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Life doesn't always go according to plan—and that includes bankruptcy plans. If you filed for Chapter 13 bankruptcy with the best intentions but your circumstances have changed, you might be wondering if switching to Chapter 7 is possible or even advisable. The good news is that converting from Chapter 13 to Chapter 7 can be a practical solution when financial hardship becomes overwhelming.
Struggling to keep up with your Chapter 13 payment plan? You may have options. Contact Wagner Law Office, P.C. at (303) 536-5124 or use our online contact form to discuss whether converting to Chapter 7 could provide the relief you need.
Understanding the Difference Between Chapter 13 and Chapter 7
Before exploring when conversion makes sense, it helps to understand what sets these two bankruptcy chapters apart.
Chapter 13 bankruptcy, sometimes called a "wage earner's plan," allows you to keep your property while reorganizing your debts into a three-to-five-year repayment plan. You make monthly payments to a bankruptcy trustee, who then distributes the funds to your creditors. This option works well for people with steady income who want to catch up on missed mortgage or car payments.
Chapter 7 bankruptcy, on the other hand, typically liquidates non-exempt assets to pay creditors, then discharges most remaining unsecured debts. The process usually takes three to six months from filing to discharge. For many Colorado Springs and Denver residents, Chapter 7 offers a faster path to financial freedom.
Common Reasons People Convert from Chapter 13 to Chapter 7
Several situations might prompt you to consider switching bankruptcy chapters:
Job Loss or Reduced Income
Losing your job or experiencing a significant pay cut can make your Chapter 13 payments impossible to maintain. If your income drops substantially and you can no longer afford the payment plan you committed to, converting to Chapter 7 might eliminate the debt entirely rather than requiring continued payments you simply cannot make.
Unexpected Medical Expenses
A serious illness or injury can devastate your finances, even if you have insurance. When mounting medical bills make your Chapter 13 payments unaffordable, Chapter 7 could discharge those medical debts along with other qualifying obligations.
Family Changes
Major life events like divorce, the death of a spouse, or the addition of dependents can dramatically alter your financial picture. What seemed manageable when you filed Chapter 13 may no longer be realistic given your new family responsibilities and expenses.
The Chapter 13 Plan Becomes Unmanageable
Sometimes, even without a specific crisis, you realize the repayment plan is simply too difficult to sustain for three to five years. Rather than continuing to struggle or risking dismissal of your case, converting to Chapter 7 might be the better path forward.
When Converting to Chapter 7 Makes Sense
Not everyone who faces hardship during Chapter 13 should automatically convert. Consider these factors when evaluating whether switching makes sense for your situation:
You need faster debt relief. If waiting several more years to complete your Chapter 13 plan feels overwhelming, Chapter 7's quicker timeline might provide the fresh start you need sooner.
You have little non-exempt property to lose. Chapter 7 may involve liquidating assets that aren't protected by exemptions. Colorado has generous exemption laws, but you'll want to understand what property you could potentially lose before converting.
Your unsecured debts significantly outweigh secured debts. Chapter 7 excels at discharging unsecured debts like credit cards, medical bills, and personal loans. If these make up the bulk of your debt, conversion could wipe them out entirely.
You qualify for Chapter 7. You'll need to meet income requirements through the means test. If your income has dropped since filing Chapter 13, you're more likely to qualify now.
The Conversion Process: What to Expect
Converting from Chapter 13 to Chapter 7 involves several steps, though the exact process can vary based on your specific circumstances.
First, you or your attorney will file a notice of conversion with the bankruptcy court. In most cases, you have an absolute right to convert from Chapter 13 to Chapter 7 once during your case, as long as your Chapter 13 case wasn't already converted from Chapter 7 previously.
Next, you'll need to complete any additional paperwork required for Chapter 7, including updated financial documents and schedules. The bankruptcy trustee assigned to your Chapter 13 case will typically be replaced by a Chapter 7 trustee.
You'll also attend a new meeting of creditors, where the Chapter 7 trustee will ask questions about your finances and assets. This meeting is similar to the one you attended when you first filed for bankruptcy, but will focus on your current financial situation.
Finally, the Chapter 7 trustee will determine whether you have any non-exempt assets that should be liquidated to pay creditors. In many cases, especially when financial hardship prompted the conversion, people don't have significant non-exempt assets.
Potential Challenges and Considerations
While converting can provide relief, you should be aware of possible complications:
Timing Matters for Debt Discharge
If you received a Chapter 7 discharge within the past eight years, you may not be eligible for another Chapter 7 discharge. However, you can still convert your case—you just won't receive a discharge of your debts at the end. This might still be worthwhile if dismissal of your Chapter 13 case would leave you in a worse position.
Prior Payments Aren't Refunded
Any payments you made through your Chapter 13 plan won't be returned to you after converting. These funds have already been distributed to creditors according to your plan. However, converting may still make financial sense if it prevents you from making additional payments you cannot afford.
Property Implications
Remember that Chapter 7 may require liquidating non-exempt property. If you've been using Chapter 13 to save your home from foreclosure or your car from repossession, converting to Chapter 7 could put these assets at risk unless they're protected by exemptions or you can work out an arrangement with creditors.
How an Attorney Can Help Navigate the Conversion
The decision to convert from Chapter 13 to Chapter 7 shouldn't be made lightly or without proper guidance. An experienced bankruptcy attorney can review your current financial situation, explain how Colorado's exemption laws apply to your property, and help you understand whether conversion truly serves your best interests.
Your attorney can also ensure all paperwork is filed correctly and represent you throughout the conversion process. Given the complexities involved and the potential consequences of making the wrong choice, professional legal guidance is invaluable.
Get Help Making the Right Decision for Your Situation
Considering a switch from Chapter 13 to Chapter 7 bankruptcy means you're facing tough financial decisions. You don't have to navigate this complex process alone. Wagner Law Office, P.C. has helped numerous Colorado Springs and Denver families find the right bankruptcy solution for their circumstances. Whether conversion is right for you depends on your unique situation, and we're here to help you evaluate your options clearly and thoroughly.
Call us at (303) 536-5124 or complete our online contact form today to schedule a consultation and take the first step toward lasting financial relief.