While Chapter 13 bankruptcy can help you solve a lot of your problems, keeping up with the plan isn’t always easy. This is especially true if you’ve suffered a job loss, serious injury or illness, or any other income-lowering issue. If you can no longer afford keeping up with your Chapter 13 plan, you may want to consider converting to Chapter 7 instead. Below we’ll examine how and when converting Chapter 13 to Chapter 7 makes sense.
When Does Converting Chapter 13 to Chapter 7 Make Sense?
Many debtors face problems with Chapter 13 bankruptcy when they:
- Can no longer keep up with their Chapter 13 plan payments, or
- Wish to surrender property (such as a car or house) that Chapter 13 was protecting.
If a debtor stops making their Chapter 13 payments, then they’ll receive a case dismissal. While that debtor does get credit for any payments already made, they are still financially responsible for the remaining outstanding debt. Instead, consider converting to Chapter 7 bankruptcy in order to discharge that remaining debt.
How Converting Chapter 13 to Chapter 7 Works
To get started converting Chapter 13 to Chapter 7, you will need to file a Notice of Conversion and pay the conversion fee to the court. Though there isn’t an official bankruptcy form for this notice, your local court might have a similar form. After filing, your conversion will be automatically granted — no court hearing needed. You might want to notify your creditor about the conversion, however the court bankruptcy trustee will let you know what is required.
Fortunately, many of the forms used in your Chapter 13 bankruptcy case will transfer to your Chapter 7 proceeding, however the court may require some additional forms. You must also update any forms should your income, expenses, or debts have changed. Some states may also require that you resubmit that same information even if your circumstances have not changed.
You must also attend a 341 hearing, which is a meeting of creditors. Even if you attended one during your Chapter 13 proceedings, you will need to attend another one for converting to Chapter 7.
Do I Qualify for Chapter 7 Bankruptcy?
Typically, in order to qualify for Chapter 7, you will need to pass the means test, which compares your disposable income to the amount of debt you owe. However, during a Chapter 7 conversion, courts are divided on whether this test applies. Courts in some jurisdictions may require that you pass it, while some courts in other jurisdictions may not.
If you proceeded with Chapter 13 bankruptcy because you did not qualify for Chapter 7, then you should check your jurisdiction’s rules. Or, you can also consult with an experienced bankruptcy attorney before filing your conversion.
Whether you need to take the means test or not, in order to convert to Chapter 7, you will need to show the court why you can no longer afford Chapter 13. To do this, you will need to amend Schedule I and Schedule J to accurately reflect your current budget. In addition, some courts may even require a declaration that explains your reasoning for the conversion.
What Will Happen To My Property?
Any property that you own that isn’t protected by a bankruptcy exemption will be sold by a trustee, who will then distribute the proceeds to your creditors. Since many people file for Chapter 13 in order to keep their property, this fact is often disheartening. Converting Chapter 13 to Chapter 7 can result in you giving up your car, home, or any other treasured possession.
Contact a Bankruptcy Attorney Today
Converting Chapter 13 to Chapter 7 can offer a path to financial rebirth. In order to get started, consult with an experienced bankruptcy attorney at Law Office of Jack G. Lezman, PLLC today.