Home -> Law Blog Directory -> Consumer Law Blogs -> Credit Law Network

Consumer Law

: Credit Law Network

Converting Your Case From A Chapter 13 To A Chapter 7

By Adrian Lapas, Eastern North Carolina Bankruptcy At

In a chapter 13 case, you are required to make monthly payments to a chapter 13 trustee who will take your money and distribute it to your creditors according to a plan approved by the bankruptcy court.  Typically, people would choose to file a chapter 13 in order to save a house from foreclosure; try to keep a vehicle from being repossessed or because they have assets (stuff like a bass boat) that exceed the allowed exemptions but they do not want lose that stuff in a chapter 7 case.  But as we all know, sometimes things do you go as planned and you may be struggling with making your monthly chapter 13 payments.  Is there an option other than allowing your case to be dismissed?

Under 11 U.S.C. § 1307, you can convert your case to a chapter 7 at any time.  This can allow you to still discharge a significant portion of your debts even though you are not able to make your chapter 13 payments as required by your plan.  Of course, by converting to a chapter 7 case, you are giving up a few things as well.  See here for a comparison.

In terms of a benefit of converting to a chapter 7, you would be able to discharge your unsecured debts such as credit cards and medical bills.  If you were paying for an automobile outside of your chapter 13 plan, that is, not paying the creditor through the plan, you may still be able to continue to make payments for the vehicle but many secured auto lenders require reaffirmation agreements.  If you are current on your house payments, converting to a chapter 7 should not pose much of a problem either because you can continue to make those payments to the mortgage lender.

Another potential benefit of converting to a chapter 7 case involves post-petition debt.  Suppose you incurred significant “post-petition” debt after you filed your chapter 13 case such as a serious medical issue.  You go the hospital and once treatment was completed, you have a big hospital bill.  Unless the hospital voluntarily submits the claim to your bankruptcy case, you cannot discharge this debt in your current chapter 13 case.  By converting your case to a chapter 7, you can discharge this debt because under 11 U.S.C. § 348(f), the debt is deemed to have arisen prior to your filing for bankruptcy protection.

There are some downsides to converting your case to a chapter 7.  If you have non-exempt assets, the chapter 7 trustee may want to sell those assets.  Also, if you were trying to save your house through a chapter 13 filing and you have determined that you just cannot continue to make the payments, unless you remain current with your house or work something out with your mortgage lender, the lender is going to ask the bankruptcy court to allow them to foreclose or wait until your case is over to foreclose.  The same is true of a car–if you are not current and do not catch up any missed payments quickly, the lender will either ask the court to allow them to repossess the car or wait until your bankruptcy case is over before repossessing the car.

Another downside to converting is that you can lose the benefit of a bigger discharge in a chapter 13 case.  For example, some taxes are discharged in a chapter 13 but not under a chapter 7.  Also, some debts are discharged under a chapter 13 but not a chapter 7.  Because a discharge of debt is the ultimate goal of a bankruptcy filing, special care should be given prior to any conversion to make sure that the debts you want discharged will be discharged.

If it appears that your chapter 13 case is tanking, converting your case to a chapter 7 may be a feasible option.  As with so many things particularly in bankruptcy, you should discuss the ramifications of converting your case with your lawyer to make sure that it comports with your goal in filing for bankruptcy protection in the first place.

Liked This Article? Why Not Share It?emailLinkedInDiggStumbleUponFacebookGoogle BuzzTwitter

Full post as published by Credit Law Network on February 04, 2011 (boomark / email).