Robert Louis MARRAMA, Petitioner, v. CITIZENS BANK OF MASSACHUSETTS et al., 356 B.R. 1105

Justice STEVENS delivered the opinion of the Court. The principal purpose of the Bankruptcy Code is to grant a “ ‘fresh start’ ” to the “ ‘honest but unfortunate debtor.’ ” Grogan v. Garner, 498 U.S. 279, 286, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Both

Chapter 7 and

Chapter 13 of the Code permit an insolvent individual to discharge certain unpaid debts toward that end.

Chapter 7 authorizes a discharge of prepetition debts following the liquidation of the debtor’s assets by a bankruptcy trustee, who then distributes the proceeds to creditors.

Chapter 13 authorizes an individual with regular income to obtain a discharge after the successful completion of a payment plan approved by the bankruptcy court. Under

Chapter 7 the debt- or’s non-exempt assets are controlled by the bankruptcy trustee; under

Chapter 13 the debtor retains possession of his property. A proceeding that is commenced under

Chapter 7 may be converted to a

Chapter 13 proceeding and vice versa. 11 U.S.C. §§ 706(a), 1307(

a) and (c). An issue that has arisen with disturbing frequency is whether a debtor who acts in bad faith prior to, or in the course of, filing a

Chapter 13 petition by, for example, fraudulently concealing significant assets, thereby forfeits his right to obtain

Chapter 13 relief. The issue may arise at the outset of a

Chapter 13 case in response to a motion by creditors or by the United States trustee either to dismiss the case or to convert it to

Chapter 7, see § 1307(c). It also may arise in a

Chapter 7 case when a debtor files a motion under § 706(

a) to convert to

Chapter 13. In the former context, despite the absence of any statutory provision specifically addressing the issue, the federal courts are virtually unanimous that prepetition bad-faith conduct may cause a forfeiture of any right to proceed with a

Chapter 13 case. In the latter context, however, some courts have suggested that even a bad-faith debtor has an absolute right to convert at least one

Chapter 7 proceeding into a

Chapter 13 case even though the case will thereafter be dismissed or immediately returned to

Chapter 7. We granted certiorari to decide whether the Code mandates that procedural anomaly. 547 U.S. —, 126 S.Ct. 2859, 165 L.Ed.2d 894 (2006). I On March 11, 2003, petitioner, Robert Marrama, filed a voluntary petition under

Chapter 7, thereby creating an estate consisting of all his property “wherever located and by whomever held.” 11 U.S.C. § 541(a). Respondent Mark DeGiacomo is the trustee of that estate. Respondent Citizens Bank of Massachusetts (hereinafter Bank) is the principal creditor. In verified schedules attached to his petition, Marrama made a number of statements about his principal asset, a house in Maine, that were misleading or inaccurate. For instance, while he disclosed that he was the sole beneficiary of the trust that owned the property, he listed its value as zero.

He also denied that he had transferred any property other than in the ordinary course of business during the year preceding the filing of his petition. Neither statement was true. In fact, the Maine property had substantial value, and Marrama had transferred it into the newly created trust for no consideration seven months prior to filing his

Chapter 13 petition. Marrama later admitted that the purpose of the transfer was to protect the property from his creditors. After Marrama’s examination at the meeting of creditors, see 11 U.S.C. § 341, the trustee advised Marrama’s counsel that he intended to recover the Maine property as an asset of the estate. Thereafter, Marrama filed a “Verified Notice of Conversion to

Chapter 13.” Pursuant to Federal Rule of Bankruptcy Procedure 1017(c)(2), the notice of conversion was treated as a motion to convert, to which both the trustee and the Bank filed objections. Relying primarily on Marrama’s attempt to conceal the Maine property from his creditors, the trustee contended that the request to convert was made in bad faith and would constitute an abuse of the bankruptcy process. The Bank opposed the conversion on similar grounds. At the hearing on the conversion issue, Marrama explained through counsel that his misstatements about the Maine property were attributable to “scrivener’s error,” that he had originally filed under

Chapter 7 rather than

Chapter 13 because he was then unemployed, and that he had recently become employed and was therefore eligible to proceed under

Chapter 13 The Bankruptcy Judge rejected these arguments, ruling that there is no “Oops” defense to the concealment of assets and that the facts established a “bad faith” case. App. 34a-35a. The judge denied the request for conversion. Marrama’s principal argument on appeal to the Bankruptcy Appellate Panel for the First Circuit was that he had an absolute right to convert his case from

Chapter 7 to

Chapter 13 under the plain language of § 706(

a) of the Code. The panel affirmed the decision of the Bankruptcy Court. It construed § 706(a), when read in connection with other provisions of the Code and the Bankruptcy Rules, as creating a right to convert a case from

Chapter 7 to

Chapter 13 that “is absolute only in the absence of extreme circumstances.” In re Marrama, 313 B.R. 525, 531 (1st Cir. BAP 2004). In concluding that the record disclosed such circumstances, the panel relied on Marrama’s failure to describe the transfer of the Maine residence into the revocable trust, his attempt to obtain a homestead exemption on rental property in Massachusetts, and his nondisclosure of an anticipated tax refund. On appeal from the panel, the Court of Appeals for the First Circuit also rejected the argument that § 706(

a) gives a

Chapter 7 debtor an absolute right to convert to

Chapter 13. In addition to emphasizing that the statute uses the word “may” rather than “shall,” the court added: “In construing subsection 706(a), it is important to bear in mind that the bankruptcy court has unquestioned authority to dismiss a

chapter 13 petition — as distinguished from converting the case to

chapter 13 — based upon a showing of ‘bad faith’ on the part of the debtor. We can discern neither a theoretical nor a practical reason that Congress would have chosen to treat a first-time motion to convert a

chapter 7 case to

chapter 13 under subsection 706(

a) differently from the filing of a

chapter 13 petition in the first instance.” In re Marrama, 430 F.3d 474, 479 (2005) (citations omitted). While other Courts of Appeals and bankruptcy appellate panels have refused to recognize any “bad faith” exception to the conversion right created by § 706(a), see n. 2, supra, we conclude that the courts in this case correctly held that Marrama forfeited his right to proceed under

Chapter 13. II The two provisions of the Bankruptcy Code most relevant to our resolution of the issue are subsections (

a) and (

d) of 11 U.S.C. § 706, which provide: “(

a) The debtor may convert a case under this

chapter to a ease under

chapter 11, 12, or 13 of this title at any time, if the case has not been converted under

section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this subsection is unenforceable. “(

d) Notwithstanding any other provision of this section, a case may not be converted to a case under another

chapter of this title unless the debtor may be a debtor under such chapter.” Petitioner contends that subsection (

a) creates an unqualified right of conversion. He seeks support from language in both the House and Senate Committee Reports on the provision. The Senate Report stated: “Subsection (

a) of this

section gives the debtor the one-time absolute right of conversion of a liquidation case to a reorganization or individual repayment plan case. If the case has already once been converted from

chapter 11 or 13 to

chapter 7, then the debtor does not have that right. The policy of the provision is that the debtor should always be given the opportunity to repay his debts, and a waiver of the right to convert a case is unenforceable.” S.Rep. No. 95-989, p. 94 (1978); see also H.R.Rep. No. 95-595, p. 380 (1977) (using nearly identical language). The Committee Reports’ reference to an “absolute right” of conversion is more equivocal than petitioner suggests. Assuming that the described debtor’s “opportunity to repay his debts” is a shorthand reference to a right to proceed under

Chapter 13, the statement that he should “always” have that right is inconsistent with the earlier recognition that it is only a one-time right that does not survive a previous conversion to, or filing under,

Chapter 13. More importantly, the broad description of the right as “absolute” fails to give full effect to the express limitation in subsection (d). The words “unless the debtor may be a debtor under such chapter” expressly conditioned Marrama’s right to convert on his ability to qualify as a “debtor” under

Chapter 13. There are at least two possible reasons why Marrama may not qualify as such a debtor, one arising under § 109(

e) of the Code, and the other turning on the construction of the word “cause” in § 1307(c). The former provision imposes a limit on the amount of indebtedness that an individual may have in order to qualify for

Chapter 13 relief. More pertinently, the latter provision, § 1307(c), provides that a

Chapter 13 proceeding may be either dismissed or converted to a

Chapter 7 proceeding “for cause” and includes a nonexclusive list of 10 causes justifying that relief. None of the specified causes mentions prepetition bad-faith conduct (although subparagraph 10 does identify one form of

Chapter 7 error — which is necessarily prepetition conduct — that would justify dismissal of a

Chapter 13 ease).Bankruptcy courts nevertheless routinely treat dismissal for prepetition bad-faith conduct as implicitly authorized by the words “for cause.” See n. 1, supra. In practical effect, a ruling that an individual’s

Chapter 13 case should be dismissed or converted to

Chapter 7 because of prepetition bad-faith conduct, including fraudulent acts committed in an earlier

Chapter 7 proceeding, is tantamount to a ruling that the individual does not qualify as a debtor under

Chapter 13. That individual, in other words, is not a member of the class of “ ‘honest but unfortunate debtor[s]’ ” that the bankruptcy laws were enacted to protect. See Grogan v. Garner, 498 U.S., at 287, 111 S.Ct. 654. The text of § 706(

d) therefore provides adequate authority for the denial of his motion to convert. The class of honest but unfortunate debtors who do possess an absolute right to convert their cases from

Chapter 7 to

Chapter 13 includes the vast majority of the hundreds of thousands of individuals who file

Chapter 7 petitions each year. Congress sought to give these individuals the chance to repay their debts should they acquire the means to do so. Moreover, as the Court of Appeals observed, the reference in § 706(

a) to the unenforceability of a waiver of the right to convert functions “as a consumer protection provision against adhesion contracts, whereby a debtor’s creditors might be precluded from attempting to prescribe a waiver of the debtor’s right to convert to

chapter 13 as a non-negotiable condition of its contractual agreements.” 430 F.3d, at 479. A statutory provision protecting a borrower from waiver is not a shield against forfeiture. Nothing in the text of either § 706 or § 1307(c) (or the legislative history of either provision) limits the authority of the 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. On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate “to prevent an abuse of process” described in § 105(

a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors. Indeed, as the Solicitor General has argued in his brief amicus curiae, even if § 105(

a) had not been enacted, the inherent power of every federal court to sanction “abusive litigation practices,” see Roadway Express, Inc. v. Piper, 447 U.S. 752, 765, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980), might well provide an adequate justification for a prompt, rather than a delayed, ruling on an unmeritorious attempt to qualify as a debtor under

Chapter 13. Accordingly, the judgment of the Court of Appeals is affirmed. It is so ordered. . See, e.g., In re Alt, 305 F.3d 413, 418-419 (C.A.6 2002); In re Leavitt, 171 F.3d 1219, 1224 (C.A.9 1999); In re Kestell, 99 F.3d 146, 148 (C.A.4 1996); In re Molitor, 76 F.3d 218, 220 (C.A.8 1996); In re Gier, 986 F.2d 1326, 1329-1330 (C.A.10 1993); In re Love, 957 F.2d 1350, 1354 (C.A.7 1992); In re Sullivan, 326 B.R. 204, 211 (1st Cir. BAP 2005). . See, e.g., In re Martin, 880 F.2d 857, 859 (C.A.5 1989); In re Croston, 313 B.R. 447 (9th Cir. BAP 2004); In re Miller, 303 B.R. 471 (10th Cir. BAP 2003). .

The trustee also noted that in his original verified schedules Marrama had claimed a property in Gloucester, Mass., as a homestead exemption, see 11 U.S.C. § 522(b)(2); Mass. Gen. Laws, ch. 188, § 1 (West 2005), but testified at the meeting of creditors that he did not reside at the property and was receiving rental income from it, App. 71a-72a. Moreover, when asked at the meeting whether anyone owed him any money, Marrama responded "No,” id., at 50a, and in response to a similar question on

Schedule B to his petition, which specifically requested a description of any "tax refunds,” Marrama indicated that he had "none.” Supp.App. 6. In fact, Marrama had filed an amended tax return in July 2002 in which he claimed the right to a refund, and shortly before the hearing on the motion to convert, the Internal Revenue Service informed the trustee that Marrama was entitled to a refund of $8,745.86, App. 30a-31a. . The parties dispute the accuracy of this representation. The trustee’s brief notes that

Schedule I to Marrama’s original petition indicates that he had been employed by a flooring company at the time the case was filed. See Brief for Respondent Mark G. DeGiacomo 10, n. 7 (citing Supp.App. 18, 30). Marrama’s counsel stated during oral argument, however, that the income listed in

Schedule I represented an estimate based on employment that had not yet begun. Tr. of Oral Arg. 24. Since the sufficiency of the evidence of bad faith is not at issue, we may assume that Marrama did have more income available when he sought to convert than when he commenced the

Chapter 7 case. . The judicial council of any circuit is authorized by statute to establish a bankruptcy appellate panel service, comprising bankruptcy judges, to hear appeals from the bankruptcy courts with the consent of the parties. See 28 U.S.C. § 158(b); Connecticut Nat. Bank v. Germain, 503 U.S. 249, 252, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). The First Circuit has established this service. . Subsection (

e) of 11 U.S.C. § 109 provides: "Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, non-contingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under

chapter 13 of this title.” These dollar limits are subject to adjustment for inflation every three years. See § 104(b). . Marrama initiated a new

Chapter 13 case the day after we granted certiorari in the present case. The new case was dismissed on the grounds that, under § 109(e), he was ineligible to be a

Chapter 13 debtor. See In re Marrama, 345 B.R. 458, 463-464, and n. 10 (Bkrtcy.D.Mass.2006). As the Bankruptcy Judge made no such determination on the record before us in this case, and as it is not necessary to our decision that such a determination be made, we do not consider whether Marrama fails to meet the § 109(

e) debt limit. .Title II U.S.C. § 1307(

c) provides, in relevant part: "Except as provided in subsection (

e) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this

chapter to a case under

chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including— "(1) unreasonable delay by the debtor that is prejudicial to creditors; “(2) nonpayment of any fees and charges required under

chapter 123 of title 28; "(3) failure to file a plan timely under

section 1321 of this title; "(10) only on request of the United States trustee, failure to timely file the information required by paragraph (2) of

section 521.” Section 521(2), which has since been amended and redesignated as § 521(a)(2), see 119 Stat. 38, imposes a duty on a debtor in a

Chapter 7 proceeding to file within a certain time period a statement of intent with respect to the retention or surrender of property being used to secure debts. See 11 U.S.C.A. § 521(a)(2), (2004 ed. and Supp.2006). . Indeed, because § 521(2) by its terms applies only to

Chapter 7 debtors, at least one prominent treatise has assumed that this subsection could only apply to a debtor who has converted a case from

Chapter 7 to

Chapter 13. See 8 Collier on Bankruptcy ¶ 1307.04[9] (15th ed. rev.2006). . We are advised by the Administrative Office of the United States Courts that 833,148

Chapter 7 cases were filed in fiscal year 2006. Memorandum from Steven R. Schlesinger, Administrative Office of the United States Courts, to Supreme Court Library (Dec. 13, 2006) (available in Clerk of Court's case file). . We have no occasion here to articulate with precision what conduct qualifies as "bad faith” sufficient to permit a bankruptcy judge to dismiss a

Chapter 13 case or to deny conversion from

Chapter 7. It suffices to emphasize that the debtor's conduct must, in fact, be atypical. Limiting dismissal or denial of conversion to extraordinary cases is particularly appropriate in light of the fact that lack of good faith in proposing a

Chapter 13 plan is an express statutory ground for denying plan confirmation. 11 U.S.C. § 1325(a)(3); see In re Love, 957 F.2d, at 1356 (“Because dismissal is harsh ... the bankruptcy court should be more reluctant to dismiss a petition ... for lack of good faith than to reject a plan for lack of good faith under

Section 1325(a)”). . Title II U.S.C. § 105(

a) provides: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” . Both the

Chapter 7 trustee and the United States as amicus curiae argue in their briefs that in the interval between the allowance of a motion to convert under § 706(

a) and the subsequent granting of a motion to dismiss under § 1307(c), the fact that the debtor would have possession of the property formerly under the control of the trustee would create an opportunity for the debtor to take actions that would impair the rights of creditors. Whether or not that risk is significant, under our understanding of the Code, the debtor's prior misconduct may provide a sufficient justification for a denial of his motion to convert.