We know that the decision to file bankruptcy is not generally an easy decision to make.  We do our best to help every step of the way.  However, there are some instances where people file for bankruptcy, and there is a change of circumstance after the filing.  This most commonly impacts our clients that file a Chapter 13 Bankruptcy, as any number of circumstances can, and probably will, change over a five year period.  Of course, there are instances where we look at converting to a Chapter 7 Bankruptcy from the originally filed Chapter 13 Bankruptcy. 


In many cases, converting from a Chapter 13 Bankruptcy to a Chapter 13 Bankruptcy will mean that some funds were distributed to creditors that would likely not have received funds had the case been filed as a Chapter 7 from the very beginning.  Unfortunately, there isn’t much we can do about the money that was distributed to creditors.  In most cases, due to the trustee’s payment schedule, when a case is converted there are still funds in the trustee’s management account that have not been distributed.  In this circuit those funds are distributed to creditors and the trustee. 


However, two courts in the Third and Fifth Circuit have held that the debtor is entitled to a refund of any money held by the trustee that has not been distributed at the time of the conversion from a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy when the debtor converts in good faith.  Of course, we are not in those judicial circuits, but we watch all major developments across the country as those may be arguments we can make in our cases and could eventually become the law in our circuit. 


This question of whether a debtor is entitled to a refund of money not yet distributed has now been sent to the Supreme Court of the United States.  There has not been a determination of whether the Supreme Court will hear this case.  If the Supreme Court chooses not to the determination of whether a debtor is entitled to a refund of undistributed money at the time of conversion will remain up to the laws of each judicial circuit.  However, should the Supreme Court decide to hear this issue we may see changes to the policy in each judicial circuit.  It is a bit too early to speculate as to possible outcomes;  however, it is certainly an issue we will keep an eye on.


If you have any questions about this, or any other bankruptcy matters, please contact your St. Louis Area Bankruptcy Attorney Today!