If you are in a difficult financial situation and are not in a position to repay your debts, then one option available before you is to file bankruptcy. In Chapter 7 bankruptcy, the bankruptcy court sells all your non-exempt property to pay off most of your debts. Again, in Chapter 13 bankruptcy, your property is not sold off to repay your debts. Instead a repayment plan is offered to you which allows you to pay off your debts within 3 to 5 years. You have to file for Chapter 13 bankruptcy, in case your debts can’t be discharged in Chapter 7 bankruptcy. Here it is to be noted that to become eligible for Chapter 7 bankruptcy, you have to pass the means test. Under means test, your income should be less than the median income of your state for same family size.
Many of you however find it very difficult to continue with making repayment offered by Chapter 13 bankruptcy plan. So for many debtors, converting Chapter 13 to Chapter 7 is a popular choice. In fact, data reveals that nearly one-third of the debtors fail to continue with making repayments offered by Chapter 13 bankruptcy. In such situation, converting Chapter 13 to Chapter 7 is one way out.
Reasons behind converting from Chapter 13 to Chapter 7
Chapter 13 usually offers you a repayment plan for 3 to 5 years. However, a lot of changes can take place in your personal and financial front in this time period. Some unexpected incidents such as sudden loss of job, serious injury, divorce etc can make it incredibly difficult for you to continue with making payments. As a Chapter 13 debtor, you always have the right to dismiss the case any time. But, it is also to be noted that in case you dismiss the case, the automatic stay is withdrawn and creditors can again chase after you for collection.
Requirements for successful conversion to Chapter 7
If you are planning to convert to Chapter 7 from Chapter 13, then first of all, you have to fill in the Notice of Conversion form. The conversion process does not take much time and you may not have to lose protection offered by the automatic stay. However, you need to pass the means test so as to get approved for Chapter 7 bankruptcy. Your income should be within the limits for qualification to Chapter 7 bankruptcy. If your disposable income is less than the median income of your state for same family size, then you will be eligible for the conversion. Otherwise, you will have to continue with the Chapter 13 repayment plan.
In this kind of conversion, the bankruptcy trustee looks into the case more carefully. The trustee ensures that the circumstances which lead to this kind of conversion are indeed genuine and unavoidable.