A very common problem for a lot of people who have filed a Chapter 13 bankruptcy is the repayment plan that must take place during the case. So much can happen in your financial life during the 36 to 60 months that it takes to complete a Chapter 13 and receive a discharge. You could have a medical emergency, lose a job or experience the loss of a loved one. Life has a way of throwing us little curves that could complicate the repayment plan under a Chapter 13 bankruptcy and make it almost impossible to complete. The question is: Can you convert from a Chapter 13 to a Chapter 7 in this situation?
Fortunately, you are generally allowed to convert from a Chapter 13 to a Chapter 7 at any time. It is probably the most common conversion in bankruptcy. In reality, only about 33% of people filing for Chapter 13 bankruptcy are able to complete the entire three to five years required for a repayment plan in its original format. Usually this is due to some unforeseen circumstances like the ones mentioned above. If your back is up against a financial wall, a conversion may be one of your only options.
Remember, if you have filed a Chapter 13 bankruptcy, you are allowed to dismiss your case at any time. However, it’s important to remember that once your case is dismissed, the automatic stay is lifted. That means your creditors are once again free to start collection activity or begin foreclosure proceedings.
What Do You Need in order to convert?
Once you’ve decided you want to convert from Chapter 13 to Chapter 7, there are some technical requirements that you must meet. First, you will need to file a Notice of Conversion form with the bankruptcy court. It will also require a $25 fee. Once filed, the conversion usually takes place in just a few days. When all goes smoothly, you won’t lose the protection of your automatic stay.
The one issue that you may run into is the means test that must be passed for the conversion to become final. You may have originally chosen Chapter 13 bankruptcy because your income was too high to qualify for a Chapter 7.Remember, the income limitations will still remain in effect for a Chapter 7 conversion.
The means test was implemented as a part of the bankruptcy reform act of 2005 as a way to make sure that debtors with high enough incomes ultimately repaid at least some of the money owed to their creditors. If your job or income has changed or you have gotten a divorce or lost a spouse that brought income into the household that pushed your into a Chapter 13 bankruptcy, you will likely be able to pass the means test now. However, if you still make too much money to qualify for a Chapter 7, your conversion will be denied.
What Happens After the Conversion?
Once your petition to convert from Chapter 13 to Chapter 7 is approved by the court, any money you have paid the trustee that has not been divvied out to your creditors will be returned to you. Your Chapter 13, at this point, is concluded. You will now receive a new Chapter 7 trustee and you will have another 341 hearing with that trustee. Harmon and Gorove will then assist with filing a new statement listing all your assets, liabilities, income and expenses. Going forward, your case will act just like a normal Chapter 7 bankruptcy.
Pros of Converting From a 13 to a 7
- You’re done with the Chapter 13 repayment plan.
- A normal Chapter 7 is usually completed within 4-6 MONTHS of filing, not 3-5 years.
- All unsecured debts are discharged under a Chapter 7.
Cons of Converting to a 7 from a 13
- Depending on what kind of debt you have, a Chapter 7 may not help if your troubles are from certain types of secured debts.
- A Chapter 7 can be on your credit report for up to ten years.
- The Chapter 7 trustee may sell certain assets you possess to pay creditors in Chapter 7.
If your Chapter 13 repayment plan is creating an unbearable burden on you, a Chapter 7 bankruptcy may be a better fit for your financial situation. In order to understand the process and your rights under Georgia bankruptcy laws, you’ll need to speak with an experienced Georgia bankruptcy attorney. Remember; you have options!