What is a “conversion to Chapter 7” in a Chapter 11 bankruptcy?

In a Chapter 11 bankruptcy in Washington, a “conversion to Chapter 7” is when the court changes the type of bankruptcy filed from Chapter 11 to Chapter 7. This typically happens when the debtor is unable to meet the requirements of the Chapter 11 plan they proposed or if they cannot continue to make the payments they promised in the initial plan. When a person files for Chapter 11 bankruptcy, they are hoping to reorganize their debts and come up with a repayment plan. It is up to the court to approve or deny the plan before the debtor can proceed. However, in some cases, it might not be realistic for the debtor to follow through with their proposed plan, due to their individual financial situation. If the court recognizes this, it may decide to convert the case from Chapter 11 to Chapter 7. A conversion to Chapter 7 is usually seen as a last resort, but it is a necessary step if the debtor cannot make the payments in their plan. The primary goal of Chapter 7 bankruptcy is to liquidate all of the debtor’s non-exempt assets in order to pay off their creditors. This means that their assets will be sold and their debts will be discharged. In contrast, a Chapter 11 bankruptcy focuses more on reorganizing the debtor’s finances and establishing a payment plan. Overall, a conversion to Chapter 7 in a Chapter 11 bankruptcy is an action taken by the court when the debtor is unable to meet the requirements of the Chapter 11 plan. It should be seen as a last resort, but it may be necessary in certain cases.

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What is a “conversion to Chapter 7” in a Chapter 11 bankruptcy?

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