By: Brandi Sinkovich

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

The Sixth Circuit recently held that a bankruptcy court had the equitable power under section 105(a) of the Bankruptcy Code (the “Code”) to retroactively convert a chapter 11 case to chapter 7.[1] In Mitan v. Duval (In re Mitan), debtor Kenneth Mitan filed a chapter 11 petition in the Bankruptcy Court for the Central District of California that unsecured creditors, which had been awarded judgments against debtor in connection with a fraudulent business scheme the debtor operated, successfully moved to transfer to the Bankruptcy Court for the Eastern District of Michigan, where debtor resided and several creditors’ businesses were located.[2] After none of the parties appeared at either the status conference or the subsequent hearing to show cause why the case should not be dismissed or converted to chapter 7, the court dismissed the case. Later the court granted the creditors’ reconsideration motion in which the creditors argued that their absence was inadvertent while debtor’s absence was calculated to result in dismissal of the case, which had been previously denied to the debtor.[3] At the hearing on the reconsideration motion, the bankruptcy court reopened the case and sua sponte converted it to chapter 7 after finding that it was necessary for a trustee to investigate debtor’s affairs in light of debtor’s alleged scheme to avoid his obligations and abscond with assets hidden overseas.[4]