Bankruptcy is normally voluntary – unless you have hidden assets or filed somehow in bad faith. You normally have the right to dismiss your Chapter 13 bankruptcy case or convert from one bankruptcy chapter to another. It is easy to convert from Chapter 13 to a Chapter 7 normally, and there are benefits to converting from a Chapter 7 to a Chapter 13. But there is no need to convert from a 7 to a 13 if you get caught hiding assets. If you start your case as a Chapter 13 and you are unable to make the payments later you have a lower level of review for a means test if you need to convert to a Chapter 7.
Chapter Conversions from One Bankruptcy Chapter to Another
Attempting to dismiss a Chapter 7 case will not avoid the trustee objecting to conversion or dismissal and coming after the asset. The code requires the court “shall” dismiss a 13 at a debtors request, it may convert to a Chapter 7 if appropriate.
So why convert or dismiss a case? Stuff happens. Sometimes a person gets an increase in pay which requires that they repay some of their debt in a 13. Other times they become disabled, divorced, a death in the family occurs or unemployment and can’t make the payments in a Chapter 13. Or, they may need to protect a comaker.
In a Chapter 7 comakers are not protected but they are when the payments are being made in a Chapter 13. They may need to deal with student loan debt, foreclosure, income tax, child support or car issues. In other words, they can’t cure in one Chapter but that they can in another. You have to review what your goals are in filing bankruptcy and work together with your attorney to obtain those goals.
⎆ Chapter 13 to 7 conversions.
The debtor generally has an absolute right to convert a Chapter 13 case to a Chapter 7 or to dismiss a Chapter 13 case. Upon conversion to a Chapter 13 the Chapter 7 however the debtor is essentially filing a new Chapter 7 case and will need to file new schedules. If there are fraudulent transfers or preferential transfers within the year or two prior to conversion there may be problems. Converting from 13 to 7 often happens when the debtor loses income and is unable to complete the plan.
The Chapter 13 Debtor may be better off getting an early discharge of the Chapter 13 case and converting back to a Chapter 13 may not be allowed. If there were assets that the Chapter 7 trustee Could have sold or liquidated. Also if the debtor filed a Chapter 7 less than 8 years ago the debtor should instead dismiss the Chapter 13 and refile as a 7. Because the case was filed less than 8 years prior. Chapter 13 cases are often filed just to wait out the time period or because adding medical debts during the plan is anticipated and the conversion is planned for a later date.
⎆ Chapter 7 to 13 conversions.
The debtor has an obligation to use their best efforts to make an attempt to repay their debts. However, often the Debtor can’t repay his debts. But then, the Debtor may suddenly find a new job or obtain assets to repay and need to convert to a Chapter 13. This is only allowable with the permission of the Court and the Chapter 7 trustee may object. Remember that the Chapter 7 trustee earns about 25% if he can seize assets from the sale of those assets. If a debtor has tried to hide assets and the Chapter 7 trustee discovers the fraud then the trustee may not allow the debtor to convert to a Chapter 13 to escape losing those assets.
In the case of accidental failure to list the asset if the debtor would repay more in a Chapter 13 than what the creditors will get in a Chapter 7 the conversion will generally be allowed. Still the degree or fraud and intent may bar the Debtor from converting.
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.