In a Chapter 13 bankruptcy, creditors are paid back through a payment plan that lasts for three to five years. During this time, you must make timely payments to the Trustee, who then distributes the funds to your creditors. Once you complete the repayment plan, you may keep your secured debts such as a home or vehicle. However, there are instances where you may want to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy.
This typically happens when debtors can no longer afford Chapter 13 payments or if they wish to surrender property. For example, you could experience job loss or severe illness during your three to five-year repayment period. You may also decide that you no longer want to keep your home or vehicle. In other cases, the court may force you into a Chapter 7 bankruptcy because you missed payments for your Chapter 13 repayment plan.
Instead of requiring monthly payments, a Chapter 7 bankruptcy typically liquidates nonexempt assets to pay back creditors. Chapter 7 bankruptcies are generally over in a matter of months instead of three to five years.
Am I Eligible to Convert to a Chapter 7 Bankruptcy?
If you have filed Chapter 7 bankruptcy at any point in the last eight years, then you are not eligible for this option. You may also have to pass the means test depending on where you file. This test will determine whether you have enough income to pay back your creditors. If you do not pass the means test, then you cannot file for Chapter 7 bankruptcy. Even if you pass the means test, you will still have to explain to the bankruptcy court why your financial or life circumstances have changed.
You should always speak with a bankruptcy attorney before converting your Chapter 13 bankruptcy. There are advantages to Chapter 7 cases that may allow you to keep certain assets. An attorney can also make the conversion process easier.
The Manalapan bankruptcy attorneys at Garland & Mason, L.L.C can help you develop the most effective strategies for debt relief.