I’m Having Trouble Making My Chapter 13 Payments–Is Converting To A Chapter 7 An Option?

19 Nov I’m Having Trouble Making My Chapter 13 Payments–Is Converting To A Chapter 7 An Option?

A chapter 13 case can last from several months to several years (but no more than five years). Over this amount of time, things can change–jobs can change, expenses can change, any number of things can change.

Because of this, it is not unusual for folks who are in a chapter 13 plan to experience difficulty in making their chapter 13 plan payments. If that happens, what are some of your options? This post will focus on one option of converting your case to a chapter 7 case.

Under Section 1307, you have a right to convert your chapter 13 case to a chapter 7 case. This is not an unlimited right but it is fairly broad. So, if you elect to convert to a chapter 7, how will that help you if you are having trouble making your chapter 13 payments?

There are a lot of circumstances in which a conversion from a chapter 13 to a chapter 7 can be beneficial and this post does not purport to be comprehensive. One benefit of converting your case to a chapter 7 is that you will no longer have to make your chapter 13 payments. This may help in your monthly cash flow.

Additionally, if you are struggling financially because of some debt that you incurred after you filed your chapter 13 case (called post-petition debts), you may be able to add those creditors to your bankruptcy case and discharge them through your conversion to a chapter 7. This is allowed under Section 348(d) of the Bankruptcy Code.

However, there are pitfalls to converting your case and conversion is not for everyone. As an example, if you are paying a secured debt through your plan, if the chapter 13 trustee has not paid the secured claim in full prior to conversion, that creditor may ask the court to allow them to repossess the collateral.

For example, if your car is being paid through the plan and is an allowed secured claim of $8,000.00 (the value of the vehicle) and $6,000.00 has been paid, you could lose the vehicle. Similarly, if you are curing a default on your mortgage, the pre-petition mortgage arrears must be fully paid or else you will come out of bankruptcy still behind on your mortgage and possibly subject to foreclosure.

Another pitfall is that the discharge that you receive on a converted chapter 7 case is not as broad as it would have been under a chapter 13. In most instances, this is not a major concern but careful consideration should be given to your case to ensure that a conversion will still achieve the relief from your debts that you desire.

If you are in a chapter 13 and are having a difficult time making your payments, there are some options available. One option may be converting your case to a chapter 7.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.
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