What is “Conversion” from Chapter 13 to Chapter 7?

Following up on my last blog, “conversion” means switching from one chapter of bankruptcy to another before the case is completed. In the last blog I discussed converting from Chapter 7 to 13; now about converting from Chapter 13 to 7, that is, from the “adjustment of debts” payment plan to a “straight bankruptcy.”

The reasons to convert from Chapter 13 to Chapter 7 are similar to those for converting in the opposite direction: what could be called voluntary and involuntary reasons. Either 1) changed circumstances now make Chapter 7 the better option for you, or 2) your case is converted against your wishes to Chapter 7 even if you would have preferred finishing the Chapter 13 case.

Voluntary Conversion

Bankruptcy law makes converting from Chapter 13 to 7 very easy. Under Section 1307(a) of the Bankruptcy Code, a “debtor may convert a case under this chapter [13] to a case under chapter 7 . . . at any time.” Chapter 13 cases are voluntarily converted to Chapter 7 because of changed circumstances much more than the other way around. One simple reason for the different frequency is the difference in length of these two types of bankruptcy—three months or so for a standard, simple Chapter 7 instead of the three to five years that a Chapter 13 case takes to complete. So many more things can happen to change your financial circumstances during that longer period of time.

Some examples of changes in circumstances that could result in a voluntary conversion to Chapter 7:

  • You file a Chapter 13 case because you have relatively high income, but you convert to Chapter 7 when your income is reduced when you lose your job and make less money at a new job.
  • You file a Chapter 13 case in order to pay the arrearage on a home mortgage, but you convert to Chapter 7 when you get a job in another state and it no longer makes financial sense to catch up on the mortgage arrearage.

Involuntary Conversion

A huge majority of Chapter 7 cases are completed successfully; the success rate for Chapter 13s is much lower. That’s not just because of the difference in the typical length of the types of cases, but also because a Chapter 13 case has a lot more going on that can change or go wrong.

Section 1307(c) and (d) list twelve different reasons that a court can either dismiss a Chapter 13 case or convert it into a Chapter 7 case, “whichever is in the best interest of creditors and the estate.” The most common reasons include the debtor’s inability to:

  • propose a Chapter 13 plan on time
  • have a plan get approved by the court on time
  • make the payments to the Chapter 13 trustee as required under the plan
  • make the payments directly to the creditors provided under the plan
  • execute any other provision of the court-approved plan
  • pay the ongoing child or spousal support payments during the length of the case
  • file tax returns as they become due throughout the case

Conversion from Chapter 13 to Chapter 7 can be a sensible move to deal with changed circumstances, or it can be something to be defended against if you want your Chapter 13 case to continue. Either way you definitely want somebody highly experienced on your side. I have more than 20 years of experience handling legal issues involving personal finance, including bankruptcy. At the office of bankruptcy attorney Carrie Weir, in Rockwall, Texas, I provide a free initial consultation to anyone with questions or concerns about their bankruptcy options. Please reach me at my office by using the contact form here or by calling me at 972-772-3083 to arrange a private meeting. I represent clients in Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Rowlett, and the surrounding areas.

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