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Can a Chapter 11 be converted to a Chapter 7?

Pennsylvanians who are experiencing financial problems and are considering Chapter 11 bankruptcy to maintain business operations while a debt reorganization is taking place should understand the various aspects of the process. In some instances, the debtor would like to convert the Chapter 11 filing into a Chapter 7 filing. They might even want to dismiss the case entirely. These are allowable, but there are certain circumstances under which it cannot be done. Having a full grasp of the entire process is vital to a case.

The debtor can convert the Chapter 11 to a Chapter 7 unless the debtor is not a debtor in possession; the case had begun as an involuntary Chapter 11; or if the case was converted to a Chapter 11 without the debtor requesting it. With Chapter 11, it must be remembered that the debtor does not have the right to request the case be dismissed and have this request automatically accepted.

A conversion can be done "for cause." If the cause has been established after there was a notice and hearing, the court will convert or dismiss it, depending on what is in the creditors' and the estate's best interests. It will not be done if the conversion is not in the best interests. The court can determine that the best interests include naming a Chapter 11 trustee or an examiner. An example of this is if the estate is being grossly mismanaged. The case can be dismissed if the debtor does not comply with all the requirements of the Chapter 11 filing, does not attend the meeting of creditors, does not provide the necessary information to the trustee, or does not pay the taxes in a timely manner after the petition.

Those who are going through financial struggles but are uncertain as to whether they would like to use Chapter 11 or Chapter 7 bankruptcy should understand how a Chapter 11 can be converted to a Chapter 7 or dismissed entirely. With any bankruptcy case, it is wise to have legal advice from the start to avoid making mistakes with the process. A legal professional experienced in a Chapter 11 reorganization filing and all its nuance is key to a case.

Source: uscourts.gov, "Chapter 11 -- Bankruptcy Basics -- Conversion or Dismissal," accessed on July 2, 2017

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