Chapter 13 Bankruptcy: Converting a Case to Chapter 7

Bankruptcy cases can be converted from Chapter 13 to Chapter 7. There are many reasons why a debtor might convert their case. For example, some debtors don’t qualify for relief under Chapter 7 when their case is filed because they earn too much money. If during the bankruptcy case their income is reduced, they may be able to convert their case.

Debtors sometimes convert cases because they lose the property they filed Chapter 13 to protect. If a debtor files bankruptcy to protect their home from foreclosure but then falls behind on payments that come due after the file date, the creditor may file a motion to lift the automatic stay, and if successful the home may be foreclosed. If no other secured property is being paid for through the plan, after the foreclosure the debtor wish to convert their case to Chapter 7 in order to discharge their other debts.

There are some issues that complicate conversion of a case from Chapter 13 to Chapter 7. If the debtor has a prior bankruptcy discharge they may not be eligible for relief under Chapter 7. Also, if other secured property is being paid for through the Chapter 13 plan, then converting the case to Chapter 7 bankruptcy may cause the debtor to have to come current under the terms of the original contract. If they are behind on their payments under the original contract they could lose their property after conversion. Similarly, if the debtor has nonexempt property they should weigh the cost of losing the property to the Chapter 7 trustee versus paying the remaining payments in the Chapter 13 plan. There is no liquidation of nonexempt property in Chapter 13 bankruptcy but in Chapter 7 cases the trustee will seize these assets to liquidate them and pay the proceeds to the creditors.