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Court denies debtors chance to switch out of Chapter 7 bankruptcy

Even after a personal bankruptcy action is filed, a debtor may have the chance to change the form of bankruptcy he is pursuing. This is called a conversion, and Tennessee residents who file for Chapter 7 bankruptcy can sometimes convert their cases to Chapter 13 cases. Recently, an out-of-state couple that filed for Chapter 7 bankruptcy attempted to change its case to Chapter 13 bankruptcy and had its request denied, even though the law apparently said that it had the right to do so.

While pursuing a conversion of a Chapter 7 bankruptcy to a Chapter 13 matter, the couple relied on a provision of the Bankruptcy Code that seems to indicate that conversions of such a nature are permissible if no prior conversions have taken place. However, the district court judge reviewing the matter agreed with the lower bankruptcy court's ruling that there were more considerations to make before allowing the conversion to go forward.

Particularly, the court noted that a debtor must qualify as a debtor under the new form of bankruptcy to which he wishes to convert. In the relevant case, the couple qualified as a debtor under Chapter 7 bankruptcy but not under Chapter 13 bankruptcy because it did not have the requisite income needed to initially file for Chapter 13 protections. As a result, the conversion request was denied.

Different forms of personal bankruptcy require debtors to meet different qualifying standards. As demonstrated by this instance, what it means to be a debtor can look different based on the two most common forms of individual bankruptcy available in the United States. To learn more about Chapter 7 bankruptcy and options for converting to it or out of it, readers are encouraged to speak with their personal bankruptcy legal representatives.

Source: Bloomberg BNA, "Couple Lacking Income Can't Convert Ch. 7 Case to Ch. 13," Diane Davis, Feb. 16, 2016

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