Can I Convert from a Chapter 13 to a Chapter 7?

Chapter 13 bankruptcy under the U.S. Bankruptcy Code is often a good choice for debt relief, but sometimes, after filing for Chapter 13, people discover that it might be more advantageous to switch to Chapter 7 bankruptcy.

In this article, we cover the reasons why, if you have already filed for Chapter 13 bankruptcy, you may want to reconsider and convert to a Chapter 7 bankruptcy instead. 

If you are currently using Chapter 13 bankruptcy debt relief and are considering a switch to Chapter 7 bankruptcy, then call Stone Rose Law at (480) 739-2448 so we can help you decide if a bankruptcy conversion is right for you.

What are the Benefits of Converting to Chapter 7 from Chapter 13?

For many people, the comparative advantages of Chapter 7 do not become apparent until they have been using Chapter 13 for a while. A Chapter 7 bankruptcy has the following substantial advantages:

• You can complete it faster. You can receive a discharge under Chapter 7 in six months or less, compared to a Chapter 13 debt repayment plan that can take three to five years to finish.
  
• If your income is subject to volatility, keeping up with a Chapter 13 payment plan can be difficult. A Chapter 7 will eliminate this sense of uncertainty.
  
• Chapter 7 completely discharges more debts faster than a Chapter 13 can, especially unsecured debts, a portion of which you will otherwise need to pay back under a debt repayment plan. This can save you a considerable amount of money over the long term.

Forced Conversion to Chapter 7 by the Bankruptcy Court

In a few cases, having your Chapter 13 bankruptcy changed into a Chapter 7 bankruptcy can happen even when you do not choose it yourself.

Situations in which the court can decide on its own to convert your Chapter 13 case into a Chapter 7 include:

• A lack of candor in your bankruptcy petition, like hiding nonexempt property or nonexempt assets.
  
• Filing for bankruptcy hinders or delays creditors.

Generally, though, as long as you are not acting in bad faith, the bankruptcy court will not force you into a Chapter 7 conversion. 

If, for example, you cannot propose an acceptable debt payment plan or you miss a monthly plan payment because of a loss of income, then instead of involuntary conversion into Chapter 7, the bankruptcy court judge will probably dismiss your Chapter 13.

How to Qualify to Convert to Chapter 7 from Chapter 13

So, if you decide to proceed with converting your Chapter 13 bankruptcy into a Chapter 7, how do you do it?

First, you need to know if you are eligible to make the conversion. Not everyone is able to, and your circumstances must be right for you to do so. 

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 as long as your income meets the requirements of the Chapter 7 means test.

If you are eligible, the next consideration is what your reasons are for wanting to do the conversion. As long as you have good faith intentions in the eyes of the bankruptcy court, then the court will rarely deny your conversion request.

Examples of favorable circumstances to switch over to Chapter 7 include:

• You can no longer afford your current Chapter 13 monthly plan payments due to a reduction in your household income.
  
• You can no longer afford your current plan payments because of an increase in your household size, which has raised your household expenses.
  
• You filed Chapter 13 bankruptcy to cure a mortgage or vehicle loan default, and those payments are now current. Your household income must be under the median to qualify for this circumstance.
  
• You filed Chapter 13 bankruptcy to save your home or vehicle from repossession, but have since decided to surrender it. Again, your household income must be under the Arizona median income to qualify here.

When You May Not Want to Convert to Chapter 7

In some cases, a Chapter 13 plan modification or amendment may be the better, or the only option available to you, even when one of the above circumstances applies. 

Reasons for this include:

• You have assets you are trying to protect, and converting to Chapter 7 could result in their liquidation.
  
• Despite the changes, you still have some disposable income available to fund your debt repayment plan payments.
  
• An appreciation of the value of your primary residence may make it subject to seizure as part of a Chapter 7 bankruptcy estate.
  
• Your goal is to purchase a home, and a strong Chapter 13 payment history can be more favorable when applying for a mortgage.

What is the Process to Convert to Chapter 7 from Chapter 13?

If your circumstances are right to make the switchover, then you can begin the formal conversion process. This involves:

• Filing the appropriate forms, including a notice of conversion or statement of intention to notify your creditors of your intention to switch from Chapter 13 to Chapter 7, and to tell the court what you intend to do with the property subject to secured loans.
  
• Going through another meeting of creditors. Your creditor payment claims will then transfer to your Chapter 7 case.
  
• Determine if any non-exempt property will be subject to a trustee liquidation sale.
  
• Take the second debtor education course if you have not done so already.

Under certain circumstances, bankruptcy courts require you to file amended schedules to reflect your current budget. The bankruptcy court may also require you to provide a written declaration explaining why you are converting.

You will also have to disclose to the court if you have incurred any post-petition new debts or acquired any post-petition assets during your Chapter 13 case.

What Happens After You Convert Your Bankruptcy?

Once the bankruptcy court converts your case to a Chapter 7 bankruptcy, it will also assign you to a new bankruptcy trustee who will coordinate your creditors’ meeting.

Depending on your situation, you may be able to keep your house and car under Chapter 7, as long as your payments are current.

Is Switching from Chapter 13 Bankruptcy to Chapter 7 Right for You?

If you are already going through a Chapter 13 bankruptcy in Arizona and want to know if changing it to a Chapter 7 is right for you, then call us at Stone Rose Law for a free consultation with an experienced bankruptcy attorney.

We can assess your current debt payment plan, financial situation, and assets and debts to help you decide whether a Chapter 7 conversion can benefit you or whether it is better to stay the course with your Chapter 13.

You can call us at (480) 739-2448 or use our contact form to get in touch with an Arizona bankruptcy law specialist and schedule a free initial consultation.

To find out more about how bankruptcy works, be sure to check our bankruptcy calculator.