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When Can a Bankruptcy Be Converted From Chapter 13 to Chapter 7?

Posted on in Bankruptcy

Kerrville Debt Relief AttorneyWhen a person is determining their options for receiving relief from their debts and getting a fresh financial start, they may pursue one of two possible methods of filing for bankruptcy. While Chapter 7 bankruptcy is often the preferred method, since it will allow for the elimination of many different types of debts within a few months, this option is not always available. If a person does not qualify for Chapter 7, or if they wish to maintain ownership of their home or other assets, they may opt for a Chapter 13 bankruptcy. During the bankruptcy process, there are a variety of situations where a person who had originally planned to pursue a Chapter 13 bankruptcy may decide to convert their case to a Chapter 7 bankruptcy. Understanding when this is possible will help a debtor make the best use of the available options for receiving relief from their debts.

Reasons for Conversion From Chapter 13 to Chapter 7

According to the U.S. Bankruptcy Code (11 U.S.C. § 1307), a Chapter 13 bankruptcy can be converted into a Chapter 7 bankruptcy at any time. A debtor may choose to request this type of conversion for a variety of reasons, including:

  • The court declines to confirm a Chapter 13 repayment plan - When a debtor files for Chapter 13 bankruptcy, they will file a proposed repayment plan that will allow them to pay off some of their debts over the next three to five years. If, after reviewing the person’s income and expenses, the court determines that the proposed repayment plan would not be feasible, it may decide not to approve the plan. In these cases, the debtor may decide to request a discharge of their debts through Chapter 7, as long as they meet the eligibility requirements for doing so.

  • The debtor has failed to make payments in a Chapter 13 repayment plan - After a repayment plan is confirmed, the debtor will be required to make payments on a monthly basis. If the debtor does not make payments as required, they will not be able to complete their Chapter 13 case. However, to avoid the dismissal of their case, a debtor may be able to convert their case to Chapter 7, as long as they meet the qualifications to do so. A case may also be converted to Chapter 7 if a debtor does not meet their obligations to pay domestic support such as child support or spousal maintenance or if they do not file their annual tax returns as required.

  • The debtor now qualifies for Chapter 7 debt discharge - A debtor may opt for a Chapter 13 bankruptcy because they did not pass the means test that would allow them to file for Chapter 7. If a person’s circumstances change, they may be able to pass the means test. For example, if a member of the debtor’s family experiences a serious illness that will result in increased healthcare expenses, the debtor may now qualify for Chapter 7, and they may ask for a conversion of their bankruptcy case that will allow their debts to be discharged.

  • The debtor no longer needs to protect assets - A debtor may choose Chapter 13 bankruptcy because they do not want property to be repossessed if they default on a secured loan. However, if this will no longer be a concern, the debtor may decide to convert their case to Chapter 7. For example, if a debtor was unable to make payments on an auto loan, and their car was repossessed, it may make sense to pursue a conversion so that they can discharge any other debts they own and avoid the requirement to make ongoing payments toward a repayment plan.

Contact a New Braunfels Chapter 7 Bankruptcy Lawyer

If you have questions about what type of bankruptcy is best for you, or if you want to know about your options for converting from a Chapter 13 bankruptcy to a Chapter 7 case, the Law Offices of Chance M. McGhee can provide the legal help you need. Contact our Schertz bankruptcy attorney at 210-342-3400 to set up a complimentary consultation today. 

 

Sources:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

https://www.law.cornell.edu/uscode/text/11/1307

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