Most New York bankruptcies are filed in chapter 7 because debtors have mainly unsecured consumer debts and don’t have the income for a chapter 13 repayment plan to be feasible. Others, though, prefer the benefits of chapter 13, but once they’re partway into it, they find that chapter 7 might be a better fit after all and want to switch their bankruptcy to chapter 7. Why would a debtor want to do this? There are multiple reasons:
(1) The most common reason is that the chapter 13 repayment plan isn’t going well. Perhaps modifying the plan won’t work because the debtor has lost an income source, or maybe the debtor isn’t eligible for a hardship discharge. Conversion can prevent the trustee from dismissing a bankruptcy case due to lack of payments.
(2) Another common problem is when debtors can’t make their payments on their mortgages or auto loans. Like chapter 7, chapter 13 bankruptcy shields debtors from foreclosure or repossession via the automatic stay, and debtors can cure any arrearages during the repayment plan. If the debtor can’t make the payments, creditors might move the bankruptcy court for relief from the automatic stay and then initiate (or resume) the foreclosure or repossession. Debtors in these circumstances probably aren’t going to keep the house anyway, so converting to chapter 7 saves time and effort.
(3) Debtors who have accumulated new, unsecured debts have the opportunity of amending their schedules to include those debts. This can happen when debtors have been forced to take on credit card debt to pay for medical emergencies.
(4) Finally, some debtors might think that the benefits of converting to chapter 7 will outweigh the costs of completing the chapter 13 repayment plan. Losing a house, for example, might be worth mitigating the uncertainty of completing a difficult plan.
Converting a bankruptcy to chapter 7 requires debtors to restart the bankruptcy process all over again, like filing a $25 notice of conversion, attending a new meeting of the creditors, filing a “statement of intention,” amending the bankruptcy schedules, and going through the means test. It won’t be as involved as filing the chapter 13 case was originally because most of the same information is already in place. After that it will proceed like a typical chapter 7 bankruptcy with a discharge after about three to four months followed by the case closing.
For answers to more questions about converting a bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.