Sometimes what begins as a Chapter 13 bankruptcy ends up as a Chapter 7. Here are some reasons why.
You go into bankruptcy with a clear sense of what you want to accomplish. Whether it’s to handle a mortgage problem, taxes, or simply because you’ve got the ability to repay some of your debts, Chapter 13 can be a big win.
But 36-60 months is a long time, and fortunes change.
Here are some of the reasons why your Chapter 13 bankruptcy may be better off as a Chapter 7 bankruptcy.
Convert To Chapter 7 If You Can’t Make The Chapter 13 Payments
When you file for Chapter 13 bankruptcy, you put together a Plan for the repayment of some or all of your debts over a 36-60 month period.
If your income goes down or your other expenses rise, you may not be able to make those payments. Rather than having the Chapter 13 trustee dismiss your case, consider whether converting to a Chapter 7 is a good idea.
Convert If The Arrears Keep Building
If you filed your Chapter 13 bankruptcy case to catch up on car or mortgage payments, you know you’re responsible for making all new payments on time.
Failure to make those post-petition payments on time will cause the lender to ask the court for permission to foreclose or repossess the car.
This would make a Chapter 13 bankruptcy less useful. If you’re going to lose the house or car anyway, consider converting to Chapter 7. This will allow you to wipe out any shortage or deficiency that might otherwise arise.
Convert If You Want It Finished
Chapter 13 bankruptcy takes up 3-5 years of your life, during which it’s difficult to take on new debt or build up your savings for the future.
If you want to just get on with your life and are willing to give up any non-exempt assets, conversion may not be a bad idea.
- Options For Keeping Your Home Or Car After Chapter 7 Bankruptcy
- California Homestead Exemption
- California Bankruptcy Exemptions
- New York Homestead Exemption
Understand The Power Of Conversion
Your rights and responsibilities differ significantly under Chapter 7 as opposed to under Chapter 13. By weighing the pros and cons, you’ll understand which remedy gives you a better deal.
Conversion isn’t for everyone, nor it is appropriate in all situations. But for the right person at the right time, converting your Chapter 13 to Chapter 7 can be a powerful way to achieve your financial goals in bankruptcy.