Converting Your Bankruptcy Case From Chapter 13 To Chapter 7

When It Makes Sense

There are circumstances where it makes perfect sense to convert a chapter 13 to chapter 7. One of the reasons why someone would want to convert their bankruptcy case is due to an inability to make chapter 13 payments. This can happen when someone loses their job, gets a divorce, becomes ill or injured, or simply does not wish to retain the property that was being reorganized in a chapter 13. Let’s look at an example of a homeowner who’s trying desperately to save a home from being foreclosed upon. The homeowner files a chapter 13, begins to make monthly payments to the trustee and begins to make the regularly scheduled mortgage payment once again. Well at some point during the three to five-year payment plan, the debtor comes across a situation where he simply cannot make his payments. It’s often due to job loss or an injury or a divorce. Once this happens, the debtor realizes that he is not going to be able to save his home through chapter 13 as the money is just not there. Provided the debtor has not filed a chapter 7 bankruptcy case within eight years of filing the chapter 13 case, he may wish to convert to a chapter 7 in an effort to get a complete fresh start from the debts.

Considerations

If you are thinking of converting from a chapter 13 bankruptcy case to a chapter 7 bankruptcy case, you must consider all the factors that you would have looked at if you simply filed chapter 7 from the outset. For example, are you eligible to file a chapter 7 bankruptcy case? Do you have assets that are subject to the administration of the trustee? Do you really qualify in terms of your income and expenses? If the answer to any of those questions is no, then it makes no sense whatsoever to convert the chapter 7. Several problems might wind up happening to your case. First, your case may be dismissed for ineligibility. Second, you may have assets that are taken by a chapter 7 trustee that you didn’t want taken. Third, the trustee or the US trustee may bring a motion to dismiss your case under chapter 7 because they feel it’s an abuse and you have the ability to reorganize based on your budget. For all these reasons, you need an excellent, chapter 13 bankruptcy attorney who understands conversion.

Strategic Conversions Chapter 13 To Chapter 7

There are some cases where a non-dischargeable debt such as student loans, taxes and child support are being reorganize through a chapter 13. Once all or some of those non-dischargeable debts are paid to the chapter 13, the debtor may wish to simply eliminate the rest of the unsecured debt such as credit cards by converting to chapter 7. We have had cases where debtors’ drivers licenses were suspended for failure to pay child support or failure to pay as a result of an auto accident with no insurance. Once those debts are satisfied through chapter 13 or other means, the debtor simply may not want to proceed with a reorganization case. In those cases we will analyze whether the debtor is qualified, whether the debtor has assets subject to administration, and whether the debtor’s conversion would be determined or viewed to be an abuse by the trustee or the US trustee. If we can satisfy all of those prongs, then we will advise the debtor that converting to a chapter 7 is a good idea.

Attorney Fee

The court fee to convert from chapter 13 to chapter 7 is very small. There will be an additional fee from your attorney typically to convert from chapter 13 a chapter 7. This is due to the fact that there’s going to be a chapter 7 meeting date. In addition, the chapter 7 trustee is going to want to see the most recent federal tax return and the most recent two months’ worth of paycheck stubs. Because of this additional work as well as the additional court appearance, attorneys want to be compensated for their time. The attorney’s fees are going to very law firm by law firm. If the attorney that you have wants an exorbitant fee to convert, you do have the ability to hire additional counsel. Your new counsel will have to substitute into the chapter 13 bankruptcy case and then bring a motion to convert thereafter. I have done this on numerous occasions for clients whose current attorney wanted a king’s ransom to convert from chapter 13 the chapter 7. I can be reached directly at 847-520-8100. I would be more than happy to talk to you about your case and how I can be of assistance.

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