Maybe you are contemplating a Chapter 13 to Chapter 7 conversion. Such a measure is common in case the Chapter 13 payments rise too high. The standard duration for a Chapter 13 bankruptcy is 3-5 years.
If this is not something you are thinking about and want to get ahead of your by paying it off early, read: "Can I Pay Off My Chapter 13 Early". Also, there are pros and cons to converting Chapter 13 to Chapter 7.
In that time, the person who filed the bankruptcy who for these purposes we’ll call the debtor could undergo an additional financial challenge. Such a hardship might render the debtor helpless in paying Chapter 13 arrangement payments. One thing to understand is where you are located where you have file a bankruptcy. For instance, you may want to understand how Chapter 13 Bankruptcy Kansas or Chapter 13 Bankruptcy Colorado may be different. Furthermore, finding an attorney will be dependent on where you are as well for example; Florida Bankruptcy Attorney Fees.
In case you find it difficult to pay the Chapter 13 amounts, another alternative is converting your Chapter 13 case into a Chapter 7 bankruptcy. Nevertheless, switching to Chapter 7 could have a negative impact. This blog seeks to provide answers regarding Chapter 13 to Chapter 7 conversion.
Everything you Need to Know Related to Chapter 13 to Chapter 7 Conversion
How Long Does It Take to Convert from Chapter 13 to Chapter 7?
There are no time limits for Chapter 13 to Chapter 7 bankruptcy conversion. At any moment in the course of your bankruptcy, you can appeal to the court to convert your Chapter 13 to Chapter 7. But if you are nearly done with Chapter 13 bankruptcy, conversion to Chapter 7 is not recommended.
Am I Allowed to File For Chapter 13 to Chapter 7 Conversion?
To qualify for conversion to Chapter 7 from Chapter 13, there must clear proof that you are unable to meet your Chapter 13 payments. You won't have to handle another Means Test, but it will be necessary to file revised bankruptcy reports highlighting your present expenses and earnings.
In case your disposable earnings are higher than a particular amount, conversion to Chapter 7 might be impossible.
Will It Cost me Anything to Convert from Chapter 13 to Chapter 7?
Filing for Chapter 7 costs more than Chapter 13 filing fees. This means that you’ll have to part with an extra filing amount for the conversion.
Unless bankruptcy filing charges go up, the conversion fee for Chapter 13 to Chapter 7 is $25.
To be on the safe side, always refer to the bankruptcy court in your state to learn about the filing charges for different motions and petitions. This includes a motion to switch from Chapter 13 to Chapter 7.
Will I Lose My Assets if I Convert to Chapter 7?
If you convert to Chapter 7, you might lose your assets. Sometimes you might have equity in a property that is not exempted in bankruptcy cases. So you must conduct a careful analysis of the bankruptcy exemptions relevant to your Chapter 13 case.
Non-exempt equity in property can lead to forfeiture of assets under Chapter7. In such a case, the trustee disposes of the debtor’s assets and pays the debtor’s unsecured debts.
Every state has unique bankruptcy exemptions. While some states have state-specific exemptions for debtors to follow, others utilize federal bankruptcy exemptions.
What Will Happen to All of my Secured Debts in a Converted Chapter 7?
Secured creditors possess a lien on assets that were used as collateral for the debt you owe them. If you default on payments, a secured creditor can foreclose to auction the collateral or repossess the assets. Secured debts include car title loans and mortgages. Note that a bankruptcy doesn’t eliminate secured liens.
When you switch to Chapter 7, it is essential to go on paying secured debts to avoid forfeiting the assets. If you have fallen behind on your mortgage, ensure that you pay the pending amounts or discuss an arrangement with the mortgage firm to avoid foreclosure.
If you do not pay the pending mortgage amounts, losing your property is a likely possibility in Chapter 7.
Here, your car loan can bring challenges. The majority of Chapter 13 arrangements ‘cram down’ car loans to whittle down the owed secured debt.
Usually, your vehicle loan goes into default after switching to Chapter 7. If you are not able to catch up on the car loan, you could lose possession of your vehicle.
What Will Happen to my Unsecured Debts after Switching to Chapter 7?
In a Chapter 7 bankruptcy, unsecured debts that qualify for forgiveness of debt (bankruptcy discharge) are eliminated. Dischargeable debts include medical bills, personal loans, credit card debts, specific judgments, old utility bills, and certain past income taxes.
If a debt is not forgiven (not dischargeable), then it runs the course of the Chapter 7 case. This means that although you receive a Chapter 7 discharge, you still owe the debt.
Non-dischargeable debts include child support, majority of taxes, alimony, debts owed to the government, restitution, and the majority of student loans. Our bankruptcy blog expounds further on student loan hardship discharge and how to handle back taxes in bankruptcy.
After Converting to Chapter 7, How Much Time Will It Take Before I Receive My Bankruptcy Discharge?
In case the Chapter 7 trustee doesn’t dispose of any assets (doesn’t sell any assets), then the case passes on to a no-asset Chapter 7.
Usually, a no-asset Chapter 7 can be over in 4-6 months after switching from Chapter 13. Keep in mind that you have to complete your Debtor Education Course (if you hadn’t completed it in Chapter 13) to receive debt forgiveness (discharge).
Pros and Cons of Converting Chapter 13 to Chapter 7
Converting to Chapter 7 from Chapter 13 has both its benefits and drawbacks. Before you switch to Chapter 7, make sure that you exhaust all debt-relief alternatives. Sometimes, it is possible to decrease your Chapter 13 payments or abandon your Chapter 13 case and settle your debt issues outside of bankruptcy.
Before taking any steps, it is advisable that you consult your bankruptcy lawyer. Such measures include halting Chapter 13 payments or any other actions concerning your bankruptcy case.
It is important to discuss all the debt-relief alternatives, such as debt settlement, Chapter 13, Chapter 11 Subchapter V. and Chapter 7, so that you can choose the best for your situation.