Converting a Bankruptcy Case from Chapter 13 to Chapter 7

If you can no longer afford to be in a Chapter 13 bankruptcy, you may be able to convert your case to Chapter 7.

by: , Attorney

If you can no longer afford to make your Chapter 13 bankruptcy plan payments, you may be able to convert your case to a Chapter 7. Read on to learn more about how to convert your Chapter 13 bankruptcy to Chapter 7.

Can You Convert Your Chapter 13 Bankruptcy to Chapter 7?

Unless you have already received a Chapter 7 bankruptcy discharge within the last eight years, you can convert your Chapter 13 case to Chapter 7 at any time. To convert your Chapter 13 to a Chapter 7, you simply file a Notice of Conversion with the court and pay a conversion fee. However, keep in mind that you must still qualify for Chapter 7 bankruptcy in order to complete your case and receive a discharge (discussed below).

Reasons to Convert Your Case

In general, most debtors convert their Chapter 13 bankruptcy to Chapter 7 because:

  • they can no longer afford to make Chapter 13 plan payments due to a change in their financial circumstances, or
  • they wish to surrender a property (such as a house or car) that the Chapter 13 was designed to save.

Qualifying for Chapter 7 Bankruptcy

To qualify for Chapter 7 bankruptcy, you normally have to pass a means test. But bankruptcy courts are divided on whether the means test applies in a Chapter 7 case that was converted from a Chapter 13. While some jurisdictions require debtors to pass the means test when they convert their Chapter 13 to Chapter 7, other courts have held that the means test is not applicable in a conversion.

If you filed a Chapter 13 bankruptcy because you could not qualify for a Chapter 7, check the rules in your jurisdiction or talk to a knowledgeable bankruptcy attorney before converting your case. Also, keep in mind that even if your jurisdiction doesn’t require you to take the means test when you convert, you will still have to explain to the court how your financial circumstances have changed and why you can no longer afford to be in a Chapter 13.

What Happens When You Convert Your Bankruptcy?

When you convert your case, you will be assigned a new Chapter 7 bankruptcy trustee. You will also need to attend a new meeting of creditors (also called the 341 hearing). While you don’t have to file a new bankruptcy petition, you typically need to file additional forms and amend certain schedules after converting your bankruptcy.

In most cases, to show that your financial circumstances have changed and that you can no longer afford to make Chapter 13 payments, you will need to file amended Schedules I and J to reflect your current budget. Some courts may also require a declaration explaining your reasons for converting. If you have a mortgage, car loan, or other secured debt, you will also need to file a Statement of Intention to tell the court what you intend to do with the property securing that loan.

The Bankruptcy Court Can Also Force You to Convert from Chapter 13 to Chapter 7

Under certain circumstances, the court can force you to convert your Chapter 13 bankruptcy to Chapter 7 so that your nonexempt assets can be sold to pay your creditors. The most common reasons a court may force you to convert include lying on your bankruptcy papers, hiding assets, filing for bankruptcy to hinder or delay creditors, or otherwise abusing the bankruptcy system.

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