My players have leveled up. They are not resting. How should current HPs be handled?
For example: A character has a maximum of 15 HPs, has taken 6 damage and is down to 9 HPs. That character levels up and gains 7 HPs to his maximum, bringing his maximum HPs to 22.
Leveling up options for HPs:
A) The character has taken 6 damage, why make it seem like he has taken more damage? Keeping him at 9 HPs means he has now at 13 damage. Give the player the benefit and add 7 HPs to his current total.
9 + 7 = 16 current HPs.
B) The character is at 9 HPs and is still at 9 HPs, he does not get "healthier" by gaining a level. It's not like someone cured him for 7 HPs of damage. If he wants to get to his max HPs, he need to rest or heal per the rules.
9 current HPs.
C) Leveling up resets everything. The character is at max HPs. Kudos for everyone!
22 current HPs.
A) He gets his new hit points, but keeps all his old damage until healed.
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You always track hit points via "current damage" not via "current health". If your maximum changes for any reason, you recalculate current hit points using your current damage (which effectively means that any time maximum health changes, current changes by the same amount).
This means that if your max HP went up by 5, your current does as well. Conversely, if you maximum HP drops by 5 (say someone just dispelled your +2 Constitution belt), then your current does as well.
(Note: Some people track damage via current HP, which is usually fine, but it's important to note that this is a convenience and not how the rules actually work.)
A really is the only way to go with it.
If a level 1 character was completely unharmed, gained a level, and rolled the max possible for his HP, B would have her suddenly half dead, and that's just crazy.
As is case C, when, oh, someone is on the floor, barely conscious and bleeding, and then is suddenly instantly fine because his friend shot a goblin.
Now granted, only case B makes any sense if someone is actively Dying (or case D, where you do some quick math to keep the current/max HP ratio consistent), but you really shouldn't even be dolling out XP, let characters level up, while actively in the Dying status. That's one of those things indicating that we've still got an encounter going on that isn't fully resolved.
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Exactly when leveling actually occurs is left up to the DM, but I've found that (for simplicity's sake) it's best left until the player's rest or (lacking that) when you would normally insert a scene change of some form.
Someone actively dying would be the dumbest time to have leveling occur. Almost as bad as being in the middle of a big fight and having everyone stop to roll HP and such because one of the 10 opponents just died and, hey, that was enough!
As long as you detail ahead of time when the PCs will be allowed to gain their level, you'll usually find that no-one has a problem with it. Assuming it isn't completely obtuse, of course.