Converting Chapter 13 to 7 and Chapter 7 to 13

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 What is a Forced Conversion from Chapter 13 to Chapter 7?

The bankruptcy court may order a debtor to convert a Chapter 13 claim to a Chapter 7 claim in certain bankruptcy proceedings. Converting Chapter 13 to 7 is referred to as a “forced conversion,” and it is sanctioned by a court order.

Failure to complete the required conversion could result in legal repercussions for the offender. A court may only order a forced conversion if it has a valid reason to do so.

There are many reasons that could justify forcing a bankruptcy conversion, but a few are listed below:

  • The debtor didn’t draft a Chapter 13 plan in the allotted period;
  • The debtor did not make the required Chapter 13 installments on time; or
  • A delay that was deemed unreasonable by the debtor caused injury to one or more creditors.

It is crucial to remember that if the debtor is making every effort to comply, the bankruptcy court is unlikely to order a conversion. Examples include failing to make a payment due to unforeseeable events, like an unexpected medical emergency.

However, the bankruptcy court may compel a conversion from Chapter 13 to Chapter 7 if the debtor’s behavior suggests to it that they are trying to exploit their creditors in any way.

What is Needed to Switch from Chapter 13 to Chapter 7?

A debtor must fulfill a number of conditions before submitting a Chapter 7 bankruptcy petition. A means test is included in this. A debtor with a greater salary is not permitted to file for Chapter 7 bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

In order to evaluate whether a debtor is eligible to apply for Chapter 7 bankruptcy, the means test looks at their income. In order to file for bankruptcy under Chapter 7 or Chapter 13, the debtor must submit either Form 22A or Form 22C. Prior to the bankruptcy court hearing the debtor’s case, the form must be filed there.

Courts disagree on whether a debtor who is switching to Chapter 7 is subject to the means test. According to some courts, a debtor who first files for Chapter 7 is the only one who is subject to the means test.

When a debtor switches from Chapter 13 to Chapter 7 bankruptcy, a few things need to be taken care of, such as:

  • Schedule and a petition;
  • Evidence for assertions;
  • Meeting of creditors; and
  • Exemptions.

It is necessary to submit a petition to the bankruptcy court. The original Chapter 13 petition often persists during the conversion process while bankruptcy is being converted. However, it could be necessary to make a fresh schedule.

A proof of claims will be sought from the debtor. This demonstrates that the creditor’s claim to the debt is legitimate. It’s possible that this is a holdover from the initial Chapter 13 case.

After changing chapters, the debtor must go to a new meeting with their creditor or creditors. Even if a meeting took place during the Chapter 13 procedures, this still holds true.

The court may use the date of the Chapter 13 filing to evaluate exemptions, depending on the jurisdiction. Other courts will use the Chapter 7 conversion date.

The conversion of the claim from the Chapter 13 filing will automatically satisfy several Chapter 7 bankruptcy requirements. However, a debtor should seek legal advice before complying with additional requirements. For instance, some of the documents from the Chapter 13 petition that will be transferred over may need to be changed or updated for Chapter 7.

How Much Does It Cost to Switch from Chapter 13 to Chapter 7 Bankruptcy?

Numerous variables affect the expense of converting a Chapter 13 bankruptcy to a Chapter 7 bankruptcy. Among them are, but are not restricted to:

  • The trustee’s fees, as determined by the court;
  • Judicial fees; and
  • Lawyer’s fees.

The court will choose a new bankruptcy trustee when a debtor’s bankruptcy is changed from Chapter 13 to Chapter 7. A further 341 meeting of the creditors is also required.

In other words, converting from Chapter 13 to a Chapter 7 will result in a number of expenses. The debtor can be assessed additional attorney’s fees since they must attend a second meeting of the creditors. The debtor won’t be obliged to submit and pay for a new bankruptcy petition, though.

Why Would a Person Switch From Chapter 7 to Chapter 13 Bankruptcy?

A person may decide to transfer from Chapter 7 to Chapter 13 bankruptcy for a variety of reasons. Making such a change has various advantages in addition to getting a court order.

Switching from Chapter 13 to Chapter 7 bankruptcy has several benefits. Consider the following:

  • As long as the debtor continues to make full payments toward their debt, Chapter 13 will let them keep their non-exempt property in their possession and out from the reach of creditors;
  • It allows a debtor the choice to revoke a bankruptcy plan in the event that they will soon be able to pay it off in full;
  • Compared to Chapter 7, Chapter 13 provides a lot more ways to preserve assets; and
  • It enables a debtor to reschedule and ask for delays in repaying debts for a particular item of property without worrying that a creditor may seize it first.

Can a Court Force Someone to Switch From Chapter 7 To Chapter 13?

A bankruptcy court may direct a debtor to file a Chapter 13 bankruptcy petition instead of a Chapter 7 bankruptcy case in a few specific circumstances. This may occur after a judge examines all of the debtor’s financial records and finds that the person earns enough money to be able to pay back their creditors over a longer period of time. This can also happen when a debtor calculates their eligibility incorrectly.

The following are some other circumstances when a bankruptcy court may intervene and order a debtor to convert from a Chapter 7 to a Chapter 13 bankruptcy:

  • When a debtor’s financial situation changes abruptly (due to, for example, receiving an inheritance, being promoted, landing a new job, etc.);
  • If a debtor omitted a big asset from their initial paperwork; or
  • The debtor either overestimated their necessary monthly expenses or understated their assets because they did not know how to file correctly.

The debtor must submit a Motion to Convert Chapter 13 to Chapter 7 Bankruptcy with the same bankruptcy court they used to first file for Chapter 7 bankruptcy once an order has been made. Additionally, the debtor must deliver copies of this motion to their creditors, the U.S. trustee, the appointed trustee, and any other parties who may be impacted. After that, the bankruptcy court will schedule a hearing to decide on the motion.

How Many Times Can a Debtor Switch Bankruptcy Chapters?

One time without the consent of the court, a debtor may change the form of bankruptcy they file. To switch a second time, however, after the first, the debtor will need to get permission from the bankruptcy court where they first filed.

A debtor should be extremely certain they wish to switch before doing so or before seeking a court to allow their switch a second time because courts examine this activity very carefully. According to the court, a debtor may be accused of filing in bad faith if they transfer bankruptcy chapters too frequently. As a result, the debtor won’t be allowed to file for bankruptcy if the court rejects their case.

Should I Hire a Lawyer to Modify My Bankruptcy Plan?

It’s possible to change your life by declaring bankruptcy. It entails adhering to a stringent legal process and an extensive review of all of a debtor’s possessions, finances, and other belongings. Even though the regulations governing the bankruptcy procedure are already difficult to understand, it will be necessary to fully comprehend them in order to switch bankruptcy plans.

Therefore, it is strongly advised that you retain a local bankruptcy attorney for additional legal advice if you want to alter your bankruptcy preparations. A bankruptcy attorney is already knowledgeable about bankruptcy rules and the right ways to change bankruptcy plans. In addition, your attorney will be able to advise you on which chapter of bankruptcy to file under, the likelihood that a judge will approve your petition, and whether or not you should be represented in court.

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