Can You Convert a Chapter 13 to a Chapter 7 Bankruptcy?

Individual debtors who want to take advantage of bankruptcy law to reduce or wipe out their debt burden have two options. One is Chapter 13 bankruptcy, which is designed for debtors who don’t want to sell off their property to pay off their creditors but instead want to make repayment of their debts more manageable. However, some debtors have trouble keeping up with a Chapter 13 plan. If this happens to you, there might be an available alternative: converting your case to a Chapter 7.

Chapter 13 is based on your having sufficient disposable income — that is, what you don’t need for necessary living expenses — to pay at least a portion of your debts in monthly installments over a period of three to five years. At the end of the plan, most of your remaining debts are discharged. The problem with Chapter 13 is that it requires keeping current with monthly payments. However, some debtors find this difficult due to earning less money or facing greater expenses than initially expected.

By contrast, in a Chapter 7 bankruptcy, also known as liquidation, a bankruptcy trustee sells off part of your property (unless all of it is exempt) to pay off creditors. No payments to creditors are required and most or all of your debts can be discharged in just a few months.

If you decide to convert to Chapter 7, you will begin the process by filing a notice of conversion along with all other forms required for a Chapter 7 bankruptcy. You will also be required to attend a creditors’ meeting, where your trustee and creditors may question you under oath about your decision to convert.

However, not everyone who initially filed for Chapter 13 is eligible to convert their bankruptcy to Chapter 7. You must pass the means test, which requires you to demonstrate either that:

• Your income is below the median income in the state for a household of your size, or
• You don’t have enough disposable income to pay off at least some of your unsecured debts, based on certain calculations

If you don’t pass the means test, you must either continue making payments under the Chapter 13 repayment plan or your bankruptcy will be dismissed. If you do pass, you will still need to show that you can’t afford to satisfy the Chapter 13 repayment plan.

Jeff Field & Associates helps clients throughout the Atlanta metropolitan area navigate Chapter 7 and 13 bankruptcies, including conversions. We have offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale. To schedule an appointment, call 404-381-1278 or contact us online.