An individual who has filed Chapter 13 bankruptcy may not be able to make the required payments because of unforeseen financial difficulties. Many who find themselves in this situation may wonder if they can convert a Chapter 13 bankruptcy to a Chapter 7.
First it’s important to look at the differences between Chapter 7 and 13 Bankruptcy protections. Chapter 7 bankruptcy is a good option for someone who has limited income and few assets. With the exception of a handful of exemptions, the few assets that are available are liquidated and the proceeds are used to pay off creditors. Any remaining unsecured debt including credit card debt and medical bills are discharged in the bankruptcy allowing the debtor to get a fresh start.
Chapter 13 bankruptcy, on the other hand, is appropriate for someone who has income and a number of assets they wish to keep. A Chapter 13 is an affordable repayment plan spanning 2 to 5 years, at the end of which, remaining unsecured debt is discharged. Many people who consider a Chapter 13 do so because they want to keep a family home which they own outright or have substantial equity invested. In a chapter 7 they risk the liquidation of their home with an exemption of only $15,000 for individuals/$30,000 for married couples, whereas a Chapter 13 bankruptcy allows a debtor to keep the home if they continue to pay creditors at least as much as they would get from the sale of the home under a Chapter 7.
If you are in a Chapter 13 repayment plan, it is possible to convert a Chapter 13 bankruptcy to Chapter 7, especially if payments cannot be made due to financial hardship. A Chapter 7 means test or the like is used to determine eligibility for a conversion, even if an individual did not pass when initially completing paperwork for Chapter 13. Certainly, remaining assets may be treated differently in a Chapter 7 as well differences in what debt is dischargeable.
If your financial circumstances have changed and you are having trouble keeping up with a Chapter 13 bankruptcy repayment plan it is important to work with an experienced bankruptcy attorney. Your attorney will work with you to explore various strategies under bankruptcy with a goal of getting your finances back on track. Contact Peoria bankruptcy attorney Charles E. Covey for help today at 309-674-8125.
