No one expects a confirmed and effective Chapter 11 plan to fall apart. When it happens, the bankruptcy court has the authority to convert the Chapter 11 case to Chapter 7 notwithstanding the prior confirmation of the plan. Post-confirmation conversion is a landscape filled with potential pitfalls and surprises for the debtor, pre-confirmation creditors, and post-confirmation counterparties. Two recent bankruptcy court decisions highlight the continued uncertainty over the scope of property of the estate and priority of claims in a post-confirmation conversion.
The Bankruptcy Code expressly contemplates post-confirmation conversion. While the Chapter 11 case remains open (as it typically does post-confirmation for claims resolution and case administration), the court must either dismiss or convert the case to Chapter 7 on request of a party in interest upon a showing of "cause" under §1112.1 A material default by the debtor under the confirmed plan is expressly listed as a type of cause that warrants dismissal or conversion.2 Section 1112 thus provides that conversion to Chapter 7 can be ordered at a time when there is already a confirmed Chapter 11 plan in place. However, the Bankruptcy Code does not specify the scope of the estate or the priority of claims in a post-confirmation conversion.
