• 20
  • September
    2011

Many individuals begin the bankruptcy process feeling that they deserve or should qualify for Chapter 7, but are disappointed to find out they in fact don't qualify. In some situations, circumstances change and a filer who initially filed for Chapter 13 may be able to convert to Chapter 7.

Converting to Chapter 7 from Chapter 13 does require the filer to meet Chapter 7 qualification requirements. Here we will look at some of the reasons you may want to consider converting to Chapter 7.

In Chapter 13 bankruptcy, you set up a court-monitored repayment plan for some or all of your debt, to be paid off over a three to five year period. Chapter 7 bankruptcy, on the other hand, requires the filer to sell their nonexempt property and distribute the proceeds to creditors. Property that is exempt does not have to be sold. The federal Bankruptcy Code provides certain exemptions, though many states have adopted their own exemptions.

There are several main reasons why individuals choose to file for Chapter 13. One is that there household income is too high for them to qualify for Chapter 7. Or perhaps the filer wants to catch up on delinquent mortgage or car payments, or protect an asset that would not be protected in a Chapter 7 filing.

There are a number of reasons why a filer who qualifies for a Chapter 13 to Chapter 7 conversion may wish to do so. Those reasons include the following: a divorce or separation has resulted in a substantial increase in monthly expenses; loss of employment has resulted in a significant decrease in income; you want to get rid of your home and don't care about getting current on mortgage payments; you have been approved for a loan modification your home mortgage has been brought up to date; an illness has resulted in burdensome medical expenses.

If you are currently in a Chapter 13 bankruptcy, or will be soon, it is wise to take a look at your financial status every six months or so. Doing so will allow you to determine whether your circumstances have changed, and whether you may be eligible to file for Chapter 7 bankruptcy. Even if you don't convert, you Chapter 13 payments may change so they are more manageable.

Source: Fox Business, "Convert From Ch. 13 to Ch. 7 in Bankruptcy?," Justin Harelik, Sep 13, 2011.