If you find yourself in a situation where you are struggling to meet the repayment requirements of your Chapter 13 bankruptcy plan, there is a potential solution to consider: convert Chapter 13 to Chapter 7 bankruptcy.
This option can be particularly useful if you have experienced a loss of income and are finding it difficult to maintain your Chapter 13 plan payments. By converting to Chapter 7, you can effectively exit the three to five-year Chapter 13 plan and have qualifying debts discharged within four months. This is a great alternative, especially if you do not qualify for a modification of your Chapter 13 payment plan.
If your goal is to convert from Chapter 13 to Chapter 7, it’s important to be aware of various potential issues. A local bankruptcy attorney can help you with this process. Here are some things to consider:
- Check if your income qualifies for Chapter 7
- Verify that you have not received a Chapter 7 discharge within the past eight years.
- Understand whether you will be able to keep all of your property, or if there is a possibility that you might lose some.
- Study up on eligibility issues and what circumstances might cause you to be forced to convert to Chapter 7 bankruptcy.
By being well-informed and working with a qualified attorney, you can increase your chances of a successful transition from Chapter 13 to Chapter 7.
Conversion of Chapter 13 to Chapter 7
Before you can convert your Chapter 13 case to Chapter 7, you will need to determine your eligibility and understand what will happen to your property. Many people choose to convert due to a reduction in income or job loss, making it easy to qualify. However, it is important to note that filing for Chapter 7 may result in the loss of some property you had hoped to protect through Chapter 13 bankruptcy.
Here are some key considerations to keep in mind when transitioning from Chapter 13 to Chapter 7 bankruptcy
Are You Qualified to Convert a Chapter 13 Bankruptcy Case into Chapter 7?
Before you can switch to Chapter 7, you need to pass the Chapter 7 means test. To determine whether you’re capable of affording Chapter 13 plans, the means test examines your income and expenses. Chapter 7 isn’t available to you if you’re unable to pay your debts.
While some courts don’t require debtors to complete the means test before converting from Chapter 13 or 7 to Chapter 7, the Chapter 7 trustee assigned to your case will review your updated income disclosures and expenses. Either the trustee or the creditor may object if you have significant amounts left after subtracting your expenses.
If your budget shows that you have enough money to pay all or part of your debts, the bankruptcy court won’t allow the conversion. You can speak to a local bankruptcy lawyer about the procedures in your area.
If You Convert from Chapter 13 to Chapter 7, Can You Get a Recharge?
It all depends on whether or not you have filed for Chapter 7 before. You can’t get rid of debts anytime you want; once the Chapter 7 case is closed, your debts will not be erased.
This can be a problem for most people, as you’d likely have to sell your property to pay off your creditors. However, the court won’t force you to convert to Chapter 7 if your efforts are good and you pay in good faith.
For example, if you missed a payment due to unplanned car repairs, or you can’t propose a repayment plan that the bankruptcy court approves or confirms despite your best efforts, the court would dismiss your Chapter 13 case and force you to convert to Chapter 7. This might be better if you’re at high risk of losing property in Chapter 7.
If you were doing something illegal, it would be a completely different story. If a debtor is manipulating the system to avoid creditors, the bankruptcy court is more likely to convert the case involuntarily.
Conversion of Chapter 13 to Chapter 7
This is what you can expect when your Chapter 13 bankruptcy case has been converted to Chapter 7. In most courts, the bankruptcy petition and forms you filed for Chapter 13 will be accepted as part of the converted Chapter 7 matter. However, certain jurisdictions might require you to fill out new schedules even if there haven’t been any changes. You should plan on taking the means test, updating your income, and expenses, and listing any new debts you’ve incurred since filing Chapter 13. If they’re eligible, these new debts may be discharged in your Chapter 7 case.
Additionally, you will need to file the Statement of Intention for Individuals Filing under Chapter 7. This form communicates to the court and creditors whether you intend to keep “secured” property you’re still making payments on, like a car or a home.
Creditors’ meeting. You will need to attend another meeting of creditors to discuss property exemptions, regardless of when you filed your Chapter 13 bankruptcy. However, if you’re releasing debts that were incurred after your Chapter 13 filing, a creditor may object to this date.
Claims of creditors for payment. Any forms submitted by creditors in bankruptcy to receive payment, called claims of creditors for payment, will be carried over to your Chapter 7 case. If the Chapter 7 trustee sells nonexempt property and new funds are available for creditors, additional time will be given for new creditors to file a proof of claim.
How to Convert Chapter 13 Bankruptcy to Chapter 7 Bankruptcy
It’s important to understand the differences between Chapter 13 and Chapter 7 bankruptcy before deciding which option is right for you. Chapter 13 typically involves creating a repayment plan for your creditors, while Chapter 7 offers a more streamlined approach that often results in the discharge or reduction of most unsecured debts. To convert your bankruptcy case from Chapter 13 to Chapter 7, you’ll need to update your income and expenses, list any new debts you’ve acquired since filing, and file the Statement of Intention for Individuals Filing Under Chapter 7 to inform the court and your creditors if you intend to keep any “secured” assets you’re currently paying for.
Upgrade Your Bankruptcy Plan to Chapter 7
If your Chapter 13 bankruptcy plan isn’t working for you, upgrading to Chapter 7 might be the solution. By upgrading your bankruptcy plan to Chapter 7, you can benefit from the discharge or reduction of most unsecured debts and a more streamlined bankruptcy process. If you’re ineligible for conversion or your motion is denied, you may still be able to voluntarily dismiss your Chapter 13 bankruptcy case and file for Chapter 7 bankruptcy independently. It’s important to consult with an experienced bankruptcy attorney to explore all of your options and decide on the best course of action for your unique situation.
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