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Converting Chapter 13 to Chapter 7 Bankruptcy

Converting Chapter 13 to Chapter 7 Bankruptcy

If you’ve filed for Chapter 13 bankruptcy but can no longer meet your bankruptcy plan payments, you might be eligible to convert your case to a Chapter 7 filing. In some cases, the court might require you to convert for cause, or you might wish to do so on your own if you qualify.

You might choose to do this because:

  • Your financial circumstances have changed, and you are no longer able to make the plan payments under Chapter 13.
  • You no longer want to keep property that Chapter 13 was designed to protect, like your home or vehicle(s).

At Sasser Law Firm, our goal is simple: to guide our clients through the sometimes challenging process of bankruptcy. We have more than two decades of experience helping people just like you. We’ve handled over 8,500 cases.

We have three Board-Certified Bankruptcy Specialists who are well-prepared to handle Chapter 11, Chapter 13, and Chapter 7 cases for both individuals and businesses. We also handle emergency cases dealing with foreclosures and repossessions, helping our clients keep what matters most.

We are committed to transparency with the entire process, so you’ll never be left in the dark about our fees, processes, or progress. We collaborate directly with our clients, offering results-oriented solutions to set them up for future success. If you are considering converting a Chapter 13 bankruptcy to a Chapter 7, schedule a consultation with one of our skilled bankruptcy attorneys by calling us or by reaching out to us online.

Reasons to Convert from Chapter 13 Bankruptcy to Chapter 7

There are several key differences between Chapter 13 and Chapter 7 bankruptcy. Understanding these differences is critical to determining how converting a Chapter 13 to a Chapter 7 bankruptcy can help alleviate your financial hardship.

Under U.S. bankruptcy law, Chapter 13 bankruptcy is essentially an “adjustment of debts [for] an individual with regular income,” where the individual is allowed to “keep the property and pay debts over time,” usually within a period of three to five years.

However, many things can change over a period of three to five years – including employment status, work capabilities, income levels, and more.

One option to consider is to seek a hardship discharge in Chapter 13. This may apply where:

  • You cannot complete your Chapter 13 bankruptcy plan payments due to circumstances out of your control (injury, illness, job loss, etc.).
  • You have already paid your creditors as much money as they would have received under a Chapter 7 bankruptcy plan.
  • Your financial circumstances are so dire that the modification of your payment plan is not possible.

A hardship discharge in Chapter 13 does not provide as comprehensive of a discharge as a full compliance Chapter 13 discharge.

Another option to consider is to convert to Chapter 7.

Converting to a Chapter 7 bankruptcy plan will allow you to clear your unsecured debts, like unpaid credit cards and medical bills, and either surrender or reaffirm your secured debts, like unpaid car loans and mortgages.

Additionally, where a Chapter 13 bankruptcy can take years to resolve, a Chapter 7 bankruptcy will often take only three to four months. The cost of converting Chapter 13 to Chapter 7 can also be significantly less than following through with a Chapter 13 bankruptcy – especially when factoring in legal fees, total debt paid, and several other variables. This is why a Chapter 7 can be the preferable route for certain situations. However, chapter 7 has limitations such as the potential loss of assets and inability to obtain protection from the rights of certain creditors whose claims may not discharge or who have collateral on defaulted loans that the debtor would prefer to retain.

What If a Court Converts the Case From Chapter 13 to Chapter 7?

In some situations, the court converts a Chapter 13 to a Chapter 7 bankruptcy plan so your non-exempt assets can be liquidated to pay your debts.

This is not a common occurrence. Some of the reasons why a court may order a Chapter 7 conversion include:

  • Falsifying your bankruptcy documents
  • Hiding or misrepresenting your assets
  • Filing for bankruptcy as a method of hindering creditors
  • Otherwise abusing the bankruptcy system

Having legal counsel may help to avoid, anticipate, or address these issues should they arise.

Who Qualifies for Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is typically intended for individuals and business entities who do not possess the financial means to pay back all or some portion of their debts. However, there are several criteria that must be met in order to qualify for Chapter 7 bankruptcy.

To be eligible for Chapter 7 bankruptcy:

  • You must not have received a Chapter 7 bankruptcy discharge in a case commenced under Chapter 7 within the past eight years.
  • If your debts are primarily consumer in nature then household income may come into play. Generally speaking, if a debtor’s household income is below the median for the state then there is little to worry about. If the household income is above the median then it must be reviewed more closely to determine presumptive eligibility or ineligibility.

Assets That Are Exempt in Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, some of your assets may sometimes be sold to pay off either all or a portion of your debts. However, what dictates which of your assets will be sold, and which of your assets will be kept? According to state and federal laws, some of your property is entirely exempt from being liquidated, while some are only partially exempt – meaning you may retain a portion of the value after liquidation.

What Happens After Converting From Chapter 13 to Chapter 7?

After converting from a Chapter 13 to a Chapter 7 bankruptcy, the typical process of closing your case usually takes about three to four months.

Also known as “liquidation bankruptcy,” the Chapter 7 trustee may sell nonexempt property in order to pay off all or a portion of your debts. Many unsecured debts that cannot be paid off are essentially wiped clean, while secured debts are either surrendered and liquidated or reaffirmed and saved.

Although a Chapter 7 bankruptcy will be reflected on your credit reports for up to 10 years, it allows you to approach your financial future with a clean slate, free from the stress of certain debts.

If you have the burden of overwhelming debt and are struggling to make ends meet you may want to consider addressing the debt through bankruptcy. Our firm offers free consultations to review your options.

Contact the Bankruptcy Attorneys at Sasser Law Firm Today

If you are considering converting a Chapter 13 bankruptcy case to Chapter 7, you may wish to contact the lawyer representing you in your case or if for some reason that option is no longer available then contact our firm. Our compassionate, experienced, and knowledgeable bankruptcy attorneys at Sasser Law Firm may be able to help.

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