How Do I Stop a Chapter 11 Conversion to a Chapter 7 Bankruptcy?

Stopping a Chapter 11 conversion can difficult and must be proved to the bankruptcy court.

There are five types of bankruptcy available for consumers, but only two of those are available for businesses: Chapter 11 and Chapter 7. Chapter 11 is a debt reorganization filing. The debtor is required to submit documentation that includes a list of assets, liabilities, tax identification number and location of residence. A list of creditors must also be included, and these creditors must be notified when the case is filed. A plan outlining the reorganization, including the creditors who are to be paid every month and the payment amounts, is submitted to a trustee. Chapter 7 is a liquidation bankruptcy filing for both consumers and businesses. A business may file if they qualify based on the assets and debts owed. Qualifications vary by state. To convert from one to the other, or to stop a conversion, is possible, but it is highly recommended to consult an attorney, as it needs to be done correctly to avoid dismissal.

Instructions

1. Meet with an attorney to learn if stopping a conversion from Chapter 11 to Chapter 7 is possible. The attorney must ascertain whether the business is continually losing money and cannot afford to make the monthly payments to the trustee. In some instances, a conversion may be involuntarily forced on the business if payments are not made on time or regularly.

2. File a motion with the bankruptcy court, through an attorney, to stop the conversion. The motion outlines the reasoning to stop the conversion, and copies of the motion have to be sent to creditors and to the trustee.

3. Supply requested information to the trustee; the case will either be dismissed or involuntarily put into Chapter 7. If the debtor is not able to prove the stability of the company or does not attend the hearing, this could also force the case into Chapter 7. With an involuntary conversion, the debtor needs to be prepared to have secured assets seized.

Tips & Warnings

• If the business is operating as a charitable organization or a farming business, it would not be subject to an involuntarily conversion.

• It is essential to supply all documentation to both the attorney and to the trustee handling the case as quickly as possible. Illegible, incorrect or late information can result in a dismissal or in a charge of bankruptcy fraud.

• It is best to get legal counsel if filing or converting a Chapter 11. If the motion is not prepared properly, it may be dismissed by the bankruptcy courts.

• Debtors shouldn't consider filing on their own unless they fully understand local bankruptcy rules, forms and procedures.

References

• United States Courts: Bankruptcy Basics: Chapter 11