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Conversion motion in Chapter 7 bankruptcy denied

On the one hand, the U.S. Bankruptcy Code allows filers to convert their bankruptcies from Chapter 7 to Chapter 13. On the other hand, what New Jersey residents might not know is that such a conversion is only permitted if the provisions of another section of the code are met. That section requires that a Chapter 7 filer meets the Chapter 13 bankruptcy filing requirements.

That means that the filer must have a steady income in order to be allowed to convert to or file a Chapter 13 bankruptcy. When a couple who filed a Chapter 7 bankruptcy filed a motion to convert the filing, the bankruptcy court denied it saying that the couple did not meet the income requirement because both were unemployed. The judge also ruled that the couple only filed the motion to stop the trustee from selling property that was damaged by fire.

The trustee had come to an agreement for the sale of the property to one of the couple's creditors. It was agreed that a fair offer had been made, and the trustee filed a motion for the sale to be approved by the judge. Before a ruling on that motion, the couple filed its motion to convert to a Chapter 13. They also amended their Chapter 7 filing to show that the husband was employed.

When the court denied the conversion motion, they appealed. The U.S. District Court judge agreed with the bankruptcy judge. That ruling might help clarify the seemingly contradictory provisions of the U.S. Bankruptcy Code that presumably allows conversion at the request of the filer. Therefore, it is necessary for New Jersey residents to know that right is not absolute unless the filer also meets the Chapter 13 filing requirements.

Source: Bloomberg BNA, "Couple Lacking Income Can't Convert Ch. 7 Case to Ch. 13", Diane Davis, Feb. 9, 2016

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