16 Aug Converting a Chapter 13 to a Chapter 7
The decision of whether to convert a Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case is not simple. There are many, many reasons why people convert their Chapter 13 to a Chapter 7. Once your case is converted, you may be concerned that you might lose your house or a car. You may be concerned about the effect of the conversion on your credit. You want to know whether you will have to pay additional legal fees for the conversion. You may simply want to know what is involved when you convert your case. This blog will give you at least some of the answers to your questions.
When Can I Convert My Case? Section 1307(a) of the Bankruptcy Code says that, assuming you haven’t previously converted your case from another chapter and are eligible for a Chapter 7, you can convert a Chapter 13 case to a Chapter 7 case at an time, for any reason. Assuming you qualify, this is an absolute right, and there are no restrictions.
Why Would I Want to Convert My Case? There are many, many reasons why people convert their Chapter 13 to a Chapter 7. Some common ones are:
‘Inability to Make Chapter 13 Plan Payments. If you can’t pay the Chapter 13 Trustee your regular monthly Trustee payment, he or she will file a Motion to Dismiss your case. Conversion to a Chapter 7 may be a good option in such circumstances.
Inability to Make Mortgage/Car Payments. Many Chapter 13 cases are filed in an attempt to catch up payments on a mortgage or car. But you are also required to resume making those payments after the case is filed. If you don’t, the lender will usually file a Motion for Relief From the Automatic Stay, asking the Court to allow a foreclosure or repossession. If you’re going to lose the house or car anyway, conversion to a Chapter 7, where any liability for a shortage or deficiency when the sale occurs is wiped out, often makes sense.
Desire to Simply Have the Case Over. Sometimes, simply having to be in a bankruptcy case for the 3-5 years that a Chapter 13 takes can be stressful. Some people are willing to surrender some assets in a Chapter 7 instead of making to make the monthly Chapter 13 payments for an extended period of time.
How Do I Convert My Case? Conversion is easy. A Notice of Conversion or Motion to Convert, depending on your Court’s local procedures, is filed. The Court enters a Conversion Order in a day or two. Again, depending on local practice and the details of your case, you may have to file a new Means Test form and amended schedules. You may be entitled to a refund of some or all of the payments held by the Chapter 13 Trustee that haven’t been sent to your creditors.
What Happens When I Convert My Case? You have to attend a new Meeting of Creditors (341 Meeting), and comply with the requirements for a Chapter 7.
Can I Add Creditors? Yes. You can add debt you have incurred since your Chapter 13 case was filed.
Will I Have to Pay My Attorney More Money? There is a $25 conversion fee that has to be paid to the Court. Depending on the status of your Chapter 13 case, you may or may not have to pay your lawyer additional fees for him or her to handle your Chapter 7 case. Generally, the earlier in your Chapter 13 case you convert the less money (if any) that would have to be paid in additional attorney’s fees. Check with your attorney.
Can I Do This Myself? You can legally represent yourself in Court. You can also legally remove your own appendix, troubleshoot your gas furnace and design and build a bridge. But if things go wrong by not having someone whose job it is to do these things, the results can be both more painful and expensive to correct than it would have been to hire someone good in the first place.
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