Title
Exposing the Convert’s Loophole: Post-Discharge Conversion as an Abuse of the Bankruptcy Process
Abstract
This paper will analyze the effect of post-discharge conversion in the consumer bankruptcy context from a liquidation case under Chapter 7 of the Bankruptcy Code to a reorganization case under either Chapter 11 or Chapter 13. In doing so, the paper will demonstrate how post-discharge conversion constitutes an abuse of the bankruptcy process and, except in extreme circumstances, should be severely curbed. The paper will begin by outlining the respective purposes and typical operations of Chapters 7, 11, and 13 of the Code by applying case law, the language of the Code, and legislative history. There will be a special focus on Chapter 7 discharges and conversion from Chapter 7 to other chapters. Following this, the paper will discuss the legal and equitable consequences of post-discharge conversion from Chapter 7 to Chapter 11 or Chapter 13 including the impact on the Chapter 7 trustee’s continued administration of the bankruptcy estate, the effect of conversion on creditors whose claims have been discharged, and the significance of receiving two discharges in the same case (as contrasted to a “Chapter 20” case, which allows for a new discharge in a separately filed Chapter 13 case following a prior Chapter 7 case). The paper will provide examples demonstrating the abusive nature of post-discharge conversion in its adverse impact on the judicial system, the creditor body, and the administration of the estate. The paper will also suggest scenarios where post-discharge conversion might not be considered abusive, in doing so showing the extreme rarity of good faith post-discharge conversion. The paper will conclude by explaining ways that courts and Congress can successfully put an end to post-discharge conversion from Chapter 7 to Chapter 11 or Chapter 13.
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