The Bankruptcy Code allows most debtors in Chapter 13 bankruptcy to convert their cases to Chapter 7. If you are in a Chapter 13 bankruptcy and you lose your job or lose significant income, conversion may be a good option for you if you qualify.
Who May Not Convert
If you have received a Chapter 7 discharge in a previously filed case and your current Chapter 13 case was filed within eight years after the previous case was filed, you cannot convert your Chapter 13 to a Chapter 7. You also cannot convert your case if you fail the means test, which is a calculation of your current monthly income based upon a formula created by Congress. If you fail the means test, you make too much money to be in a Chapter 7.
To convert your case, your attorney will file something with the court indicating that the case is converting to a Chapter 7 case. You will have to file amended schedules showing your current monthly income and current monthly expenses, as well as a new means test. If you have incurred any debt since the filing of your Chapter 13, such as utilities or medical bills, you must file amended schedules listing your new creditors. You must also file a Chapter 7 Statement of Intention, which indicates to the court whether you will be keeping your secured property. Once the court converts the case, your Chapter 13 trustee will be removed from the case, and a Chapter 7 trustee will be appointed. The court will set a 341 Meeting of Creditors date for your Chapter 7 case.
341 Meeting of Creditors
You will have a new meeting of creditors pursuant to Section 341 of the Bankruptcy Code. You will have attended a 341 Meeting of Creditors for your Chapter 13 case, and you will now need to attend one before your Chapter 7 trustee. The trustee will question you about your finances and ask you why you converted your case. Your creditors may appear and question you as well.
If you have any secured debts, such as a mortgage or a car note, you must decide if you want to surrender the house or car and discharge the debt or if you want to repay the debt and keep the property. You must file a Statement of Intention, which indicates to the court and your creditors whether you intend to reaffirm these debts, which means agree to repay them according to their original terms; surrender the property, which means you give back the car or give up the house; or redeem the property, which requires that you come up with a lump sum of cash to pay the creditor the value of the property. If you want to redeem, you must file a motion with the court. If you want to reaffirm, you must be current on the loan, the creditor must agree to the reaffirmation and you must enter into a reaffirmation agreement subject to court approval.
General Unsecured Debts
Your general unsecured debts will be discharged in your new Chapter 7 case. General unsecured debts include credit cards, personal loans, medical bills, utilities and judgments. Your unsecured creditors will have 60 days from the date of your 341 Meeting of Creditors to object to your discharging their debts. The Chapter 7 trustee and the U.S. Trustee's office may also object to your conversion or your discharge. Once the 60 days have passed, if no one has objected, you will receive a Chapter 7 discharge.
If your Chapter 13 included non-dischargeable debts such as student loans, income taxes, child support or alimony, you will continue to be responsible for the balances due on such debts after your Chapter 7 case is concluded.
Credit Counseling Certificate
After your case is converted, you are required to complete the second part of your bankruptcy credit counseling. You must complete the counseling and file a certification with the court within 45 days after the first date set for your 341 Meeting of Creditors. If you fail to complete the counseling and file the certificate within that time, your case will be closed without a discharge.