While there are a lot of reasons a Chapter 13 bankruptcy may make sense, and there are some real advantages to filing it, it is not the easiest form of bankruptcy. It’s not uncommon to struggle with the process, or even to just grow weary of it.
In either case, you might find yourself wondering if it’s possible to switch over to a Chapter 7 bankruptcy. And it is. Sometimes the courts even force the conversion themselves.
But there are some things to keep in mind.
You should only do it for very specific reasons.
Converting your bankruptcy isn’t something you want to do lightly. It only makes sense in a few specific circumstances.
- You’ve encountered some major trouble paying the Chapter 13 plan, and the trustee won’t grant you a modification.
- You filed the wrong kind of bankruptcy in the first place, and you’re trying to fix your mistake.
- The court is forcing the conversion.
If there is some specific situation that doesn’t fall into any of these categories that might make the shift advisable, your lawyer should appraise you of it.
You still have to pass the means test.
Changing your bankruptcy Chapter doesn’t relieve you of the need to do this. The formula is somewhat complicated.
Your income must be lower than the median income for a family of your size in the State of New York. Then you must subtract certain cost-of-living deductions from that income to arrive at your disposable income. If your disposable income is too high, you may not be able to file for bankruptcy.
But don’t try to make this decision on your own. It’s easy to get it wrong. Let your lawyer walk you through the means test to make sure you aren’t missing something. You’ll have to submit forms to prove you pass, so this is a good idea anyway.
You might lose property.
Most people file Chapter 13 hoping to keep certain assets that they couldn’t protect under bankruptcy exemptions. If you switch chapters, you may lose the property you were trying to keep.
You will also lose any money you’ve already paid to the trustee, even if it hasn’t been distributed to your creditors yet. This is the result of a 1982 Supreme Court case called Resendez v. Lindquist. While this might not be a huge concern to you, it’s still something to take into account.
It comes with legal complications.
Nothing about switching Chapters is simple. And once you switch, it’s very hard to switch back.
If you’re trying to switch because you went with a DIY bankruptcy and are in over your head, don’t assume moving to Chapter 7 will be any easier. Contact an attorney right away to help you complete the process.
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