Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)

In Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), Robert Louis Marrama filed a voluntary petition for bankruptcy under Chapter 7 on March 11, 2003. In his petition, Marrama provided misleading information regarding his principal asset, a house in Maine, claiming its value was zero and denying any property transfers in the year prior to his filing. However, he had actually transferred the property into a trust for no consideration just seven months before filing, with the intent to shield it from creditors. This misrepresentation was significant as it indicated potential bad faith in his dealings prior to the bankruptcy filing. The procedural history of the case began when Marrama's Chapter 7 case was later converted to a Chapter 13 petition. The bankruptcy trustee and Citizens Bank of Massachusetts, the principal creditor, raised concerns about Marrama's bad faith actions. The issue escalated to whether a debtor who had acted in bad faith could still convert a Chapter 7 case to Chapter 13. The case ultimately reached the Supreme Court after lower courts addressed the implications of Marrama's conduct and the rights of debtors under the Bankruptcy Code. The background context of this case revolves around the principles of the Bankruptcy Code, which aims to provide a "fresh start" for honest debtors. However, the courts have grappled with the consequences of bad faith conduct by debtors, particularly in relation to their eligibility for Chapter 13 relief. This case highlighted the tension between a debtor's right to convert their bankruptcy filing and the need to prevent abuse of the bankruptcy system through fraudulent or deceptive practices.

Whether a debtor who acts in bad faith prior to or during the filing of a Chapter 13 petition forfeits the right to obtain Chapter 13 relief, particularly in the context of converting a Chapter 7 proceeding to Chapter 13.

The judgment is reversed and remanded.