Conversion to Chapter 7

In appropriate circumstances, a Chapter 11 case may be dismissed or may be converted to another chapter of the Bankruptcy Code under
which the debtor is eligible. The rules vary depending on:

(i) whether the conversion or dismissal is voluntary or involuntary;

(ii) the chapter to which the case is being converted;

(iii) the kind of debtor that the case concerns; and (iv) the particular circumstances giving rise to the conversion or the dismissal. [B.C. §1112]

a. Voluntary conversion to Chapter 7: The debtor may convert the case to Chapter 7 provided that:

(i) a trustee has not been appointed under Chapter 11,

(ii) the case was not originally commenced by the filing of an involuntary Chapter 11 petition, and

(iii) the case was not involuntarily converted to Chapter 11 (i.e., on the request of an entity other than the debtor). No notice or hearing is required. [B.C. §1112(a); 5 Collier 111 12.03(1)]

b. Discretionary conversion to Chapter 7 or dismissal: Upon a request by the United States trustee or a party in interest (including the debtor), the court for cause may dismiss the case or convert it to Chapter 7, whichever is better for creditors and the estate. Notice and a hearing are required. [B.C. §1112(b)]

(1) Sua sponte dismissal: When cause exists, the court, on its own motion, may convert the case to Chapter 7 or dismiss it. However, the court should exercise its sua sponte powers to dismiss or convert sparingly. [B.C. §105(a); In re Daily Corp]

(2) "Cause": A Chapter 11 case may be dismissed or converted to Chapter 7 for any of the following reasons or for other sufficient cause

(a) Lack of good faith in filing the Chapter 11 petition

(b) Continuing loss to the estate and no reasonable probability of rehabilitation

(d) Unreasonable and prejudicial delay by the debtor

(e) Failure to file a Chapter 11 plan on or before a deadline set by the
court


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