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Can You Convert a Chapter 13 Bankruptcy Case to a Chapter 7?

Many people prefer to file for Chapter 13 bankruptcy as it helps them avoid the liquidation of their homes and other assets. Unfortunately, keeping up with Chapter 13 payment plans can be difficult, and converting to Chapter 7 might be a good idea.

Depending on your situation, you may convert an existing Chapter 13 bankruptcy case to Chapter 7. Generally, you might be able to do so as long as the court has not discharged any debts. Many people want to convert their bankruptcy cases because they cannot keep up with their payment plans under Chapter 13. These payment plans tend to be rigorous, and keeping up with payments for 3 to 5 years might not be as feasible as you once believed. To convert your case, you and your lawyer must file a Notice of Conversion with the appropriate court and possibly pay a fee. You might be able to protect certain assets after converting to Chapter 7 if they are exempt from liquidation.

If you are thinking about changing your bankruptcy case, call our bankruptcy lawyers at (215) 701-6519 and schedule a free review of your situation with the team at Young, Marr, Mallis & Associates.

Converting Your Chapter 13 Bankruptcy Case to a Chapter Case After Filing

While filing for bankruptcy can be a great solution to financial troubles, it is known for being a bit complicated. Perhaps the most commonly filed chapters for individuals filing for bankruptcy are Chapters 7 and 13. Many initially choose Chapter 13 over Chapter 7 to protect assets like homes and vehicles. However, Chapter 13 bankruptcy cases tend to last for years, and keeping up with payments might become too difficult. In such a situation, a switch might be necessary.

Chapter 13 focuses on reorganizing your finances and sticking to a strict payment plan for about 3 to 5 years. Ultimately, your creditors should be paid off, and certain remaining debts might be discharged. Under Chapter 7, the process takes only a few months, and assets might be liquidated to pay your creditors.

People often choose Chapter 13 because their assets are not seized and sold off to pay creditors. However, many Chapter 13 petitioners find that keeping up with their payment plans is not feasible. In that case, you should talk to your lawyer about converting to Chapter 7.

While converting to Chapter 7 might not be ideal, it can help you get out from under your debts and get a fresh start. Talk to our bankruptcy lawyers sooner rather than later. It is typically easier to convert your case before you fall behind on your Chapter 13 payment plan.

Why Convert Your Chapter 13 Bankruptcy Case to Chapter 7?

As mentioned before, many people choose to convert because they find keeping up with the payment plan under Chapter 13 is harder than they expected. Alternatively, your financial situation might have changed since you filed. For example, perhaps your Chapter 13 payment plan was feasible because you were steadily employed. If you recently laid off from work, you might be unable to keep up with the payment plan, and converting to Chapter 7 might be wise.

Another possibility is that your personal plans have changed. People often file for Chapter 13 bankruptcy to protect assets like their homes and vehicles. However, your plans for the future might have changed. Maybe you plan on moving and no longer need to protect your home. In that case, it might be best to convert to Chapter 7, liquidate your house, pay back creditors, and move on from the ordeal before you relocate.

Sometimes, people simply decide that worrying about their payment plan for the next several years, even if they can keep up with it, is not what they want. Maybe you would rather just cut your losses and convert to Chapter 7, even if it means losing important assets.

How to Convert Your Chapter 13 Bankruptcy Case to Chapter 7

Converting might be fairly simple, depending on where you are in your Chapter 13 bankruptcy case. Converting your case may be as simple as submitting some paperwork. You and your lawyer must fill out and submit a Notice of Conversion to the courts. If your case can be converted and the court approves, you can change to Chapter 7.

Before you fill out any forms, talk to your lawyer about whether you can convert to Chapter 7 from Chapter 13. It might be too late if debts have already been discharged under Chapter 13. Also, the court might not approve if you want to convert to Chapter 7 when you are close to the end of your Chapter 13 case. It is best to switch sooner rather than later.

You also might have trouble converting your case if you have fallen behind on your Chapter 13 payment plan. While many people want to convert because they believe keeping up with their plan is too difficult, you should be current on your plan when you convert.

Can I Protect My Assets When Converting to Chapter 7 Bankruptcy from Chapter 13?

Converting from Chapter 13 to Chapter 7 does not mean your assets will be vulnerable. In many cases, people converting their bankruptcy cases can claim state or federal exemptions that allow them to protect certain assets from being seized and liquidated by bankruptcy trustees. Remember, the federal exemptions are not the same as state exemptions, and, depending on where you live, you might not have a choice as to which one you can claim.

Some states do not permit people to claim federal exemptions. These states, sometimes called “opt-out states,” require residents to claim state exemptions. Other states allow bankruptcy petitioners to choose which exemptions they wish to claim. Check with your lawyer first before making any final decisions.

Homestead exemptions allow bankruptcy petitions to protect the equity in their home up to a certain limit. If you file for bankruptcy jointly with your spouse, this limit might be higher. Similar exemptions exist for vehicles, retirement accounts, property used for business purposes, and personal items like jewelry or household items.