Life inevitably changes and things happen that may cause a chapter 13 debtor to no longer need or afford their original chapter 13 plan. A job loss, other reduction of income or unanticipated increase in expenses can all be reasons for a debtor to lose their ability to continue making the chapter 13 plan payments. If the chapter 13 payments become unfeasible and, assuming the debtor qualifies, a chapter 13 case can be converted to chapter 7 for an immediate discharge.
Typically people file chapter 13 bankruptcy for one of two reasons: Either their household income is above the applicable state median income and they do not qualify for chapter 7, or they voluntarily elect to file chapter 13 due to having mortgage arrears, non-dischargeable taxes or other priority debts that can be repaid over the course of a chapter 13 plan. Also debtors may elect to file chapter 13 if they have non-exempt assets that would lose to liquidation by a chapter 7 trustee and instead chose to ‘buy back’ their non-exempt property by making monthly plan payments in chapter 13.
In cases converted to chapter 7 from chapter 13, the debtor must prove that they would qualify for chapter 7 as of the date of conversion (not the original file date) by passing the means test. See What is the “Means Test” and Why Does it Matter in Bankruptcy. The debtor’s bankruptcy attorney will complete a new means test as of the date of conversion to determine if the debtor is chapter 7 eligible. If eligible, the case can be converted by the debtor filing a motion to convert to chapter 7 which gives all creditors and other parties the opportunity to object. (Note that in Minnesota, no motion is required and the debtor can instead file a simple request to convert to chapter 7 along with updated schedules and statements). If the motion/request to convert is granted, the case will proceed as a chapter 7 case and the debtor will attend a chapter 7 Meeting of Creditors before a discharge is ordered.
If your income has gone down or your expenses have increased since your chapter 13 plan was confirmed, you should consult your bankruptcy attorney so she can advise you of what options you have to convert to chapter 7, to have your case dismissed voluntarily or otherwise to modify your chapter 13 plan to reduce the plan payment. Any missed chapter 13 plan payments will result in a quick dismissal of your chapter 13 case so it is important to notify your attorney immediately if you are considering a conversion to chapter 7 from chapter 13. Once a chapter 13 case is dismissed, the debtor will have to pay a significantly larger filing fee to file chapter 7 and also increased attorney fees over the typically smaller attorney fee for just a conversion.
Read more about converting from chapter 7 to chapter 13 bankruptcy here.