Can My Business Convert From Chapter 11 To Chapter 7?
Many businesses that are struggling with debt may consider bankruptcy, and Chapter 11 bankruptcy often seems like the best option since it can allow businesses to reorganize debts while remaining open for business. Indeed, unlike with liquidation bankruptcies, reorganization bankruptcies give businesses an opportunity to get back on track financially and to remain in business. Once a business files for Chapter 7 bankruptcy, it must close its doors and its assets must be liquidated. Given that Chapter 11 bankruptcy can allow businesses in South Florida to stay open, it may be preferable for a business to file for Chapter 11 bankruptcy instead of Chapter 7 bankruptcy, especially if the business owners have reason to believe that sales or services are likely to pick up in the near future.
Yet in some circumstances, plans do not work out as business owners expect, and it may be necessary to convert from a Chapter 11 to a Chapter 7 bankruptcy case. What do business owners need to know about converting from Chapter 11 to Chapter 7 bankruptcy? Our West Palm Beach business bankruptcy lawyers can provide you with more information about voluntary and involuntary conversions for businesses in South Florida.
Voluntary Conversion from Chapter 11 to Chapter 7 Bankruptcy
Sometimes a business owner (or owners) may realize that the business’s profits have not increased and that factors beyond their control are making it unlikely that the business will be able to meet the terms of the reorganization bankruptcy. For example, a restaurant might file for Chapter 11 bankruptcy during the off-season in West Palm Beach, expecting business to pick up again during the winter months when snowbirds return to South Florida and individuals and families plan vacations to the area. Yet it may turn out that travel is down, and that other economic factors are at work that are preventing the restaurant’s business from picking up as the owners anticipated. Under such circumstances, the debtor can ask the court to convert the case from a Chapter 11 bankruptcy to a Chapter 7 bankruptcy.
Typically, under U.S. bankruptcy law, the debtor will need to show cause for converting the bankruptcy case. There are various ways in which a business debtor can show cause to convert from Chapter 11 to Chapter 7, such as:
- Business’s profits have not increased, and other factors are likely to prevent business profits from increasing to make the business profitable in the future;
- Plans to generate income for the business have failed or are likely to fail in the near future; or
- Remaining open has resulted in the business losing more money, making it difficult or impossible to meet the terms of the reorganization.
Involuntary Conversion Can Happen
In some situations, an involuntary conversion from Chapter 11 to Chapter 7 might occur if the business debtor is not meeting the terms of the reorganization bankruptcy. It can be extremely difficult to face an involuntary conversion since it will mean closing the business permanently and assets being liquidated.
Involuntary conversions are rare, but they can happen, and it is important to seek assistance from a bankruptcy attorney.
Contact a West Palm Beach Business Bankruptcy Lawyer
Do you need assistance converting a business bankruptcy case or filing for business bankruptcy? You should contact one of the West Palm Beach business bankruptcy attorneys at Kelley Kaplan & Eller for more information.
Source:
law.cornell.edu/rules/frbp/rule_1019
