## Facts

- An individual debtor with stable, substantial earnings filed a voluntary Chapter 7 petition.
- The debtor’s schedules reflected net monthly income of roughly $19,000 and limited non-exempt assets (under $50,000).
- The IRS filed a proof of claim exceeding $1.3 million, including secured, priority unsecured, and general unsecured components.
- A secured creditor moved to convert the case from Chapter 7 to Chapter 11 under 11 U.S.C. § 706(b).
- The creditor argued that Chapter 7 would yield little or no distribution to unsecured creditors because postpetition earnings are excluded from the Chapter 7 estate, while Chapter 11 could commit future income to repayment.
- The debtor opposed conversion, asserting that a confirmable Chapter 11 plan was unlikely because priority tax claims generally must be paid in full within the statutory timeframe.
- After an evidentiary hearing, the bankruptcy court ruled on whether conversion was appropriate.

## Issues

1. Whether the court should exercise its discretion under 11 U.S.C. § 706(b) to convert an individual debtor’s Chapter 7 case to Chapter 11 based primarily on the debtor’s ability to pay from future income.
2. Whether asserted difficulty in proposing a confirmable Chapter 11 plan—particularly compliance with required treatment of priority tax claims—precludes conversion under § 706(b).

## Decision

- The court granted the creditor’s motion and converted the case from Chapter 7 to Chapter 11 under 11 U.S.C. § 706(b).
- The court found the debtor’s substantial earning capacity weighed strongly in favor of conversion because meaningful repayment would otherwise be unlikely.
- The court rejected the debtor’s contention that plan confirmability must be established before conversion, treating feasibility as a matter for the Chapter 11 plan process.

## Legal Principles

- Under 11 U.S.C. § 706(b), a bankruptcy court may convert a Chapter 7 case to Chapter 11 “on request of a party in interest and after notice and a hearing,” and the statute confers broad judicial discretion.
- In exercising § 706(b) discretion, courts commonly consider the debtor’s ability to repay, the likely benefit to creditors, and whether conversion accords with the Bankruptcy Code’s purposes.
- Where non-exempt Chapter 7 estate assets are modest, the debtor’s future income may be the only practical source for a meaningful creditor distribution; Chapter 11 can make postpetition earnings available for repayment through a plan.
- Potential obstacles to confirmation (including treatment and timing of payments on priority tax claims under 11 U.S.C. § 1129(a)(9)(C)) generally do not bar conversion; those questions are addressed during plan negotiation and confirmation.

## Conclusion

The court converted the case to Chapter 11 because the debtor’s high, stable income made future-income repayment realistic and Chapter 7 would likely produce little for creditors; doubts about ultimate plan confirmation did not defeat conversion under § 706(b).


In re Baker, 503 B.R. 751 (Bankr. M.D. Fla. 2013)