Marrama v. Citizens Bank of Massachusetts

Robert Marrama (debtor) filed for Chapter 7 bankruptcy in March 2003. Marrama’s bankruptcy schedules contained misleading or inaccurate disclosures about Marrama’s assets, including the untrue statements that Marrama’s house in Maine had no value and that Marrama had never transferred any property other than in the ordinary course of business within the year preceding his bankruptcy filing. In actuality, the house had value, and Marrama had transferred the house into a trust for no consideration seven months before filing for bankruptcy. Marrama subsequently revealed that his purpose in transferring the house into the trust was to protect the house from his creditors. The bankruptcy trustee advised Marrama that the trustee intended to recover the house for Marrama’s bankruptcy estate. Marrama then sought to convert his Chapter 7 case to a Chapter 13 case. The trustee and Citizens Bank of Massachusetts (the bank) (creditor) objected to conversion, asserting that the request to convert was made in bad faith and would constitute an abuse of the bankruptcy process, as evidenced by Marrama’s previous attempt to conceal the house from his creditors. Marrama argued that his original misstatements about the Maine house were unintentional mistakes and that he had originally filed under Chapter 7 because he was unemployed when he filed for bankruptcy and thus had been ineligible to proceed under Chapter 13 at the time. Marrama contended that because he had recently become employed, he could convert his case to Chapter 13. The bankruptcy court rejected Marrama’s arguments and denied the request for conversion. On appeal, Marrama argued that he had an absolute right to convert his case from Chapter 7 to Chapter 13 under 11 U.S.C. § 706(a). Both the bankruptcy appellate panel and the First Circuit rejected Marrama’s argument, concluding that a bad-faith debtor does not have an absolute right to convert a Chapter 7 proceeding to a Chapter 13 proceeding. The United States Supreme Court granted certiorari.