Why Was My Chapter 7 Bankruptcy Converted To A Chapter 11 Bankruptcy?

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A Chapter 7 case can only be dismissed under section 707 of the Bankruptcy Code, most commonly as either a result of failing the section 707(b)(2) means test, or under the totality of circumstances under section 707(b)(3). In essence, you may face a motion to dismiss your case because you have too much income to qualify for this very extreme relief of erasing debts without paying your creditors anything.

However, if your debts are not primarily consumer debts, section 707(b) — either the means test, or the totality of circumstances standard — doesn’t apply. If you have high enough income that it looks like you could pay your creditors something in a repayment plan, then you may face a motion to convert your case.

You cannot be forced into a Chapter 13 because it would violate the thirteenth amendment’s protection against involuntary servitude and slavery. Therefore, the U.S. Trustee and some creditors have been asking courts to force debtors into Chapter 11 using a motion to convert under section 706(b).

A strong case can be made that the thirteenth amendment’s protection should apply to individual debtors being forced into Chapter 11, but there is no Ninth Circuit precedent on this question. Instead there have been a few bankruptcy cases around the country with mixed and inconsistent results.

I have a case now in which the judge granted the motion, and it’s being taken up on appeal. We will see whether the appellate court decides that the thirteenth amendment protects my client from conversion. Until then, things will be determined on a case-by-case basis.

If your Chapter 7 case was converted to Chapter 11, it was probably because the movant was not able to get your case dismissed under Section 707. I suspect that the movant assumed you would not be successful in Chapter 11, so your case would eventually be dismissed.

The movant’s reasoning was probably as follows: While we can’t get the nonconsumer case dismissed directly under Section 707 because of the nonconsumer debt restriction, we’ll force the debtor into a Chapter 11 that will be unsuccessful, and will be dismissed. We’ll accomplish our goal of dismissal in two steps instead of one.

I believe it is a misuse of this whole process. I think an involuntary conversion to Chapter 11 should only be applied to businesses, and should not be applied in individual bankruptcy cases because of the thirteenth amendment.

For more information on the Conversion Of Chapter 7 Into Chapter 11, an initial consultation is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.