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When may Chapter 13 bankruptcy convert into Chapter 7?

On Behalf of | May 10, 2024 | Bankruptcy

People who face burdensome debt may turn to bankruptcy as a solution. Chapter 13 bankruptcy offers you the chance to pay off some of your debt through a repayment plan. However, successfully filing for Chapter 13 does not mean your case might not turn into a Chapter 7 liquidation at some point.

Under bankruptcy law, it is possible to convert one form of bankruptcy into another. Multiple parties may instigate a change in your bankruptcy.

A debtor can file

As the bankruptcy filer, you have the right to attempt a bankruptcy conversion yourself. You may file a motion to change your Chapter 13 case to a Chapter 7 bankruptcy. In doing so, you will become subject to new deadlines and duties for your conversion. You will also have to attend another meeting of creditors. Additionally, your case will fall under Chapter 7 requirements, which may alter what kinds of debts you can discharge.

Instigation by the court

In some situations, you will not be the party who ultimately converts your case, but you may still play a role. Chapter 13 bankruptcy depends on you fulfilling a repayment plan. Should you miss your payments, a court may dismiss your case entirely, but it could also convert your bankruptcy to Chapter 7.

In fact, you might face a court conversion even if you make your bankruptcy payments on time. A court can also consider whether or not you fulfill domestic support payments such as alimony or child support, or if you do not file tax papers while the case is in progress.

Chapter 7 conversion may be beneficial

If you want to avoid Chapter 7, staying on top of your payments and other obligations should help prevent a conversion of your bankruptcy into liquidation. However, some debtors have good reasons to convert to Chapter 7 on purpose. They may want to downsize their property, or they have lost their job and cannot keep up with the repayment plan any longer.

Bankruptcy cases vary by individual, so examine your options carefully at the outset. This should help you determine whether or not a bankruptcy conversion will ultimately be in your interests.