Friday, January 16, 2015

Bankruptcy Chapter Conversion



It is possible to convert from Chapter 7 to Chapter 13 and vice versa.  However, there are rules and strategic factors to consider.

CONVERSION FROM CHAPTER 7 TO CHAPTER 13

Converting from Chapter 7 to Chapter 13 is generally permitted so long as the Motion to Convert is made in good faith and does not violate bankruptcy rules.

Bad Faith

For example, a Motion to Convert to Chapter 13 which is motivated by an asset that the Debtor deliberately concealed and did not list on the bankruptcy petition would be in bad faith and should not be permitted.

Factors Outside Debtor's Control

For example, a Debtor who has a relative die within 180 days of filing is required to report the eligibility to receive the inheritance to me and I am required to report it to the Trustee.  So, if a Debtor's wealthy grandmother died right after the Debtor attended the 341 meeting and the Debtor became eligible for an inheritance of something sentimental like jewelry, art, or antiques, then the Debtor may wish to convert to Chapter 13 and pay creditors over 5 years what they would have received if the sentimental gifts would have been sold.




CONVERSION FROM CHAPTER 13 TO CHAPTER 7

You cannot convert your Chapter 13 case to Chapter 7 unless you were eligible for Chapter 7 on the day you filed.  A Motion to Dismiss your Chapter 13 followed by a re-filing under Chapter 7 would be required if you became eligible for Chapter 7 while you are in Chapter 13.

Previous Filing

For example, a Debtor who had a previous Chapter 7 discharge 5 years ago will become eligible for another Chapter 7 discharge 3 years into the 5-year Chapter 13 plan.  Eight full years from the filing date of the first Chapter 7 case must have passed before a new case may be filed.  So, that Debtor may choose to dismiss the Chapter 13 and refile under Chapter 7 in order to avoid making 2 more years of payments, assuming that the debtor is income eligible to do so.

Tax Debt

For example, a Debtor who is income eligible for Chapter 7 when the Chapter 13 petition is filed and who owes the IRS for debt that is only a year old, may choose to convert to Chapter 7 2 years into the plan.  Tax debt can become dischargeable after 3 years so long as tax returns are timely filed, taxes are timely paid, and other conditions are met.

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