Most Chapter 7 debtors have a one-time right to convert their case to Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you are allowed to keep all of your property in exchange for paying back a portion of your debts through a repayment plan. This means that you may be able to keep your nonexempt property if the court allows you to convert your. A bankruptcy attorney has the expertise that you need to navigate the bankruptcy laws. Having a Chapter 7 attorney, many Atlanta clients have found makes the entire bankruptcy process go smoother. There are a lot of working parts to any bankruptcy filing that bankruptcy lawyers can easily manage. Filing bankruptcy is common but it is not easy. The higher an applicant’s income relative to debt, the less likely a Chapter 7 filing will be approved. Instead, it could be converted from Chapter 7 to Chapter 13, the section of the bankruptcy code that allows debtors to keep certain assets but requires a portion of what is owed to be repaid in a three-to-five year period. The test has two.
Unlike Chapter 13, Chapter 7 requires no repayment plan. Instead, your nonexempt assets will be seized by a court-appointed bankruptcy trustee and sold, or liquidated, to pay your debts.
You can convert your Chapter 13 case to a Chapter 7 case by filing a motion to convert in bankruptcy court, but you must first qualify for Chapter 7. If you earn more, the court requires you to pass a means test based on your disposable income, which is your total income minus allowable deductions.
Under Chapter 7, you can keep assets, including your house and car, if the asset is exempt under federal or state law. Common exemptions include homes, vehicles, personal property, household goods and appliances, but state laws vary. Some states allow you to use either the federal exemption list or your state's list of exemptions; others require you to use only your state's exemptions.
Most lists contain a vehicle exemption, usually with a maximum value limit. Similarly, most lists offer an exemption for your home, up to a certain amount of equity. If you owe money on a secured debt, like your house or your car, you can reaffirm the debt during your Chapter 7 case instead of allowing the lender to take your property. Reaffirmation means you accept the debt and promise to pay it even though it could otherwise be eliminated through your bankruptcy case.
You must convince both the lender and the trustee that they should allow a reaffirmation of the debt. Once the trustee has completed their work on your case, the bankruptcy court will close your case. At the meeting , you will meet with a bankruptcy trustee assigned to your new Chapter 7 case. The trustee will question you about your debts, income, and assets that you listed in your bankruptcy petition. The trustee will want to see your financial documents from the original filing date, not the date the case was converted.
The trustee will want copies of your bank statements, pay stubs, and tax returns. The meeting typically only lasts minutes. After the meeting is over the trustee will either close the meeting or hold the meeting open if he or she wants more information.
Any debt incurred after filing Chapter 13 but before converting the case to one under bankruptcy Chapter 7 will be discharged in the converted case. If any creditor puts in a proof of claim in your Chapter 13 case, they will be carried over to your Chapter 7 case.
These creditors will only be paid if the Chapter 7 trustee sells an asset that is nonexempt. You will need to make the proper updates to your bankruptcy schedules to ensure that all of your new creditors are listed. Keep in mind, that Chapter 13 filers are not allowed to incur new debt without court authorization. Some people may incur medical bills after their Chapter 13 has been filed.
If this is your case, you can include it in your Chapter 7 bankruptcy. The Court does not allow filers to go out and incur a bunch of new debt after filing a Chapter 13 petition. If you decide to rack up more debt by opening new credit card accounts right before converting your case to a Chapter 7 this can be considered fraud. You will be required to file a Statement of Intention for any secured debts. This form tells the court what you plan to do with your secured debts.
In Chapter 7 bankruptcy, all assets become part of the bankruptcy estate. Assets that are part of the bankruptcy estate after your case has been converted are all assets that are still in your possession as of the date of conversion.
One exception to this rule is if the court finds the conversion was done in bad faith. If your case is converted in bad faith, the trustee can take assets acquired after you filed your bankruptcy and sell them to pay your creditors. If the court finds that you converted the case in bad faith, the court can pull the lottery winnings into the Chapter 7 bankruptcy estate even though it would not have been property of the estate had your case originally been filed as a Chapter 7.
Many individuals who file Chapter 7 bankruptcy can keep their assets as long as their property is protected under an exemption. Some of the most common exemptions are for homes, vehicles, and personal property. In a Chapter 7, assets that are not protected by an exemption can be seized by the bankruptcy trustee and sold to pay off your creditors.
One exception to this is if your Chapter 13 case was previously confirmed and you already paid the value of the nonexempt assets to your unsecured creditors through the Chapter 13 trustee. If you have a secured debt , like a car loan, that is attached to collateral you will need to figure out how to handle this in your Chapter 7 bankruptcy.
If you are not current, you may not be able to negotiate a reaffirmation agreement with your lender. In a Chapter 7 bankruptcy, instead of allowing the lender to take your property, the reaffirmation agreement allows you to keep the property as long as you promise to repay the debt. Keep in mind that most lenders will need you to show that you are current with your payments thus if you are behind it may not be feasible to enter into a reaffirmation agreement unless the payments are brought current.
If you are thinking about filing a Chapter 13 bankruptcy or have already done so, and are thinking about converting your case to a Chapter 7 or are worried that you may need to convert your case in the future, it is best to speak with a bankruptcy attorney who can help you. A bankruptcy attorney can go over your case and financial situation to determine if you would be eligible to file a Chapter 7 bankruptcy.
Most bankruptcy lawyers give free consultations that you should take advantage of. Some law firms will even allow free consultations over the phone. It is important to speak with someone sooner than later to get on the right path of debt relief. Karra Kingston, Esq.