Can a debtor switch bankruptcy filing chapters mid-stream? The answer is yes, such as in the case of Chapter 13 (reorganization) to Chapter 7 (liquidation) conversion. After filing for bankruptcy under Chapter 13, you may file bankruptcy under Chapter 7 instead.
Why Convert Filing Chapters?
When does a bankruptcy chapter conversion usually occur? Debtors who have filed under Chapter 13 for the purpose of keeping certain assets may decide that it would be best to let them go after all. In such bankruptcy cases, the filers may opt to convert.
Another possible scenario is when the bankruptcy court actually forces bankrupt debtors to convert to Chapter 7 if they are unable to follow through their Chapter 13 repayment plans.
While such a move isn’t a usual occurrence, you do have the option to convert a Chapter 13 bankruptcy case to Chapter 7, provided that you qualify for it.
Are You Eligible to Convert to Chapter 7?
You may only convert to Chapter 7 if you explicitly or implicitly pass the means test. Even if a United States bankruptcy court does not particularly require a debtor to have passed the bankruptcy means test, it will prevent from converting anybody with enough disposable income to repay some debts.
The requirement is in place to prevent presenting a loophole for individuals with enough monthly income or assets that can be liquidated to file for bankruptcy under Chapter 13 only to switch to Chapter 7 in order to escape further debt repayment.
Nonetheless, initially failing to pass the means test does not mean that you will not pass it in the middle of bankruptcy proceedings if your circumstances have indeed changed.
What Are the Requirements for Conversion?
Requirements vary from state to state. Whether you have to resubmit everything or not depends on state law. Even when most of your bankruptcy forms for your Chapter 13 filing may be used for your Chapter 7 proceeding, some updates may be required if there have been adjustments in your finances brought about by changes in your income, expenses, and debts. If you incurred new debts after filing, they can be included in the bankruptcy discharge if they are dischargeable. Also, you have to submit new forms pertaining to your means test results and any secured debt.
Your creditors’ proofs of claims automatically transfer from one proceeding to the next. A creditor may submit a new proof of claim if there’s more money from liquidating a non-exempt asset. The initial Chapter 13 filing date will stand for your bankruptcy exemptions. Any property acquired after the said date may be kept. In terms of the meeting of creditors, you have to go through a new one.
When Do United States Courts Force Conversions?
If you act in good faith during the Chapter 13 bankruptcy process, it’s not likely that the court would force a conversion to Chapter 7. If you can’t craft a repayment plan that can be approved or if you have a valid reason for missing monthly payments, the court will probably just dismiss your case instead of forcing you to convert.
If, however, the court suspects you of abusing the system or trying to pay your creditors less money than what they’re entitled to, you can expect a forced conversion court order.
Can You Get a Discharge after a Conversion?
Being allowed to convert and getting a discharge are two separate things. If you already received a Chapter 7 bankruptcy discharge in the last eight years, you can’t get another discharge under the same chapter if you convert from Chapter 13. This means that many of your debts will stay in effect even after bankruptcy. They may be reduced by the bankruptcy trustee liquidating your non-exempt property, but you can’t really achieve complete debt relief. Considering that the trustee gets a commission on the sale, it might be better for you to just liquidate your own property and pay back your debts outside the bankruptcy procedure.
Thinking of Converting to Another Filing Chapter? Contact an Arizona Bankruptcy Attorney Today!
Bankruptcy laws allow you to change chapters in your bankruptcy filing. If you file a bankruptcy petition under Chapter 13, and you wish to voluntarily switch over to Chapter 7, it’s best that you get legal help from a bankruptcy lawyer so that you can be guided through this legal process.
Bankruptcies offer considerable benefits to debtors, from bankruptcy protection and the automatic stay to having debts discharged at the end of the endeavor. With the different types of bankruptcy available in the bankruptcy code and the various bankruptcy options, you can take, the assistance of bankruptcy lawyers is invaluable in making sure that you make the correct choices and the right steps toward the best possible result. For legal advice and representation in bankruptcy-related matters, call us at Phoenix Fresh Start to speak with one of our experienced Arizona bankruptcy attorneys.