3 Questions about Converting a Chapter 13 to a Chapter 7
A Chapter 13 is a good bankruptcy option for some of our clients, but the lengthy repayment plan (3-5 years) often becomes burdensome. When a client can no longer stick to a Chapter 13, they come to us to ask about their options.
One is a conversion to a Chapter 7, which is the faster of the two consumer bankruptcies. Instead of making regular payments as part of a plan, a client can quickly wipe out qualifying debts but will have to turn over non-exempt property in the process. Below, our Plantation bankruptcy lawyer answers three common questions.
Do You Have a Right to Convert to a Chapter 7?
No. Only some people will be able to convert. For example, you can only convert if 8 or more years have passed since you previously filed for a Chapter 7 (and received a discharge). If fewer than 8 years have passed, then you are not eligible.
You also need to prove that your income is insufficient to cover your household expenses. This means amending Schedule I and Schedule J. These forms need to currently reflect your current income and expenses. Given the recent coronavirus pandemic, now might be a good time to consider conversion, especially if your income has fallen.
Should I Convert if I am Paying Mortgage Arrears?
This is a serious consideration and one that will depend on how much you want to save your home from foreclosure. Many people will be better off staying in Chapter 13.
One advantage of a Chapter 13 is that you can spread out unpaid mortgage payments over the plan. This gives you more time to catch up, since the automatic stay prevents a creditor from taking any collection action, including foreclosing on a home. However, if you convert out of the Chapter 13, then you could go immediately into default, and you could quickly lose your home.
Something similar can happen if you are using a Chapter 13 to give you more time to catch up on unpaid child support or alimony. Those amounts could immediately become due, and your wages could be garnished to pay what you owe.
Discuss with an attorney whether you have past-due taxes, family court obligations, mortgage payments, or car payments. You cannot eliminate these in a Chapter 7.
Will I Lose Property if I Convert to a Chapter 7?
It is certainly possible, though everything depends on what property you own. One reason to file a Chapter 13 is that the trustee cannot sell non-exempt assets. When you convert, the trustee can take anything that you can’t cover with an exemption.
Florida has some generous exemptions, especially its homestead exemption. But you could have other valuables you don’t want to lose—such as unique or exotic animals, sentimental possessions, investment real estate, or your car. Discuss with an attorney whether the exemptions can cover your important assets.
Call Nowack & Olson for a Free Consultation
A conversion often makes sense—but not always. Our Plantation bankruptcy attorneys at Nowack & Olson, PLLC are available to discuss your unique situation. Please reach out to us at 888-813-4737 today.