Second-Guessing A Chapter 11 Debtor’s "Absolute" Right To Convert

Although federal bankruptcy law and policy strongly encourage both business and individual debtors to pay at least a portion of their debts by means of either a plan of reorganization or a wage earner repayment plan, the general rule is that a debtor cannot be forced to do so — a debtor always has the option to liquidate its assets in chapter 7 so long as it is eligible to be a debtor under that chapter of the Bankruptcy Code. Even so, a trend appears to be developing in the bankruptcy courts whereby what is generally understood to be a debtor’s unfettered prerogative to convert its case from one of the "reorganization chapters" (chapters 11, 12 and 13) to a chapter 7 liquidation may be restricted under certain circumstances. A ruling recently handed down by a Michigan district court is emblematic of this restrictive approach. In Monroe Bank & Trust v. Pinnock, the court held that lawmakers’ use of the word "may" in section 1112(a) of the Bankruptcy Code means that a bankruptcy court