## Facts

- Robert Louis Marrama filed a voluntary Chapter 7 bankruptcy petition, creating an estate consisting of all his property wherever located.
- Marrama’s schedules stated he was the sole beneficiary of a trust holding a house in Maine, listed the trust’s value as zero, and denied recent non-ordinary-course property transfers.
- In fact, the Maine property had substantial value, and Marrama had transferred it to a newly created trust for no consideration about seven months before filing, intending to protect it from creditors.
- The Chapter 7 trustee indicated he would seek to recover the Maine property as an estate asset; Citizens Bank, a principal creditor, and the trustee objected to Marrama’s disclosures.
- Marrama moved to convert his case from Chapter 7 to Chapter 13 under 11 U.S.C. § 706(a), asserting an absolute right to convert.
- At the conversion hearing, Marrama attributed the misstatements to a scrivener’s error; the bankruptcy judge rejected the explanation and found bad faith.

## Issues

1. Whether 11 U.S.C. § 706(a) gives a Chapter 7 debtor an unconditional right to convert to Chapter 13.
2. Whether a bankruptcy court may deny conversion when the debtor’s prepetition bad faith would warrant dismissal or reconversion of a Chapter 13 case for cause under 11 U.S.C. § 1307(c).
3. How 11 U.S.C. § 706(d)’s limitation (conversion only if the debtor may be a debtor under the target chapter) affects the conversion right in § 706(a).

## Decision

- The Supreme Court affirmed the denial of Marrama’s motion to convert.
- The Court held that § 706(a) is limited by § 706(d) and does not protect a debtor who, because of bad faith, would not qualify to proceed under Chapter 13.
- Marrama’s concealment and misleading disclosures would constitute cause for dismissal or reconversion under § 1307(c), so he forfeited the ability to proceed in Chapter 13.
- The Court approved denying conversion at the outset when the record shows the converted Chapter 13 case would be dismissed or reconverted for bad faith.

## Legal Principles

- A Chapter 7 debtor’s ability to convert to Chapter 13 under 11 U.S.C. § 706(a) is not absolute; it is conditioned by § 706(d).
- Under § 706(d), a case may not be converted unless the debtor may be a debtor under the target chapter; bad-faith conduct can render a debtor effectively ineligible to proceed under Chapter 13.
- Bankruptcy courts may treat prepetition bad faith as cause under 11 U.S.C. § 1307(c) to dismiss or reconvert a Chapter 13 case.
- Statutory protections against waiver of rights do not prevent forfeiture of those rights through misconduct; courts may respond to fraud and abuse without first granting conversion.

## Conclusion

The Court held that a Chapter 7 debtor who engages in bad-faith conduct, including concealment of assets and misleading disclosures, may be denied conversion to Chapter 13 because § 706(d) limits conversion to debtors eligible to proceed under Chapter 13 and such bad faith would justify dismissal or reconversion for cause under § 1307(c).


Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)