Suffering an Unfair Job Loss is Tough, our california employment attorneys can help.

Eighth Circuit BAP Affirms Conversion from Individual Chapter 7 to Chapter 11 - Schlehuber v. Fremont National Bank & Trust

April 23, 2013

Vincent Howard and our Anaheim Hills personal bankruptcy attorneys know that Chapter 7 bankruptcy is preferred by many of our clients. Most individuals and married couples have a choice between Chapter 7 bankruptcy--a short but difficult process in which property is sold to pay off debts--or Chapter 13, in which debtors make a three- to five-year plan to pay off debts slowly. People who run businesses can sometimes also choose Chapter 11, a "reorganization" more like a Chapter 13 plan, but specially designed for business. But if you can qualify for Chapter 7--and not everyone can--it's often preferred because it can be wrapped up in just a few months. So we were not surprised to see a challenge to a conversion from Chapter 7 to Chapter 11 in Schlehuber v. Fremont National Bank & Trust. The BAP of the Eighth Circuit found that James Schlehuber's bankruptcy court did not abuse its discretion by converting the case.

Schlehuber has at least five business entities. He filed for bankruptcy along with his wife in January of 2012, largely because of business debts. He also had a surplus of income, and Fremont, an unsecured creditor, moved to convert the case to Chapter 11 on that basis. After that filing, the Schlehubers amended their filings to disclose that they are separated and live in separate households; James Schlehuber amended his financial statements so no surplus income was available. He also opposed the bank's motion. At a hearing, the bank introduced business and tax filings showing Schlehuber should have substantial excess income; Schehuber testified that he has a variable income from commissions and bonuses, and that he is paying support to his ex-wife. He also argued that there is no business to reorganize. The bankruptcy court ultimately converted his case, but not his ex-wife's.

On appeal, Schlehuber argued that his conversion was an attempt to avoid a provision of the Bankruptcy Code that requires individuals to have mostly consumer debts. The Bankruptcy Appellate Panel saw no basis for applying that rule; ability to pay is a central consideration in the conversion, and nothing in the law says a court cannot consider it in cases where the debtor primarily has business debts. The BAP also rejected Schlehuber's argument that the bankruptcy court didn't consider his interests; he has no business to reorganize and no business income because he surrendered his business property to creditors. But it's not required that Schlehuber have a business, the panel said, and the bankruptcy court's decision was supported by evidence. It characterized Schlehuber's argument as saying his interests should be paramount, then disagreed. Finding that the bankruptcy court acted within its discretion, the BAP affirmed its judgment.

Courts have considerable discretion, particularly on fact-intensive topics. That's why Vincent Howard and our Orange County individual bankruptcy lawyers are not surprised to see this ruling upheld, even though we would have preferred more careful consideration for one of our clients. Though ability to pay is clearly a key consideration with any bankruptcy plan, Vincent Howard and our Claremont consumer bankruptcy attorneys sympathize with Schlehuber's argument that he has variable income with no guarantees of bonuses, plus support payments to his ex-wife. If he is unable to pay as the plan wears on, he can and should ask to modify it to reflect a more realistic income.

If you're overwhelmed by your debts and you'd like to talk to an experienced attorney about your rights and your legal options, don't wait to call Howard Law, P.C. for a consultation. You can send us a message online or call 1-800-872-5925.

Similar articles:

Eleventh Circuit Rules Ability to Pay Debts Should Be Part of Test for Bankruptcy Abuse - Witcher v. Early

Tenth Circuit Upholds Dismissal of Bankruptcy Filer's Lawsuit Against Trustee - Satterfield v. Malloy

Sixth Circuit Upholds Dismissal of Debtors' Lawsuit Over Frozen Tax Refunds - Harchar v. United States