It is common for individuals to transform their Chapter 13 case into Chapter 7 bankruptcy. According to statistics, only 38.8% of Chapter 13 cases are successfully discharged.
Why do debtors need to convert from Chapter 13 to Chapter 7?
A common reason is some individuals need help to afford the upfront fee associated with Chapter 7 bankruptcy. Filing for a Chapter 13 bankruptcy multiple times may indicate ongoing financial struggles.
Another reason for the low success rate of Chapter 13 bankruptcies is that the payment plan may need to be lowered for some individuals to sustain over the long term. Chapter 13 involves creating a repayment plan that spans up to five years.
During this time, a lender may experience hardships that make it impossible to make payments. This can lead to the conversion of their bankruptcy to Chapter 7.
Sometimes, an individual's financial situation may make them eligible for Chapter 7 bankruptcy. Chapter 7 bankruptcy involves liquidating assets to pay off debts and may be a better option for those struggling to make their Chapter 13 plan payments.
However, it may be helpful to speak with a bankruptcy professional to explore your options.
Do you need help making your Chapter 13 payments, or transitioning to Chapter 7? This blog addresses FAQs about transitioning from Chapter 13 bankruptcy to Chapter 7. Below are eight crucial points to remember when converting from Chapter 13 to a Chapter 7 case.
1) Can I Be Eligible for a Chapter 7 Plan, and What are the Associated Costs?
In filing for bankruptcy, you must know your payment options. It is common for a bankruptcy attorney to offer payment plans for Chapter 7 bankruptcy cases. You can explore other options if your attorney requires full payment upfront during what should be a free consultation.
Before transitioning to a Chapter 7 bankruptcy, you must prove that you cannot make Chapter 13 payments. This may involve amending your bankruptcy schedules to report your current income and expenses.
Remember that you must not submit another Means Trial but must meet specific criteria to be eligible for a bankruptcy conversion. If your expendable salary is above a certain amount, you may not be eligible to convert to Chapter 7.
To help estimate your eligibility for a Chapter 7 bankruptcy case and to compare your alternatives, you can use the Chapter 7 Means trial Calculator. The calculator will give you a rough estimate of whether or not you are eligible for a Chapter 7 case.
Additionally, the means calculator can approximate the cost of a Chapter 7 bankruptcy case in your location, depending on your postcode. Understanding your payment options will help you make informed decisions during the filing process.
2) Advantages and Disadvantages of Converting from Chapter 13 to Chapter 7
When considering a transition from Chapter 13 to Chapter 7 bankruptcy, it is crucial to weigh the pros and cons of each option. It is also wise to explore all available alternatives for debt solace. This way, you can depreciate your Chapter 13 remission or find alternative solutions to settle your credit issues outside of bankruptcy.
Below are some pros of a Chapter 7 bankruptcy.
- Chapter 7 bankruptcy is often cheap compared to Chapter 13 bankruptcy. Additionally, you can receive a dismissal within 120 days. However, the Chapter 7 bankruptcy will remain on your account balances for ten years.
- A chapter 13 bankruptcy is typically more expensive than a Chapter 7, and the expulsion period can take three to five years. The Chapter 13 bankruptcy, however, only appears on your account balances for seven years.
You can use the advantages and disadvantages to Convert from Chapter 13 to Chapter 7 calculator to understand the evaluated costs before the transition. This tool will also help you understand each option's benefits and drawbacks.
3) If I Switch from Chapter 13, Bankruptcy, to Chapter 7, Will I Be Able to keep my house?
Transitioning to a Chapter 7 bankruptcy could put your property at risk, as non-exempt equity in assets could result in their loss.
It is necessary to carry out a thorough investigation of the exclusions stated in your Chapter 13 bankruptcy. This will help you determine whether you have a proprietorship in benefits not secured by bankruptcy exclusions. A Chapter 7 calculator can assist in the analysis process.
Bankruptcy exemptions vary by state, and knowing which exemptions apply to your situation is essential. Some countries use federal bankruptcy exclusions, while others have country-specific exclusions that lenders must use.
To minimize the risk of losing your property, it is wise to seek legal advice from a bankruptcy advocate before transitioning to Chapter 7.
4) How Do I Go About Converting from Chapter 13 to Chapter 7?
Before converting a bankruptcy case, you must have a new meeting of the creditors' appearance. You must also file the following documents to convert a bankruptcy case:
- Announcement of transition
- Proclamations Agreements
- Revised schedules
- Announcement of intent
- Additional lenders notice.
If you are changing attorneys, the new advocate will also need to obtain several documents;
- Entry of mien
- Motion and Disposition to Substitute and Counsel
- All pre-filing legal documents.
All these documents must be filed correctly and on time.
5) What is the Typical Timeframe for Converting from Chapter 13 to Chapter 7?
You can convert a Chapter 13 to a Chapter 7 case without being bound by a specific deadline. It is possible to request the court to make this conversion during your bankruptcy hearing.
However, if you are near the end of your Chapter 13 repayment plan, it might be beneficial to continue with it instead of switching to Chapter 7 bankruptcy.
6) What are the Expenses Involved in Converting from Chapter 13 to Chapter 7?
The cost of filing for a Chapter 13 bankruptcy case is lower than that of a Chapter 7 bankruptcy case. Therefore, if you wish to convert Chapter 13 to Chapter 7, you will have to pay an additional recording fee. The fee is typical $25 unless the recording fees for bankruptcy increase.
It is recommended that you check with the bankruptcy tribunal in your country to ensure that you know the current recording fees for different motions and petitions. It is crucial to be mindful of the recording fees as they significantly impact your financial situation.
7) In a Converted Chapter 7, What happens to my Guaranteed debts?
A secured creditor claims the assets you have put up as collateral to secure the loan. If you cannot repay the loan, the lender may reclaim or foreclose on the collateral to recover the outstanding debt.
Examples of guaranteed debt include car title loans and mortgages. Understanding that filing for bankruptcy does not eliminate secured liens is essential.
If you decide to convert your bankruptcy case to Chapter 7, you must keep paying your guaranteed debts or risk losing your property. Catching up on payments should be a priority if you must compensate for mortgage payments. Otherwise, you could face foreclosure, resulting in losing your property.
Similarly, car loans can be problematic in Chapter 7. In most cases, Chapter 13 plans bring down the amount owed on secured debts, including auto loans, through a process known as "cramdown ."In Chapter 7, however, the auto credit may default, and you may risk losing your car if you must prepare to compensate on payments.
Note that secured debts are given priority over unsecured debts, such as bank card debt, in bankruptcy proceedings. Therefore, it may be wise to prioritize paying off secured debts to protect your property if you cannot pay all your debts.
8) After Converting to Chapter 7, What happens to my unguaranteed debts?
Certain unsecured debts can be discharged in Chapter 7 bankruptcy, meaning the court can eliminate them. This includes:
- Old utility bills
- Personal loans
- Medical bills
- Credit card debts
- Old wages taxes
However, if credit is overdue, it will survive the Chapter 7 bankruptcy case, and you will still be required to pay it even if you receive an emission in Chapter 7. Examples of on-dischargeable debts include:
- Child support
- Student loans
9) What is the Timeline for Receiving My Bankruptcy Dismissal After Converting to Chapter 7?
When the Chapter 7 custodian decides not to sell any of your property, your case is called a "no-asset" Chapter 7 bankruptcy case. In such cases, you can complete the bankruptcy process within five to six months after transitioning from Chapter 13 bankruptcy.
It’s essential to seek advice from your bankruptcy advocate before taking any steps related to your bankruptcy case. Their expertise can help you make informed decisions and avoid any negative consequences.