2
The legislative history is instructive regarding the meaning and effect of Section 348, as amended
in 1994. As noted at 140 Cong. Rec. H. 10,770 (October 4, 1994):
“This amendment would clarify the Code to resolve a split in the case of law about what property
is in the bankruptcy estate when a debtor converts from chapter 13 to chapter 7. The problem arises
because in chapter 13 (and chapter 12), any property acquired after the petition becomes property of the
estate, at least until confirmation of a plan. Some courts have held that if the case is converted, all of this
after-acquired property becomes part of the estate in the converted chapter 7 case, even though the
statutory provisions making it property of the estate does not apply to chapter 7. Other courts have held
that the property of the estate in a converted case is the property the debtor had when the original chapter
13 petition was filed.
These latter courts have noted that to hold otherwise would create a serious disincentive to
chapter 13 filings. For example, a debtor who had $10,000 equity in a home at the beginning of the case,
in a State with a $10,000 homestead exemption, would have to be counseled concerning the risk that after
he or she paid off a $10,000 second mortgage in the chapter 13 case, creating $10,000 in equity, there
would be a risk that the home could be lost if the case were converted to chapter 7 (which can occur
involuntarily). If all of the debtor’s property at the time of conversion is property of the chapter 7 estate,
the trustee would sell the home, to realize the $10,000 in equity for the unsecured creditors and the debtor
would lose the home.
This amendment overrules the holding in cases such as Matter of Lybrook, 951 F2d 136 (7
th
Cir.
1991) and adopts the reasoning of In re Bobroff, 766 F2d 797 (3
rd
Cir. 1985). However, it also gives the
court discretion, in a case in which the debtor has abused the right to convert and converted in bad faith,
to order that all property held at the time of conversion shall constitute property of the estate in the
converted case.”
-4-
what property a Chapter 7 trustee may administer in cases converted from Chapter 13 “in bad faith.”
2
Surprisingly, Section 348(f) has spawned little litigation. In one case, In re Siegfried, 219 B.R.
581 (Bankr. D. Colo. 1998), the court found the debtor’s conversion to be in bad faith because of his
“pattern of deception and dishonesty in revealing assets and disclosing debts...” Id. at 586. In another
case, In re Wiczek-Spaulding, 223 B.R. 538 (Bankr. D. Minn. 1998), the court found the debtor’s
conversion not to be in bad faith because she acquired and exercised rights to severance benefits after
the filing of her case. The court noted that “even if the conversion was solely to secure the benefits . . .
, simply taking advantage of what the statute provides does not by itself amount to bad faith.” Id. at
540.
Although the Code does not define "bad faith," I suggest that a debtor who could easily