At this time of year in particular, we often see a large number of Chapter 13 clients that are considering converting to a Chapter 7 case. At the start of the New Year, people often re-evaluate where they are financially, and with many people receiving their income tax refunds this can be a great time to make a new financial start with a Chapter 7 case.
Switching to Chapter 7
Converting an existing Chapter 13 case to a Chapter 7 case is, in many ways, like filing a new Chapter 7 case from scratch. When you convert, you can include any creditors you owe or debts you incurred up to the date of the conversion. So if you had unfortunate circumstances while in your Chapter 13 case and you’re now faced with a mountain of new medical bills, conversion could be right for you. Also, the cost to convert is much less that the cost of filing a brand new case. Not only does the Court charge a greatly reduced conversion fee, but your attorney can use many of the same papers for the conversion that were prepared when the case was originally filed. And any time that your attorney can save in preparing the case translates to more savings for you! In addition, you keep the same case number that you were assigned when the case was first filed. This means that instead of a 2nd bankruptcy case showing on your credit record, you only have a single case showing. You get the benefits from both kinds of cases without having to file 2 cases.
Issues with Converting Bankruptcy Cases
Unfortunately, converting a case is not without pitfalls. First, a successful conversion depends on the timing of any previous cases you may have filed. Since you keep the same case number, then technically the Court considers the day you first filed the Chapter 13 to be your “Filing Date,” not the day you filed the conversion. As a result, if you filed a Chapter 7 case in the past and then filed your Chapter 13 within 8 years, you won’t be eligible to convert your case. The timing rules mandate that you cannot have two Chapter 7 cases filed within 8 years of each other. Since you keep the original file date when you convert, then if you aren’t careful then you can lose your case completely. Second, a Chapter 7 case does not have the same provisions for paying secured debts as a Chapter 13 case. If you were paying for a car in your Chapter 13, then you probably won’t want to convert until that car has been paid and you’ve received your title. Technically, as soon as you convert then the original contract comes back into effect. Most Chapter 13 cases provide a benefit for any vehicles in the plan, such as a reduced interest rate or a smaller balance owed. So if you don’t have the title to your vehicle, then the creditor can force you to keep paying on the vehicle until the full contract terms are fulfilled.
I guess the main point I’m trying to get across is that converting your case can carry huge benefits for you, but it is definitely something for which you’ll want the help of a bankruptcy attorney. At Bond & Botes, our experienced attorneys offer free initial consultations. Please give us a call at any of our convenient locations in Alabama, Tennessee, or Mississippi. We’d be happy to sit down and discuss your situation, and we have years of experience in guiding clients through all aspects of the bankruptcy process.