In Re: CHARLES EDGAR NEWTON, JANET NEWTON, Chapter 7, Debtors

Case No. 95-13669-SSMUnited States Bankruptcy Court, E.D. Virginia
April 29, 1997

Charles Edgar Newton, Janet Newton, Brookneal, VA, for Debtors, pro se

Thomas P. Gorman, Esquire, Tyler, Bartl, Burke Albert, P.C., Alexandria, VA, Of Counsel for chapter 7 trustee

MEMORANDUM OPINION AND ORDER
STEPHEN MITCHELL, Bankruptcy Judge

Before the court is the debtors’ motion filed on April 3, 1997, to convert their case from a liquidation case under chapter 7 of the Bankruptcy Code to a case for the adjustment of debts of a family farmer under chapter 12. The chapter 7 trustee opposed the motion. A hearing was held in open court on April 29, 1997. Because the debtors’ statement of financial affairs show they do not qualify as family farmers, the motion will be denied.

Facts
The debtors, who are husband and wife, filed a joint voluntary petition under chapter 7 of the Bankruptcy Code in this court on August 18, 1995. The husband, Charles Edgar Newton, had previously filed a chapter 12 petition in this court some three years earlier, but the case was dismissed after approximately 6 months without a plan having ever been filed.[1] Two months later, he filed a chapter 12 petition in the United States Bankruptcy Court for the Western District of

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Virginia, and his wife, Janet Newton, soon followed.[2] Mrs. Newton’s case was consolidated with that of her husband, and both cases were ultimately dismissed on November 4, 1993. On their statement of financial affairs filed in the present case, they listed “Woodburn Farm,” Brookneal, Virginia, as a business in which they had an interest,[3]
but listed “Social Security” as their only source of income for the year in which the petition was filed (1995) and the two prior years (1993 and 1994). The chapter 7 trustee originally filed a report of no distribution but subsequently withdrew the report and is administering the estate. The chapter 7 trustee opposes conversion on the basis that the debtors do not qualify as family farmers with regular annual income and are therefore not eligible for chapter 12 relief.[4]

Conclusions of Law and Discussion
Conversion of a chapter 7 case to another chapter is governed by §706, Bankruptcy Code, which provides as follows:

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§ 706. Conversion.

(a) The debtor may convert a case under this chapter to a case 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.
(c) The court may not convert a case under this chapter to a case under chapter 12 or 13 of this title unless the debtor requests such conversion.
(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.

(emphasis added). Under § 109(f), Bankruptcy Code, “[o]nly a family farmer with regular annual income may be a debtor under chapter 12 of this title.” The term “family farmer” is defined in § 101(18), Bankruptcy Code as follows:

[an] individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation) on the date the case is filed, arise out of a farming operation owned or operated by such individual or individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual’s or such individual and spouse’s gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed.

(emphasis added). Additionally, “family farmer with regular annual income” is defined as “[a] family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under chapter 12 of this title.” § 101(19), Bankruptcy Code.

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The debtors’ statement of financial affairs plainly reflect that they had no income from farming in the taxable year (1994) preceding the taxable year in which the case was filed (1995), let alone the 50% required by § 101(18) in order to qualify as a family farmer. With certain exceptions not relevant here, the conversion of a case from one chapter to another “does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.” § 348(a), Bankruptcy Code. In re Sadler, 935 F.2d 918, 920 (7th Cir. 1991) (“A case converted from one chapter of the 1978 Code to another retains all of the original filing dates.”). Consequently, even if, subsequent to 1994, the debtors’ income from farming had increased to the point where they would now qualify to file under chapter 12, they would not be eligible to convert their existing case, since eligibility for chapter 12 relief is determined as of the date that the original petition is filed. See, Potsmesil v. Alexandria Production Credit Assn., 42 B.R. 731 (W.D. La. 1984) (under plain language of statue, status as “farmer” determined at time petition is filed); In re Grey, 145 B.R. 86 (D. Kan. 1992) (debtor not eligible to be chapter 12 debtor where tax return for prior year showed no farm income). Since the debtors were not eligible to be chapter 12 debtors when their case was filed, their case cannot be converted to chapter 12. § 706(d), Bankruptcy Code.

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ORDER
For the foregoing reasons, it is

ORDERED:

1. The motion to convert to chapter 12 is DENIED.

2. The clerk will mail a copy of this order to the debtors and to the chapter 7 trustee.

[1] In re Charles E. Newton, No. 92-11614-MVB (filed April 2, 1992 and dismissed September 28, 1992).
[2] In re Charles Edgar Newton, No. 92-01940-WAG-12 (Bankr. W.D. Va.) (filed October 26, 1992); In re Janet B. Newton, No. 93-00002-WAG-12 (Bankr. W.D. Va.) (filed January 4, 1993).
[3] The farm is located in Charlotte County, in the Western District of Virginia. The debtors transferred ownership of the farm to their son Gary in 1990 and 1991.
[4] It appears that the primary impetus for the current motion to convert is the dismissal on March 7, 1997, of a chapter 12 case filed by the debtors’ son, Gary Edgar Newton, in the United States Bankruptcy Court for the Western District of Virginia. In re Gary Edgar Newton, No. 96-03014-WA1-12 (Bankr. W.D. Va.). That ruling has been appealed to the United States District Court for the Western District of Virginia. Gary Newton had previously filed a chapter 12 case in the Western District of Virginia on December 22, 1992. That case was consolidated with the cases filed by his parents and ultimately dismissed with theirs on November 4, 1993. In re Gary Edgar Newton, No. 92-02251-WA1-12 (Bankr. W.D. Va.). He then filed a chapter 12 petition in this court on October 27, 1995. That case was dismissed on March 6, 1996 In re Gary Egar [sic] Newton, No. 95-14790-SSM (Bankr. E.D. Va.).