Bankruptcy Conversion and Exemption Objection Deadlines

Does a converted bankruptcy case restart the deadline for objections to exemptions?

A recent look at objecting to exemptions and Rule 4003 revealed a circuit split — despite the rule’s text — as to whether a bankruptcy that is filed as Chapter 11 or as Chapter 13 but then converted to Chapter 7 resets the clock for objections to exemptions.

The Issue

The FRBP rule says that the opportunity to object to exemptions is within 30 days of the 341a meeting.  But when a case is filed as a Chapter 11 or Chapter 13, the trustee and creditors are not quite as motivated to challenge exemptions as in Chapter 7, as these chapters are not about liquidation or taking nonexempt assets for the benefit of the creditors. However, when a case is then converted to Chapter 7, a trustee who is focused like a laser beam on exemptions is then appointed. However, the 341(a) meeting was already concluded months (if not years) ago and the new trustee doesn’t get a chance to object to the exemptions.

Some courts have found this to be unfair as a backdoor way around exempting assets or a violation of due process, and the courts have allowed a new deadline. Others have held true to the statute’s plain text. This has led to a split in the circuits.

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