Some people facing foreclosure because they are behind on payments take a chapter 13 bankruptcy to reorganize debts and loans over a three-to-five-year period. However, situations change every day. Those that have chosen to file for chapter 13 bankruptcy may find themselves in a situation where chapter 7 benefits them more. Can they convert chapter 13 to chapter 7?

A chapter 13 bankruptcy case can be converted to a chapter 7 case at any time, so long as the person has not received a chapter 7 bankruptcy discharge within the last eight years.

What Are the Advantages of Converting From Chapter 13 to Chapter 7?

Both bankruptcy chapters have their constraints, so there are benefits and drawbacks to converting from chapter 13 to chapter 7.

The main advantage that attracts people to convert is the reduced length of time they will be in bankruptcy. If your chapter 13 is converted to a chapter 7, you will not be required to make payments, and you’ll continue being protected by the automatic stay. You also don’t have to start from scratch; your assets and debts revert to your original file date listed on the chapter 13 filing. Additionally, you can still discharge most of your debt and finish your bankruptcy in as little as three to four months.

What Are the Disadvantages of Converting From Chapter 13 to Chapter 7?

Every potential positive seems to have an equally significant potential drawback. While converting your bankruptcy could have numerous benefits, it isn’t without risks.

If someone finds themselves in a financial situation that causes them to not have enough income to make payments toward their chapter 13, forcing them to convert to a chapter 7, they may have to surrender assets that are not considered exempt. These surrendered assets could be as large as their home or car. Obviously, if the goal was to convert in order to save said home or car, this puts the person in a bind. Furthermore, a chapter 7 bankruptcy stays on an individual’s credit report for much longer than a chapter 13.

How Does Someone Convert a Chapter 13 to a Chapter 7?

According to the bankruptcy code, a chapter 13 bankruptcy can be converted to a chapter 7 “at any time.” So does that mean it’s an available option for anyone? First, a person must qualify by passing a means test, proving that the person makes less than the state median income. Some bankruptcy courts require a debtor to pass a means test upon attempting to convert from chapter 13 to 7, while other jurisdictions say that the means test doesn’t apply to a conversion. If you cannot qualify, you won’t be able to convert.

Provided you do qualify, you can move forward by paying the required fees involved. In California, the conversion requires a fee of $25, plus you’ll need to file a motion in court.

How Do I Decide If Bankruptcy Conversion is Right For Me?

Every individual’s situation is different. No blog or internet questionnaire is going to cover all the right topics to be perfectly applicable to your life. This is where an experienced local bankruptcy attorney can assist you. Our law office would be glad to help you if you’re considering converting your bankruptcy. Give us a call today and schedule a consultation.