Converting From Chapter 13 To Chapter 7 Bankruptcy
Sometimes debtors find themselves in situations that force them to convert from Chapter 13 to Chapter 7. There is also the possibility that the court may force a bankruptcy chapter conversion on a defendant. Our West Palm Beach bankruptcy attorneys are here to give our expert advice on the process and qualifications behind bankruptcy chapter conversion.
Why Choose to Convert Bankruptcy Chapters?
There are two main reasons for converting from Chapter 13 bankruptcy case to Chapter 7: a debtor can no long longer make their Chapter 13 repayment payments due to a recent change in his financial situation, or, his primary reason for filing for Chapter 13 bankruptcy was to keep certain property which is no longer needed or wanted.
Even though Chapter 13 bankruptcy debtors have the right to change chapters, there are Chapter 7 bankruptcy qualifications that need to be met before they are able to execute the conversion.
The deciding factor in ruling eligibility for Chapter 7 bankruptcy is the means test. This analysis looks at the debtor’s income and expenses to see if there are enough means to make any debt payments through a Chapter 13 repayment plan. If proven true, Chapter 7 bankruptcy is not applicable. If a creditor can prove that the debtor has enough funds to repay some of the debt, then the conversion will be denied. This stipulation was put into place in order to avoid fraudulent debtors from bypassing the means test by converting from Chapter 13 to Chapter 7.
Even if a Chapter 13 bankruptcy debtor passes the means test and chooses to convert to a Chapter 7 bankruptcy, the discharge of qualifying debt is not guaranteed. For example, having received a Chapter 7 discharge within the past 8 years disqualifies the debtor for another discharge. In this scenario, the trustee sells any property that is not exempt and will use that money to pay back the creditors. When the case comes to a close, while the amount owed will be less, the debtor is still required the owed amount due to the absence of a discharge.
Court-Forced Conversion
There are also cases in which debtors may not choose to convert, rather they are mandated via the court. The court will only force someone to convert from Chapter 13 bankruptcy to Chapter 7 bankruptcy if he is not showing signs of good faith regarding the repayment plan, meaning that he is trying to manipulate or take advantage of the system. An example of bad faith would be if someone filed to avoid foreclosure and did not present a repayment plan.
Alternatively, the court is more forgiving if a payment was missed due to legitimate or unforeseen circumstances, such as a roof leak or car accident.
The Process:
Petition and Schedules: All of the Chapter 13 forms and petitions need to be included in the chapter conversion paperwork. Additional documents will need to be presented as well, such as the means test result, updated income and expenses, and any other debt that was acquired after filing for Chapter 13. The Statement of Intention for Individuals Filing Under Chapter 7 will also need to be filed. Within this statement, the court will require the individual to present a plan that delineates what the debtor plans on doing with their secured debts. There is also the chance that individuals may also need to submit a new set of payment schedules.
