Changing Your Chapter 7 Case into a Chapter 13 One
If necessary you can usually change your Chapter 7 “straight bankruptcy” case into a Chapter 13 “adjustment of debts” one.
Most Chapter 7 cases take only about 3 or 4 months. Because they are finished so quickly, that doesn’t leave much time for the circumstances that got you to file the case to change. So usually you don’t have any reason to wish you could change your mind.
But sometimes things do change.
Changed Circumstances
A short time after filing your Chapter 7 case you could change your job with your income going up unexpectedly. This may disqualified you from Chapter 7 if your increased income means you could no longer pass the “means test.” Or that increased income may enable you to hang onto a home or a vehicle through a Chapter 13 case that earlier you didn’t have enough income to do.
Or, right after filing a Chapter 7 case you could have a vehicle accident resulting in some large new medical bills. You can’t write off debts in your bankruptcy case that you incurred after filing your case. So you might feel like you should get out of your Chapter 7 case and file a new one to be able to include the new medical debts.
In both these situations you now want to get out of the Chapter 7 case. Can you do so by switching from a Chapter 7 case into a Chapter 13 one? Or instead can you close down a Chapter 7 case so that you could start a new one? We address the first question today, and the second one in a week.
Conversion of a Chapter 7 Case
The process of changing your case from a Chapter 7 case into a Chapter 13 one is called “conversion.”
The Bankruptcy Code says that the “debtor may convert a case under this chapter [7] to a case under chapter… 13… at any time, if the case has not been [already] converted… .” (See Section 706(a).)
Qualifying for Conversion
To be able to convert, you have to qualify for Chapter 13. Among other requirements this means:
1) you must be an “individual with regular income,” meaning that your “income is sufficiently stable and regular to enable [you] to make payments under a [Chapter 13] plan” (Sections 109(e) and 101(30)); and
2) you can’t have more debt than the following miximums—$394,725 in unsecured debts and $1,184,200 in secured debts (as of when these amounts were last revised on 4/01/16) (Section 109(e)).
When to Convert to Chapter 13
If you expected to be in a relatively straightforward 3-month procedure, then shifting into one involving a court-approved payment plan likely lasting three to five years probably doesn’t sound so good.
But if you are converting the case to preserve a crucial asset, you may be very happy that there’s a tool for doing that.
Same thing if you find out that you have a special debt that would not be handled well under Chapter 7 but would be in a Chapter 13 case.
You might even find that Chapter 13 would have actually have been a good alternative at the outset. And if not, it can still be a very sensible second choice.