When Can Chapter 13 be Converted to Chapter 7?
If you cannot make your payments in Chapter 13 bankruptcy, you may be able to convert to Chapter 7.
When you file a Chapter 13 bankruptcy, you enter into a payment plan to repay some or all of your debts over three to five years. You keep all your property and fund your plan through your income.
Unfortunately, most people who file for Chapter 13 are unable to complete their repayment plans. In Chapter 13, you must repay some debts in full (such as child support and back taxes). All your disposable income must be paid into the plan. This can result in a large monthly plan payment, sometimes too large for people to make while paying their other bills. Even when you can afford the monthly payment at the beginning of your plan, you might face a change in circumstances (job loss or disability) that reduces your income significantly. In that situation, you might consider converting your case to Chapter 7.
When Can You Convert to Chapter 7?
You can convert your Chapter 13 case to Chapter 7 at any time, as long as you haven’t received a Chapter 7 bankruptcy discharge within the last eight years and otherwise meet the requirements.
How to Convert Your Case
To convert your case, you file a motion with the bankruptcy court. Your bankruptcy attorney may need to notify your creditors of the conversion and will be able to tell you what’s required in bankruptcy court.
Typically, the forms you filed in your Chapter 13 case will be used in your Chapter 7 case. However, some courts require you to file a new set of forms, even if nothing has changed. You will also need to file a Statement of Intention, which is required in Chapter 7 but not in Chapter 13.
Will You Be Eligible for Chapter 7 Bankruptcy?
If you convert to Chapter 7, you still must be eligible for Chapter 7 in order to proceed with the case. There are several eligibility requirements for Chapter 7. The one that causes most people trouble is the means test. The means test looks at your income and expenses if you have too much income left over you may not be eligible for Chapter 7. Whether the means test applies to converted cases is not clear. Some courts say debtors in converted cases must pass the means test; others say those debtors don’t have to pass. Your bankruptcy attorney will be able to explain the bankruptcy court rules for you.
If you are concerned about which chapter of bankruptcy you should file or if you are concerned about being able to make your payments under a chapter 13 bankruptcy repayment plan, call us. Our experienced bankruptcy attorneys will take the time to explain your options and help you choose the right chapter of bankruptcy for you.