§ 149.1 — Conversion from Chapter 11 to Chapter 13
Revised: June 16, 2004
11 U.S.C. § 1112(d) permits conversion of a Chapter 11 case to Chapter 13 only if the debtor requests conversion before discharge under § 1141(d).1 There is no such thing as an involuntary conversion from Chapter 11 to Chapter 13. Except to provide that conversion from Chapter 11 is only available to debtors eligible for Chapter 13 relief,2 the Code provides no other rules or conditions. The prohibition against conversion to Chapter 13 after discharge in § 1112(d)(2) eliminates the possibility of conversion to Chapter 13 after confirmation of a Chapter 11 plan.3
Bankruptcy Rule 1017(f) provides that conversion from Chapter 11 to Chapter 13 is governed by Bankruptcy Rule 9014.4 Conversion from Chapter 11 to Chapter 13 is thus a contested matter commenced by filing a motion. Typically, notice will be required to the Chapter 13 trustee, to the U.S. trustee and to all creditors. Local practice will determine who has responsibility for giving notice. After conversion from Chapter 11 to Chapter 13, Bankruptcy Rule 3015(b) requires the debtor to file a plan within 15 days “and such time may not be further extended except for cause shown.”
There are no reported decisions discussing the standards courts should use in exercising discretion to convert from Chapter 11 to Chapter 13. The process is rarely seen—most individual debtors who are eligible for Chapter 13 or Chapter 11 will file initially under Chapter 13 because it is simpler and less expensive.5
The Bankruptcy Reform Act of 1994 created incentives for some Chapter 11 debtors to convert to Chapter 13. The 1994 amendments increased the debt limitations, making Chapter 13 accessible to debtors with larger debt loads.6 This change inspired some debtors to attempt conversion from Chapter 11 of the “old” Code to Chapter 13 under the “new” Code; other debtors tried to engineer the dismissal of the Chapter 11 case to permit immediate refiling of Chapter 13 under the new law. Neither effort met with much success.
The 1994 Act states that the expanded eligibility limits for Chapter 13 do not apply to cases commenced before October 22, 1994.7 Conversion of a Chapter 11 case pending on October 22, 1994, does not get the debtor the higher Chapter 13 debt limitations in § 109(e) as amended. Engineered dismissal (and immediate refiling) has been rejected as an “end run” of the effective date provisions that preclude conversion of an “old” Code case to a “new” Code case.8
One reported decision warns of a significant trap for creditors that fail to file new proofs of claim after conversion from Chapter 11 to Chapter 13. In In re Sorge,9 the debtor filed a Chapter 11 case in 1985. The IRS filed proofs of claim for prepetition taxes for 1981, 1982 and 1983. The Chapter 11 case was converted to Chapter 13 in 1989. The Chapter 13 plan provided for payment of the taxes for 1981, 1982 and 1983. The IRS objected to confirmation and sought tax computation documents from the debtor. However, the IRS failed to file a new proof of claim in the Chapter 13 case. The bankruptcy court reviewed Bankruptcy Rule 1019(3), which provides upon conversion from Chapter 11 to Chapter 7, claims actually filed in the superseded case are “deemed filed” in the Chapter 7 case; however, there is no analogue with respect to conversions from Chapter 11 to Chapter 13:
Rule 1019 makes reference only to conversions to Chapter 7, and the court is aware of no rule or case law requiring or providing for this result in cases involving conversion from Chapter 11 to Chapter 13. . . . [A] creditor in a case converted from Chapter 11 to Chapter 13 . . . in order to have its claims allowed and paid, must file a proof of claim in the Chapter 13 case after conversion. The fact that a proof of claim was timely filed in the Chapter 11 case prior to conversion avails a creditor nothing in the Chapter 13 case after conversion.10
Because the IRS did not file a new proof of claim in the Chapter 13 case, the prepetition tax claims (tax years 1981, 1982 and 1983) were dischargeable notwithstanding that the payments to the IRS contemplated by the plan would not be made. The IRS’s claims for postpetition taxes (1985 and after) escaped discharge in the Chapter 13 case because they were postpetition claims under § 1305(a)(1).11
Although conversion from Chapter 11 to Chapter 13 is rare, Sorge is a wake-up call for creditors. Creditors must file new proofs of claim at conversion from Chapter 11 to Chapter 13 or risk discharge without payment.
At conversion from Chapter 11 to Chapter 7, Bankruptcy Rule 1019 requires the filing of a schedule of unpaid debts incurred during the Chapter 11 case.12 Oddly, there is no similar requirement in the bankruptcy rules at conversion from Chapter 11 to Chapter 13. In one reported decision, the bankruptcy court cited the debtor’s failure to list unpaid taxes on the schedule of postpetition debts after a Chapter 11 case converted to Chapter 13 as one reason why a county treasurer did not violate the automatic stay by selling the debtor’s real estate to pay taxes that accumulated during the Chapter 11 case.13
The time within which a creditor must file a new proof of claim after conversion from Chapter 11 to Chapter 13 is anybody’s guess.14 In most districts, the clerk’s notice of conversion from Chapter 11 to Chapter 13 will specify a new time period within which creditors may timely file proofs of claim in the Chapter 13 case. Creditors might argue from Bankruptcy Rule 1019(2) that a new period for filing claims consistent with Bankruptcy Rule 3002 should commence at conversion from Chapter 11 to Chapter 13.15 A governmental unit in a Chapter 11 case filed after October 22, 1994, that converts to Chapter 13 should have at least the 180 days to timely file a claim provided in § 502(b)(9);16 but the 180 days will not be much use if 180 days passed during the Chapter 11 case.17
There are consequences for debtors of conversion from Chapter 11 to Chapter 13. Under § 1307(b), the bankruptcy court “shall dismiss” a Chapter 13 case at the request of the debtor “if the case has not been converted under section . . . 1112 . . . of this title.”18 It has been held that conversion from Chapter 11 to Chapter 13 forfeits the debtor’s right to voluntarily dismiss the Chapter 13 case under § 1307(b).19
1 11 U.S.C. § 1112(d).
2 11 U.S.C. § 1112(f).
3 See 11 U.S.C. § 1141. But see In re Burrell, 289 B.R. 109 (Bankr. C.D. Ill. 2002) (In a Chapter 13 case converted from Chapter 11 five years after confirmation of a Chapter 11 plan, county treasurer did not violate the automatic stay by selling the debtors’ real estate to pay taxes that accumulated during the Chapter 11 case but were not scheduled as postpetition debts after conversion to Chapter 13.).
4 Fed. R. Bankr. P. 1017(f)(1).
5 See § 8.5 Other Chapters Too Expensive, Too Complicated or Unfriendly and § 142.2 Deadlines and Filing Requirements at Conversion after BAPCPA. See also § 142.1 New Schedules, Statement, Meeting of Creditors and Deadlines.
6 See § 11.1 [ Dollar Amounts ] § 14.1 Dollar Amounts.
7 Bankruptcy Reform Act of 1994, Pub. L. No. 103–394, § 702(b), 108 Stat. 4106 (1994).
8 See Clifton Sav. Bank v. Jackson (In re Jackson), 184 B.R. 16, 20–21 (D.N.J. 1995) (Court rejects engineered dismissal of a Chapter 11 case filed before October 22, 1994, in which a motion for relief from stay had been filed and debtors desire to refile a Chapter 13 case under the 1994 Act. Because of the Third Circuit’s First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991) opinion, debtors’ efforts to reorganize a mortgage that had been reduced to a foreclosure judgment ended up in a Chapter 11 case. Five days after the 1994 Act became effective, the mortgage holder moved for relief from the stay and for conversion to Chapter 7. The debtors responded with an “Application for Appropriate Action” that asked the bankruptcy court to dismiss the Chapter 11 case in a manner that would not trigger § 109(g) so that the debtors could file a Chapter 13 case utilizing new § 1322(c). The bankruptcy court obligingly dismissed the Chapter 11 case in an order that required the debtors to file a new Chapter 13 case within 15 days. Citing Alice in Wonderland, the district court held, “A request for conversion does not cease to be a request for conversion simply by designating it an ‘Application for Appropriate Action.’ We see no reason to characterize the bankruptcy court’s dismissal order, which includes a condition that the debtors refile immediately, as anything but the granting of a faintly concealed conversion motion. . . . [B]ecause we find that the Chapter 11 case was actually converted to a Chapter 13 proceeding, we must dismiss [the debtors’ new Chapter 13 filing]. ‘If a bankruptcy action is pending, a bankruptcy action which purports to affect the same debt cannot be maintained.’”); In re Fitzpatrick, 175 B.R. 436, 437–38 (Bankr. D.N.H. 1994) (Debtor in a Chapter 11 case filed before October 22, 1994, cannot convert to Chapter 13 to take advantage of the higher debt limits in the Bankruptcy Reform Act of 1994; neither can debtor dismiss the Chapter 11 case as part of a scheme to refile a Chapter 13 case under the new debt limits. “[S]ection 702(b) of the Reform Act specially provides that, except for certain enumerated exceptions, ‘the amendments made by this Act shall not apply with respect to cases commenced under title 11 of the United States Code before the date of enactment of this Act.’ . . . [T]he debtors cannot now convert their case to Chapter 13 as they do not qualify for such relief under the pre–Reform Act debt limits and nothing before the Court indicates that the plain language of section 702(b) does not control. . . . [T]o allow a dismissal and a refiling would just abrogate or end-run the prohibition that Congress intended that pending cases would not benefit by other than a few provisions of the Bankruptcy Reform Act of 1994.”). But see In re Elrod, 178 B.R. 5 (Bankr. N.D. Okla. 1995) (That debtors dismissed Chapter 13 case and refiled nine days later is not cause for dismissal where first petition was filed when the debtors were not eligible under former § 109(e) and refiling on November 10, 1994, permitted debtors to use the higher eligibility limits in the Bankruptcy Reform Act of 1994.). See also §§ 330.1 [ Absolute Right of Debtor? ] § 151.2 Absolute Right of Debtor? and 331.1 [ Strategic Considerations: Consequences of Voluntary Dismissal ] § 151.3 Strategic Considerations: Consequences of Voluntary Dismissal.
9 149 B.R. 197 (Bankr. W.D. Okla. 1993).
10 149 B.R. at 201.
12 See Fed. R. Bankr. P. 1019(5)(A)(i).
13 In re Burrell, 289 B.R. 109, 113–14 (Bankr. C.D. Ill. 2002) (“[R]eal estate taxes for which the Debtors were responsible subsequent to their original bankruptcy filing on December 4, 1989, were neither scheduled in their Chapter 13 petition nor included in the Debtors’ Amended Chapter 13 Plan. As such, the Debtors remain responsible for the payment of those taxes, and any liens on the Debtors’ real estate resulting from the non-payment of those taxes have survived the Debtors’ bankruptcy filing. . . . [W]hen the Debtors filed their Schedule of Post-Petition Debts to be included in their Chapter 13 bankruptcy, ‘none’ were listed. This being the case, the Court can easily conclude that Kankakee County and the Kankakee County Treasurer were well within their rights to seek payment of delinquent real estate taxes for the years following 1989, and to sell the real estate for nonpayment of those taxes.”).
14 See discussion of similar problem at conversion from Chapter 7 to Chapter 13 in § 148.3 Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4 Conversion to Chapter 13 after BAPCPA.
18 11 U.S.C. § 1307(b).
19 Blaise v. Wolinsky (In re Blaise), 219 B.R. 946 (B.A.P. 2d Cir. 1998).