CONVERSION FROM A CHAPTER 13 TO A CHAPTER ; NOT ALWAYS THAT SIMPLE

Recently, I had a client come into the office.  She was disappointed with her current bankruptcy counsel.  She had filed for a chapter 7 in 2002 and unfortunately recently received a divorce and therefore filed for a chapter 13 in 2010.  A year later, she could no longer comply with her chapter 13 plan and was in default.  Instead of modifying her plan payments downwards, which she is allowed to do, the debtor chose to convert her plan to a chapter 7.  Her counsel filed the documents converting the case to one under  chapter 7.  It is not hard to do, the forms for this are in Best Case, the leading bankruptcy software.  Anyway, she converted and filed the additional documents required and even attended the creditors' meeting.  She thought everything was fine.  Then the US Trustee's Office filed a motion to dismiss and a motion to disgorge the $750 the debtor paid her counsel for the conversion. 

Why?  The Bankruptcy Code provides that upon conversion, the converted chapter relates back to the filing date of the original filing.  So what, you might ask?   Well in this particular case, the debtor was ineligible to file a chapter 7 at the time she filed her chapter 13.  One can only file a chapter 7, once in every 8 years.  Therefore, the conversion was not successful and the client was very angry with her prior counsel.  I explained that I would be very happy to refile her chapter 7, for which she is know eligible, but the bankruptcy code itself is fraught with hazards, and that perhaps counsel should be forgiven.  She stated that the prior counsel refused to return her calls, etc.  That is another matter entirely.

This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.