The majority of our clients file a Chapter 13 to protect something whether it’s their home or car. Chapter 13 gives you the protection of the automatic stay that prevents creditors from repossessing your car or foreclosing on your home. But what happens if you filed a Chapter 13 to protect your home and stop a foreclosure and you decide you don’t want the house anymore? You finally realize that you really cannot afford the required house payment and all of your attempts to modify the mortgage fail. As long as you have not filed a Chapter 7 within the previous eight years and you make below the means test requirements, you may be able to convert the Chapter 13 bankruptcy to one under Chapter 7. Chapter 7 allows you to surrender any collateral that you no longer want to keep and get the fresh start the Bankruptcy Code gives you.
You would have to let your attorney know and pay the conversion costs involved but you would no longer pay the house payment or the Chapter 13 payment under your Chapter 13 plan. Converting to Chapter 7 would allow you to add any omitted creditors or additional debts you may have incurred (usually medical expenses) after the Chapter 13 case was filed. Of course there are certain types of debts that Chapter 7 bankruptcy does not eliminate like taxes, child support obligations or student loans. The hope is that by freeing up the rest of your debt, you will be able to pay the debts not eliminated in the bankruptcy process.
If you’re your payments to your mortgage and/or the Chapter 13 payments are more than you can handle, please contact your attorney to see if conversion is a viable option for you.