Converting a Chapter 13 bankruptcy to a Chapter 7 is sometimes a solution that better meets the financial needs of some consumers, but it may not be the best choice for everyone. Chapter 7 bankruptcy is often an attractive option for debtors as it wipes out most debt owed, while Chapter 13 requires a portion of the debt to be repaid. Debtors need to meet certain guidelines to qualify for Chapter 7.
Finding the Right Bankruptcy Fit
Chapter 13 bankruptcy plans have more mandatory steps involved, such as requiring a plan of action and starting immediate payments. However, Chapter 13 plans can be helpful when wanting to keep certain property. If no Chapter 7 discharge has been received in the last 8 years and monthly payments cannot be made in a Chapter 13 plan, Chapter 7 may be a better financial option for some consumers. To qualify for Chapter 7 bankruptcy relief, however, debtors must meet certain eligibility requirements. A means test looks at income and expenses to determine whether finances exist to make payments for a Chapter 13 plan.
Why Consider Moving to Chapter 7 from Chapter 13?
- Financial circumstances have changed – Consumer has no funds to make Chapter 13 plan payments.
- Retaining a piece of property – Keeping property is no longer a desire.
- Timing– Many debtors convert to a chapter 7 bankruptcy because they are ready to move on with their financial futures.
Courts may also force conversion to a Chapter 7 plan. The most common reasons for forced conversion in bankruptcy cases can include lying on bankruptcy papers, hiding assets, missing the Chapter 13 filing deadline, failing to make Chapter 13 payments or causing a delay that results in harm to the creditors.