Can I Convert from Chapter 7 to Chapter 13 Bankruptcy?

Posted on May 20, 2015 at 4:04pm by

Kansas City Bankruptcy Attorneys Discuss this Option

While the idea of bankruptcy may seem daunting, in reality, bankruptcy offers immediate financial relief and allows people to get out of a downward debt spiral. There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Choosing the right one depends on a number of factors, including your current income, the amount of debt owed and your goals for post-bankruptcy life.

Some people may wish to file Chapter 7 bankruptcy as a quick means to get rid of dischargeable debt, such as most credit cards and medical bills. They may even use the internet to research and file paperwork for Chapter 7 from an online legal form website. While one does not technically need a bankruptcy attorney to file Chapter 7, it is highly recommended. Mistakes in paperwork and/or not understanding bankruptcy laws and procedures may result in the court finding a filer acted in bad faith. In that situation, the court might dismiss the case and/or not allow the debt to be discharged.

Why Would I Want to Convert My Chapter 7 Bankruptcy to Chapter 13?

People might initially think Chapter 7 bankruptcy is right for them: it only lasts a few months, a lot of property can be exempted to shield it from creditors, and the court will discharge most unsecured debt in the end. However, people who file Chapter 7 may later convert the bankruptcy to Chapter 13. In what circumstances would a Chapter 13 conversion make sense?

  • Mistakes calculating the Chapter 7 means test. The means test has two parts. If the person’s income is lower than the average in the state for the family size, that person will qualify for Chapter 7. However, if the income is above the median, there is a second calculation. This calculation looks at disposable income after expenses are paid to see how much is left for unsecured creditors. If the disposable income is enough to pay a certain percentage of unsecured creditors in Chapter 7, that person will pass the means test. However, this calculation can be complicated, and most people without attorneys can easily make mistakes that the trustee or court will uncover later.
  • Need to catch up on mortgage or car payments. Some people may wish to surrender a house in foreclosure or a car to repossession at first. However, if and when they find out they have the option to save the house and the car in Chapter 13, they may change their minds. Also know that in Chapter 13, a person may be able to completely remove second mortgages and even reduce their car payments—these are huge benefits that most people would not know without an attorney.
  • Higher income or an inheritance. After a Chapter 7 is filed, an unemployed or underemployed person may obtain a job that pays a significantly higher income, or they inherit a sum of money. This may give them the option to file Chapter 13 that did not exist before.
  • Assets worth more than previously thought. Sometimes, real estate estimates can be a surprise. If a person thought they would exempt equity in a home and then surrender the property in Chapter 7 to get out from under a mortgage, this might not make sense if the property is appraised at a higher-than-expected value.

Where Can I Find More Info on Converting to Chapter 13 Bankruptcy?

Converting from Chapter 7 to Chapter 13 bankruptcy can only be done once. If you are in debt and considering bankruptcy, or have already filed for Chapter 7, but would like to convert to Chapter 13, you would be well advised to speak with an experienced bankruptcy attorney. For more information on what path might best help your situation, contact our bankruptcy attorneys in Kansas City through our online form or call us directly at (816) 561-1818.