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Switching from Chapter 7 to Chapter 13 Bankruptcy
When individuals file for bankruptcy, there are 2 basic types of bankruptcy to choose from: Chapter 7 and Chapter 13 (referring to the chapters of the U.S. bankruptcy code in which they appear).
Chapter 7 bankruptcy is basically liquidation – all of the debtor’s assets (besides those which are exempt) are sold to pay off his or her debts. If there is any additional unsecured debt after the assets have been sold, it is discharged (the legal duty to pay it disappears). Some debts can never be discharged however, such as student loans and child support. Any secured debt (mortgages, car loans, any other debt with collateral attached) will be discharged by transferring the remaining security to the creditor(s).
Chapter 13 bankruptcy is a structured repayment plan, and involves a debtor paying off as much of his or her debt as possible over a 3-5 year period. It is usually used by people who have a steady income. Chapter 13 usually allows creditors to get more money back than they would under Chapter 7 liquidation. Chapter 13 can prevent a home from being foreclosed, as well.
There are some reasons why a person may want to switch from Chapter 7 to Chapter 13: if the debtor is behind on his house payments, and thought he would catch up by filing Chapter 7, and can still not make the payments, he might switch to Chapter 13 to avoid foreclosure. A court may also order a debtor to switch from Chapter 7 to Chapter 13 bankruptcy if it is determined he or she has enough income to repay his creditors.
A debtor can switch once without court approval. However, after that, he or she will need approval of the bankruptcy court in which they filed to switch again. Courts will rarely let a person switch back and forth repeatedly, so it is not a decision to be made lightly.
There is no fee for switching from Chapter 7 to Chapter 13 bankruptcy.
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