February 13, 2009, Decided
  COUNSEL: For FMO Associates II, LLC, Debtor: Kenneth A Reynolds, McBreen &
  Kopko, Jericho, NY.
  For Kenneth Kirschenbaum, Trustee: Steven B Sheinwald, Kirschenbaum &
  Kirschenbaum, Garden City, NY.
  U.S. Trustee: Diana G. Adams, Office of the United States Trustee, Central
  Islip, NY.
  For Kenneth Kirschenbaum, Former Trustee: Kirschenbaum & Kirschenbaum, Garden
  City, NY.
  JUDGES: Robert E. Grossman, United States Bankruptcy Judge.
  OPINION BY: Robert E. Grossman
  OPINION
  MEMORANDUM DECISION
     Before the Court is a motion by FMO Associates II, LLC (the "Debtor") to
  convert its Chapter 7 case to a case under Chapter 11 pursuant to 11 U.S.C. §
  706. The Debtor urges the Court to grant the motion arguing that it has not
  acted in bad faith and is therefore eligible to be a debtor under Chapter 11.
  The Chapter 7 Trustee, Kenneth Kirschenbaum, opposes the motion, arguing that
  conversion of the Debtor's case to a case under Chapter 11 would serve no
  purpose. The Trustee also argues due to the particular circumstances regarding
  the conduct of the Debtor before and during the pendency of the instant 
Chapter
  7 case the Debtor has forfeited its right to convert the case to a case under
  Chapter 11. The Court finds the Supreme Court's recent decision In re Marrama,
  549 U.S. 365 (2007), instructive in this case. Based on the totality of the
  circumstances, the Debtor's conduct does not rise to the requisite level of 
bad
  faith and thus the Debtor is eligible to be a debtor under Chapter 11.
  Accordingly, the Court grants the Debtor's motion.
  Facts
     On October 31, 2008 (the "Petition Date"), the Debtor filed a voluntary
  petition for relief under Chapter 7 of the Bankruptcy Code. Kenneth 
  Kirschenbaum
  was appointed Interim Trustee on October 31, 2008 (the "Trustee"). The 
petition
  was filed without any schedules, statement of financial affairs or corporate
  resolution authorizing the filing. The Debtor owns an undeveloped parcel of 
  land
  zoned for commercial use located in Bay Shore, New York (the "Property"). The
  Property consists of two separate tax lots, one of which constitutes
  approximately 90% of the Property. The Property is encumbered by a first
  mortgage held by Anthony Pirrera and ASPA Management Corp. (the "First
  Mortgagee"), which is security for a note in the original principal amount of 
$
  540,000. Prior to the date the petition was filed, the First Mortgagee had
  commenced a foreclosure action with respect to the Property. On August 25, 
  2008,
  a judgment of foreclosure was entered in favor of the First Mortgagee in the
  amount of $ 553,655.40. The Property is also encumbered by a second mortgage
  held by Alfred Giordano, in the outstanding amount of approximately $ 82,000. 
  In
  addition to these two mortgages, the Property is encumbered by tax liens held 
  by
  Suffolk County in the approximate amount of $ 38,000.
     During the year prior to the Petition Date, the Debtor had marketed the
  Property for sale and retained Michael Salgo, Esq. as its real estate counsel 
  to
  represent the Debtor in its efforts to sell the Property. Based on the offers
  the Debtor had received for the Property prepetition, the Debtor's principal
  believed that the value of the Property was less than the total amounts owed
  under the two mortgages and the tax lien.
     At a point in time subsequent to the Petition Date the Trustee received 
from
  the Debtor's counsel schedules and the statement of financial affairs. 
However,
  these documents were not filed with the Court. 1 According to the Trustee, the
  schedules listed the value of the Property at less than the total amount of
  mortgages and liens encumbering the Property.
  - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1   
  According
  to the Debtor's current attorney, the attorney initially retained to represent
  the Debtor in this case did not file the schedules and statement of financial
  affairs because he did not know how to file them electronically. As of the
  middle of January, the Debtor has been represented by Kenneth Reynolds, Esq.,
  who is an experienced bankruptcy attorney.
  - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
     On November 17, 2008, the First Mortgagee filed a motion to vacate the
  automatic stay to permit the First Mortgagee to continue with the foreclosure
  against the Property. According to the affidavit in support of the motion, the
  value of the Property was estimated to be between $ 500,000 and $ 600,000
  pursuant to an appraisal conducted for the First Mortgagee. The motion to 
  vacate
  the stay was served on the Chapter 7 Trustee, the Debtor and counsel to the
  Debtor. The motion was granted unopposed at a hearing held on December 15, 
  2008.
  An order vacating the stay was entered on the Court's docket on December 17,
  2008.
     On January 19, 2009, the Debtor filed with the Court schedules and the
  statement of financial affairs. In the schedules, the value of the Property is
  listed as $ 770,000 and the total amount of liens on the Property is listed at 
  $
  710,000. On January 22, 2009, the Debtor filed the instant motion to convert 
to
  Chapter 11 (the "Motion"). In the Motion, the Debtor revealed to the Court for
  the first time that the Debtor had entered into a contract of sale of the 
  larger
  lot for $ 740,000. This exceeds the amount of the scheduled liens against the
  Property. Under the terms of the sale the Debtor would retain the smaller lot,
  which would be unencumbered. According to the Debtor, this remaining lot is
  worth approximately $ 30,000.
     At the hearing on the Motion, counsel to the Debtor stated that the Debtor
  had solicited offers for the purchase of the Property well prior to the 
  Petition
  Date and had circulated proposed contracts of sale, but had never expected to
  receive an offer after the Petition Date. If the Motion is granted, the Debtor
  intends to file a plan and disclosure statement as well as a request to 
approve
  the sale of the Property to the prospective purchaser, subject to higher and
  better offers. If the sale of the Property is approved and is consummated, 
  there
  will be sufficient net proceeds to make a payment to unsecured creditors, 
which
  the Debtor lists in the total amount of $ 218,193.89. 2 In addition, the 
Debtor
  will retain for the benefit of the estate the ownership of the smaller lot. 
The
  Office of the United States Trustee appeared in support of the Motion on the
  grounds that it would be in the best interest of creditors to grant such 
motion
  and that the Trustee failed to introduce sufficient evidence that the Debtor
  acted in bad faith during the pendency of the Chapter 7 case. According to the
  United States Trustee, the Debtor's representation of the events was just as
  likely to be true as the Trustee's representation of the events, and without 
  any
  evidence to support his argument, the Trustee's opposition should be 
overruled.
  The First Mortgagee also appeared at the hearing and did not oppose the 
Motion.
  - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2   Based 
on
  the schedules filed with the Court, it appears that at least $ 67,000 of the
  unsecured debt is based on loans made by the Debtor's three principals.
  - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
     The Debtor asserts that it has a right to convert the case to Chapter 11 
but
  for a showing of extreme circumstances. The Debtor argues that so long as the
  Court does not find that "extreme circumstances" exist which would preclude 
the
  granting of such relief, the Court should not interfere with the Debtor's 
right
  to seek conversion of its case. The Trustee opposes the motion and argues that
  the Debtor's right to convert is not absolute and in fact is limited by 
statute
  and case law. The Trustee argues that in this case conversion is not 
  appropriate
  because it would serve no purpose as the Debtor has no "business" to 
  reorganize.
  The Trustee also argues that under the reasoning set forth in In re Marrama, 
  549
  U.S. 365 (2007) the Debtor's bad faith conduct while in Chapter 7 provides
  additional grounds to deny the Debtor's request.
  Discussion
     Both the Debtor and the Trustee agree that a Chapter 7 debtor does not have
  an absolute right to convert to Chapter 11. Section 706(a) of the Bankruptcy
  Code provides that a "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. Courts in this
  Circuit have recognized that despite the "seemingly absolute language" of this
  statute, a debtor's right to convert a Chapter 7 case to Chapter 11 under
  Section 706(a) is not absolute. First, the debtor must file a motion and give
  notice pursuant to Fed. R. Bankr. P. 1017(f)(2). As the Court in In re 
  Krishnaya
  recognized, the fact that conversion under Section 706(a) requires a motion
  suggests that the Court's role in such motion "is more than a meaningless 
one."
  263 B.R. 63, 66 (Bankr. S.D.N.Y. 2001). The Debtor has complied with this
  requirement.
     The fundamental question presented in this case is what is the appropriate
  standard to apply in considering whether to grant or deny the Debtors motion 
to
  convert a case from Chapter 7 to a case under Chapter 11, and which party has
  the burden of persuasion. Recently, the Supreme Court issued a decision
  regarding whether a Chapter 7 debtor had an absolute right to convert to 
  Chapter
  13, and if there is no absolute right, whether the Court could take into
  consideration the debtor's bad faith conduct during the Chapter 7 case. In In 
  re
  Marrama, 549 U.S. 365 (2007), the Supreme Court concluded that the Debtor's
  right to convert a Chapter 7 case to a case under Chapter 13 is not absolute 
  and
  is specifically limited by § 706(d) of the Bankruptcy Code, which states that
  "[n]otwithstanding 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." In Marrama, the debtor filed inaccurate 
  statements
  and schedules which omitted information regarding the true value of an asset 
of
  the estate the debtor had transferred to a trust for which he was the sole
  beneficiary within one year of the filing date. The debtor had admitted that 
he
  made the transfer to protect this property from creditors, and then the debtor
  sought to convert his case to a case under Chapter 13. The Chapter 7 trustee
  opposed the motion and the bankruptcy court denied the debtor's motion. The
  Supreme Court affirmed the Bankruptcy Court and concluded that the debtor's 
bad
  faith conduct during a Chapter 7 case justified denial of the debtor's motion 
  to
  convert.
     The Supreme Court based its decision on the language of § 706(a), which 
  when
  read together with § 706(d) of the Bankruptcy Code, limits a debtor's right 
to
  convert to a chapter for which the debtor qualifies to be a debtor. As a 
  result,
  the debtor had to meet the eligibility requirements for a Chapter 13 debtor
  under § 109(e) of the Bankruptcy Code. In re Marrama, 549 U.S. at 372, 127 S.
  Ct. at 1110. The Supreme Court also looked to §1307(c) of the Bankruptcy Code 
  to
  determine whether the debtor qualified to become a debtor under Chapter 13.
  According to the Court's reasoning, if the debtor's proposed Chapter 13 case
  would be subject to being dismissed or converted "for cause" because of bad
  faith conduct under §1307(c) then the debtor could not qualify to be a debtor
  under Chapter 13. The Court reasoned that "[i]n 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 a class of 'honest but unfortunate debtor[s]' that the
  bankruptcy laws were enacted to protect." In re Marrama, 549 U.S. at 373,
  (citing Grogan v. Garner, 498 U.S. 279, 278 (1991)). The Supreme Court also
  noted that the broad power conferred to bankruptcy courts by § 105(a) "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. . . ." In re Marrama, 549 U.S. at 375.
     While the debtor in Marrama sought to convert his case to a case under
  Chapter 13 and not Chapter 11, a number of other courts have found In re 
  Marrama
  to be instructive or applicable to facts similar to this case. See In re 
George
  Love Farming, LC, 366 B.R. 170, 177-78 (Bankr. D. Utah 2007) (Marrama is
  instructive since the language of §706 applies equally in conversion to 
  chapter
  13 or chapter 11); In re Broad Creek Edgewater, LP, 371 B.R. 752, 758 (Bankr. 
  D.
  S.C. 2007) (Marrama applies equally in conversions to chapter 11 and chapter
  13); In re Irmen, 2008 WL 320484 * 3 (Bankr. N.D. Ill. 2008) and In re 10 
Bears
  at Chiloquin, Inc., 2007 WL 1673538 *2 (Bankr. D. Or. 2007). One case within
  this Circuit has also considered whether Marrama applies to a Chapter 7 debtor
  seeking to convert to Chapter 11. In In re Euro-American Lodging Corp., 365 
  B.R.
  421, 425 (Bankr. S.D.N.Y. 2007), Chief Judge Bernstein opined that Marrama has
  broader implications than its facts and "suggests that if 'cause' exists to
  convert or dismiss a hypothetical chapter 11 case, the chapter 7 debtor 
seeking
  to convert to chapter 11 is ineligible for relief under that chapter within 
the
  meaning of §706(d)."
     The Court agrees with these cases and finds that Marrama applies in cases
  such as this where the debtor seeks to convert from Chapter 7 to Chapter 11.
  First, the Debtor seeks conversion under the same statute, with the same
  limitations imposed by § 706(d) regarding eligibility. Second, like a Chapter 
  13
  debtor, a Chapter 11 debtor is subject to conversion or dismissal of the case
  for "cause" (including but not limited to bad faith and the enumerated grounds
  set forth in § 1112(b)(4) of the Bankruptcy Code). As a result, the Supreme
  Court's analysis regarding whether "cause" exists to dismiss or convert the
  prospective Chapter 13 debtor's petition would apply equally to a prospective
  Chapter 11 debtor.
     Having found Marrama to be applicable in this case, the Court must now
  consider how to apply Marrama in this case. The bankruptcy court in In re 
Broad
  Creek Edgewater, LP recognized that while the Court will not review every 
  motion
  to convert to determine the existence of grounds to deny the motion, it is the
  burden of the trustee or other objecting party to object to the motion to
  convert and join the issues for the Court to determine. 371 B.R. at 758 n.. 6. 
  In
  this case, before the Court is an objection by the Trustee to the Motion. It 
is
  the Trustee's burden to demonstrate by a preponderance of evidence why the
  Debtor, which qualifies under § 109 of the Bankruptcy Code to be a debtor 
  under
  Chapter 11, should not be permitted to convert its case to a case under 
Chapter
  11. The Trustee asserts (1) that the Debtor's conduct during the pendency of
  this case amounts to bad faith, requiring denial of the Motion and (2) because
  the Debtor has no "business" to reorganize and would be proposing a plan of
  liquidation, converting the case would serve no purpose.
     The issue of whether the Debtor has acted in bad faith was specifically
  considered by the Marrama Court. It is instructive that the Supreme Court 
found
  that only "atypical" or "extraordinary" conduct of the debtor would give rise 
  to
  a finding that the debtor acted in bad faith. It is also notable that like in 
a
  Chapter 13 case under § 1307(c), a debtor's bad faith constitutes one of the
  unenumerated grounds to convert the case to Chapter 7 under § 1112(b). In re
  C-TC 9th Ave. Partnership, 113 F.3d 1304, 1309 (2nd Cir. 1997). The Second
  Circuit has set forth certain factors a court may consider when determining
  whether a Chapter 11 petition was indicative of a bad faith filing, including:
     (1) the debtor has only one asset;
     (2) the debtor has few unsecured creditors whose claims are small in 
  relation
  to those of the secured creditors;
     (3) the debtor's one asset is the subject of a foreclosure action as a 
  result
  of arrearages or default on the debt;
     (4) the debtor's financial condition is, in essence, a two party dispute
  between the debtor and secured creditors which can be resolved in the pending
  state foreclosure action;
     (5) the timing of the debtor's filing evidences an intent to delay or
  frustrate the legitimate efforts of the debtor's secured creditors to enforce
  their rights;
     (6) the debtor has little or no cash flow;
     (7) the debtor can't meet current expenses including the payment of 
personal
  property and real estate taxes; and
     (8) the debtor has no employees.
     113 F.3d at 1311 (citing Pleasant Pointe Apartments, Ltd. v. Kentucky 
  Housing
  Corp., 139 B.R. 828, 832 (W.D. Ky. 1992)). Evidence of a debtor's overall 
  intent
  to abuse the judicial process and to subvert the reorganization provisions can
  also constitute evidence of bad faith. In re Copy Crafters Quickprint, Inc., 
92
  B.R. 973, 985 (Bankr. N.D.N.Y. 1988) (citing In re Albany Partners, Ltd., 749
  F.2d 670, 674 (11th Cir. 1984)).
     This Court believes that based on the factors set forth above, it is
  appropriate to adopt a "totality of circumstances" approach in determining
  whether the Debtor's conduct rises to the requisite level of bad faith such 
  that
  the Debtor should be denied the opportunity to convert its case. Under this
  approach, the Court has the flexibility to consider the specific circumstances
  of each case and to ensure that only the conduct of a debtor which is truly 
out
  of the norm constitutes cause to deny conversion to Chapter 11.
     In this case, the Trustee is not relying on whether the Debtor filed the
  petition for the purposes of frustrating the First Mortgagee, which is the 
only
  other party in interest appearing in this case. Rather, the Trustee asserts 
  that
  the Debtor manipulated and abused the bankruptcy process for the purpose of
  hiding assets. During the hearing on the Motion, the Trustee pointed to the
  Debtor's failure to provide accurate values for the Property in the schedules
  which were not filed with the Court and the failure to disclose the existence 
  of
  the contract for the sale of the Property earlier than mid-January. 
  Furthermore,
  the Trustee alleges in his responsive papers that the Debtor must be making 
the
  Motion to prevent the Trustee from investigating the Debtor's prepetition
  financial affairs. None of these allegations are supported by testimony or 
  other
  evidence beyond the two sets of schedules prepared in this case. The Debtor's
  current bankruptcy counsel explained that the initial schedules were prepared
  prior to the receipt of the offer on the Property, and as soon as the offer 
was
  received, the Debtor filed schedules reflecting the actual value of the 
  Property
  and advised the Trustee of the contract of sale. The Debtor asserts that there
  was no way of knowing, at the time the petition was prepared, that the Debtor
  would receive the offer to purchase the Property at a price in excess of the
  mortgages and liens.
     The Office of the United States Trustee stated that it had no objection to
  the relief requested by the Debtor and the Debtor's version of the facts was
  just as likely to be accurate. The First Mortgagee has not opposed the Motion
  and consents to conversion of the case and the sale of the Property by the
  Debtor so long as the sale is consummated quickly. Therefore, while the 
  Debtor's
  situation does have some of the earmarks of bad faith set forth above, the 
  First
  Mortgagee, which is the party which would potentially be harmed by the
  conversion, has no objection and the Trustee has not met his burden of
  establishing that the Debtor acted in bad faith that rises to the level of 
  being
  so extraordinary as to warrant a finding that the debtor is ineligible to be a
  debtor under Chapter 11.
     The Trustee also asserts that the Motion should be denied because 
conversion
  of the case would serve no purpose. According to the Trustee, the only course 
  of
  conduct the Debtor can take is to sell the Property and file a liquidating 
  plan,
  which is basically what the Trustee would do in this case as well. Based on 
  this
  fact and the fact that the Debtor has no "viable" business to protect, the
  Trustee believes that denial of the Motion is warranted. The Court disagrees.
     While it is true that a Chapter 11 debtor must demonstrate an ability to
  effectuate a viable plan of reorganization, the Debtor's proposal to file a
  liquidating plan, which is permitted under § 1123(b)(4) of the Bankruptcy 
  Code,
  does not render conversion an exercise in futility. Courts have recognized 
that
  "where liquidation would proceed more expeditiously and less expensively under
  the control of the debtor", conversion from Chapter 11 to Chapter 7 may not be
  warranted. In re McDermott, 78 B.R. 646, 651 (Bankr. N.D.N.Y. 1985). See In re
  Copycrafters Quickprint, Inc., 92 B.R. at 985-86 (There are instances where
  liquidation under Chapter 11 is preferable to a Chapter 7 proceeding because 
  the
  debtor in possession may be in a better position to dispose of the assets in a
  less expensive and more orderly manner than a trustee) (other citations
  omitted). In this case, it is conceded that the sale of the Property, which is
  the Debtor's most valuable asset, will proceed more quickly and perhaps less
  expensively if it takes place in Chapter 11. These facts, taken together with
  the U.S. Trustee's assertion that it is in the best interest of the creditors 
  of
  this case to grant the Motion, undercut the Trustee's argument. The purposes 
of
  the Debtor and the creditors will best be served by converting the case to
  Chapter 11.
  Conclusion
     For the foregoing reasons, the Court finds that the Debtor has presented
  adequate grounds for granting the Motion. The Trustee has failed to meet his
  burden of demonstrating by a preponderance of the evidence that the Motion
  should be denied on the grounds that the Debtor acted in bad faith or that
  conversion of this case would serve no proper purpose.
     An order consistent with this Memorandum Decision shall be issued 
forthwith.
     Dated: Central Islip, New York
     February 13, 2009
     By: /s/ Robert E. Grossman
     Robert E. Grossman
     United States Bankruptcy Judge
February 13, 2009, Decided
  COUNSEL: For FMO Associates II, LLC, Debtor: Kenneth A Reynolds, McBreen &  Kopko, Jericho, NY.
  For Kenneth Kirschenbaum, Trustee: Steven B Sheinwald, Kirschenbaum &  Kirschenbaum, Garden City, NY.
  U.S. Trustee: Diana G. Adams, Office of the United States Trustee, Central  Islip, NY.
  For Kenneth Kirschenbaum, Former Trustee: Kirschenbaum & Kirschenbaum, Garden  City, NY.
  JUDGES: Robert E. Grossman, United States Bankruptcy Judge.
  OPINION BY: Robert E. Grossman
  OPINION

  MEMORANDUM DECISION
     Before the Court is a motion by FMO Associates II, LLC (the "Debtor") to  convert its Chapter 7 case to a case under Chapter 11 pursuant to 11 U.S.C. §  706. The Debtor urges the Court to grant the motion arguing that it has not  acted in bad faith and is therefore eligible to be a debtor under Chapter 11.  The Chapter 7 Trustee, Kenneth Kirschenbaum, opposes the motion, arguing that  conversion of the Debtor's case to a case under Chapter 11 would serve no  purpose. The Trustee also argues due to the particular circumstances regarding  the conduct of the Debtor before and during the pendency of the instant Chapter  7 case the Debtor has forfeited its right to convert the case to a case under  Chapter 11. The Court finds the Supreme Court's recent decision In re Marrama,  549 U.S. 365 (2007), instructive in this case. Based on the totality of the  circumstances, the Debtor's conduct does not rise to the requisite level of bad  faith and thus the Debtor is eligible to be a debtor under Chapter 11.  Accordingly, the Court grants the Debtor's motion.
  Facts
     On October 31, 2008 (the "Petition Date"), the Debtor filed a voluntary  petition for relief under Chapter 7 of the Bankruptcy Code. Kenneth   Kirschenbaum  was appointed Interim Trustee on October 31, 2008 (the "Trustee"). The petition  was filed without any schedules, statement of financial affairs or corporate  resolution authorizing the filing. The Debtor owns an undeveloped parcel of   land  zoned for commercial use located in Bay Shore, New York (the "Property"). The  Property consists of two separate tax lots, one of which constitutes  approximately 90% of the Property. The Property is encumbered by a first  mortgage held by Anthony Pirrera and ASPA Management Corp. (the "First  Mortgagee"), which is security for a note in the original principal amount of $  540,000. Prior to the date the petition was filed, the First Mortgagee had  commenced a foreclosure action with respect to the Property. On August 25,   2008,  a judgment of foreclosure was entered in favor of the First Mortgagee in the  amount of $ 553,655.40. The Property is also encumbered by a second mortgage  held by Alfred Giordano, in the outstanding amount of approximately $ 82,000.   In  addition to these two mortgages, the Property is encumbered by tax liens held   by  Suffolk County in the approximate amount of $ 38,000.
     During the year prior to the Petition Date, the Debtor had marketed the  Property for sale and retained Michael Salgo, Esq. as its real estate counsel   to  represent the Debtor in its efforts to sell the Property. Based on the offers  the Debtor had received for the Property prepetition, the Debtor's principal  believed that the value of the Property was less than the total amounts owed  under the two mortgages and the tax lien.
     At a point in time subsequent to the Petition Date the Trustee received from  the Debtor's counsel schedules and the statement of financial affairs. However,  these documents were not filed with the Court. 1 According to the Trustee, the  schedules listed the value of the Property at less than the total amount of  mortgages and liens encumbering the Property.
  - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1     According  to the Debtor's current attorney, the attorney initially retained to represent  the Debtor in this case did not file the schedules and statement of financial  affairs because he did not know how to file them electronically. As of the  middle of January, the Debtor has been represented by Kenneth Reynolds, Esq.,  who is an experienced bankruptcy attorney.  - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
     On November 17, 2008, the First Mortgagee filed a motion to vacate the  automatic stay to permit the First Mortgagee to continue with the foreclosure  against the Property. According to the affidavit in support of the motion, the  value of the Property was estimated to be between $ 500,000 and $ 600,000  pursuant to an appraisal conducted for the First Mortgagee. The motion to   vacate  the stay was served on the Chapter 7 Trustee, the Debtor and counsel to the  Debtor. The motion was granted unopposed at a hearing held on December 15,   2008.  An order vacating the stay was entered on the Court's docket on December 17,  2008.
     On January 19, 2009, the Debtor filed with the Court schedules and the  statement of financial affairs. In the schedules, the value of the Property is  listed as $ 770,000 and the total amount of liens on the Property is listed at   $  710,000. On January 22, 2009, the Debtor filed the instant motion to convert to  Chapter 11 (the "Motion"). In the Motion, the Debtor revealed to the Court for  the first time that the Debtor had entered into a contract of sale of the   larger  lot for $ 740,000. This exceeds the amount of the scheduled liens against the  Property. Under the terms of the sale the Debtor would retain the smaller lot,  which would be unencumbered. According to the Debtor, this remaining lot is  worth approximately $ 30,000.
     At the hearing on the Motion, counsel to the Debtor stated that the Debtor  had solicited offers for the purchase of the Property well prior to the   Petition  Date and had circulated proposed contracts of sale, but had never expected to  receive an offer after the Petition Date. If the Motion is granted, the Debtor  intends to file a plan and disclosure statement as well as a request to approve  the sale of the Property to the prospective purchaser, subject to higher and  better offers. If the sale of the Property is approved and is consummated,   there  will be sufficient net proceeds to make a payment to unsecured creditors, which  the Debtor lists in the total amount of $ 218,193.89. 2 In addition, the Debtor  will retain for the benefit of the estate the ownership of the smaller lot. The  Office of the United States Trustee appeared in support of the Motion on the  grounds that it would be in the best interest of creditors to grant such motion  and that the Trustee failed to introduce sufficient evidence that the Debtor  acted in bad faith during the pendency of the Chapter 7 case. According to the  United States Trustee, the Debtor's representation of the events was just as  likely to be true as the Trustee's representation of the events, and without   any  evidence to support his argument, the Trustee's opposition should be overruled.  The First Mortgagee also appeared at the hearing and did not oppose the Motion.
  - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2   Based on  the schedules filed with the Court, it appears that at least $ 67,000 of the  unsecured debt is based on loans made by the Debtor's three principals.  - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
     The Debtor asserts that it has a right to convert the case to Chapter 11 but  for a showing of extreme circumstances. The Debtor argues that so long as the  Court does not find that "extreme circumstances" exist which would preclude the  granting of such relief, the Court should not interfere with the Debtor's right  to seek conversion of its case. The Trustee opposes the motion and argues that  the Debtor's right to convert is not absolute and in fact is limited by statute  and case law. The Trustee argues that in this case conversion is not   appropriate  because it would serve no purpose as the Debtor has no "business" to   reorganize.  The Trustee also argues that under the reasoning set forth in In re Marrama,   549  U.S. 365 (2007) the Debtor's bad faith conduct while in Chapter 7 provides  additional grounds to deny the Debtor's request.
  Discussion
     Both the Debtor and the Trustee agree that a Chapter 7 debtor does not have  an absolute right to convert to Chapter 11. Section 706(a) of the Bankruptcy  Code provides that a "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. Courts in this  Circuit have recognized that despite the "seemingly absolute language" of this  statute, a debtor's right to convert a Chapter 7 case to Chapter 11 under  Section 706(a) is not absolute. First, the debtor must file a motion and give  notice pursuant to Fed. R. Bankr. P. 1017(f)(2). As the Court in In re   Krishnaya  recognized, the fact that conversion under Section 706(a) requires a motion  suggests that the Court's role in such motion "is more than a meaningless one."  263 B.R. 63, 66 (Bankr. S.D.N.Y. 2001). The Debtor has complied with this  requirement.
     The fundamental question presented in this case is what is the appropriate  standard to apply in considering whether to grant or deny the Debtors motion to  convert a case from Chapter 7 to a case under Chapter 11, and which party has  the burden of persuasion. Recently, the Supreme Court issued a decision  regarding whether a Chapter 7 debtor had an absolute right to convert to   Chapter  13, and if there is no absolute right, whether the Court could take into  consideration the debtor's bad faith conduct during the Chapter 7 case. In In   re  Marrama, 549 U.S. 365 (2007), the Supreme Court concluded that the Debtor's  right to convert a Chapter 7 case to a case under Chapter 13 is not absolute   and  is specifically limited by § 706(d) of the Bankruptcy Code, which states that  "[n]otwithstanding 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." In Marrama, the debtor filed inaccurate   statements  and schedules which omitted information regarding the true value of an asset of  the estate the debtor had transferred to a trust for which he was the sole  beneficiary within one year of the filing date. The debtor had admitted that he  made the transfer to protect this property from creditors, and then the debtor  sought to convert his case to a case under Chapter 13. The Chapter 7 trustee  opposed the motion and the bankruptcy court denied the debtor's motion. The  Supreme Court affirmed the Bankruptcy Court and concluded that the debtor's bad  faith conduct during a Chapter 7 case justified denial of the debtor's motion   to  convert.
     The Supreme Court based its decision on the language of § 706(a), which   when  read together with § 706(d) of the Bankruptcy Code, limits a debtor's right to  convert to a chapter for which the debtor qualifies to be a debtor. As a   result,  the debtor had to meet the eligibility requirements for a Chapter 13 debtor  under § 109(e) of the Bankruptcy Code. In re Marrama, 549 U.S. at 372, 127 S.  Ct. at 1110. The Supreme Court also looked to §1307(c) of the Bankruptcy Code   to  determine whether the debtor qualified to become a debtor under Chapter 13.  According to the Court's reasoning, if the debtor's proposed Chapter 13 case  would be subject to being dismissed or converted "for cause" because of bad  faith conduct under §1307(c) then the debtor could not qualify to be a debtor  under Chapter 13. The Court reasoned that "[i]n 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 a class of 'honest but unfortunate debtor[s]' that the  bankruptcy laws were enacted to protect." In re Marrama, 549 U.S. at 373,  (citing Grogan v. Garner, 498 U.S. 279, 278 (1991)). The Supreme Court also  noted that the broad power conferred to bankruptcy courts by § 105(a) "is   surely  adequate to authorize an immediate denial of a motion to convert filed under Â§  706 in lieu of a conversion order that merely postpones the allowance of  equivalent relief. . . ." In re Marrama, 549 U.S. at 375.
     While the debtor in Marrama sought to convert his case to a case under  Chapter 13 and not Chapter 11, a number of other courts have found In re   Marrama  to be instructive or applicable to facts similar to this case. See In re George  Love Farming, LC, 366 B.R. 170, 177-78 (Bankr. D. Utah 2007) (Marrama is  instructive since the language of §706 applies equally in conversion to   chapter  13 or chapter 11); In re Broad Creek Edgewater, LP, 371 B.R. 752, 758 (Bankr.   D.  S.C. 2007) (Marrama applies equally in conversions to chapter 11 and chapter  13); In re Irmen, 2008 WL 320484 * 3 (Bankr. N.D. Ill. 2008) and In re 10 Bears  at Chiloquin, Inc., 2007 WL 1673538 *2 (Bankr. D. Or. 2007). One case within  this Circuit has also considered whether Marrama applies to a Chapter 7 debtor  seeking to convert to Chapter 11. In In re Euro-American Lodging Corp., 365   B.R.  421, 425 (Bankr. S.D.N.Y. 2007), Chief Judge Bernstein opined that Marrama has  broader implications than its facts and "suggests that if 'cause' exists to  convert or dismiss a hypothetical chapter 11 case, the chapter 7 debtor seeking  to convert to chapter 11 is ineligible for relief under that chapter within the  meaning of §706(d)."
     The Court agrees with these cases and finds that Marrama applies in cases  such as this where the debtor seeks to convert from Chapter 7 to Chapter 11.  First, the Debtor seeks conversion under the same statute, with the same  limitations imposed by § 706(d) regarding eligibility. Second, like a Chapter   13  debtor, a Chapter 11 debtor is subject to conversion or dismissal of the case  for "cause" (including but not limited to bad faith and the enumerated grounds  set forth in § 1112(b)(4) of the Bankruptcy Code). As a result, the Supreme  Court's analysis regarding whether "cause" exists to dismiss or convert the  prospective Chapter 13 debtor's petition would apply equally to a prospective  Chapter 11 debtor.
     Having found Marrama to be applicable in this case, the Court must now  consider how to apply Marrama in this case. The bankruptcy court in In re Broad  Creek Edgewater, LP recognized that while the Court will not review every   motion  to convert to determine the existence of grounds to deny the motion, it is the  burden of the trustee or other objecting party to object to the motion to  convert and join the issues for the Court to determine. 371 B.R. at 758 n.. 6.   In  this case, before the Court is an objection by the Trustee to the Motion. It is  the Trustee's burden to demonstrate by a preponderance of evidence why the  Debtor, which qualifies under § 109 of the Bankruptcy Code to be a debtor   under  Chapter 11, should not be permitted to convert its case to a case under Chapter  11. The Trustee asserts (1) that the Debtor's conduct during the pendency of  this case amounts to bad faith, requiring denial of the Motion and (2) because  the Debtor has no "business" to reorganize and would be proposing a plan of  liquidation, converting the case would serve no purpose.
     The issue of whether the Debtor has acted in bad faith was specifically  considered by the Marrama Court. It is instructive that the Supreme Court found  that only "atypical" or "extraordinary" conduct of the debtor would give rise   to  a finding that the debtor acted in bad faith. It is also notable that like in a  Chapter 13 case under § 1307(c), a debtor's bad faith constitutes one of the  unenumerated grounds to convert the case to Chapter 7 under § 1112(b). In re  C-TC 9th Ave. Partnership, 113 F.3d 1304, 1309 (2nd Cir. 1997). The Second  Circuit has set forth certain factors a court may consider when determining  whether a Chapter 11 petition was indicative of a bad faith filing, including:
     (1) the debtor has only one asset;
     (2) the debtor has few unsecured creditors whose claims are small in   relation  to those of the secured creditors;
     (3) the debtor's one asset is the subject of a foreclosure action as a   result  of arrearages or default on the debt;
     (4) the debtor's financial condition is, in essence, a two party dispute  between the debtor and secured creditors which can be resolved in the pending  state foreclosure action;
     (5) the timing of the debtor's filing evidences an intent to delay or  frustrate the legitimate efforts of the debtor's secured creditors to enforce  their rights;
     (6) the debtor has little or no cash flow;
     (7) the debtor can't meet current expenses including the payment of personal  property and real estate taxes; and
     (8) the debtor has no employees.
     113 F.3d at 1311 (citing Pleasant Pointe Apartments, Ltd. v. Kentucky   Housing  Corp., 139 B.R. 828, 832 (W.D. Ky. 1992)). Evidence of a debtor's overall   intent  to abuse the judicial process and to subvert the reorganization provisions can  also constitute evidence of bad faith. In re Copy Crafters Quickprint, Inc., 92  B.R. 973, 985 (Bankr. N.D.N.Y. 1988) (citing In re Albany Partners, Ltd., 749  F.2d 670, 674 (11th Cir. 1984)).
     This Court believes that based on the factors set forth above, it is  appropriate to adopt a "totality of circumstances" approach in determining  whether the Debtor's conduct rises to the requisite level of bad faith such   that  the Debtor should be denied the opportunity to convert its case. Under this  approach, the Court has the flexibility to consider the specific circumstances  of each case and to ensure that only the conduct of a debtor which is truly out  of the norm constitutes cause to deny conversion to Chapter 11.
     In this case, the Trustee is not relying on whether the Debtor filed the  petition for the purposes of frustrating the First Mortgagee, which is the only  other party in interest appearing in this case. Rather, the Trustee asserts   that  the Debtor manipulated and abused the bankruptcy process for the purpose of  hiding assets. During the hearing on the Motion, the Trustee pointed to the  Debtor's failure to provide accurate values for the Property in the schedules  which were not filed with the Court and the failure to disclose the existence   of  the contract for the sale of the Property earlier than mid-January.   Furthermore,  the Trustee alleges in his responsive papers that the Debtor must be making the  Motion to prevent the Trustee from investigating the Debtor's prepetition  financial affairs. None of these allegations are supported by testimony or   other  evidence beyond the two sets of schedules prepared in this case. The Debtor's  current bankruptcy counsel explained that the initial schedules were prepared  prior to the receipt of the offer on the Property, and as soon as the offer was  received, the Debtor filed schedules reflecting the actual value of the   Property  and advised the Trustee of the contract of sale. The Debtor asserts that there  was no way of knowing, at the time the petition was prepared, that the Debtor  would receive the offer to purchase the Property at a price in excess of the  mortgages and liens.
     The Office of the United States Trustee stated that it had no objection to  the relief requested by the Debtor and the Debtor's version of the facts was  just as likely to be accurate. The First Mortgagee has not opposed the Motion  and consents to conversion of the case and the sale of the Property by the  Debtor so long as the sale is consummated quickly. Therefore, while the   Debtor's  situation does have some of the earmarks of bad faith set forth above, the   First  Mortgagee, which is the party which would potentially be harmed by the  conversion, has no objection and the Trustee has not met his burden of  establishing that the Debtor acted in bad faith that rises to the level of   being  so extraordinary as to warrant a finding that the debtor is ineligible to be a  debtor under Chapter 11.
     The Trustee also asserts that the Motion should be denied because conversion  of the case would serve no purpose. According to the Trustee, the only course   of  conduct the Debtor can take is to sell the Property and file a liquidating   plan,  which is basically what the Trustee would do in this case as well. Based on   this  fact and the fact that the Debtor has no "viable" business to protect, the  Trustee believes that denial of the Motion is warranted. The Court disagrees.
     While it is true that a Chapter 11 debtor must demonstrate an ability to  effectuate a viable plan of reorganization, the Debtor's proposal to file a  liquidating plan, which is permitted under § 1123(b)(4) of the Bankruptcy   Code,  does not render conversion an exercise in futility. Courts have recognized that  "where liquidation would proceed more expeditiously and less expensively under  the control of the debtor", conversion from Chapter 11 to Chapter 7 may not be  warranted. In re McDermott, 78 B.R. 646, 651 (Bankr. N.D.N.Y. 1985). See In re  Copycrafters Quickprint, Inc., 92 B.R. at 985-86 (There are instances where  liquidation under Chapter 11 is preferable to a Chapter 7 proceeding because   the  debtor in possession may be in a better position to dispose of the assets in a  less expensive and more orderly manner than a trustee) (other citations  omitted). In this case, it is conceded that the sale of the Property, which is  the Debtor's most valuable asset, will proceed more quickly and perhaps less  expensively if it takes place in Chapter 11. These facts, taken together with  the U.S. Trustee's assertion that it is in the best interest of the creditors   of  this case to grant the Motion, undercut the Trustee's argument. The purposes of  the Debtor and the creditors will best be served by converting the case to  Chapter 11.
  Conclusion
     For the foregoing reasons, the Court finds that the Debtor has presented  adequate grounds for granting the Motion. The Trustee has failed to meet his  burden of demonstrating by a preponderance of the evidence that the Motion  should be denied on the grounds that the Debtor acted in bad faith or that  conversion of this case would serve no proper purpose.
     An order consistent with this Memorandum Decision shall be issued forthwith.
     Dated: Central Islip, New York
     February 13, 2009
     By: /s/ Robert E. Grossman
     Robert E. Grossman
     United States Bankruptcy Judge