Your Chapter 13 case is in trouble. The stay has been lifted on your house, or the plan payments are behind and the trustee is threatening to dismiss your case, or you’ve finally decided that the house isn’t worth the headaches you’re going through, and you just want out. What do you do?
One option is to dismiss your case, which you have a right to do at any time in a Chapter 13. But this may leave you with lots of very late credit card or other debt, or you may be worried that the house or car will sell at foreclosure or repossession for less than you owe, and that the lender will go after you for a deficiency. In these cases, the best option is to covert your case to a Chapter 7.
A conversion is very easy. All you need to do is have your attorney file a Notice of Conversion with the Court, pay the $25 conversion fee, and that’s it–the Court will convert your case to a Chapter in a few days. What does the conversion mean?
1. Any money that the Chapter 13 Trustee is holding, less any administrative fees that the Trustee is due, will be returned to you. Any plan payments that are withheld from your paycheck (it sometimes takes 4-6 weeks to get the wage withholding order stopped) after the conversion will be returned to you.
2. A new Chapter 7 Trustee is appointed (and you don’t have to deal with the Chapter 13 Trustee any more).
3. A new Meeting of Creditors is scheduled.
4. You will have to file a Statement of Intention.
5. You can file amended schedules adding any debt you have taken out between the filing of the Chapter 13 and the date of conversion. This is especially common if you have medical bills.
6. You may have to file Amended Schedule I (Income) and J (Expenses) to reflect any changes.
Once your case is converted, you will normally get your Chapter 7 discharge in 3-4 months.
If you convert your case, you lose the right to cure arrearages through a reorganization plan. This may result in your losing your house or car if the payments aren’t brought current quickly.
Depending on the details of your case, your attorney may charge a slightly reduced fee for conversions, since they don’t have to prepare the schedules from scratch.