This question may not initially be on the mind of a prospective client when they come into your office, but the situation does come up from time to time when it is in the best interest of the client who originally started their bankruptcy as a Chapter 13 to convert that case to a Chapter 7. With that said, it is not always the best decision to make and that is why an experienced bankruptcy attorney will be extremely helpful in this process.
The question of when to convert sometimes comes up and the answer is laid out in Section 1307(a) of the Bankruptcy Code. Assuming you have not previously converted your case from another chapter and are eligible to file a Chapter 7 (based on income or prior filings), you can convert a Chapter 13 case to a Chapter 7 case at any time, for any reason.
The question of why you would want to convert is a complicated one. Some common reasons why debtors want to convert are an inability to make their monthly plan payments to the Trustee, an inability to make mortgage or car payments, or, often times it is just a desire to have their case completed in less than 3-5 years, which is required through a Chapter 13. If the Trustee is not getting paid by the debtor in the Chapter 13, they will file a motion to dismiss the case. If this occurs and the debtor cannot become current the case will be dismissed. If this happens, the automatic stay is lifted and all of the creditors will begin trying to collect as they were before the bankruptcy filing.
Some people file Chapter 13 cases because they are behind on their car payments or mortgage. You are required to continue making payments on these secured debts during your bankruptcy. If you fall behind on them, the creditor will file a motion for relief with the court. If you cannot pay for these any longer and are too far behind to catch up, the motion will be granted and the creditor can start either foreclosure or repossession. If the decision is made to surrender your vehicle or car, it might be a good idea at that time to convert to a Chapter 7. The Chapter 7 will erase or “discharge” any deficiency left on the loan or mortgage after they are sold at auction.
Conversions are easy for experienced attorneys. The attorney will file a motion to convert with the Court and the Court will enter a Conversion Order after a few days. The attorney will file a few amended schedules, per the local rules, with your motion to convert and he or she can also advise you of any refund you may get from the Chapter 13 Trustee based on what has been sent out to your creditors. Upon conversion, you will have another 341 Meeting (or Meeting of Creditors). At this time, you will also be able to add any new debt you have incurred since your Chapter 13 case was filed.
Conversions often make sense, but it is a good idea to consult with an attorney before doing so. If it is done at the wrong time it can lead to problems, which the attorney can discuss with you. We offer free consultations at several different locations in the St. Louis area. If you would like to speak to an experienced bankruptcy attorney, please give us a call today.