When Should I Convert From Chapter 7 to Chapter 13?

Although debtors are typically required to pay at least some of their unsecured debts in Chapter 13, and are required to complete a plan, it may sometimes be strategic to convert a Chapter 7 bankruptcy case to Chapter 13.  When would this be?

If a creditor objects to your chapter 7 case, the court may dismiss the case or deny you a discharge.  In this instance, it may be useful to convert to Chapter 13 and obtain some protection and at least a partial discharge.  This might be the case if you fail to report income, a creditor challenges your claimed exemptions, or you come upon more money after filing.

If your income decreases after filing Chapter 7, Chapter 13 may help if you have a lot of secured debts.  The court will control the amount you make in payments each month.  If you stay in a Chapter 7 case, your unsecured debt will be dismissed quickly, but your secured debt will be untouched.  In a Chapter 13 case, you will receive an extended benefit of the automatic stay, and your payments may be modified.  If your income has decreased, the amount you will need to pay creditors may be very little.

It may be useful to use the extended stay of Chapter 13 and lowered payment schedule for a time.  After which, you can always convert to Chapter 7 and receive a complete quick discharge.  However, this is all complicated and fact-dependent, and it is important to see a qualified Phoenix bankruptcy attorney who can assist in your particular circumstances.

Stephen M. Trezza, Phoenix bankruptcy attorney.