With a Chapter 7, many, if not all of a debtor’s unsecured debts are erased or wiped out with the bankruptcy discharge. But with a Chapter 13, the debtor goes on a 3 to 5-year bankruptcy repayment plan where they make monthly payments to their creditors. Depending on the debtor’s income, they either pay all or only a portion of their debts over the life of the repayment plan.
“Can I convert my Chapter 13 bankruptcy to a Chapter 7 at any point in time?” is a question that comes up regularly. In some circumstances, a debtor files a Chapter 13, but something will happen and the debtor will change their mind and prefer a Chapter 7, or they will need to file a Chapter 7 instead. Then, sometimes the bankruptcy court forces the debtor to convert a Chapter 13 to a Chapter 7.
Reasons why a debtor may consider converting:
- Their financial circumstances have changed and they can no longer afford the monthly payments on their Chapter 13.
- The main reason the debtor filed a Chapter 13 was to keep property that would have been liquidated in a Chapter 7, such as a home, or a valuable non-necessity item that the debtor no longer wants to keep.
As a general rule, debtors have the right to convert their Chapter 13 cases to Chapter 7s; however, that doesn’t necessarily mean that a debtor will qualify for a Chapter 7.
Qualifying for a Chapter 7
Before a debtor converts to a Chapter 7, the first thing he or she has to do is pass the “bankruptcy means test.” If the debtor’s monthly disposable income is too high, he or she will not qualify for a Chapter 7.
If a court does not require a debtor to take the means test, the bankruptcy trustee can still say the debtor has enough income to pay back some of their debts. Usually, this is done by comparing the debtor’s currently monthly income with their reasonable expenses. If the debtor has enough cash left over to make payments, their conversion can be denied.
“What if my financial circumstances have changed since I first filed a Chapter 13?” If your financial circumstances have changed; for example, you lost your job or went on workers’ compensation or Social Security Disability, it is entirely possible that you would now pass the means test and qualify for a Chapter 7.
