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What is conversion or dismissal in a Chapter 11 case?

When a Texan is moving forward with a Chapter 11 filing, there are certain aspects that must be considered as the case is moving forward. One is the conversion or dismissal. This grants the debtor the right to convert a Chapter 11 to Chapter 7. This is a one-time right unless the following is in effect: the debtor is not a debtor in possession; the case began as an involuntary Chapter 11; or the case was previously converted to Chapter 11 in a way that was other than at the request of the debtor. With Chapter 11, the debtor cannot have the case dismissed on request as an absolute right.

It is possible that a Chapter 11 can be dismissed or converted to a Chapter 7 after the request is made by a party in interest. This must be done "for cause." Once cause has been established, the court is required to either convert or dismiss the case. It hinges on the best interests of the creditors and the estate. The court can also decide that appointing a Chapter 11 trustee or examiner is in the best interests. The party that makes the motion might establish cause by indicating that there was a continuous or substantial loss to the estate and there is a not a likelihood for it to be rehabilitated; that there was gross management of the estate; that the insurance was not maintained and it placed in jeopardy to the public or the estate; or there was an unauthorized use of cash collateral that gives substantial harm to the creditor.

It is also cause to dismiss or convert a Chapter 11 case if the debtor has failed to comply with the reporting and filing requirements in a timely fashion; if the debtor did not attend the meeting of creditors or an examination and did not have good cause to do so; the debtor failed to provide necessary information to the trustee; and the debtor fails to pay taxes after the petition.

With any form of bankruptcy, the seemingly smaller issues can be a major sticking point in the process if they are not handled. Having legal assistance from an attorney experienced in Chapter 11 and other available options is key to having the case move forward as planned and get debt relief to go on with one's life.

Source: uscourts.gov, "Chapter 11 -- Bankruptcy Basics -- Conversion or Dismissal," accessed on June 12, 2017

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