Failure to Acquire Property Insurance on Collateral is Sufficient to Reduce 21-Day Notice Period Before a Conversion Hearing — By Dan Lake

Aja v. Fitzgerald (In re Aja), 441 B.R. 173 (B.A.P. 1st Cir. 2011)

The United States Bankruptcy Appellate Panel for the First Circuit (BAP) denied an appeal by a debtor challenging the Bankruptcy Court’s denial of her request for reconsideration of an order converting her case from chapter 11 to chapter 7. The Bankruptcy Court set a date for the conversion motion hearing, but advanced the hearing date after the Trustee alleged that the debtor failed to acquire property insurance on her collateral property. The debtor failed to attend the hearing, and the Bankruptcy Court issued an order converting her case to chapter 7. The debtor moved the Bankruptcy Court to reconsider its order and on March 19, 2010, the Bankruptcy Court denied the relief sought by the motion to reconsider. On April 1, 2010, the debtor filed an appeal of the court’s denial of her request for reconsideration but did not appeal the denial of the conversion motion itself. By the time the BAP heard the appeal, the debtor’s estate was administratively insolvent.

As an initial matter, the BAP determined that the debtor’s appeal fell outside the scope of Fed. R. Civ. P. 59(e), made applicable to bankruptcy appeals by Fed. R. Bankr. P. 9023, because the debtor failed to bring the appeal within 14 days. However, Fed. R. Civ. P. 59(e) was amended on March 26, 2009, which amendment took effect December 1, 2009, to provide for a 28 day appeal period. The debtor brought her appeal within that 28 day period. However, because the BAP ruled that Fed. R. Civ. P. 59(e) was inapplicable, it applied the relatively stricter standard for relief set forth under Fed. R. Civ. P. 60(b), made applicable by Fed. R. Bankr. P. 9024.

The BAP addressed the issue of whether the debtor received sufficient notice of the conversion motion hearing. A bankruptcy court may convert a case after appropriate notice and a hearing, and Fed. R. Bankr. P. 2002(a)(4) provides that a court must provide the debtor with 21 days notice before a hearing on a motion to convert. However, Fed. R. Bankr. P. 9006(c)(1) gives a court the power to reduce the notice period for cause. Lack of property insurance on collateral gives cause for conversion, and the Bankruptcy Court found that the debtor had provided no evidence of insurance. The BAP agreed with the Bankruptcy Court, finding that the notice period of less than 21 days was sufficient under the circumstances.

The BAP also determined that even if the Bankruptcy Court had erred in denying reconsideration, such error was harmless because the debtor failed to appeal the conversion order itself, the debtor’s estate was administratively insolvent and the debtor failed to demonstrate an ability to reorganize under chapter 11. The BAP dismissed the appeal as moot, ruling alternatively that the debtor’s appeal was substantively without merit.

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