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When You Might Convert Your 13 Bankruptcy to Chapter 7

Updated: Feb 18

Did you declare bankruptcy under Chapter 13 and form a repayment plan? While this method of bankruptcy works for many Americans and allows them to keep certain precious assets — like their home or cars — it doesn't always work out in the end. If this happens to you, converting your case into Chapter 7 can be the right answer. When and how is this done? Here's what you need to know.

What Is a Chapter 7 Conversion?

A bankruptcy conversion is the request to change your case from one Chapter to another after the process has started. Conversions from Chapter 13 (repayment) to Chapter 7 (liquidation) can be done at any point during your 3 to 5–year plan. To do this, you may simply need to request the change from the court and pay certain change fees.

Some documents are amended to reflect the request to liquidate. This generally includes Schedules I and J as well as the Statement of Intention regarding assets with loans attached you will either reaffirm or let be liquidated. Some claimants may also need to pass the Chapter 7 means test, although this can be waived in many cases.

When Might You Convert Your Case?

A conversion may occur in a variety of situations. Here are a few of the most common.

Scenario 1

You might lose a source of income or have your income reduced during the payment plan. This is one of the most common reasons why a repayment plan fails. Job loss, disability, or a serious and long-term reduction in hours could make your repayment plan no longer viable. In this case, your new income might make you eligible for Chapter 7 even if you originally had to file Chapter 13 due to earning too much money.

Scenario 2

Your expenses might jump unexpectedly and due to circumstances largely beyond your control. Sudden expenses like a medical emergency, an expensive divorce, major damage or repairs to your home can eat up more of what the court deemed 'disposable income'. If this happens and you are again at risk of losing assets due to late payments, a conversion protects your finances better than repossession.

Scenario 3

Your repayment plan isn't working out and the court forces you to change Chapters. Sometimes, the decision to convert isn't up to the debtor. If you can't make payments, the trustee has a responsibility to protect the interests of the creditors just as it does your own interests. If the plan isn't going to work, the court can step in and make you take the liquidation route.

Scenario 4

You no longer wish to protect an asset that you originally wanted to keep through Chapter 13. Did you declare Chapter 13 in order to keep your home? After a few years, you may find that you no longer want to do so — perhaps due to a breakup, a job change, loss in value, or burdensome payments. In this case, you could request liquidation and get out from under the payments now.

Everyone's individual circumstances are different, and your conversion may be a combination of factors or one that's not among these common scenarios. But it's clear to see that there is nothing inherently wrong with realizing that you need to adjust when life changes.

Where Should You Start?

So, where can you learn more about converting your bankruptcy to Chapter 7? Begin by meeting with an experienced bankruptcy attorney in your state. Kalasnik Law Office has aided Pennsylvania residents with all their Chapter 7 needs for more than 25 years. Call today to schedule an appointment and learn how we can make your bankruptcy work no matter what you face now.

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