Converting from Chapter 7 to Chapter 13: What’s Involved and Why Would You Convert?

Conversion to Chapter 13 from Chapter 7 isn’t a death sentence for your bankruptcy case (see Chapter 13: Not Always a Gloomy Diagnosis in Bankruptcy). Perhaps a Chapter 7 was filed underestimating your income and you didn’t actually qualify for Chapter 7 for this reason. Or perhaps you realize after filing your Chapter 7 that you have mortgage arrears that you wish to repay in order to save your home from foreclosure, which is something that you cannot do in Chapter 7. Or perhaps you discover after already filing Chapter 7 that you have non-exempt assets which you would rather ‘pay to keep’ in Chapter 13 rather than turn over to the Chapter 7 trustee for immediate liquidation. Also, conversion can arise when the Office of the United States Trustee brings a motion to dismiss your Chapter 7 case for abuse, usually citing that you did not qualify for Chapter 7 from the beginning. While converting to Chapter 13 is neither an everyday experience nor a great risk for the average debtor, it can arise and ideally your attorney has already explained the differences between Chapter 13 and Chapter 7.

What can you expect if you convert to Chapter 7 from Chapter 13:

  • File and sign new petition forms and amended schedules required for the verified conversion.
  • Formulate a Chapter 13 plan with your attorney. The plan will propose a monthly Chapter 13 payment to commence about one month after the conversion is filed and continue for three to five years. From this payment, mortgage arrears and priority tax claims can be paid off over three to five years, vehicle loans may be crammed down to the value of the vehicle rather than the pre-petition balance of the loan, and other terms can be written into your plan that are more versatile than can be achieved in Chapter 7.
  • Attendance at the Chapter 13 Meeting of Creditors. You will need to attend a Meeting of Creditors with the Chapter 13 trustee even if you have already attended a Chapter 7 Meeting of Creditors.
  • Additional attorney fees. Chapter 13 almost always costs more than Chapter 7, in large part due to the attorney work necessary to formulate a Chapter 13 plan and for the fact that your bankruptcy attorney continues to represent you throughout the entire three to five-year Chapter 13 plan (versus the few months in which a Chapter 7 bankruptcy is usually completed). Many times, these fees can be paid in large part ‘through the plan’, which means the attorney fees are paid over time through the monthly plan payments you make to the Chapter 13 trustee.

Unless you recognize a change in circumstances where you voluntarily wish to convert your case, your attorney will also apprise you of any event arising in your Chapter 7 case which may require conversion to Chapter 13.

For more information on how to convert your case from Chapter 7 to Chapter 13, contact Wartchow Law Office for a free bankruptcy consultation. Located in Edina, Minnesota, Wartchow Law represents clients in all forms of bankruptcy throughout the Minneapolis and St. Paul metro area of Minnesota.