Why Convert Chapter 13 Bankruptcy to Chapter 7?
Unfortunately, many people who file for Chapter 13 are unable to complete their repayment plans. When you file a Chapter 13 bankruptcy the court examines all your financial obligations and resources to determine your monthly disposable income. It then requires you to fund your repayment plan based on using all that income. That does not give you much wiggle room since repayment plans extend out three to five years. Unexpected events that cause changes in your income can inhibit your ability to continue making plan payments. Job loss, illness or injury are all a part of life and even though your intentions and desires are to complete your repayment plan, you may find it just is not possible. People in that position have the option of converting their Chapter 13 Bankruptcy to Chapter 7.
The most common reasons debtors run into Chapter 13 problems are:
- They cannot afford to continue making Chapter 13 plan payments due to a change in their financial circumstances.
- They decide to surrender property (like a house or car) that Chapter 13 was designed to save.
When Can You Convert to Chapter 7 Bankruptcy?
You have the right to convert your Chapter 13 case to Chapter 7 at any time if you have not received a Chapter 7 bankruptcy discharge within the last eight years. HOWEVER, you must qualify for Chapter 7 bankruptcy to convert. If you do not qualify for Chapter 7 bankruptcy, you can not convert. In that case, you may ask the court to dismiss your case. But be aware, a dismissal can have serious consequences. You will lose the automatic stay and will have to face your creditors on your own.
What's the Procedure for Converting?
Converting a Chapter 13 bankruptcy case to Chapter 7 bankruptcy requires the filing of a Notice of Conversion with the court and payment of a conversion fee. The motion will be granted automatically, without a court hearing. Your bankruptcy attorney can help you with this conversion process and the required notifications to the court and to your creditors. You will also have to file a Statement of Intention, which is required in Chapter 7 but not Chapter 13.