Filing for Chapter 13 bankruptcy is not an easy choice to make. You carefully examine your finances, your income and assets and sometimes putting yourself on a restructured payment plan through Chapter 13 makes the most sense. But life changes, and so can your financial health, to the point where continuing in Chapter 13 is no longer the right thing to do.
Why might someone want to convert to Chapter 7?
In the end, the repayment plan you chose at the beginning of Chapter 13 may not go very well. You might become ill, lose your job or your income doesn’t remain as stable as you thought it would. Regardless of the reason, you may find yourself in a place where you can no longer afford to make the payments to which you committed.
Some people choose Chapter 13 bankruptcy in order to keep their home or car. But what if you find yourself unable to make the mortgage or auto loan payments anyway? It may not be worth it to stay in Chapter 13 anymore and Chapter 7 can become the more attractive option. This is especially true if you take on new debt while in Chapter 13 repayment. An unforeseen illness can cause someone to accumulate unsecured credit card bills paying for medical care.
How do you convert to Chapter 7?
The Bankruptcy Code specifically allows you to convert a Chapter 13 bankruptcy to Chapter 7 at any time, so long as you haven’t had a Chapter 7 discharge in the past eight years. You will have to pass a means test in order to qualify, meaning your income must be below the required threshold. Assuming you meet the requirements, you simply file a notice of conversion with the bankruptcy court and pay the conversion fee. The bankruptcy process begins anew at this point, but now under the rules of Chapter 7.