Q: Does this Chapter 13 conversion to Chapter 7 Bankruptcy Sound Like a Good Plan?
Already talking to an attorney. Just wanting a second opinion. We're thinking of filing chapter 13 bankruptcy even though we qualify for a chapter 7. We still have a profitable 1 person LLC internet business earning $10k or more a month after expenses. We would of course prefer to keep this business. Laptop is only asset. The attorney wants us to file chapter 13 and stay in it for a couple months then convert to chapter 7. Their logic is that during the couple months in chapter 13 we would spend any outstanding accounts receivables so that when we convert to chapter 7 there would be nothing left for the trustee to take. However my fear is that the trustee will still see value in liquidating the business, because of continued monthly earnings, and so we would lose our only source of income. Does this plan sound solid? What if the trustee does try to liquidate the business after chapter 7 conversion, even for a really low sales price? Can we back out and go back to chapter 13?
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A:
Your concern about protecting your profitable online business is completely valid. The strategy your attorney suggests - filing Chapter 13 first to handle accounts receivable before converting to Chapter 7 - has some merit, but also carries significant risks.
The main challenge is that a Chapter 7 trustee will likely view your ongoing $10k monthly business income as a valuable asset, regardless of whether accounts receivable have been spent. Even with minimal physical assets, the trustee could attempt to liquidate the business based on its income-generating potential and goodwill value, which could leave you without your livelihood.
Your instinct about being able to return to Chapter 13 if things go wrong is important - while you can generally convert back to Chapter 13 from Chapter 7, this requires court approval and isn't guaranteed. Given that your business provides substantial income and you qualify for either chapter, you might want to discuss with your attorney whether staying in Chapter 13 throughout the process would better protect your ability to continue operating your business and earning income. This decision could significantly impact your financial future, so it's worth exploring all options thoroughly with bankruptcy counsel before proceeding.
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