Converting Chapter 13 to Chapter 7: What You Need to Know

So, you filed for Chapter 13 bankruptcy. You had a plan, you were making payments, but then… life happened. Maybe you lost your job, or a medical emergency drained your savings. Suddenly, that Chapter 13 payment feels like a millstone around your neck. You’re wondering, “Can I just convert to Chapter 7 and be done with it?”

The short answer? It’s possible. But before you make the leap, there are a few things you need to know about converting Chapter 13 to Chapter 7. It’s not always a straightforward process, and it can have some serious consequences. But don’t worry, we’re here to walk you through it.

What Is Converting Chapter 13 to Chapter 7 Bankruptcy?

After initially filing for bankruptcy under Chapter 13, a debtor might decide that they need to file under Chapter 7 instead. They might have filed under Chapter 13 to keep a specific asset, such as their home, and they ultimately might choose not to keep this asset.

Reasons debtors try to convert to a chapter 7 voluntarily

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

They can no longer afford their Chapter 13 plan payments due to a change in their financial situation, such as job loss or unexpected expenses.
They filed Chapter 13 solely to catch up on missed mortgage payments and save their home from foreclosure, but have since decided to surrender the property.
They have an opportunity to settle a large debt, such as credit card debt, but need to free up money being used to pay their Chapter 13 plan.

The Bankruptcy Code states you can convert a Chapter 13 case to a Chapter 7 case “at any time.” You may want to consult with a bankruptcy lawyer to make sure that converting your case is your best option.

How does the conversion take place

Reasons to Convert From Chapter 13 to Chapter 7

Converting a Chapter 13 case to Chapter 7 can be beneficial. If you qualify, it will wipe out qualifying debt, such as credit card balances, medical bills, and personal loans. But you could lose valuable property. It’s prudent to consult with a local bankruptcy attorney so that you understand the ramifications of a conversion. As long as you act in good faith during your Chapter 13 bankruptcy, the court probably will not force you to convert to Chapter 7. If you cannot put together an acceptable repayment plan, or if you miss a payment for a valid reason, the court is more likely to dismiss your case than force you to convert.

Pros to converting a chapter 13 bankruptcy to a chapter 7

Yes, converting Chapter 13 to a Chapter 7 is something debtors need to do on occasion. But you might not qualify, or it might not be the best move for you. Here are a few pros to consider before converting your Chapter 13 case:

You’ll get rid of most of your unsecured debts, like credit card balances and medical bills.
The Chapter 7 means test doesn’t apply in a converted case, so you might qualify even if your income is too high.
You won’t have to make any more payments to the Chapter 13 trustee.

Cons to converting a chapter 13 bankruptcy to a chapter 7

The most significant benefit of switching to Chapter 7 bankruptcy? You’ll finish your bankruptcy sooner and might pay less toward bills. But that’s pretty much it. More “cons” are associated with converting to Chapter 7 for a good reason. Chapter 7 likely wasn’t a good fit when you initially filed for Chapter 7, and it probably still isn’t:

You could lose property. The Chapter 7 trustee sells your nonexempt property to pay creditors. If you can’t exempt an asset, you’ll lose it.
You’ll have to qualify for Chapter 7. Not everyone can pass the means test, and the court could dismiss your case if your income is too high.
You might not get a discharge. If too much time passed between your Chapter 7 and Chapter 13 filing dates, you won’t be eligible for a discharge in your converted case.

How to Convert Chapter 13 to Chapter 7

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. 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.

Do you qualify to convert a chapter 13 bankruptcy case to chapter 7

You have a right to convert a Chapter 13 case to Chapter 7 as long as you are eligible for Chapter 7. This means:

You haven’t received a Chapter 7 discharge in a case filed within the previous eight years.
Your income and expenses qualify you to file for Chapter 7 bankruptcy under the means test.
You haven’t previously converted your case from Chapter 7 to Chapter 13.
Your case hasn’t been previously converted to Chapter 13 involuntarily (by the court) under a provision of the bankruptcy law that prevents repeat filings.

The process of converting a chapter 13 to a chapter 7 case

To convert your Chapter 13 to 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). The court will then appoint a Chapter 7 bankruptcy trustee to administer your case. You’ll need to cooperate with the trustee and provide financial documents and other requested information.

What Happens After Converting From Chapter 13 to Chapter 7?

Can you get a discharge if you convert from chapter 13 to chapter 7

When you convert from Chapter 13 to Chapter 7, you may be able to receive a discharge of your remaining debts at the end of the Chapter 7 case. However, there are a few things to keep in mind:

You won’t be eligible for a Chapter 7 discharge if you received a Chapter 7 discharge in a case filed within the previous eight years.
If you previously converted your case from Chapter 7 to Chapter 13, you might not be eligible for a discharge in your new Chapter 7 case.
Certain debts, such as most student loans and recent taxes, can’t be discharged in Chapter 7.

What happens when you file for chapter 7 without a discharge

If you don’t receive a discharge in your converted Chapter 7 case, creditors can resume collection activities after the case is closed. However, filing for Chapter 7 might still be a good idea because:

You can get rid of secured debts by letting the creditor take back the property securing the loan.
You’ll be able to use your bankruptcy exemptions to keep most, if not all, of the property you own free and clear of your creditors.
You’ll get the benefit of the automatic stay (the order that stops most creditor actions during bankruptcy), at least temporarily.

As long as you act in good faith during your Chapter 13 bankruptcy, the court probably will not force you to convert to Chapter 7. If you cannot put together an acceptable repayment plan, or if you miss a payment for a valid reason, the court is more likely to dismiss your case than force you to convert. Situations in which a forced conversion may occur include when the court suspects abuse of the system or an effort to pay creditors less than the amounts to which they are entitled. For example, if you run up a lot of debt after filing for Chapter 13 and then try to convert, the court might find that you are acting in bad faith. Or, if you have enough income to fund a workable Chapter 13 plan but choose not to pay your creditors, the court could force you into a Chapter 7 case so that your nonexempt property will be sold to pay your creditors.

Conclusion

Converting Chapter 13 to Chapter 7 can be a lifeline when your financial situation takes a nosedive. It can mean a quicker discharge and a fresh start. But it’s not a decision to make lightly.

You could lose property, and not all your debts may be discharged. It’s crucial to weigh the pros and cons carefully and consult with a bankruptcy attorney who can guide you through the process.

Remember, bankruptcy laws are complex, and every case is unique. But armed with knowledge and expert advice, you can make the choice that’s right for your financial future. Converting Chapter 13 to Chapter 7 might just be the key to unlocking that brighter tomorrow you’ve been hoping for.

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