Cite as: Keith M. Lundin, Lundin On Chapter 13, § 148.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
The debtor can convert a Chapter 7 case to a Chapter 13 case “at any time” so long as the case has not previously been converted from another chapter.1 The debtor’s right to convert from Chapter 7 to Chapter 13 cannot be waived and cannot be exercised by any other party—there is no such thing as an involuntary conversion from Chapter 7 to Chapter 13. In a jointly filed Chapter 7 case, it has been held that each spouse enjoys a separate right to convert to Chapter 13.2
Although § 706(a) seems to be self-effectuating, there is no provision of the Bankruptcy Rules automatically converting a Chapter 7 case to Chapter 13.3 Bankruptcy Rule 1017(f)(2) tells us that conversion to Chapter 13 is by motion filed and served as required by Bankruptcy Rule 9013. It has been held that conversion from Chapter 7 to Chapter 13 is not effective automatically upon the filing of a motion, but is effective only upon entry of an order of conversion.4
Bankruptcy Rule 2002(a)(4) requires the clerk or such other person as the court may direct to give the debtor, the trustee and all creditors at least 20 days’ notice by mail of the hearing on conversion from Chapter 7 to Chapter 13. In some jurisdictions, it is the debtor’s responsibility to give notice. In others, the Chapter 13 trustee or the clerk of the bankruptcy court gives notice.
Bankruptcy Rule 1017(f) contemplates that a motion for conversion from Chapter 7 to Chapter 13 will not always be a contested matter.5 No hearing on the motion is required unless the court orders a hearing. One district court concluded that because the Bankruptcy Rules do not treat a motion to convert from Chapter 7 to Chapter 13 as a contested matter, it was not inappropriate for the bankruptcy court to convert from Chapter 7 to Chapter 13 four days after the debtor’s motion and before notice to creditors or a hearing.6
The Bankruptcy Rules are not altogether clear about the procedure for objecting to a debtor’s motion to convert from Chapter 7 to Chapter 13. Logically, given that the debtor must file a motion, a written objection to that motion should trigger a contested matter and the scheduling of a hearing. However, Bankruptcy Rule 1017(f) does not reference the usual contested matter procedures in Bankruptcy Rule 9014 as applicable upon a debtor’s motion to convert from Chapter 7 to Chapter 13.
The reported cases offer conflicting messages about the proper procedure for objecting to a debtor’s conversion motion. In In re Dixon,7 the bankruptcy court held, upon conversion from Chapter 7 to Chapter 13, the appropriate procedure for challenging the debtor’s good faith was an objection to confirmation of the plan, not a motion to reconvert to Chapter 7. In contrast, in In re Verdi,8 the bankruptcy court held that the proper procedure for raising a bad-faith objection to conversion from Chapter 7 to Chapter 13 was “to allow the conversion from Chapter 7 to Chapter 13 and to require the parties opposing the same . . . to seek an involuntary reconversion to Chapter 7 after this case was converted to Chapter 13.”9
There may be three different ways to object to a debtor’s motion to convert from Chapter 7 to Chapter 13: a written response to the conversion motion itself, an immediate motion to reconvert to Chapter 7 or an objection to confirmation in the Chapter 13 case. Creditors are best advised to start with a written opposition to the motion to convert and work forward from there. The worst that can happen is that the bankruptcy court will require some other procedure, but the filed objection to the debtor’s motion to convert should preserve the creditor’s position.
Appeal of the denial of an objection to conversion from Chapter 7 to Chapter 13 is problematic. In Mason v. Young (In re Young),10 the Bankruptcy Appellate Panel for the Tenth Circuit held that a creditor’s appeal of the denial of an objection to conversion from Chapter 7 to Chapter 13 was untimely when the creditor waited until a plan was confirmed and then appealed both confirmation and the order of conversion. On further appeal, the Tenth Circuit disagreed:
[A]n order under Chapter 13 is not final until a Chapter 13 plan has been approved. Otherwise, it would be impossible for creditors to determine in advance whether their interests truly had been adversely affected. . . . The BAP in the instant case erred in applying the reasoning of a Chapter 7 conversion to a conversion under Chapter 13 and should have allowed Mason to appeal the bankruptcy court’s decision to permit the “Chapter 20” conversion within ten days of the court’s confirmation of Young’s Chapter 13 plan.11
In contrast, in Blackwell v. Little (In re Little),12 after the Chapter 7 trustee discovered assets, the debtor moved to convert to Chapter 13. The bankruptcy court overruled the trustee’s objection to conversion, and the trustee “timely appealed the issues in that order.”13 The Chapter 7 trustee did not seek a stay pending appeal. After conversion, a Chapter 13 plan was confirmed. The trustee did not appeal the confirmation order. By the time the Eighth Circuit BAP took up the appeal of the conversion order, distributions had been made to creditors under the confirmed plan. The BAP held that the appeal of the conversion order was moot: “At this juncture, we cannot render any effective relief without unraveling the confirmed plan, the plan payments, the disbursements, the administrative costs, and thereby creating an unmanageable and uncontrollable situation for the bankruptcy court and the parties in interest. . . . Accordingly, this appeal is dismissed as moot.”14
Bankruptcy Rule 2002(f) instructs the clerk, or such other person as the court directs, to give notice to all creditors of the conversion to Chapter 13.
After conversion, the debtor must file a proposed plan in the Chapter 13 case.15 Bankruptcy Rule 3015(b) requires the filing of a plan within 15 days of conversion, and “such time may not be further extended except for cause shown.” The plan or a summary of the plan must be noticed to all creditors.16 In some jurisdictions, this notice responsibility is assigned to the debtor at conversion to Chapter 13.
1 11 U.S.C. § 706(a) provides:
The 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.
2 In re Estrada, 224 B.R. 132, 136 (Bankr. S.D. Cal. 1998) (One spouse in a jointly filed Chapter 7 case can separately convert to Chapter 13. Patricia and Jose Estrada filed a joint Chapter 7 case. The case was deemed a no-asset case and closed. Jose Estrada then died. Chapter 7 trustee reopened the Chapter 7 case to administer possible life insurance proceeds. Patricia Estrada was the beneficiary of several life insurance policies, and the insurance companies tendered $300,000 to Patricia Estrada. She maintained that the insurance proceeds were the separate property of her estate, and she moved to convert her estate to a Chapter 13 case. Court first determined that the separate Chapter 7 estates were never substantively consolidated under § 302(b) and that Patricia’s interest as beneficiary of the life insurance policies became property of her separate Chapter 7 estate because Jose died within 180 days after the joint petition was filed. With respect to conversion, “[t]he Court failed to locate any cases discussing whether a joint debtor may convert under section 706(a). Where there are two separate estates there are two separate debtors. Because section 706(a) authorizes ‘a debtor’ to convert its case, it would stand to reason a separate debtor in a jointly filed case could also convert.” The court ordered the Chapter 7 trustee to transfer the insurance proceeds to the debtor in the Chapter 13 case.).
3 Compare the “automatic” conversion from Chapter 13 to Chapter 7 without a court order under Bankruptcy Rule 1017(f)(3) and 11 U.S.C. § 1307(a). See § 311.1 [ Conversion by Debtor ] § 141.1 Conversion by Debtor.
4 Calder v. Job (In re Calder), 973 F.2d 862 (10th Cir. 1992) (Bankruptcy Rule 1017(d) [now 1017(f)] provides that conversion pursuant to § 706(a) “shall be on motion filed and served as required by Rule 9013. . . . These provisions indicate that a motion to convert pursuant to § 706(a) is not effective in and of itself, but rather is a request for a court order of conversion. This conclusion is bolstered by Rule 1017(d)’s different treatment of conversions from Chapters 12 or 13, which ‘shall be converted without court order on the filing by the debtor of a notice of conversion.’”). Accord In re Rigales, 290 B.R. 401, 404 (Bankr. D.N.M. 2003) (Applying Calder v. Job (In re Calder), 973 F.2d 862 (10th Cir. 1992), “conversion becomes effective at the time the conversion order is entered. . . . [T]he Debtor must file a motion and give notice of the proposed conversion to interested parties with opportunity for objection and hearing prior to an order for conversion.”); In re Oblinger, 288 B.R. 781, 783 (Bankr. N.D. Ohio 2003) (“Under Fed. R. Bankr. P. 1017(f), the debtor cannot unilaterally effect conversion by notice, without a court order. . . . [A] motion must be filed and a court order entered. . . . Although a motion must be filed, it is not treated as a contested matter under Fed. R. Bankr. P. 9014.”); In re Pisczek, 269 B.R. 641, 642–43 (Bankr. E.D. Mich. 2001) (“Notice of Conversion” is not effective without a court order; accordingly, Chapter 7 trustee has standing to object to conversion from Chapter 13. “[T]he Debtors filed something entitled ‘Notice of Conversion of Chapter 7 Case to Chapter 13 Case.’ . . . Conversion pursuant to § 706(a) . . . can only be by court order. . . . [T]he Court never ruled on the motion. The Court’s ‘Notice of Conversion’ simply (and erroneously) advises parties in interest that conversion was brought about by virtue of the Debtor’s notice. Since the Court has yet to rule on the conversion motion, this case remains a chapter 7 case. . . . Accordingly, the Court rejects the Debtors’ contention that the (Chapter 7) trustee lacks standing to challenge their eligibility for chapter 13.”); In re Little, 245 B.R. 351, 353 (Bankr. E.D. Mo. 2000) (“[T]he Bankruptcy Rules do not provide for conversion from Chapter 7 to Chapter 13 without an order of Court. Conversion pursuant to 11 U.S.C. § 706(a) shall be on motion filed and served as required by Rule 9013.”), appeal dismissed as moot, 253 B.R. 427 (B.A.P. 8th Cir. 2000); In re Washington, 235 B.R. 126, 129–30 (Bankr. S.D. Fla. 1998) (Conversion from Chapter 7 to Chapter 13 requires a motion, notice and an order; debtors’ notice of conversion did not effect conversion and did not relieve the debtor of obligation to appear at 2004 examination convened by Chapter 7 trustee. Debtors and debtors’ counsel are sanctioned for failing to appear. “‘[A] motion to convert pursuant to § 706(a) is not effective in and of itself, but rather is a request for a court order of conversion. This conclusion is bolstered by Rule 1017(d)’s different treatment of conversions from Chapters 12 or 13, which “shall be converted without court order on the filing by the debtor of a notice of conversion.”’).
5 The Advisory Committee note to the 1987 revision of Bankruptcy Rule 1017(d)—the predecessor to current Rule 1017(f)—stated as follows:
Subdivision (d) is amended to provide that . . . conversion pursuant to . . . section 706(a) . . . is not automatically a contested matter under Rule 9014. Conversion or dismissal under these sections is initiated by the filing and serving of a motion as required by Rule 9013. No hearing is required on these motions unless the court directs.
6 Nikoloutsos v. Nikoloutsos (In re Nikoloutsos), 222 B.R. 297, 301 (E.D. Tex. 1998) (Bankruptcy court correctly rejected creditor’s argument that it was improper to convert from Chapter 7 to Chapter 13 only four days after the debtor’s motion to convert and without notice to creditors and a hearing. “[C]onversion under § 706(a) is a matter of right and is not a contested matter. . . . Because conversion under 706(a) does not constitute a contested matter, Rule 9013 does not require twenty days notice or hearing unless the bankruptcy court so directs. . . . [T]he Bankruptcy Court’s actions in converting this case to Chapter 13 only four days after the filing of Appellee’s motion were proper.”), rev’d on other grounds, 199 F.3d 233 (5th Cir. 2000) (Conversion from Chapter 7 to Chapter 13 was inappropriate because the debtor was ineligible for Chapter 13 relief.).
7 241 B.R. 234 (Bankr. M.D. Fla. 1999).
8 241 B.R. 851 (Bankr. E.D. Pa. 1999).
9 241 B.R. at 853.
10 237 B.R. 791 (B.A.P. 10th Cir. 1999), aff’d on other grounds, 237 F.3d 1168 (10th Cir. 2001).
11 237 F.3d at 1173.
12 253 B.R. 427 (B.A.P. 8th Cir. 2000).
13 253 B.R. at 429.
14 253 B.R. at 431.
15 See also § 36.24 Plan, § 51.2 Debtor Must File a Plan, § 72.4 Who Can File Plan?, § 142.1 New Schedules, Statement, Meeting of Creditors and Deadlines and § 142.2 Deadlines and Filing Requirements at Conversion after BAPCPA.
16 Fed. R. Bankr. P. 3015(d).