Sometimes, people who file for a Chapter 13 bankruptcy find it difficult to meet the terms of their repayment plan. If a major life change, such as the loss of a job or death of a spouse, has made it difficult to meet the repayment terms of a Chapter 13 bankruptcy, it may be appropriate to convert the Chapter 13 bankruptcy into a Chapter 7 liquidation bankruptcy. If the terms of your Chapter 13 bankruptcy repayment have become too difficult to meet, a Kansas City bankruptcy lawyer can help you evaluate your options.
Pros of Converting to a Chapter 7 Bankruptcy
- A Chapter 13 bankruptcy and repayment plan may no longer be feasible if you have had a change in circumstances such as a job loss, medical condition, new child or the passing of a spouse that renders repayment exceedingly difficult.
- Even if you have not had a major life change, your Chapter 13 repayment plan that lasts up to five years may be putting too much of a strain on you and your family’s day-to-day living.
- You can complete your Chapter 7 bankruptcy in considerably less time (half a year or so) than a Chapter 13 bankruptcy (usually five years).
- Chapter 7 bankruptcy will discharge all eligible debt, without having to make monthly Chapter 13 Plan payments.
- A conversion is possible at any time during your Chapter 13 bankruptcy.
- Assets that comprise your new Chapter 7 bankruptcy estate will be those that you possessed or controlled at the time you filed for Chapter 13 bankruptcy, so any new assets acquired during your Chapter 13 bankruptcy will not be part of the your bankruptcy estate.
Cons of Converting to a Chapter 7 Bankruptcy
- Credit bureaus can remove a Chapter 13 bankruptcy from your credit reports seven years after you file, whereas a Chapter 7 bankruptcy can remain on the reports for up to ten years.
- A Chapter 7 bankruptcy may not help if your financial troubles are the result of certain types of debt (for instance, student debt or certain tax debts) that the bankruptcy will not discharge.
- You may lose certain property that your bankruptcy trustee will sell in order to pay your creditors under a Chapter 7 bankruptcy.
- There is a $25 fee to convert a Chapter 13 bankruptcy to a Chapter 7 bankruptcy.
If you feel that a Chapter 7 bankruptcy is better for your needs, you should consult an experienced bankruptcy attorney. You will need to provide evidence to the bankruptcy trustee and judge that your income has decreased or your expenses have increased to the point that the repayment plan is too burdensome. Additionally, you will have to meet the requirements to file for Chapter 7 bankruptcy, including the means test, which compares your income to the state median for your household size and examines your disposable income and expense levels.
Contact a Kansas City bankruptcy attorney at The Sader Law Firm for more information about how to convert a Chapter 13 bankruptcy into a Chapter 7 bankruptcy and the impact of the conversion.