debt

Convert from Ch. 13 to Ch. 7 in bankruptcy?

Justin HarelikQuestionDear Bankruptcy Adviser,
If you are in Chapter 13 bankruptcy and want to convert to Chapter 7 bankruptcy, do you have to meet income requirements in order to file Chapter 7?
-- Dan

AnswerDear Dan,
Yes, you must meet Chapter 7 requirements in order to convert from a Chapter 13 bankruptcy to a Chapter 7.

A Chapter 13 is a repayment plan of some or all of your debt over a three- to five-year period. While there are myriad reasons for filing Chapter 13 bankruptcy, it is usually for one of these three:

  1. The household income is too high to qualify for a Chapter 7.
  2. To get caught up on delinquent mortgage or car payments.
  3. To protect a valuable asset that cannot otherwise be protected in a Chapter 7.

These reasons mean you'll be in a court-monitored repayment plan for some or all of your debt.

A Chapter 7 bankruptcy is the more traditional type of bankruptcy people file. It is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. The purpose of a Chapter 7 case is to eliminate your existing debts and allow you to start rebuilding credit within a few months of filing your case.

While you may believe you deserve or qualify for a Chapter 7 because you cannot afford your bills (and sometimes your chosen lifestyle), the court may think differently. This means you will be obligated to try to pay something to your creditors in a Chapter 13 bankruptcy.

However, life and circumstances change. Just because you initially filed a Chapter 13 does not mean you must remain there permanently. People convert for various reasons, and when you convert, your "financial picture" is reassessed.

Reasons to convert
Here are the five most common reasons to convert from a Chapter 13 to Chapter 7:
  1. Loss of employment or significant decrease in employment income.
  2. Divorce or separation resulting in double the monthly household expenses.
  3. Planning to let your house go, or walking away from your home. You don't want to continue making mortgage payments to the court to bring the delinquent payments current.
  4. Dealing with an illness and high medical expenses.
  5. Approved for a loan modification and your home mortgage loan has been brought current. This actually does happen.

You should always reassess your financial picture every six months while inside a Chapter 13. Because circumstances can change, your Chapter 13 payment plan should change, too.

Ask the adviser

To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CREDIT CARDS WEEKLY NEWSLETTER
Credit cards on a table

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

Can consolidation hurt my credit?

Dear Debt Adviser, I have about $50,000 of debt on credit cards. My credit rating is still high. I am considering a debt consolidation loan. Will that adversely affect my credit rating? -- DT Dear DT, The cliche about... Read more

advertisement
Partner Center
advertisement

Connect with us