Chapter 13 plan too much?

by Cathy Moran, Esq.

March 23, 2010

A Chapter 13 bankruptcy plan calls for regular payments;  if you can’t continue to make those payments, consider converting your case to Chapter 7.

By converting, you get the continued protection of the automatic stay and a discharge of dischargeable debts within a couple of months.  The converted case has the same case number and the same date for the filing of the bankruptcy case.

The discharge in Chapter 7 is a little different than the discharge you’d get in Chapter 13.  But if you let your case get dismissed (for failure to make the  payments), then you get no discharge at all, and you have to file bankruptcy again, with a new filing fee and a brand new set of bankruptcy schedules.  So there is some economy involved.

One important difference in the discharges is that  debts from a divorce other than support obligations  are dischargeable in Chapter 13, but not in Chapter 7.   Another consideration is that tax debts payable in  13 will survive the discharge in Chapter 7.

Another advantage conversion is that any new debt that you’ve incurred while the Chapter 13 case was pending is discharged in the Chapter 7 case.  By law, it’s treated as if it arose before you filed your case originally.

Conversion might also make sense if you’ve decided not to try to cure a default on mortgage or property tax debts.  If you decide to walk from the house, Chapter 13 may no longer serve a purpose.  Remember, though, that if a goal of your case was to strip off an underwater junior mortgage, that isn’t possible in Chapter 7.  The voluntary liens on the property will survive the bankruptcy discharge.

I wrote earlier about another option in this situation, the hardship discharge in Chapter 13.  Next time, I’ll take up what happens if your case is dismissed.

<p style=”border: thin solid #677e92; padding: 3mm; background-color: #f0f0f0;”><img style=”margin-left: 10px; margin-right: 10px;” alt=”San Francisco Bay Area Bankruptcy Specialist” src=”http://174.120.83.3/~bankrupt/wp-content/uploads/2012/10/Cathy.jpg” height=”85″ width=”85″>Cathy Moran helps individuals and small businesses in Silicon Valley with their <a title=”More about bankruptcy” href=”http://bankruptcyinbrief.com” target=”_blank”> bankruptcy issues </a>. She can often be found on <a href=”" target=”_blank”>Google+</a> and on <a href=”http://www.consumerledger.com” target=”_blank” >Consumer Ledger</a>, where she shares information about consumer protection issues and personal finance.</p>

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.

Last modified: May 23, 2013