The U.S. Bankruptcy Code provides two primary types of bankruptcy procedures for businesses. Through a Chapter 11 bankruptcy, a business continues operating. The business attempts to reorganize its operations and restructure its debts in a Chapter 11 case. A business can also seek a Chapter 7 bankruptcy case. A Chapter 7 bankruptcy brings the operations of a business to an end. Ultimately, the business is relieved of any debts that remain at the conclusion of a Chapter 7 proceeding. In some cases, a business that files a Chapter 11 bankruptcy may find that it cannot realistically continue operations and converts to a Chapter 7 proceeding.
Notify the bankruptcy trustee in writing of your intent to seek a conversion of your business's bankruptcy from Chapter 11 to Chapter 7. The bankruptcy trustee is the court official assigned to oversee your business's bankruptcy on a day-to-day basis.
Request the bankruptcy trustee to advise if she agrees with or opposes your plan to seek a conversion. You have a far better chance of getting court approval for a case conversion to Chapter 7 if the bankruptcy trustee agrees with the proposal.
Obtain from the bankruptcy court clerk a motion to convert to Chapter 7 bankruptcy. Bankruptcy court clerks maintain a selection of standard forms for use by individuals without legal representation. Additionally, the U.S. Bankruptcy Court website maintains standard forms to download.
Complete the motion to convert, using the guidelines and instructions that accompany the form. Pay particular attention to the specific reason or reasons you desire a conversion to Chapter 7 for your business. The standard reason is that your business is not able to reorganize in such a manner to become financially viable. Make note in the motion of the bankruptcy trustee's position on your desire to convert.
File the motion to convert with the bankruptcy court clerk.
Obtain from the bankruptcy court clerk the deadline for objections to your motion to convert. The creditors of your business are provided a set period of time to object to your motion. If none lodge an objection, and if the bankruptcy trustee is in agreement with your proposal to convert to Chapter 7, the judge assigned to your case likely will grant your motion. The bankruptcy court clerk sends notification of the objection deadline to your creditors.
Deliver a copy of the motion to convert to the bankruptcy trustee.
Send a copy of the motion to all of your creditors.
Obtain an order converting the case to a Chapter 7 executed by the judge from the clerk's office after the objection deadline expires, assuming no creditor lodged an objection. Alternatively, attend any hearing scheduled by the judge to deal with an objection or objections lodged by creditors. You need to be prepared to present evidence supporting your position at such a hearing. If the bankruptcy trustee agrees with your desire to convert, he will advise the court directly during the hearing.
- Cornell University Law School: Title 11--Bankruptcy
- Cornell University Law School: Bankruptcy
- "The Glannon Guide to Bankruptcy”; Nathalie Martin; 2006
- American Bar Association: Bankruptcy & Insolvency Litigation Committee
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