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Will I be able to convert my Florida Chapter 11 bankruptcy?

Chapter 11 bankruptcy in Florida may offer a welcome opportunity for a struggling Florida business to reorganize its debt and come up with a new payment plan. How does a business know that Chapter 11 is the right choice? What if Chapter 11 seems like the right choice, but upon further developments, Chapter 7 bankruptcy appears to be a better option? Fortunately, a debtor who has filed for Chapter 11 bankruptcy has a one-time right to convert the bankruptcy case to a Chapter 7 bankruptcy. Knowing that this opportunity is available may help ease the minds of some business owners.

To convert a case, a party, or his representative, must file a motion to convert "for cause." After notice is provided to the appropriate parties and a hearing is held, the court may choose to convert the case, unless it finds that conversion is not in the best interest of the estate and the creditors. "For cause" offers the court a wide range of possibilities in making its determination as to whether to allow conversion. One example of a situation which may justify conversion to Chapter 7 bankruptcy is one in which the debtor shows that the loss to the estate is substantial and a reasonable likelihood of rehabilitation does not exist. Demonstrating that a failure to maintain insurance is ongoing and this failure poses a risk to the public or to the estate may also be cause for a conversion.

There are exceptions to the right of conversion, however. A debtor may not convert a Chapter 11 to a Chapter 7 in the event that the debtor is not a debtor in possession, the case was converted to a Chapter 11 case but not at the debtor's request, or the case began as an involuntary Chapter 11 case.

A decision as to whether a debtor ought to convert from Chapter 11 to Chapter 7 is likely best made in conjunction with sound legal advice. Whether a business owner pursues Chapter 7 or Chapter 11 bankruptcy, business owners may be relieved to know that there are options for debt relief.

Source: UScourts.gov, "Chapter 11 - Bankruptcy Basics," accessed on June 19, 2015

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