§ 150.2     Reconversion to Chapter 13 after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 150.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

There may be some interesting new issues after BAPCPA when an individual debtor has converted to or from a Chapter 13 case and then reconverts. One such fact pattern is fairly common: an individual debtor files a Chapter 7 case, converts to Chapter 13 and later reconverts to Chapter 7. Less common but perhaps encouraged by BAPCPA is the debtor who files a Chapter 13 case, converts to Chapter 7 and then is “forced” to convert back to Chapter 13. BAPCPA adds some wrinkles to the more common form of reconversion and perhaps promotes the form that was almost never seen in pre-BAPCPA practice.

[2]

Voluntary conversion from Chapter 7 to Chapter 13 has always been available under § 706(a) so long as the case had not previously been converted to Chapter 7, 11, 12 or 13.1 Conversion from Chapter 7 to Chapter 13 is perhaps more likely after BAPCPA because the “abuse” test in § 707(b) may force or encourage some Chapter 7 debtors to convert to Chapter 13 by request or consent. Prior to BAPCPA, after conversion from Chapter 7 to Chapter 13, there was always the possibility that the Chapter 13 case would fail and the debtor would reconvert to Chapter 7. There were no statutory barriers to returning to Chapter 7 after an attempt to pay creditors through the Chapter 13 case.

[3]

BAPCPA raises the possibility that there will be problems at reconversion when the first conversion from Chapter 7 to Chapter 13 was forced by a finding of abuse under § 707(b).

[4]

Imagine an individual debtor’s case filed under Chapter 7 that is found to be an abuse of Chapter 7 under § 707(b)(1). At that point, the court has a choice to dismiss or “with the debtor’s consent” convert the case to Chapter 11 or 13. Assume the debtor consents and the case is converted to Chapter 13. After some attempt at paying creditors, the Chapter 13 case fails and the debtor moves to convert back to Chapter 7.

[5]

There is no obstacle to reconversion from Chapter 13 to Chapter 7 in § 1307. In fact, the debtor can convert a case from Chapter 13 to Chapter 7 “at any time” and the waiver of that right is unenforceable.2 And on request of the debtor, the Chapter 13 case could not be dismissed without an opportunity for objection from creditors and the trustee because the Chapter 13 case in this example was previously converted from Chapter 7 under § 706.3 In other words, once converted from Chapter 7 to Chapter 13, if the case fails as a Chapter 13 case, it cannot be dismissed voluntarily by the debtor. But what happens if the debtor converts the case back to Chapter 7?

[6]

Is the abuse test under § 707(b) applicable at reconversion from Chapter 13 to Chapter 7? In this example, it was the abuse test in § 707(b) that “forced” the debtor from Chapter 7 into Chapter 13 in the first place. Arguably, the abuse test in § 707(b)(1) applies only to a case “filed . . . under this chapter.”4 Is a case converted from Chapter 13 to Chapter 7 “filed” under Chapter 7? There is no question that the case in this example was “converted” to Chapter 7; there is at least an argument that it was also “filed” (originally) under Chapter 7.

[7]

If the abuse test in § 707(b) does apply at reconversion from Chapter 13 to Chapter 7—after a previous conversion (because of abuse) from Chapter 7 to Chapter 13—is the debtor precluded from contesting abuse the second time around for § 707(b) purposes? Would the attempted Chapter 13 case be a “special circumstance” for purposes of § 707(b)(2)(B) if the abuse test is applied at reconversion from Chapter 13 to Chapter 7?

[8]

Notice the interesting box the debtor is in. The abuse test in § 707(b) forced this hypothetical debtor to consent to conversion from Chapter 7 to Chapter 13. Once in Chapter 13, the debtor cannot voluntarily dismiss the Chapter 13 case because the case was previously a Chapter 7 case and debtors cannot use conversion from Chapter 7 to Chapter 13 as a ruse to avoid liquidation in a Chapter 7 case. But when the Chapter 13 case fails and the debtor voluntarily (or otherwise) reconverts to Chapter 7, is it possible that BAPCPA confronts the debtor with a second round of abuse testing? And if the debtor is precluded from contesting abuse when the case returns to Chapter 7 or if after a contest, the debtor is found again to be abusing Chapter 7, is dismissal the only remedy?5 What if some or all of the creditors don’t want the Chapter 7 case dismissed? Do creditors have standing to “force” the debtor to stay in Chapter 7 even though the case is an abusive Chapter 7 case on reconversion according to § 707(b)?

[9]

There is a different twist to these issues when our hypothetical debtor starts in Chapter 13 (instead of in Chapter 7). Suppose the original Chapter 13 case fails and the debtor converts to Chapter 7. There is the threshold question whether the abuse test in § 707(b) applies at conversion from Chapter 13 to Chapter 7. There are good arguments that the abuse test in § 707(b) does not apply to a case filed under Chapter 13 and converted to Chapter 7.6

[10]

If the abuse test in § 707(b) does not apply, can the debtor reconvert to Chapter 13 after once converting from Chapter 13 to Chapter 7? Section 706(a) was not amended by BAPCPA and the section recites that the debtor can convert a case from Chapter 7 to Chapter 13 at any time “if the case has not been converted under section . . . 1307.”7 Some courts have concluded that this language precludes conversion from Chapter 7 to Chapter 13 if the case was previously converted to Chapter 7 from Chapter 13.

[11]

But notice that § 706(c) was amended by BAPCPA to provide “the court may not convert a case under this chapter [Chapter 7] to a case under . . . chapter 13 of this title unless the debtor requests or consents to such conversion.”8 Can a Chapter 13 debtor after BAPCPA consent to conversion from Chapter 7 to Chapter 13 if the conversion request comes from a party in interest other than the debtor? There is no provision of § 706 for conversion from Chapter 7 to Chapter 13 on request of a party in interest other than the debtor. But what about § 707(b)(1)?

[12]

If § 707(b)(1) does apply at conversion from Chapter 13 to Chapter 7, could the bankruptcy court exercise the option in § 707(b)(1) to convert the case back to Chapter 13—with the debtor’s consent?

[13]

The fact pattern that would present this issue is hardly far-fetched. A debtor begins in a Chapter 13 case and fails. The case converts to Chapter 7 but because the debtor has experienced a change in financial circumstances, the Chapter 7 case is presumptively abusive (this assumes that § 707(b) applies at conversion from Chapter 13 to Chapter 7). The debtor asks the bankruptcy court for a second chance at Chapter 13. Could the bankruptcy court grant that second chance after BAPCPA? With the debtor’s consent, there certainly seems to be such a possibility in § 707(b)(1). Perhaps it can’t be accomplished voluntarily through § 706(a), but the finding of abuse under § 707(b)(1) wouldn’t be on the debtor’s motion, and with the debtor’s consent all of the conditions for (re)conversion to Chapter 13 could be present.

[14]

Interim Rule 1019 addresses only the common form of reconversion—the case that starts as a Chapter 7, converts to Chapter 13 and then returns to Chapter 7. In Interim Rule 1019(2), as amended after BAPCPA, a new time period for filing a motion under § 707(b) commences when a Chapter 13 case “has been converted or reconverted to a chapter 7 case”—so long as the period for filing a motion under § 707(b) did not expire in the original Chapter 7 case before conversion to Chapter 13. Interim Rule 1019(2) applies a similar rule to complaints objecting to discharge or to dischargeability under Bankruptcy Rule 4004 or 4007: new time periods commence when a Chapter 13 case has been converted or reconverted to a Chapter 7 case unless the 60-day period after the first date set for the meeting of creditors expired in the original Chapter 7 case before conversion to Chapter 13.

[15]

These provisions in Interim Rule 1019(2) certainly signal that the rules drafters believe that § 707(b) does apply at conversion from Chapter 13 to Chapter 7 and at reconversion from Chapter 13 to Chapter 7, though this hardly seems certain under the language of § 707(b)(1) itself. The Bankruptcy Rules do not address the question whether the time period for filing a complaint to determine the dischargeability of debt under Bankruptcy Rule 4007 restarts at conversion from Chapter 7 to Chapter 13 or at reconversion from Chapter 7 to Chapter 13 (if reconversion is possible).9

[16]

Bankruptcy Rule 1019(2) makes the clear policy choice that at conversion from Chapter 13 to Chapter 7, a new period for objecting to the dischargeability of debt under § 523(a)(2) or (a)(4) commences under Bankruptcy Rule 4007. There is no similar rule with respect to conversion from Chapter 7 to Chapter 13.10 It stands to reason that if the 60-day period in Bankruptcy Rule 4007 expired during the Chapter 7 case, it would not be revived upon conversion to Chapter 13. This is the logic behind Interim Rule 1019(2), which provides that a new period does not arise if the 60 days expired in an original Chapter 7 case that was converted to Chapter 13 and then reconverted to Chapter 7. If conversion from Chapter 13 to Chapter 7 followed by reconversion to Chapter 13 is a possibility, a new opportunity to object to the dischargeability of debt under Bankruptcy Rule 4007 should arise after reconversion to Chapter 13 unless that period expired during the Chapter 7 case.


 

1  See 11 U.S.C. § 706(a), discussed in §§ 324.1 [ Procedure ] § 148.1  Procedure and 325.1 [ Absolute Right of Debtor? ] § 148.2  Absolute Right of Debtor?.

 

2  11 U.S.C. § 1307(a).

 

3  11 U.S.C. § 1307(b).

 

4  11 U.S.C. § 706(a), discussed in § 531.1 [ Application of § 707(b) Abuse Test at Conversion ] § 142.3  Application of § 707(b) Abuse Test at Conversion.

 

5  Some will conclude that dismissal for abuse is always discretionary under 11 U.S.C. § 707(b)(1) (“the court . . . may dismiss”) (emphasis added).

 

6  See § 531.1 [ Application of § 707(b) Abuse Test at Conversion ] § 142.3  Application of § 707(b) Abuse Test at Conversion.

 

7  11 U.S.C. § 706(a).

 

8  11 U.S.C. § 706(c) (emphasis added).

 

9  This issue is discussed further in § 544.1 [ Time for Determining Dischargeability of Debt ] § 156.3  Time for Determining Dischargeability of Debt.

 

10  See § 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA.