Converting Your Bankruptcy from a Chapter 13 Bankruptcy to Chapter 7
If you’ve filed for Chapter 13 bankruptcy and find yourself struggling to keep up with your repayment plan, you might be wondering if you can convert a Chapter 13 bankruptcy to Chapter 7.
Our Memphis bankruptcy attorneys have helped thousands of people get out of debt in the way that best fits their situation. So let’s break down how this works and what you can expect from the process.
Why You Might Want to Switch from a Chapter 13
When you file for Chapter 13 bankruptcy, you commit to a repayment plan that typically lasts 3-5 years. But sometimes, circumstances change. You might lose your job, face unexpected medical bills, or have other financial difficulties that make it impossible to stick to your plan.
In these situations, you may be able to convert to Chapter 7 bankruptcy.
Converting a Chapter 13 Bankruptcy to Chapter 7
You have the absolute right to dismiss a Chapter 13 if you can no longer make the payments. But rather than just get your case dismissed and end up right where you started, you may want to convert it to a Chapter 7 if possible.
Say you owe $25K in mortgage debt and $25K in unsecured debt like credit cards, and you put it all in a Chapter 13. You’re paying it all back slowly through your payment plan.
In Memphis, where I work, the courts prioritize your secured debt, like your home, when they set up your plan. So you usually pay that off first simply by making your regular payments.
That means you could end up in an interesting situation if you face a big change, like a job loss. You may not be able to make your payments anymore, but you also may no longer need to pay your secured debt because it’s been paid off already. As a result, you might not have to worry about keeping your car or house anymore. And you could put the rest of the debt in a Chapter 7.
To switch from Chapter 13 to Chapter 7, you’ll need to pass what’s called the “means test.” This test determines whether your income is low enough to qualify for Chapter 7. If you pass, your attorney can file a motion with the bankruptcy court to convert your case.
Once the court converts your case, the process changes from a repayment plan to a liquidation process – a Chapter 7.
This means that some of your non-exempt assets could be sold to pay off creditors. You’ll want to work with a good bankruptcy attorney to make sure the switch doesn’t cause you to lose assets.
What About Converting a Chapter 7 to Chapter 13?
Sometimes, people start out in Chapter 7 bankruptcy but realize they need the protection of a repayment plan instead. In that situation, you can usually convert a Chapter 7 bankruptcy into a Chapter 13.
This is a tool lawyers keep in their toolbox in case something unexpected happens. For example, perhaps you left out a debt in the planning process or realize there’s property you need and want to keep. Maybe you’re facing foreclosure, or perhaps you want to protect more of your assets than Chapter 7 allows.
Chapter 13 has certain requirements, including having a regular income and enough disposable income to commit to a repayment plan. If you qualify, your attorney will file a motion with the court to convert the case, and you’ll begin working on a repayment plan that spans 3-5 years.
Chapter 13 comes with a number of benefits. It:
- stops foreclosure
- stops repossession
- and allows you to catch up on your missed payments.
Not all of these are possible or guaranteed in Chapter 7.
Converting from Chapter 7 to Chapter 13 can be a good move if you’re trying to save your home or protect more of your assets. A repayment plan may give you more flexibility to keep what’s important to you while paying off your debts over time.
Getting Your Bankruptcy Right the First Time
Our Memphis bankruptcy attorneys have helped thousands of people file Chapter 13 and Chapter 7. In 45 years, we’ve never had a client lose an asset they didn’t want to lose.
We’ve also helped our clients convert their cases when necessary. But more often than not, we don’t need to do this because we work so hard at the beginning to make your case a success.
We offer a free consultation, where we discuss your financial situation and all your goals. We make it our job to get to know you and understand what led you to consider bankruptcy in the first place.
By listening and doing our research, we set you up for success from the beginning. That’s how we’ve won multiple awards for client satisfaction and a stellar reputation as one of the best bankruptcy firms in Memphis.
But when things change, you can absolutely convert a Chapter 13 bankruptcy to a Chapter 7 or vice versa. Whether you’re looking to lower your payments, avoid foreclosure, or just find a bankruptcy plan that better fits your financial needs, you have options.
If you’re considering converting your bankruptcy case, talk to a knowledgeable bankruptcy attorney who can guide you through the process and help you make the right decision for your financial future.
Don’t go through this alone—reach out today for a free conversation to learn more about your options.