When individuals file for bankruptcy, there are two 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).

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is basically liquidation – all of the debtor’s assets (besides those which can be exempt) are sold to pay off his or her debts. The debtor is allowed to keep property or assets if those items would enable the debtor to "start over." The biggest possible exemptions are retirement savings accounts and principal dwelling homes

What is Chapter 13 Bankruptcy?

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. Wages beyond what the debtor needs are garnished, or taken, so that creditors are paid off.

Why Would a Person Want to Switch from Chapter 13 to Chapter 7?

Bankruptcies can be converted once for any reason, without court approval. However, to switch back, approval of the bankruptcy court is required, and they will rarely allow a debtor to make multiple switches. Debtors often switch from Chapter 13 to Chapter 7 if the debtor:

  • Cannot meet the obligations of the payment plan imposed by Chapter 13
  • Decides that selling property would be easier than having the court or the court trustee control his or her financial life for the next few years

Note that in switching from Chapter 13 to Chapter 7, much of the debtor’s property is now up for grabs to be sold off to pay his or her debts. However, if the debtor cannot make the payments under a Chapter 13 bankruptcy, switching to Chapter 7 may be his or her only option.

Can a Court Force Someone to Switch from Chapter 13 to Chapter 7?

Yes. Judges can order that a debtor use a different form of bankruptcy if:

  • The debtor is unable to make Chapter 13 payments
  • The debtor fails to file the appropriate Chapter 13 paperwork
  • The debtor’s financial situation changes such that the debtor is unable to make Chapter 13 payments.

Are There Any Requirements to Switch From Chapter 13 to Chapter 7?

Chapter 7 Bankruptcy has a number of requirements that debtors must meet before filing for Chapter 7. These requirements include the "means test." Courts are divided as to whether the means test requirement applies to debtors who are converting to Chapter 7 or if the means test is only for debtors who initially file for Chapter 7.

Do I Need a Bankruptcy Attorney?

Filing for bankruptcy is a difficult and emotional decision filled with embarrassing and complicated issues. Converting from one type of bankruptcy into another can be confusing, especially if the paperwork looks the same. A bankruptcy attorney is familiar with the new laws and can help you through this difficult time, explaining your options and determining which is best for you.