When to Convert from a Chapter 13 to a Chapter 7

The two primary forms of bankruptcy for the individual are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is a liquidation of all assets except those that are protected under the exemption rules. Typically all of your unsecured debts are completely eliminated upon completion of your case. By contrast, Chapter 13 bankruptcy involves a payment plan through the court that lasts three to five years. At least a portion of all your debt will be paid back through this plan.

In certain cases, a debtor who has filed for Chapter 13 bankruptcy may want to switch to a Chapter 7 bankruptcy. This often occurs when circumstances change and a debtor can no longer continue under the Chapter 13 plan, such as a large reduction in income. Other times, a debtor will switch to a Chapter 7 because he or she decides to no longer protect property that once made it necessary to file a Chapter 13 rather than a Chapter 7.  By switching to a Chapter 7, the debtor no longer has to make monthly payments to the court.

Regardless of the reason, a Chapter 13 can be converted once to a Chapter 7 for any reason. But if you chose to switch back to a Chapter 13, court approval is required. The court rarely allows a debtor to switch more than once.

When you convert from Chapter 13 to Chapter 7, all but your exempt property becomes available to the trustee to sell and pay your creditors. This is important to keep in mind when switching, because you could stand to lose a great deal of property. You should speak with your bankruptcy attorney before making the switch to ensure that property you want to keep will still be protected under the Chapter 7 bankruptcy exemptions.

How is the Conversion Done?

Conversion from a Chapter 13 to a Chapter 7 is simple. A Motion to Convert is filed with the court. The court will then enter an Order to Convert the case shortly thereafter. Your attorney may be required to take some additional procedural steps as well, depending on your jurisdiction. You may have to pay additional attorney and court fees, but you also might be eligible for a refund of at least some money if it hasn’t yet been sent to your creditors.

You will then attend a new Creditor Meeting (341 Meeting) for your new Chapter 7 case. You will be able to add creditors to your case if the need arises. Additionally, you will have to comply with any other Chapter 7 requirements that are unique to your jurisdiction. But in most circumstances, once you convert your case to a Chapter 7, you will stop making payments to the court as soon as you convert, and your case will be over in just a few months.