The type of bankruptcy chapter you choose to file has a big impact on your case. It affects what property you can keep, what types of payments you have to make, and how long the whole process lasts. What happens when your circumstances change after you file? Is it possible to switch chapters?
Below, we’ll go over how to switch from a Chapter 7 bankruptcy to Chapter 13, or Chapter 13 to Chapter 7, in California. The process can be complicated, so it is best to seek the advice of a qualified Los Angeles bankruptcy attorney to ensure your bankruptcy is discharged and you’re on your way to financial recovery.
What types of bankruptcy can I file in California?
First, let’s take a look at the main types of consumer bankruptcy: Chapter 7 and Chapter 13. Under Chapter 7, commonly called “liquidation” bankruptcy, your assets will be divided into exempt and non-exempt groups. California law determines what property is exempt; you have your choice of two systems of exemptions per the California Code of Civil Procedure. These exemptions cover your home, car, furniture, retirement accounts, and other property in different amounts.
For example, System 1 exempts between $75,000 and $175,000 of equity in your home (the amount is based on several criteria) and just $3,050 for your car. System 2, on the other hand, offers just $26,800 of exemption for your home equity but $5,350 for your car. Note: Figures are as of this posting date. Exemption amounts change frequently, so it is best to speak with an attorney to decide which system of exemptions will work best for you depending on the types of assets you have and the equity you have in each.
In Chapter 7, your exempt property will be safe from the bankruptcy process, but your non-exempt property will be sold and used to repay your creditors. Most debtors have only exempt property and don’t have to surrender anything. At the end of the process, your remaining unsecured debt is discharged. You can choose whether or not you want to continue making payments on your secured debt (your auto and mortgage loans), however, if you stop making the payments you will need to surrender the property.
Also, you must qualify for Chapter 7 by passing a complicated means test that compares your income to the average income for a similarly sized household. If you do not pass the means test, you may have to file under Chapter 13.
Under Chapter 13, you’ll commit to a payment plan lasting 3 to 5 years. The amount of your monthly payments will depend on your income and certain state and national standards for living expenses. You’ll have to pay your disposable income, as determined by those standards, to the bankruptcy trustee for the duration of your plan. At the end of the plan, your remaining unsecured debt will be discharged. Under Chapter 13, you can make up mortgage arrearages through your plan and continue to make mortgage and car payments throughout and beyond the plan.
Both types of bankruptcy come with the protection of the automatic stay, which stops all collections efforts for the duration of the bankruptcy. The minute you file for bankruptcy, foreclosure and repossession efforts must stop. Collection lawsuits must stop. Wage garnishment and bank account levies must stop. The court wants to ensure that all collection efforts go through the bankruptcy process. So, either type of bankruptcy will give you some breathing room while you get your finances in order.
Converting a Bankruptcy from Chapter 7 to Chapter 13
Why would you want to convert from a Chapter 7 bankruptcy to a Chapter 13 bankruptcy? Chapter 7 is faster and you typically end up paying less than you would under Chapter 13. If you’re not required to file under Chapter 13, why switch?
Typically, the answer has to do with the property you want to keep. In Chapter 7, you can keep your home as long as you stay current on your mortgage payments. If you fall behind, they can still foreclose. Also, Chapter 7 lets you keep your exempt property. If you have non-exempt property, you’ll have to give it up. Under Chapter 13, you can make up your mortgage arrearages through the payment plan and you don’t have to give up any property at all. If you have property you want to protect, you may choose to convert to Chapter 13.
You can convert from Chapter 7 to Chapter 13 once without court approval, but the conversion has to be in good faith. In other words, if the court finds out that you deliberately hid property, got caught, and tried to convert to save your property, you’re out of luck. If you’ve followed the rules and acted honestly through the bankruptcy process so far, you shouldn’t have any problems. There are no court fees if you are converting from Chapter 7 to Chapter 13; you don’t have to pay a conversion fee.
Remember that a Chapter 13 bankruptcy requires a payment plan. If the court looks at your income and determines that you won’t be able to make payments, you may not be permitted to convert. In order to convert, you’ll need to file a motion with the court.
Converting a Bankruptcy from Chapter 13 to Chapter 7
A Chapter 13 payment plan will soak up your disposable income. Certain debts, such as child support and spousal support, must be paid in full. That can make it tough to keep making your Chapter 13 payments. You may also have a change in circumstances, such as a losing a job or contracting a serious illness. If that’s the case, you may want to convert to Chapter 7.
You can convert your case to Chapter 7 as long as you haven’t received a Chapter 7 discharge within the past 8 years. If you’re received a Chapter 7 discharge in the past 8 years, you’re stuck with your Chapter 13 plan.
You must qualify for Chapter 7 bankruptcy in order to convert. As described above, you must make less than the state median income or pass the means test. If you don’t qualify, you can’t convert. If you find yourself stuck with a Chapter 13 bankruptcy, you may ask the court to dismiss your case; however, a dismissal can have serious consequences. You’ll lose the automatic stay and it may affect your rights to the automatic stay should you choose to file bankruptcy again. You’ll have to face your creditors on your own, but you won’t be stuck in the payment plan.
Conversion from Chapter 13 to Chapter 7 in California requires a conversion fee of $25 and you’ll need to file a motion with the court.
Can I be forced to convert my bankruptcy?
Under certain circumstances, the court may force you to convert from Chapter 13 to Chapter 7. If you don’t get your payment plan approved on time or if you miss your plan payments, the court may require you to convert.
The court may also require conversion if you delay your case in such a way as to harm your creditors. The court may force you to convert from Chapter 7 to Chapter 13 if you made an error on your means test or schedules and it turns out that you don’t actually qualify for Chapter 7.
Is conversion right for me?
Converting your bankruptcy case from one chapter to another requires filing of particular motions, forms, and schedules. Simple mistakes can have big consequences, so consider contacting an experienced local bankruptcy attorney. An attorney can help you decide whether conversion is the right option for you. Whether it is or not, your attorney can help you navigate the complex bankruptcy system and get the most out of your filing.