11 U.S.C. § 1112

Current through P.L. 116-145 (06/17/2020)
Section 1112 - Conversion or dismissal
(a) The debtor may convert a case under this chapter to a case under chapter 7 of this title unless-
(1) the debtor is not a debtor in possession;
(2) the case originally was commenced as an involuntary case under this chapter; or
(3) the case was converted to a case under this chapter other than on the debtor's request.
(b)
(1) Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.
(2) The court may not convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter if the court finds and specifically identifies unusual circumstances establishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that-
(A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) and 1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and
(B) the grounds for converting or dismissing the case include an act or omission of the debtor other than under paragraph (4)(A)-
(i) for which there exists a reasonable justification for the act or omission; and
(ii) that will be cured within a reasonable period of time fixed by the court.
(3) The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after commencement of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph.
(4) For purposes of this subsection, the term "cause" includes-
(A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;
(B) gross mismanagement of the estate;
(C) failure to maintain appropriate insurance that poses a risk to the estate or to the public;
(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors;
(E) failure to comply with an order of the court;
(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter;
(G) failure to attend the meeting of creditors convened under section 341(a) or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor;
(H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any);
(I) failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief;
(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court;
(K) failure to pay any fees or charges required under chapter 123 of title 28;
(L) revocation of an order of confirmation under section 1144;
(M) inability to effectuate substantial consummation of a confirmed plan;
(N) material default by the debtor with respect to a confirmed plan;
(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and
(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.
(c) The court may not convert a case under this chapter to a case under chapter 7 of this title if the debtor is a farmer or a corporation that is not a moneyed, business, or commercial corporation, unless the debtor requests such conversion.
(d) The court may convert a case under this chapter to a case under chapter 12 or 13 of this title only if-
(1) the debtor requests such conversion;
(2) the debtor has not been discharged under section 1141(d) of this title; and
(3) if the debtor requests conversion to chapter 12 of this title, such conversion is equitable.
(e) Except as provided in subsections (c) and (f), the court, on request of the United States trustee, may convert a case under this chapter to a case under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate if the debtor in a voluntary case fails to file, within fifteen days after the filing of the petition commencing such case or such additional time as the court may allow, the information required by paragraph (1) of section 521(a), including a list containing the names and addresses of the holders of the twenty largest unsecured claims (or of all unsecured claims if there are fewer than twenty unsecured claims), and the approximate dollar amounts of each of such claims.
(f) Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.

11 U.S.C. § 1112

Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2630; Pub. L. 98-353, title III, §505, July 10, 1984, 98 Stat. 384; Pub. L. 99-554, title II, §§224, 256, Oct. 27, 1986, 100 Stat. 3102, 3114; Pub. L. 103-394, title II, §217(c), Oct. 22, 1994, 108 Stat. 4127; Pub. L. 109-8, title IV, §442(a), Apr. 20, 2005, 119 Stat. 115; Pub. L. 111-327, §2(a)(33), Dec. 22, 2010, 124 Stat. 3561.

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTSSection 1112 of the House amendment represents a compromise between the House bill and Senate amendment with respect to the factors constituting cause for conversion of a case to chapter 7 or dismissal. The House amendment combines two separate factors contained in section 1112(b)(1) and section 1112(b)(2) of the Senate amendment. Section 1112(b)(1) of the House amendment permits the court to convert a case to a case under chapter 7 or to dismiss the case if there is both a continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; requiring both factors to be present simultaneously represents a compromise from the House bill which eliminated both factors from the list of causes enumerated.Sections 1112(c) and 1112(d) of the House amendment is derived from the House bill which differs from the Senate amendment only as a matter of style.

SENATE REPORT NO. 95-989This section brings together all of the conversion and dismissal rules for chapter 11 cases. Subsection (a) gives the debtor an absolute right to convert a voluntarily commenced chapter 11 case in which the debtor remains in possession to a liquidation case.Subsection (b) gives wide discretion to the court to make an appropriate disposition of the case sua sponte or upon motion of a party in interest, or the court is permitted to convert a reorganization case to a liquidation case or to dismiss the case, whichever is in the best interest of creditors and the estate, but only for cause. Cause may include the continuing loss to or dimunition [sic] of the estate of an insolvent debtor, the absence of a reasonable likelihood of rehabilitation, the inability to effectuate a plan, unreasonable delay by the debtor that is prejudicial to creditors, failure to file a plan within the appropriate time limits, denial of confirmation and any opportunity to modify or propose a new plan, revocation of confirmation and denial of confirmation of a modified plan, inability to effectuate substantial consummation of a confirmed plan, material default by the debtor under the plan, and termination of the plan by reason of the occurrence of a condition specified in the plan. This list is not exhaustive. The court will be able to consider other factors as they arise, and to use its equitable powers to reach an appropriate result in individual cases. The power of the court to act sua sponte should be used sparingly and only in emergency situations.Subsection (c) prohibits the court from converting a case concerning a farmer or an eleemosynary institution to a liquidation case unless the debtor consents.Subsection (d) prohibits conversion of a reorganization case to a chapter 13 case unless the debtor requests conversion and his discharge has not been granted or has been revoked.Subsection (e) reinforces section 109 by prohibiting conversion of a chapter 11 case to a case under another chapter proceedings under which the debtor is not permitted to proceed.

REFERENCES IN TEXTThe Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(4)(G), are set out in the Appendix to this title.

AMENDMENTS2010-Subsec. (b)(1). Pub. L. 111-327, §2(a)(33)(A)(i), amended par. (1) generally. Prior to amendment, par. (1) read as follows: "Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section 1104(a)(3), on request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause."Subsec. (b)(2). Pub. L. 111-327, §2(a)(33)(A)(ii)(I), inserted introductory provisions and struck out former introductory provisions which read as follows: "The relief provided in paragraph (1) shall not be granted absent unusual circumstances specifically identified by the court that establish that such relief is not in the best interests of creditors and the estate, if the debtor or another party in interest objects and establishes that-".Subsec. (b)(2)(B). Pub. L. 111-327, §2(a)(33)(A)(ii)(II), substituted "converting or dismissing the case" for "granting such relief".Subsec. (e). Pub. L. 111-327, §2(a)(33)(B), substituted "521(a)" for "521".2005-Subsec. (b). Pub. L. 109-8 added subsec. (b) and struck out former subsec. (b) which consisted of introductory provisions and pars. (1) to (10) relating to conversion of cases under this chapter to chapter 7 cases or dismissal for cause in the best interest of creditors and the estate.1994-Subsec. (b). Pub. L. 103-394 inserted "or bankruptcy administrator" after "United States trustee".1986-Subsec. (b). Pub. L. 99-554, §224(1)(A), inserted "or the United States trustee" after "party in interest".Subsec. (b)(10). Pub. L. 99-554, §224(1)(B)-(D), added par. (10).Subsec. (d). Pub. L. 99-554, §256, inserted reference to chapter 12 and added par. (3).Subsecs. (e), (f). Pub. L. 99-554, §224(2), (3), added subsec. (e) and redesignated former subsec. (e) as (f).1984-Subsec. (a)(2). Pub. L. 98-353, §505(a)(1), substituted "originally was commenced as an involuntary case" for "is an involuntary case originally commenced".Subsec. (a)(3). Pub. L. 98-353, §505(a)(2), substituted "other than on" for "on other than".Subsec. (b)(5). Pub. L. 98-353, §505(b)(1), inserted "a request made for" before "additional".Subsec. (b)(8). Pub. L. 98-353, §505(b)(2), substituted "or" for "and".

EFFECTIVE DATE OF 2005 AMENDMENTAmendment by Pub. L. 109-8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109-8 set out as a note under section 101 of this title.

EFFECTIVE DATE OF 1994 AMENDMENTAmendment by Pub. L. 103-394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394 set out as a note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENTEffective date and applicability of amendment by section 224 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554 set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure.Amendment by section 256 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554.

EFFECTIVE DATE OF 1984 AMENDMENTAmendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353 set out as a note under section 101 of this title.

debtor
The term "debtor" means person or municipality concerning which a case under this title has been commenced.(13A) The term "debtor's principal residence"-(A) means a residential structure if used as the principal residence by the debtor, including incidental property, without regard to whether that structure is attached to real property; and(B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer if used as the principal residence by the debtor.
domestic support obligation
The term "domestic support obligation" means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is-(A) owed to or recoverable by-(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or(ii) a governmental unit;(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of-(i) a separation agreement, divorce decree, or property settlement agreement;(ii) an order of a court of record; or(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.
insolvent
The term "insolvent" means-(A) with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of-(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and(ii) property that may be exempted from property of the estate under section 522 of this title;(B) with reference to a partnership, financial condition such that the sum of such partnership's debts is greater than the aggregate of, at a fair valuation-(i) all of such partnership's property, exclusive of property of the kind specified in subparagraph (A)(i) of this paragraph; and(ii) the sum of the excess of the value of each general partner's nonpartnership property, exclusive of property of the kind specified in subparagraph (A) of this paragraph, over such partner's nonpartnership debts; and(C) with reference to a municipality, financial condition such that the municipality is-(i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or(ii) unable to pay its debts as they become due.
petition
The term "petition" means petition filed under section 301, 302, 303 and 3 1504 of this title, as the case may be, commencing a case under this title.(42A) The term "production payment" means a term overriding royalty satisfiable in cash or in kind-(A) contingent on the production of a liquid or gaseous hydrocarbon from particular real property; and(B) from a specified volume, or a specified value, from the liquid or gaseous hydrocarbon produced from such property, and determined without regard to production costs.