Switching Between Chapter 13 and Chapter 7 Bankruptcy

If you file for Chapter 13 bankruptcy, how difficult is it to convert your case to a Chapter 7 bankruptcy? If you are in the opposite situation where you filed for Chapter 7 bankruptcy but want to convert to Chapter 13, are you able to do so? There are many reasons to convert a consumer bankruptcy case from Chapter 13 to Chapter 7. At the same time, there are reasons that a debtor may want to convert a Chapter 7 case to a Chapter 13 case.
What are the options for converting these types of bankruptcy cases, and why would a debtor consider doing it? The U.S. Courts provides key information about consumer bankruptcy and converting from one chapter to another.
Converting from Chapter 13 to Chapter 7 Bankruptcy
We will talk first about the process of converting a Chapter 13 bankruptcy case to Chapter 7. Why would someone want to convert from Chapter 13 to Chapter 7? There are a number of different reasons, but in many situation, a debtor may be unable to keep up with payments under a Chapter 13 repayment plan, or the debtor may have filed for Chapter 13 bankruptcy to avoid foreclosure but decided against remaining in his or her home. The debtor might have wanted to file for Chapter 7 bankruptcy in the first place but could not pass the “means test.” As you may know, the means test determines whether an individual debtor’s income and assets are low or limited enough that it makes sense for that debtor to receive a Chapter 7 discharge. The means test is designed to prevent bankruptcy fraud. In most cases in which a debtor can not pass the means test, that debtor ends up filing for Chapter 13 bankruptcy instead.
Now that you know more about some of the reasons that a debtor may want to convert from Chapter 13 to Chapter 7, is it possible to do so? In general, debtors do have the right to convert the bankruptcy case. To convert the case, the debtor typically must pass the means test. This type of conversion is a voluntary conversion. In some cases, however, courts order debtors to convert to Chapter 7 if they miss payments on a Chapter 13 repayment plan or otherwise fail to abide by the terms.
Once a debtor decides to convert from Chapter 13 to Chapter 7 bankruptcy, that debtor must go through all of the steps required for bankruptcy even if there were identical or similar steps for the Chapter 13 case—the bankruptcy process essentially starts anew.
Converting from Chapter 7 to Chapter 13 Bankruptcy
What about the other way around? In other words, what if a debtor wants to convert from Chapter 7 bankruptcy to Chapter 13 bankruptcy? In most cases where a debtor voluntarily seeks to convert from Chapter 7 to Chapter 13 bankruptcy, there are assets that are not exempt and that the debtor does not want to lose, or the debtor realizes that Chapter 13 can help to prevent foreclosure.
More often than not, conversions from Chapter 7 to Chapter 13 are required by the court after a calculation shows that the debtor did not actually pass the means test.
Similar to converting from Chapter 13 to Chapter 7, the process for converting from Chapter 7 to Chapter 13 is relatively straightforward. The debtor will need to obtain permission from the court to convert. Then, the debtor must go through all the required steps to file for Chapter 13 bankruptcy.
Learn More from an Oak Park Bankruptcy Attorney
Do you have questions about converting a consumer bankruptcy case? A dedicated Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm for more information.
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