Can You Change the Chapter of Your Bankruptcy After Filing?
Sometimes this is the borrower’s choice. At other times, the courts themselves force the change. Chapter 13 borrowers often convert to Chapter 7 because they find the entire process too onerous and difficult to keep up with. Courts often force Chapter 13 cases to become Chapter 7 cases when the bankruptcy plan isn’t approved because the creditors are likely to get paid less than they would in a Chapter 7 case.
Common Reasons to Convert from Chapter 13 to Chapter 7
Understanding why someone would want to convert their bankruptcy case from one chapter to another requires knowing the differences between the two chapters. The most common bankruptcy in Philadelphia is Chapter 7. Designed for people with significant debt, low income, and limited assets, Chapter 7 allows a debtor to eliminate most of their debt in four to six months. On the other hand, Chapter 13 is a reorganization of a debtor’s financial liabilities. A Chapter 13 debtor will pay all or some of their creditors over the following three to five years, depending on the facts of their case.
It is not uncommon for people who qualify for Chapter 7 to file for Chapter 13 because they are trying to save their home or car. The significant difference between Chapter 13 and Chapter 7 is that a debtor is required to file a bankruptcy plan and pay a portion or all their creditors. This requirement does not mean you are not able to discharge a vast amount of your debt. Our Philadelphia bankruptcy attorneys will assist you in determining which chapter is best given your circumstances.
Many people in Philadelphia who file for Chapter 13 do so because they are facing foreclosure. When a mortgage company is pursuing foreclosure and has a sheriff sale scheduled, filing for bankruptcy is often the only thing a homeowner can do to save their home. Bankruptcy forces your mortgage company to take a five-year payment plan to catch up on the money you are behind.
When you file for bankruptcy, you are not prohibited from trying other alternatives to cure your arrears. Sometimes, our office will work with a debtor and their mortgage company to obtain a loan modification while they are in bankruptcy. If the loan modification is more practical than staying in bankruptcy, our office will file a motion to have the loan modification approved by the court. Once that occurs, your Chapter 13 is no longer serving the purpose of paying your mortgage arrears. However, you still might have unsecured debt that would have been discharged if you had completed the bankruptcy.
If you obtained a loan modification and originally would have qualified for Chapter 7, it is possible to petition the court to convert your Chapter 13 to a Chapter 7. You are entitled to convert your case if it is done in good faith. Therefore, you no longer will be required to make a monthly trustee payment and will have your remaining debt discharged in about four months. Our Bucks County bankruptcy attorney will guide you through the process.
Change in Circumstances
Some people file for Chapter 13 because they did not qualify for Chapter 7. In these cases, a debtor must pay all or a portion of their debt because their income is too high or they could not exempt all their property.
If you are in Chapter 13 because of your income and your employment situation changes during your case, you are permitted to file a motion to convert to Chapter 7.
A Chapter 13 bankruptcy can also be challenging. Some people will file for bankruptcy in hopes of saving their home, only to realize that the financial burden is too great. In those situations, if they qualify, converting to Chapter 7 still provides the benefit of discharging their unsecured debt. Additionally, even though the debtor might have given up saving their home, it is still protected under bankruptcy. Therefore, converting their case will slow down the foreclosure process more than a case dismissal.
Common Reasons to Convert from Chapter 7 to Chapter 13
Most people in Philadelphia want to file for Chapter 7. It is the fastest way to get rid of debt and you are not required to pay any of your creditors. However, there are times when a debtor wants to convert to Chapter 13.
If you were in foreclosure and were just attempting to buy some extra time, you might want to convert to Chapter 13 if your circumstances changed for the better. For example, you found a better paying job or came into an inheritance. If the decision is in good faith, the court will typically allow the conversion. However, if you hid assets or lied about your income, the court might not permit the conversion.
There are also some benefits available in Chapter 13 that are not available in Chapter 7. For example, you might be able to eliminate a second mortgage on your house through Chapter 13. Typically, our Pennsylvania bankruptcy attorney will go through the pros and cons of each chapter with you, but there are cases where someone changes their mind. If you filed for Chapter 7 and decided that you wanted to attempt to remove your second mortgage in Chapter 13, our office would file a motion to convert.
If an error occurred or if you made a mistake in listing income, property, or a valuable asset, the court could file a motion to convert your case to Chapter 13.
Is it a good idea to change your bankruptcy type?
This is a decision you should make together with our Philadelphia bankruptcy attorney. You should usually only seek to change your Chapter type in some very specific cases.
One case would be that you filed the wrong kind of bankruptcy in the first place. Ideally, this wouldn’t happen if you’ve been working with an attorney from Day 1. One of the first things we do is help our clients choose the right type of bankruptcy case.
Another would be if you’re having trouble paying the Chapter 13 plan. We’d usually seek a modification of the plan from the trustee first. If a change in life circumstances is the reason for the trouble then the trustee will usually approve the change.
There are situations where you will not be permitted to covert your case. If the court believes you are attempting to convert in bad faith, your motion will likely be denied. You are also not permitted to convert multiple times. This means that if you have converted from Chapter 13 to Chapter 7, you are not allowed to convert back.
Do you still have to pass the means test if you convert from a Chapter 13 to a Chapter 7?
When you file to convert from Chapter 13 to Chapter 7 you will have to complete a new Means Test to confirm you qualify. The court will not approve the change if you’re not eligible for the form of bankruptcy you’re seeking to switch over to.
Remember, your income alone is not the sole determinant of whether you will pass the means test. The courts also look at how that income is spent. If they determine you have too much disposable income you might not be eligible for a Chapter 7 bankruptcy. Looking up the median income for the state of Pennsylvania is only a start.
Will you lose your house or car if you switch to Chapter 7?
A converted Chapter 7 bankruptcy will work exactly the same way as a case which was put forth as a Chapter 7 case from the start. Your assets will be sold and the proceeds will be given to your creditors. However, bankruptcy exemptions may still make it possible to keep your home or car. Much depends on your personal situation.
Hopefully if you are taking this route you used your Chapter 13 time to find a new place to live and address transportation issues. Otherwise it might be a good idea to remain on the Chapter 13 plan if you can.
Our Bankruptcy Lawyers Can Help
Every part of the bankruptcy process is complicated. You should have our experienced Philadelphia bankruptcy attorney representing you. It is not uncommon for someone filing for bankruptcy without legal assistance to file the wrong chapter. If this occurs, you are putting yourself at an early disadvantage. However, a debtor’s situation is not static, and circumstances that change could impact your bankruptcy case. The attorneys and staff at Young, Marr & Associates not only represent you when you file your bankruptcy, we are there throughout the process. If your situation requires converting your case, we will be there to help you. Call (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania to schedule your free consultation.
Make sure you set yourself up for success by getting help from a qualified bankruptcy attorney who can help you out from Day 1. Contact Young Marr to get help today.