What Are the Benefits of Going From Chapter 13 to Chapter 7?
If you're considering bankruptcy, it's important to choose the right chapter for your situation. In a Chapter 7 case, your nonexempt assets are liquidated and your liability for your debts is eliminated. In a Chapter 13 case, you make regular payments over time until your debts are satisfied. If you file a Chapter 13 petition, you may choose to convert to a Chapter 7 case later on, which may offer certain benefits.
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Eliminates Payment Plan
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When you file a Chapter 13 bankruptcy petition, you must provide the court with a detailed plan outlining how you will repay your debts over a three- to five-year period. The amount you must pay each month under a Chapter 13 is based on your income, expenses, the amount of your debt and the types of debt you owe. You must complete all payments according to the plan in order to receive a discharge in your bankruptcy case. If you find yourself unable to feasibly make plan payments and you don't qualify for a hardship discharge, converting to a Chapter 7 case may ease your financial burden.
Faster Discharge
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A Chapter 13 bankruptcy case cannot be discharged until the end of your repayment period. Generally, a Chapter 7 discharge may be granted within three to six months of your initial filing, depending on the complexity of your case. Depending on the bankruptcy laws in your state, you may be barred from buying or selling property or obtaining new lines of credit without the court's permission during the repayment period. Converting your Chapter 13 petition to a Chapter 7 case speeds up the bankruptcy process and allows you to begin rebuilding your credit much more quickly.
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No Limit on Debts
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When you file a Chapter 13 bankruptcy petition, you are limited as to how much debt you can include. According to the U.S. Courts website, Chapter 13 debtors could claim a maximum of $360,475 in unsecured debt and $1,081,400 in secured debt as of September 2011. In a Chapter 7 bankruptcy fling, there is no such limit on the amount of debt you can include. If you have substantial credit card or other unsecured debts or you owe sizable mortgage or business loans that exceed federal limits, converting to a Chapter 7 case allows you to eliminate these debts entirely.
Considerations
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If you're thinking of converting your Chapter 13 case to a Chapter 7 case, you need to consider the potential impact on your property or other assets. In a Chapter 7 case, the bankruptcy trustee in charge of your case has the authority to seize some or all of your assets, which are then liquidated for the benefit of your creditors. Each state allows you to exempt a certain amount of asset value. If the value of your assets exceeds the exemption limit allowed in your state, you may risk losing ownership if you convert to a Chapter 7 case.
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