Summary of a Recent
Judicial Development in
Bankruptcy

Chapter 12 Debtor Reserves Right to Convert to a Case Under Any Other Chapter
Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Vantiger-Witte, No. 05-02931, 2007 WL 3287105 (Bankr. N.D. Iowa Nov. 6, 2007), the United States Bankruptcy Court for the Northern District of Iowa held that a Chapter 12 debtor reserves the right to convert to a case under any other chapter, subject to certain criteria which can be addressed at the confirmation hearing.

Background

Debtor filed her chapter 12 petition June 2005. Id. at *1. Farm Service Administration moved to dismiss the case and argued that she was not eligible for Chapter 12 relief based on the amounts listed in her Statement of Financial Affairs. Id. at *2. The court denied the motion to dismiss and determined that the Debtor was eligible for Chapter 12. Id. The Debtor subsequently filed a motion to convert to Chapter 13, and her plan showed that she no longer owned any real estate, having sold it to pay off her secured creditors. Id. The Trustee objected to the conversion. Id.

Arguments

The Trustee argued that the Debtor would have to show that the original Chapter 12 petition was filed in good faith, that there would be no prejudice to creditors, and that the conversion would be equitable. Id.

The Debtor argued that those issues should be addressed at the time of confirmation of the plan. Id. at *3.

Analysis and Holdings

Section 1208(a) of the Bankruptcy Code states that a debtor may convert from Chapter 12 to Chapter 7 at any time, but courts are split on whether to allow conversion to a Chapter other than Chapter 7. Id. at *3. The majority view is to allow such conversion "where the debtor has filed in good faith, there is no prejudice to the creditors, and such conversion would be equitable." Id. at *4. The court adopted this view, allowed the conversion, and concluded that those issues could be addressed at the confirmation hearing. Id. at *5.

The case was decided on November 6, 2007.



  

This material is based on work supported by the U.S. Department of Agriculture under Agreement No. 59-8201-9-115. Any opinions, findings, conclusions, or recommendations expressed in this article are those of the author and do not necessarily reflect the view of the U.S. Department of Agriculture.

The National Agricultural Law Center is a federally funded research institution located at the University of Arkansas School of Law, Fayetteville.

Web site: www.NationalAgLawCenter.org | Phone: (479)575-7646 | Email: NatAgLaw@uark.edu