Certainly the Supreme Court's decision in Marrama has the benefit of
resolving the question of the limits on a debtor's right to convert in the face
of bad faith conduct. However, the opinion also exposes the Supreme Court's
views on bankruptcy in general, its purposes, and how lower courts may act in
crafting rulings that meet the goals of bankruptcy.
The Court's ruling acknowledged once again that bankruptcy is for the "honest
but unfortunate debtor." The Court also recognized the power of a bankruptcy
court to "take appropriate action in response to fraudulent conduct by the
atypical litigant who has demonstrated that he is not entitled to the relief
available to the typical debtor." Moreover, the Supreme Court condoned use of
the bankruptcy court's general powers under section 105 of the Code to "take
any action that is necessary or appropriate to prevent an abuse of process..." to
reach the correct result in this case.
This language and the Court's sentiment will be helpful to practitioners
struggling to interpret the complex and sometimes unclear language of the Code
resulting from its amendment by the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005.
For example, in the now frequent disputes over the amount a Chapter 13 debtor
must pay to unsecured creditors, there is a clear split of authority over
whether the amount is determined exclusively by the calculations made on the
Official Form developed by the Rules Committee for use by Chapter 13 debtors,
or whether a bankruptcy court may consider the debtor's actual financial
The formulaic method has been criticized as rigid and artificial. The
alternative approach that looks to a debtor's actual financial circumstances
has been criticized as a product of impermissible judicial legislation and
beyond the plain language of the Code's new regime.
Regardless of what approach a bankruptcy court uses to calculate a debtor's
required plan payment, unsecured creditors may rely on Marrama in urging
a court to effect the Code in accordance with its purposes and spirit.
Bankruptcy Report is produced by Becket & Lee LLP, Attorneys at Law,
as a service to our clients. Copyright 2007 by Becket & Lee LLP, except as
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