Chapter 13 bankruptcy is a route many people choose when they want to prioritize repayment of their debts. This option also allows most filers to keep their property and most of their assets. But what do you do when you can no longer meet the terms of your bankruptcy repayment plan?
Things change. This is true regardless of how well you plan or how good your intentions are. Unforeseen events can befall just about anyone – and that includes those dealing with bankruptcy.
Perhaps your income changes. Maybe an emergency causes your financial situation to drastically shift. Maybe bills are just piling up and you can no longer manage monthly expenses, such as your chapter 13 bankruptcy repayments.
Regardless of why it happens, the inability to continue with a chapter 13 repayment plan can happen to anyone. Thankfully, there is a remedy for that.
The bankruptcy code does allow you to convert chapter 13 to chapter 7 bankruptcy when needed. Knowing how to do so will help you keep financial catastrophe from striking – and help you continue on a path to a better future.
The fact that financial issues can befall almost anyone might make you wonder: can anyone in chapter 13 into chapter 7 bankruptcy?
The answer is no. There are specifications for who can do so, since you have to qualify for relief from your original bankruptcy terms for the conversion to be permitted.
First, you will be expected to demonstrate that your current household monthly income is no longer sufficient to meet your repayment schedule. This will involve accurate and up-to-date documentation of monthly income and expenses. It will also require an update to your Schedule I and Schedule J documentation reflecting your new rates of income and expenses, respectively.
It is important to note that your updates to Schedule I and Schedule J are not the same as a means test. You may still be required to undergo a means test to convert chapter 13 to chapter 7 bankruptcy. Be sure to consult with your bankruptcy attorney to learn more.
Have you received a chapter 7 bankruptcy discharge previously? That is the more relevant question. If you have in the last eight years, you are not eligible to receive another one. This means that you will not be eligible to convert chapter 13 to chapter 7 bankruptcy at this time.
If you are eligible to convert your bankruptcy case, you will be required to notify everyone involved. This involves filing a “notice of conversion” through your bankruptcy court. This will notify the court, creditors, and everyone on your legal team that you intend to proceed with a chapter 7 bankruptcy.
Once you convert chapter 13 to chapter 7 bankruptcy, you will proceed just as you would if you had filed for a chapter 7 from the start.
How is this different from chapter 13? First, you will have a new chapter 7 bankruptcy trustee. Their job is to help manage your bankruptcy case. You will be required to cooperate with your trustee to help the process move quickly and smoothly.
You will also have a new 341 meeting of your creditors scheduled. This will happen within 30 days of your conversion, just as it would from the start of any chapter 7 bankruptcy. While it might seem like you are starting all over with your bankruptcy, take heart – the chapter 7 process is a lot faster than the chapter 13.
For most people, a chapter 7 bankruptcy will only last about four months from start to finish. This allows for the 341 meeting to take place and paperwork for debt discharge to arrive in the mail for the filer. Those papers will typically show up within 90 days from the initial 341 meeting. Once they are processed, all eligible debts will be discharged.
Once all of this happens, your trustee will finish their work on your case and it will officially close. See? Much quicker than a chapter 13 bankruptcy!
You might be concerned about a new 341 meeting being schedule, but it is nothing to worry about. In general, this meeting is to establish your new I and J schedules and the income and expenses that have changed within them. You will be obligated to share this information with your trustee, and with any creditors who attend.
Your creditors will also have access to this information after the meeting if they request it. Your trustee will facilitate this, though, so you do not have to continue attending meetings or providing the same information again and again.
What happens if you incurred new debt during the chapter 13 bankruptcy process? If those debts are eligible for discharge, they will be discharged as part of the chapter 7 process. If not, you will still be responsible for repaying them, though you may be able to negotiate this with the creditor independently.
Likewise, your property and other assets may now be on the table as part of the bankruptcy estate. This doesn’t necessarily mean that you will lose your home, but it is very important to realize that this is a possibility in any chapter 7 case.
If you have questions about additional debt or other details of your bankruptcy conversion, it is important to discuss them with your bankruptcy lawyer and trustee. Your legal team can help you better understand the chapter of bankruptcy you are entering and how the conversion process impacts your case.
For more of the help you need, talk to the experienced team at the Van Horn Law Group. We can help you navigate the process from start to finish – and come out on the other side feeling good about your choices!
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