b) On request of the debtor at any time, if the case has not been converted under section 706 or 1112 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.

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No. 09-40023 § 1208(b) as providing a qualified right to dismiss so as not to render § 1208(d) " u s e le s s " and because the broad purpose of the Bankruptcy Code was served by a n interpretation that permitted conversion even in the face of a request for d is m is s a l. 936 F.2d at 385. The In re Graven court also considered the district c o u r t's opinion in Foster v. North Texas Production Credit Association, 121 B.R. 9 6 1 (N.D. Tex. 1990), which concluded that the right to dismiss under § 1208(b) is qualified by an exception for fraud.9 936 F.2d at 386. According to the In re M o lito r court, "th[e] same broad purpose as well as the principles of statutory c o n s t r u c t io n employed in Graven apply equally well to the nearly identical p r o v i s i o n s of Chapter 13 and the instant case." 76 F.3d at 220. The court

.... (d) On request of a party in interest, and after notice and a hearing, the court may dismiss a case under this chapter or convert a case under this chapter to a case under chapter 7 of this title upon a showing that the debtor has committed fraud in connection with the case. 11 U.S.C. § 1208(b) & (d). Section 1208(c) differs from § 1307(c) in that it permits dismissal but not conversion upon a finding of cause, while § 1307(c) permits either upon a finding of cause. Chapter 12 thus requires a finding of fraud to justify conversion to Chapter 7, while Chapter 13 requires only a finding of cause. Subsequent to the court's decision in In re Graven, we affirmed the district court's decision in In re Foster without opinion. In re Foster, 945 F.2d 400. That decision was made pursuant to Fifth Circuit Rule 47.6, which provides: Affirmance Without Opinion. The judgment or order may be affirmed or enforced without opinion when the court determines that an opinion would have no precedential value and that any one or more of the following circumstances exists and is dispositive of a matter submitted for decision: (1) that a judgment of the district court is based on findings of fact that are not clearly erroneous; (2) that the evidence in support of a jury verdict is not insufficient; (3) that the order of an administrative agency is supported by substantial evidence on the record as a whole; (4) in the case of a summary judgment, that no genuine issue of material fact has been properly raised by the appellant; and (5) no reversible error of law appears. In such case, the court may, in its discretion, enter either of the following orders: "AFFIRMED. See 5TH CIR. R. 47.6." or "ENFORCED. See 5TH CIR. R. 47.6." 5T H CIR. R. 47.6. While our determination in In re Foster is without precedential value, we remain mindful that Rule 47.6 decisions are reached only after all the issues are fully considered and ruled on in a meaningful review process. United States v. Pajooh, 143 F.3d 203, 204 (5th Cir. 1998).
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No. 09-40023 r e f u s e d to allow the debtor to use § 1307(b) as an "escape hatch" from the c h a r g e s of bad faith because doing so "would render section 1307(c) a dead letter a n d open up the bankruptcy courts to a myriad of potential abuses." Id. A fte r In re Molitor, the Second Circuit also had the occasion to determine w h e t h e r § 1307(b) was subject to an exception for bad-faith conduct or abuse of p r o c e s s . In Barbieri v. RAJ Acquisition Corp. (In re Barbieri), 199 F.3d 616, 619 (2 d Cir. 1999), the Second Circuit became the first court of appeals to hold that n o such exception existed. The court began by considering the plain text of § 1307(b), which uses the words "at any time" and "the court shall dismiss," and c o m p a r in g them to the permissive language in § 1307(c), in which "the court may c o n v e r t . . . for cause." Id. at 619­20. The court concluded that the mandatory t e r m s of § 1307(b) were reinforced by the principle that Chapter 13 bankruptcy is intended to be purely voluntary. Id. at 620. The court stated that the debtor c o u ld still be forced into a Chapter 7 liquidation if the requirements of c o m m e n c in g an involuntary petition under 11 U.S.C. § 303 were met. Id. The c o u r t rejected the Eighth Circuit's concern that an interpretation affording d e b to r s an absolute right to dismiss would read § 1307(c) out of the statute. Id. The court further determined that the equitable powers provided a bankruptcy c o u r t under 11 U.S.C. § 105(a)1 0 could not be used to disregard the plain la n g u a g e of the statute. Id. at 620­21. Lastly, the court explained that

d is m is s a l would not result in abuse of the bankruptcy process because the a u t o m a t ic stay would be lifted and creditors would be free to use state court

Section 105(a) provides: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C. § 105(a).

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No. 09-40023 p r o c e s s e s . Id. at 621.1 1 3. M a r r a m a v. Citizens Bank of Massachusetts

I n 2007, the Supreme Court handed down its decision in Marrama v. C itiz e n s Bank of Massachusetts, 549 U.S. 365 (2007). Marrama, the Chapter 7 d e b to r in that case, had filed schedules that were "misleading" and " in a c c u r a t e " -- lis t in g the value of a trust as zero when the trust actually held a h o u s e of substantial value and denying that he had transferred the house to the t r u s t in the year prior to the date of his petition. Id. at 368. When the trustee d e c la r e d an intention to recover the house as an asset of the estate, Marrama s o u g h t to convert his case to Chapter 13 pursuant to 11 U.S.C. § 706(a). Id. at 3 6 8 ­ 6 9 . That provision states that "[t]he debtor may convert a case under this c h a p t e r to a case under chapter 11, 12, or 13 of this title at any time, if the case h a s not been converted under section 1112, 1208, or 1307 of this title. Any w a iv e r of the right to convert a case under this subsection is unenforceable." 11 U .S .C . § 706(a). That provision is subject to the limitation that "a case may not b e converted to a case under another chapter of this title unless the debtor may b e a debtor under such chapter." Id. § 706(d). I n determining whether § 706(a) was subject to an exception for bad faith, t h e Court first addressed the provision's legislative history. The Senate Report s t a t e d that

Following these decisions, commentators weighed in, with some offering opinions on the proper interpretation and others simply summarizing the decisions courts had reached. See 8 COLLIER ON BANKRUPTCY ¶ 1307.03[1] (15th ed. rev. 2007) ("Although some courts have . . . granted motions to convert a case notwithstanding a debtor's motion to dismiss in cases in which the court has found abuse, such decisions fly in the face of the plain language of the statute." (footnote omitted)); 7 NORTON BANKRUPTCY LAW AND PRACTICE § 148:4 (3d ed. 2008) ("Courts have been especially loath to grant a debtor's motion to voluntarily dismiss a Chapter 13 case when the motion is filed in response to a creditor's or the trustee's motion to convert."); Christy McDonald, To Dismiss or not to Dismiss: The "Absolute" Question: Think Dismissing a Chapter 13 Is an Absolute Right? Think Again, N.J.L.J., vol. CLXVII, No. 5, Feb. 4, 2002 (noting the conflicting textual and policy arguments for and against a bad-faith exception to § 1307(b)).

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No. 09-40023 [s ]u b s e c t io n (a) of [§ 706] gives the debtor the one-time absolute r ig h t of conversion of a liquidation case to a reorganization or in d iv id u a l repayment plan case. If the case has already once been c o n v e r t e d from Chapter 11 or 13 to Chapter 7, then the debtor does n o t have that right. The policy of the provision is that the debtor s h o u ld always be given the opportunity to repay his debts, and a w a iv e r of the right to convert a case is unenforceable. S . REP. NO. 95-989, at 94 (1978). The Marrama Court, however, found that the " r e fe r e n c e to an `absolute right' of conversion [wa]s more equivocal than" s u g g e s t e d . 549 U.S. at 372. The Court identified two specific limitations to the " a b s o lu te right" of conversion: (1) the proviso in § 706(a) that the right does not s u r v iv e a previous conversion to Chapter 7 and (2) the requirement in § 706(d) t h a t the debtor be eligible to proceed under the chapter to which conversion was s o u g h t . Id. The Court then suggested that there were two potential reasons w h y Marrama would not qualify as a debtor under Chapter 13. Id. The first a r o s e from the debt limitations imposed on Chapter 13 debtors by 11 U.S.C. § 109(e), but the Court did not discuss that possibility in any detail. Id. at 3 7 2 ­ 7 3 . Instead, the Court examined the second potential reason: the ability of a bankruptcy court to dismiss or convert a case for cause under § 1307(c). Id. at 373. I n its discussion of § 1307(c), the Marrama Court noted that pre-petition b a d -fa it h conduct by debtors such as Marrama constituted "cause" for b a n k r u p t c y courts to invoke § 1307(c). Id. Individuals engaged in such conduct, t h e Court reasoned, did not belong to "the class of `honest but unfortunate d e b to r s ' that the bankruptcy laws were enacted to protect." Id. at 364

(a lt e r a t io n s omitted) (quoting Grogan v. Garner, 498 U.S. 279, 287 (1991)). The C o u r t considered a finding of bad-faith conduct sufficient to invoke § 1307(c) " t a n t a m o u n t to a ruling that the individual does not qualify as a debtor under C h a p t e r 13." Id. at 373­74. Accordingly, the Court found that § 706(d)--and its r e q u ir e m e n t that a debtor be eligible under the chapter to which conversion was 13

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No. 09-40023 s o u g h t -- ju s t ifie d the bankruptcy court in denying conversion to Chapter 13 in t h e first instance. Id. at 374. T h e Court next addressed the language rendering waiver of the statutory r ig h t s unenforceable: A statutory provision protecting a borrower from waiver is not a s h ie ld against forfeiture. Nothing in the text of either § 706 or § 1307(c) (or the legislative history of either provision) limits the a u t h o r it y of the court to take appropriate action in response to fr a u d u le n t conduct by the atypical litigant who has demonstrated t h a t he is not entitled to the relief available to the typical debtor. On the contrary, the broad authority granted to bankruptcy judges t o take any action that is necessary or appropriate "to prevent an a b u s e of process" described in § 105(a) of the Code, is surely a d e q u a t e to authorize an immediate denial of a motion to convert file d under § 706 in lieu of a conversion order that merely postpones t h e allowance of equivalent relief and may provide a debtor with an o p p o r t u n it y to take action prejudicial to creditors. I d . at 374­75 (footnotes omitted). Finally, the Court noted that "the inherent p o w e r of every federal court to sanction abusive litigation practices might well p r o v id e an adequate justification for a prompt, rather than a delayed, ruling on a n unmeritorious attempt to qualify as a debtor under Chapter 13." Id. at 3 7 5 ­ 7 6 (citation and internal quotations marks omitted). 4. P o s t-M a r r a m a Decisions

T h e effect of the Marrama decision on § 1307(b) has been the focus of n u m e r o u s bankruptcy court opinions. Within our circuit, two post-Marrama b a n k r u p t c y courts have arrived at opposite results regarding the existence of a b a d -fa it h exception to § 1307(b). Compare In re Polly, 392 B.R. 236, 246­48 (B a n k r . N.D. Tex. 2008) (distinguishing Marrama and concluding that the C h a p t e r 13 debtor possessed an absolute right to dismiss) with In re Jacobsen, 3 7 8 B.R. at 810­11 (reaching the opposite conclusion).1 2 Beyond the borders of
As the In re Polly court noted, "courts in the Fifth Circuit have almost uniformly adopted th[e] view" "that, in the face of a motion to convert under section 1307(c), the right of
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No. 09-40023 o u r circuit, the lower courts have been similarly divided.1 3 I n addition to decisions by bankruptcy courts, the Ninth Circuit considered t h e effects of Marrama in its 2008 decision in In re Rosson, 545 F.3d 764. Rosson, the Chapter 13 debtor, had been ordered by the bankruptcy court to d e liv e r the proceeds from an arbitration award to the Chapter 13 Trustee. Id. a t 768. When Rosson failed to do so, the bankruptcy court chose to sua sponte c o n v e r t the case to Chapter 7. After that decision but before a formal conversion o r d e r had been filed, Rosson sought to dismiss his case under § 1307(b). Id. When the bankruptcy court denied Rosson's request and converted to Chapter 7 , Rosson appealed, citing In re Beatty, 162 B.R. 853, a decision by the BAP for t h e Ninth Circuit holding that the right to dismiss under § 1307(b) is absolute. Id. at 768­79.

a debtor to dismiss under section 1307(b) is not absolute." 392 B.R. at 241 (citing In re Foster, 945 F.2d 400; In re Cobb, No. 99­3193, 2000 WL 17840 (E.D. La. Jan. 11, 2000); In re Jacobsen, 378 B.R. 805; In re Fonke, 310 B.R. 809 (Bankr. S.D. Tex. 2004); In re Crowell, 292 B.R. 541 (Bankr. E.D. Tex. 2002)). In addition to In re Polly, we have identified five post-Marrama decisions that either hold or suggest that the right to dismiss is absolute. See In re Hamlin, No. 09-5272-8, 2010 WL 749809, at *4 (Bankr. E.D.N.C. Mar. 1, 2010); In re Sickel, No. 08-00309, 2008 WL 5076981, at *1 (Bankr. D.D.C. Sept. 26, 2008); In re Campbell, No. 07-457, 2007 WL 4553596, at *4 (Bankr. N.D. W. Va. Dec. 18, 2007); In re Hughes, No. 04-40725, 2007 WL 7025843, at *3 (Bankr. S.D. Ga. Nov. 30, 2007); In re Davis, No. 06-1005, 2007 WL 1468681, at *2 (Bankr. M.D. Fla. May 16, 2007). In addition to In re Jacobsen, we have located the following postMarrama lower court decisions holding that the right to dismiss is qualified by an exception for bad faith or abuse of process. See In re Caola, 422 B.R. 13, 20 (Bankr. D.N.J. 2010); In re Armstrong, 408 B.R. 559, 560 (Bankr. E.D.N.Y. 2009); In re Norsworthy, No. 05-15098, 2009 Bankr. LEXIS 1381, at *3­4 (Bankr. N.D. Ga. May 27, 2009); In re Chabot, 411 B.R. 685, 700 (Bankr. D. Mont. 2009); In re Letterese, 397 B.R. 507, 512 (Bankr. S.D. Fla. 2008); see also Sasso v. Boyajian (In re Sasso), 409 B.R. 251, 254 (B.A.P. 1st Cir. 2009) (dismissing as moot an appeal from the bankruptcy court's order denying a Chapter 13 debtor's request for dismissal where the debtor did not appeal the later order converting the case to Chapter 7); In re Brandford, 386 B.R. 742, 750 (Bankr. N.D. Ind. 2008) ("[Section] 1307(b) is a statement of a debtor's absolute right to dismiss a Chapter 13 case, perhaps only subject to potential conversion of the case to a Chapter 7 in the event of commission of fraud during . . . the Chapter 13 case, an issue not . . . presented in this record."). Many of the decisions in the latter category were informed by the Ninth Circuit's decision in In re Rosson, which we discuss next.
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No. 09-40023 A fte r briefly surveying the legal landscape, the Ninth Circuit began its a n a ly s is with a discussion of the effect of Marrama on bankruptcy decisions w it h in its boundaries. Id. at 771­72. The court noted that its BAP, in Croston v . Davis (In re Croston), 313 B.R. 447, 450 (B.A.P. 9th Cir. 2004), had earlier c o n s id e r e d the same issue decided in Marrama--whether § 706(a) provides an a b s o lu t e right to convert to Chapter 13--and reached the opposite conclusion. Id. at 772­73. The BAP in In re Croston relied on its earlier decision in In re B e a tty , which held that a Chapter 13 debtor's right to dismiss under § 1307(b) is absolute, in concluding that the right to convert under § 706(a) was also a b s o lu t e . See In re Croston, 313 B.R. at 451 ("Beatty compels us to conclude that t h e § 706(a) right to convert to chapter 13 is effectively absolute in the same m a n n e r as the corollary dismissal right under § 1307(b)."). The Ninth Circuit d is c u s s e d the obvious effect the Marrama decision had on In re Croston: "There is no doubt that after Marrama, Croston is no longer good law. Marrama e x p r e s s ly cited Croston as one of the cases recognizing a debtor's absolute right t o convert a Chapter 7 case to Chapter 13--an approach that the Court then r e je c t e d ." In re Rosson, 545 F.3d at 773 (citing Marrama, 549 U.S. at 368 n.2, 3 7 3 ­ 7 6 ). T h e In re Rosson court next considered whether Marrama also affected the B A P 's decision in In re Beatty. The court had little difficulty concluding that it d id : [A ]lth o u g h Marrama did not address the exact issue decided in B e a tty , it is clear that, after Marrama, Beatty too is no longer good la w , insofar as it holds that a Chapter 13 debtor has an absolute r ig h t to dismiss under § 1307(b). As noted above, Croston was at p a in s to explain that there was no analytical distinction between the le g a l issue in that case and the issue in Beatty. See Croston, 313 B .R . at 451­52. We agree, and accordingly we conclude that the C o u r t 's rejection of the "absolute right" theory as to § 706(a) applies e q u a lly to § 1307(b). Therefore, in light of Marrama, we hold that t h e debtor's right of voluntary dismissal under § 1307(b) is not 16

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No. 09-40023 a b s o lu t e , but is qualified by the authority of a bankruptcy court to d e n y dismissal on grounds of bad-faith conduct or "to prevent an a b u s e of process." 11 U.S.C. § 105(a). See Jacobsen, 378 B.R. at 811 (r e a c h in g same conclusion). But see In re Polly, 392 B.R. [at] 236 . . . (h o ld in g that right to voluntarily dismiss Chapter 13 case is " a b s o lu t e " (distinguishing Marrama)). I d . at 773­74 (footnote omitted). The court rejected the suggested distinction b e tw e e n § 706(a) and § 1307(b)--the former stating that "[t]he debtor may c o n v e r t " and the latter that "the court shall dismiss"--by noting that "the im p o r t a n t point established by Marrama is that even otherwise unqualified r ig h t s in the debtor are subject to limitation by the bankruptcy court's power u n d e r § 105(a) to police bad faith and abuse of process." Id. at 773 n.12. S u b s e q u e n t to the decision in In re Rosson, the Bankruptcy Court for the E a s te r n District of New York considered the continued validity of the Second C ir c u it 's decision in In re Barbieri. See In re Armstrong, 408 B.R. 559. The court c o n c lu d e d that "in light of Marrama . . . , the Second Circuit's decision in B a r b ie r i has been abrogated[,] and a debtor does not have an absolute right to d is m is s a chapter 13 case when there is a finding by the Court of bad faith c o n d u c t by the debtor during the bankruptcy case." Id. at 560. The In re A r m s tr o n g court then undertook to "explain[ ] independently why the reasoning in Marrama should be extended to section 1307(b) dismissals." Id. at 569. The c o u r t first considered § 105(a), which the Second Circuit had found could not a p p ly in light of the text of § 1307(b), see In re Barbieri, 199 F.3d at 620­21, and c o n c lu d e d that the Marrama "Court took a much more expansive view . . . and r e c o g n iz e d the bankruptcy courts' need to exercise their inherent authority and t h e ir authority under section 105(a) to prevent abuse of the bankruptcy process." In re Armstrong, 408 B.R. at 570. T h e In re Armstrong court next considered the legislative history and the a r g u m e n t that Chapter 13 is a purely voluntary chapter. Id. The court noted

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No. 09-40023 fir s t that the Marrama Court "rejected the argument that a debtor has an `a b s o lu t e right' to convert from chapter 7 to chapter 13 under section 706(a), d e s p it e a Senate Committee Report stating that a debtor has `the one-time a b s o lu t e right of conversion' under section 706(a)" by finding the report " `e q u iv o c a l.'" Id. The court then quoted a report from the House Judiciary C o m m it t e e stating that Chapter 13 was intended to be purely voluntary due to t h e Thirteenth Amendment's prohibition on involuntary servitude and the d iffic u lt y of forcing an unwilling debtor to comply with a repayment plan. Id. The court agreed that the legislative history revealed "that a debtor cannot be p la c e d into chapter 13 involuntarily [or] be compelled to remain in chapter 13 in v o lu n t a r ily ," but declined to extend those proscriptions "to support the notion t h a t a chapter 13 debtor can abuse the bankruptcy process and not be held a c c o u n t a b le ." Id. at 570­71. The court found that concerns of involuntary s e r v it u d e were inapplicable where the debtor would not be forced to remain in C h a p t e r 13 but would instead be placed into Chapter 7 "because in a chapter 7 a debtor does not commit post-petition wages to repay creditors." Id. at 571. A c c o r d in g to the In re Armstrong court, an exception to § 1307(b) for bad fa it h also drew support in the anti-waiver language present in §§ 706(a), 1307(b), a n d 1307(c), each of which provides that the waiver of the right provided under t h a t subsection is unenforceable. Id. The Marrama Court found that "[a] s t a t u t o r y provision protecting a borrower from waiver is not a shield against fo r fe it u r e ," and determined that bankruptcy courts retained the authority under § 706 and § 1307(c) "to take appropriate action in response to fraudulent conduct b y the atypical litigant who has demonstrated that he is not entitled to the relief a v a ila b le to the typical debtor." Marrama, 549 U.S. at 374­75. In construing t h is express reference to § 1307(c) and its anti-waiver provision, the In re A r m s tr o n g court concluded that the presence of "an anti-waiver provision which is generally intended to protect otherwise inviolable rights of a debtor does not 18

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No. 09-40023 m e a n that those rights cannot be forfeited by the `atypical' debtor who engages in fraudulent conduct during the bankruptcy case." In re Armstrong, 408 B.R. a t 571. The court thus found that by the reasoning of Marrama, the right to d is m is s under § 1307(b) was also subject to forfeiture by atypical debtors who act in bad faith. L a s t ly , the In re Armstrong court considered two additional reasons why t h e Marrama decision supported an exception to § 1307(b) for bad-faith conduct o r abuse of the bankruptcy process. Id. at 572. The first was the statutory l a n g u a g e "at any time," present in both § 706(a) and § 1307(b), that the In re B a r b ie r i court had relied on in construing § 1307(b) as absolute, see 199 F.3d at 6 1 9 , but which posed no obstacle to the Supreme Court's construction of § 706(a) a s qualified by a bad-faith exception, see Marrama, 549 U.S. at 371­74. As the I n re Armstrong court reasoned, such language could no longer be used to s u p p o r t an absolute right to dismiss under § 1307(b). 408 B.R. at 572.

Additionally, the In re Armstrong court discussed the fact that § 1307(b) is not t h e only mandatory provision in § 1307. Id. Section 1307(e) provides that when a debtor fails "to file a tax return . . . , the court shall dismiss a case or convert a case under this chapter to a case under chapter 7 of this title, whichever is in t h e best interest of the creditors and the estate." 11 U.S.C. § 1307(e) (emphasis a d d e d ) . The court found that § 1307(b) was not necessarily absolute where a s e p a r a t e subsection itself spoke in absolute terms in the context of holding a c c o u n t a b l e debtors who fail to abide by the rules of bankruptcy. A r m s tr o n g , 408 B.R. at 572.1 4
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In re

The In re Armstrong decision deferred ruling on the request for dismissal pending an evidentiary hearing because the record was insufficient to make a determination as to bad faith and because no formal motion to convert to Chapter 7 had been filed. 408 B.R. at 572. Following that evidentiary hearing, the court found that the debtor's conduct did not constitute bad faith sufficient to establish cause to order conversion. In re Armstrong, 409 B.R. 629, 634­35 (Bankr. E.D.N.Y. 2009). The court also held in the alternative that if cause had been established, conversion would not have been in the best interests of the creditors and the

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No. 09-40023 5. O u r Determination

F o llo w in g the Supreme Court's decision in Marrama, we hold that a b a n k r u p t c y court has the discretion to grant a pending motion to convert for c a u s e under § 1307(c) where the debtor has acted in bad faith or abused the b a n k r u p t c y process and requested dismissal under § 1307(b) in response to the m o t io n to convert.1 5 In doing so, we join the Ninth Circuit in finding that

M a r r a m a 's "rejection of the `absolute right' theory as to § 706(a) applies equally t o § 1307(b)" because "there is no analytical distinction" between the two s t a t u t e s . In re Rosson, 545 F.3d at 773. We thereby reject a construction of the s t a t u t e that would afford an abusive debtor an escape hatch, and we sanction t h e limited exception that lower courts within our boundaries have accorded the s t a t u t e for nearly two decades. W e interpret § 1307 in accordance with the Supreme Court's decision in M a r r a m a . Although possessing slight variations in wording, both § 706(a) and § 1307(b) leave the decision to convert or dismiss, respectively, to the debtor. Compare 11 U.S.C. § 706(a) ("The debtor may convert . . . at any time . . . .") with id . § 1307(b) ("On request of the debtor at any time, . . . the court shall dismiss . . . ."). The legislative history of each section reinforces the notion that the d e b to r 's right is absolute and unqualified. See S. REP. NO. 95-989, at 94 (1978) (" S u b s e c t io n (a) of [§ 706] gives the debtor the one-time absolute right of c o n v e r s io n . . . ."); id. at 141 ("Subsection[] (b) [of § 1307] confirm[s], without q u a lific a t io n , the right[] of a Chapter 13 debtor . . . to have the Chapter 13 case d is m is s e d ." ). Yet notwithstanding the apparent absoluteness of a debtor's right t o dismiss under § 706(a), the Supreme Court held that the directive in the

estate where the only two creditors failed to appear at the evidentiary hearing. Id. at 635. This case does not call for us to determine whether a bankruptcy court possesses such discretion when the debtor's request for dismissal precedes the motion to convert. We therefore leave that issue for a later case.
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No. 09-40023 le g is la t iv e history was "equivocal," Marrama, 549 U.S. at 372, and that such a r ig h t was qualified by an exception for bad-faith conduct by the debtor. See id. a t 374. T h e Court articulated two reasons why Marrama's apparently unqualified a n d absolute right to convert his case to Chapter 7 was subject to an exception d u e to his bad-faith conduct. First, the Court found that doing so was

a p p r o p r ia te to correct the "procedural anomaly" that would occur when a badfa it h debtor exercised the right to convert under § 706(a) only to be subject to r e c o n v e r s io n for cause under § 1307(c). Id. at 367­68, 373­74. The Court in s t e a d found it appropriate to avoid that two-step process that would have g iv e n Marrama control of his assets and possibly enabled action prejudicial to c r e d it o r s . Id. at 375. Second, and more importantly, the Court spoke in clear t e r m s that bankruptcy courts have "broad authority . . . to take any action that is necessary or appropriate `to prevent an abuse of process' [under] § 105(a) of t h e Code," id., and that they would have such power even in the absence of § 105(a) due to "the inherent power of every federal court to sanction `abusive lit ig a t io n practices,'" id. at 375­76 (quoting Roadway Express, Inc. v. Piper, 447 U .S . 752, 765 (1980)). In the Court's view, this power was sufficient to negate t h e apparently absolute nature of Marrama's right to convert under § 706(a). Id. a t 376. P r o c e e d in g from the propositions in Marrama that an apparently u n q u a lifie d right is subject to an exception for bad faith and that bad faith ju s tifie s a bankruptcy court's exercise of its powers under § 105(a), we conclude t h a t § 1307(b) is subject to a similar exception, at least when the debtor's request fo r dismissal is made in response to a motion to convert under § 1307(c). We t h e r e fo r e decline to read § 1307(b) as an "escape hatch," In re Molitor, 76 F.3d a t 220, from which to escape a conversion motion filed under § 1307(c). O u r decision does not run afoul of the principle that a debtor cannot be 21

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No. 09-40023 fo r c e d involuntarily to proceed under Chapter 13. See In re Harper­Elder, 184 B .R . at 408 ("Chapter 13 was intended to be [a] purely voluntary chapter . . . ."). We construe § 1307(b) and (c) to permit a bankruptcy court to convert a case to C h a p t e r 7 in lieu of dismissing the case under circumstances where the debtor h a s acted in bad faith or abused the bankruptcy process. We do not here read t h o s e provisions in a way that allows bankruptcy courts to force debtors to r e m a in in Chapter 13 against their wills. Because Chapter 7 does not compel a d e b to r to commit post-petition earnings toward a repayment plan, the concern o f involuntary servitude does not compel an alternate interpretation of § 1307(b) a n d (c). W e also reject the contention that Marrama's reasoning does not apply o u ts id e the context of § 706 because no provision comparable to § 706(d) limits § 1307(b).1 6 The Court's decision in Marrama was clear that bankruptcy courts a r e vested with the authority to take appropriate action in response to an abuse o f process. See 549 U.S. at 375. We remain cognizant of the directive that the " e q u it a b le powers [of] bankruptcy courts must and can only be exercised within t h e confines of the Bankruptcy Code," Norwest Bank Worthington v. Ahlers, 485 U .S . 197, 206 (1988), and that "Section 105(a) does not permit courts to act as r o v in g commissions to do equity," Wells Fargo Bank of Tex. N.A. v. Sommers (In r e Amco Ins.), 444 F.3d 690, 695 (5th Cir. 2006) (alterations and internal q u o t a t io n marks omitted). Nonetheless, we are persuaded that, under the

B a n k r u p t c y Code and Supreme Court precedent, a bankruptcy court has the p o w e r to grant an outstanding conversion motion and deny a bad-faith debtor's r e q u e s t for dismissal made in response to that motion. B. F in d i n g of Bad Faith J a c o b s e n also challenges the bankruptcy court's factual finding that he
Section 706(d) "reinforces section 109 by prohibiting conversion to a chapter unless the debtor is eligible to be a debtor under that chapter." S. REP. NO. 95-989, at 94.
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No. 09-40023 a c t e d in bad faith as clearly erroneous. "A finding of fact is `clearly erroneous' w h e n although there is evidence to support it, the reviewing court on the entire e v id e n c e is left with the definite and firm conviction that a mistake has been c o m m it t e d ." Becker v. Tidewater, Inc., 586 F.3d 358, 367 (5th Cir. 2009). Our r o le is not to weigh the evidence ourselves but merely to determine whether the lo w e r court's account "is plausible in light of the record viewed in its entirety." Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985). "Where there are t w o permissible views of the evidence, the factfinder's choice between them c a n n o t be clearly erroneous." Id. "Clear error review is `especially rigorous' w h e n we review a lower court's assessment of trial testimony, `because the trier o f fact has seen and judged the witnesses.'" Valley Educ. Found., Inc. v.

E ld e r c a r e Props. Ltd. (In re Eldercare Props. Ltd.), 568 F.3d 506, 515 (5th Cir. 2 0 0 9 ) (quoting United States v. Casteneda, 951 F.2d 44, 48 (5th Cir. 1992)). A fte r our review of the record, we are not left with a definite and firm c o n v ic t io n that an error has been committed. The bankruptcy court had ample e v id e n c e in the form of Jacobsen's own testimony, discussed above, revealing t h a t Jacobsen had interests in assets that were not disclosed on his schedules a n d that he had made transfers that were not disclosed in his Statement of F in a n c ia l Affairs. In addition, it was permissible for the bankruptcy court to c o n c lu d e that the misspelling of Malikyar's name as "Malekyar" was an attempt b y Jacobsen to conceal assets titled in his wife's name. Although Jacobsen s p e n d s much of his brief contending that the real properties titled in Malikyar's n a m e were Malikyar's separate property, both he and Malikyar agreed to entry o f a judgment in the Adversary Proceeding that declared those properties to be e q u a l management community property. Furthermore, Jacobsen admitted that h e was the beneficiary of the Jacobsen Trust, that he had invested $75,000 in a s h e a butter business, and that he had executed a quitclaim deed to the Tice V a lle y Property in favor of Malikyar shortly before bankruptcy. 23 Jacobsen

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No. 09-40023 a c k n o w le d g e d that those interests and transactions were not disclosed on his s c h e d u le s or his Statement of Financial Affairs. We also note that the

b a n k r u p t c y court, sitting as the factfinder, had the ability to evaluate Jacobsen's t e s t im o n y and his credibility firsthand. We have little difficulty concluding that a finding of bad faith is plausible in light of the record viewed in its entirety. W e further hold that the bankruptcy court did not abuse its discretion in o r d e r in g conversion under § 1307(c) as being in the best interest of creditors and J a c o b s e n 's bankruptcy estate. The Marrama Court, interpreting § 1307(c)'s d is m issal provision, declined to "articulate with precision what conduct qualifies a s `bad faith,'" instead noting that the debtor's conduct must be "atypical" and t h a t bad faith occurs only in "extraordinary cases." Marrama, 549 U.S. at 375 n .1 1 . The Court found that such an extraordinary and atypical case was before it where the debtor attempted to conceal an asset by filing "misleading or in a c c u r a t e " schedules. Id. at 368, 371. Because Jacobsen filed misleading and in a c c u r a t e schedules that attempted to conceal assets from creditors, he is c le a r ly among the class of atypical debtors subject to the limited exception to § 1307(b). In light of Jacobsen's bad faith and the pending motion to convert to C h a p t e r 7, we conclude that it was within the bankruptcy court's discretion to d e n y Jacobsen's motion to dismiss his Chapter 13 case under § 1307(b) and to o r d e r conversion under § 1307(c) instead. I V . CONCLUSION F o r the foregoing reasons, we AFFIRM the judgments of the bankruptcy a n d district courts. A F F IR M E D .

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