California Court Discusses Converting a Chapter 7 Bankruptcy to a Chapter 13

People who have excessive debts often have the option of seeking relief via bankruptcy. There are numerous factors that weigh into whether Chapter 7 or 13 bankruptcy is appropriate, and parties generally determine under which Chapter they will seek relief from their debts based on such factors. Parties can convert their bankruptcy from one Chapter to another, but only if they can demonstrate their eligibility under the new Chapter. The eligibility requirements for a Chapter 13 bankruptcy were the topic of a recent opinion issued in a California case in which the court denied the debtor’s petition to convert his bankruptcy from a Chapter 7 to a Chapter 13. If you need assistance managing your debts, it is advisable to speak to a trusted California bankruptcy lawyer about your options.

The History of the Case

It is reported that the creditors sued the debtor, alleging he defrauded them with regards to a real estate investment in China. Following a bench trial, a California court issued a Statement of Decision in which it found in favor of the creditors and entered a judgment in their favor. The debtor filed a Chapter 7 bankruptcy petition the day after the Statement of Decision was filed. He later moved to convert to a Chapter 13 bankruptcy. The bankruptcy court denied his petition, and he appealed.

Converting a Chapter 7 Bankruptcy to a Chapter 13

Pursuant to the Bankruptcy Code, a Chapter 7 debtor may move to convert his or her bankruptcy to a Chapter 13 at any time, as long as the case was not previously changed to a Chapter 7 bankruptcy. The debtor must be eligible for Chapter 13 debt relief under the provisions of the Bankruptcy Code in order to convert to Chapter 13, however. Bankruptcy Code 109(e) defines who is eligible for relief under Chapter 13, and the debt limits set forth under that provision are strictly construed.

At the time the debtor filed his bankruptcy petition, section 109(e) stated that only a person with regular income that owes less than $394,725 in unsecured debts might be a debtor under Chapter 13. The Bankruptcy Code defines debt as the right to payment, regardless of whether the right is reduced to a judgment, liquidated, fixed, disputed or undisputed, or legal or equitable.

In the subject case, the bankruptcy court denied the debtor’s petition to convert to Chapter 13 on the basis that he was ineligible under section 109(e). Specifically, his debts exceeded the statutory limit. The debtor argued that the bankruptcy court erred in considering the Statement of Decisions to determine his debts because the creditor’s assertions were not made in good faith. The court disagreed, noting that the debtor underrepresented the amount he owed the creditors in his bankruptcy filings. Thus, it affirmed the bankruptcy court ruling.

Meet with an Experienced California Bankruptcy Attorney

Whether Chapter 7 or Chapter 13 bankruptcy is a better option for a person seeking debt relief depends on numerous factors. If you are interested in filing for bankruptcy, it is in your best interest to meet with an attorney to evaluate what steps you can take to regain control of your finances. Matthew D. Roy is an experienced California bankruptcy lawyer who can advise you of your alternatives and guide you through the process of discharging your debts. You can contact Mr. Roy through the form online or by calling (916) 361-6028 to set up a meeting.