Converting Chapter 13 To Chapter 7

It is the right of a debtor to make a decision converting Chapter 13 to Chapter 7 as provided by the law. These laws are complex and seeking the help and advice of an attorney is highly recommended. 

Why would anyone consider converting a Chapter 13 to Chapter 7?
There are various reasons, for instance, under Chapter 13, an individual is required to make monthly payments from a plan which has been approved by the bankruptcy court trustee. If they are unable to make the payments as outlined in the reorganization plan, they may need to consider converting to a Chapter 7.

Commitment to Chapter 13 payments might also lead to the debtor’s inability to pay for other secured loans like car loans and mortgages. This can create a very stressful situation since the reorganization will cover a period of time (3-5 years). This may be why some debtor’s will consider converting Chapter 13 to Chapter 7. 

If a personal decision is made converting Chapter 13 to Chapter 7, then a professional (attorney) should be consulted since some of the exemption will change.

Why would I need an attorney in converting Chapter 13 to Chapter 7? Don’t I just have to fill out some forms and pay the fee?

It’s not that easy. Debts dischargeable in Chapter 13 may not be in a Chapter 7. For example, debts for wilful and malicious injury to property (as opposed to a person), debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. 11 U.S.C. § 1328(a).

There is also the question of eligibility. The court will also deny a Chapter 7 discharge if the debtor previously received a discharge in a Chapter 12 or Chapter 13 case filed within six years before the date of the filing of the second case unless:
(1) the debtor paid all “allowed unsecured” claims in the earlier case in full, or
(2) the debtor made payments under the plan in the earlier case totalling at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort.
(3) A debtor is ineligible for discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed four years before the current case or in a chapter 13 case filed two years before the current case.

The next step is to complete a new means test form. This is a form that the debtor completes to determine if they can file for Chapter 7. Such items such as income, the debts and expenses that the debtor has are used to determine whether they are legible to file under this chapter or not.

After this procedure, the next step will be to file for a notice of conversion with the bankruptcy court. This happens before a Chapter 13 can convert to Chapter 7. Lists, inventories, schedules, and statements of financial affairs filed during the Chapter 13, shall be deemed to be filed in the Chapter 7 case, unless the court directs otherwise. There are also new filing periods which must be scheduled according to the deadlines.

The next step is to get the conversion approved. The trustee then comes up with a decision to either reject or approve this move. This is usually based on the information that was submitted by the debtor and their attorney. They have the last word in this.

One can also add creditors to the list that they had submitted in the previous chapter if Chapter 7 is agreed upon. There is also a conversion fee that has to be paid to the court, usually $25. The attorney’s fee in converting Chapter 13 to Chapter 7 will have been agreed upon by the debtor and attorney beforehand.