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Can I Convert My Chapter 13 Bankruptcy to a Chapter 7?

Debt help sign and working man in the office.

Chapter 7 and Chapter 13 are two very different forms of bankruptcy, each with their own requirements, advantages, and disadvantages. Many debtors find that although one form of bankruptcy seemed optimal at the time of filing, changes down the line have created new challenges. Bankruptcy courts allow for the conversion of bankruptcy from one chapter to another, depending upon the nature and circumstances of the debtor. Continue reading to learn about converting a Chapter 13 bankruptcy to Chapter 7, and call a comprehensive Ventura debt relief and bankruptcy attorney for help with your bankruptcy in Southern California.

Chapter 13 vs. Chapter 7 Bankruptcy

Chapter 7 and Chapter 13 refer to different sections under the bankruptcy code. Chapter 13 bankruptcy, often called reorganization bankruptcy, is meant for wage earners who would be able to pay back a portion of their outstanding debt given additional time, more favorable monthly payments, and the ability to cease accruing interest on their debt. Chapter 13 debtors set up a three or five-year repayment plan to pay back some or all of their debt depending on the specific facts of the case. Chapter 7 bankruptcies, on the other hand, are liquidation cases whereby any non-exempt assets could be liquidated (sold) to repay as much of the covered debt as possible.

Chapter 13 bankruptcy can be helpful for income-earners who would be able to get a handle on their debt with additional time and lower monthly payments, prevent foreclosure of their residence and allow for the discharge of covered debts that remain at the end of the repayment period. Chapter 13 is, however, more expensive, and it takes longer to reach the ultimate goal of discharge and debt relief. Debtors who need immediate relief, who have a change in financial circumstances such as the loss of employment, or who determine that they will not be able to meet the monthly payments after all, may be inclined to convert their Chapter 13 to a Chapter 7.

Converting a Chapter 13 to Chapter 7

Chapter 13 debtors might find themselves unable to keep up with monthly payments as a result of injury, illness, loss of employment, or other changes in their financial circumstances. They might also determine they’d rather surrender a piece of property (such as a home or car) that they had intended to protect via Chapter 13. If the debtor simply stops paying their monthly obligations, the Chapter 13 case will be dismissed and all relevant liabilities will be back on the table.

There is, however, a process for converting Chapter 13 bankruptcy to Chapter 7 without facing case dismissal. At any time during the Chapter 13 case, a debtor can file a Notice of Conversion with the court. So long as the debtor qualifies for Chapter 7, pays a conversion fee, and is not otherwise ineligible, the debtor can have their case converted.

Under certain circumstances, a court may actually force a debtor to convert their bankruptcy filing from Chapter 13 to Chapter 7. Work with your bankruptcy lawyer to ensure that you obtain and maintain the bankruptcy that works best for you.

Qualifying for Chapter 7

Filing for bankruptcy under Chapter 7 requires meeting certain eligibility requirements. Just because you are converting an existing Chapter 13 case does not mean you are exempt from those requirements.

First of all, Chapter 7 bankruptcy is not available for a debtor who has filed a different Chapter 7 case in the last eight years. Assuming you are not ineligible due to prior bankruptcy filings, you’ll still need to satisfy the Chapter 7 limitations.

To file for Chapter 7 bankruptcy, you must either have an income below the state median or satisfy the more thorough “means test.” If your income is below the state median income for a household of your size, you automatically qualify for Chapter 7 provided your monthly budget does not show substantial disposable income. If your household income is above the state median income, you can still qualify for Chapter 7 by demonstrating that your expenses offset your income to a sufficiently low level that you still merit Chapter 7’s protections.

Talk to your bankruptcy lawyer about your case to determine whether you qualify for a Chapter 13 to Chapter 7 conversion. Even if you were unable to qualify for Chapter 7 in your initial filing, if you have subsequently experienced a change in financial circumstances, you might now qualify. Your debt relief lawyer can walk you through the process and help ensure that you are successful in your application for conversion.

Pursue Financial Freedom With Help From a Dedicated Southern California Debt Relief Attorney

If you are dealing with mounting debt and considering debt relief options including bankruptcy, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering tried & true legal counsel in the face of life’s challenges.