628 B.R. 897
Bankr. S.D.W. Va.2021Background
- Debtor Scott Keffer filed Chapter 13 on Sept. 16, 2020, listing ~$436k in assets and ~$794k in liabilities and timely filed a Chapter 13 plan.
- On Nov. 16, 2020 the IRS filed an amended proof of claim (~$681,610) that pushed Keffer’s liabilities above Chapter 13 debt limits.
- Keffer informed the court on Jan. 14, 2021 he intended to convert to Chapter 11 Subchapter V; he filed a Motion to Convert (Feb. 1, 2021) and later a Motion to Extend the Subchapter V deadlines (Feb. 18, 2021).
- The U.S. Trustee filed a Limited Objection raising the problem that the Subchapter V deadlines (§ 1188/§ 1189) had already lapsed and asking whether separate extension relief was required.
- The Court found Keffer qualified to convert under § 1307(d), concluded § 1112(b) dismissal was not warranted on the record, granted Keffer’s separate Motion to Extend, and reset the § 1188/§ 1189 deadlines to run from the entry of the conversion order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May a Chapter 13 debtor convert to Chapter 11 Subchapter V after Subchapter V deadlines have already expired? | Keffer: Yes—debts exceeded Chapter 13 limits and he moved promptly to convert. | UST: Concern that expired deadlines could make conversion futile and risk immediate dismissal. | Court: Conversion under §1307(d) permitted; Keffer qualifies and no other §1112(b) cause shown. |
| Is a separate motion to extend the §1188/§1189 Subchapter V deadlines required? | Keffer: Filed a separate Motion to Extend and sought relief to allow conversion to proceed. | UST: Requested guidance and stressed need for separate extension motion; concerned no extension had been filed initially. | Court: A separate motion is required; Keffer’s Motion to Extend granted. |
| Would §1112(b) dismissal/futility preclude conversion (i.e., conversion would be immediate reconversion/dismissal)? | Keffer: Conversion is not futile; plan confirmation is reasonably likely. | UST: Failure to file a plan within §1189 could be cause for dismissal under §1112(b)(4)(J). | Court: §1112(b) dismissal not warranted on present record; safe-harbor and lack of other cause support conversion. |
| Does Keffer meet the statutory standard for extending §1188/§1189 (delay "for which the debtor should not justly be held accountable")? | Keffer: The IRS’s amended claim was unforeseen and beyond his control, so extension is justified. | UST: The extension standard is strict; courts are split and debtor-created delay may bar extension. | Court: Facts show the delay was attributable to circumstances beyond Keffer’s control (IRS claim); extension granted and deadlines reset. |
Key Cases Cited
- In re Lester, 409 B.R. 364 (Bankr. W.D. Va. 2009) (factors courts consider when evaluating conversion from Chapter 13 to Chapter 11)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (debtor converting chapters must qualify under the chapter sought and conversion may be denied for bad faith)
- In re Wetter, 620 B.R. 243 (Bankr. W.D. Va. 2020) (conversion should not be permitted where immediate dismissal or reconversion would be triggered)
- In re Seven Stars on the Hudson Corp., 618 B.R. 333 (Bankr. S.D. Fla. 2020) (denying Subchapter V election after statutory deadlines; strict view on extensions)
- In re Trepetin, 617 B.R. 841 (Bankr. D. Md. 2020) (allowing conversion and extending §1188/§1189 deadlines where debtor not at fault)
- In re Krandell, 311 B.R. 438 (Bankr. D. Md. 2004) (conversion under §1307(d) must occur prior to confirmation)
- Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989) (governs bad-faith standard in chapter conversions and related futility inquiry)