Can I file Chapter 7 while in Chapter 13?
Converting from Chapter 13 to Chapter 7 bankruptcy is an option for debtors .
For individuals who are approved for a Chapter 13 petition in U.S. Bankruptcy Court, there is additional relief available if they find their financial circumstances have been reduced.
A conversion from Chapter 13, in which debtors must pay their creditors some portion of what they owe over several years, can be made to a Chapter 7 case, in which all their non-exempt assets are surrendered to pay creditors in exchange for full discharge of their debts.
Previously in conversion cases, bankruptcy trustees would consider an individual's financial circumstances at the time they filed their first bankruptcy petition.
"Now, the trustees are looking at your current financial picture," according to California attorney Justin Harelik, writing for BankRate's "Ask the Experts" column. "I cannot speak for the entire country, but California trustees have adopted this new, appropriate approach of assessing whether you qualify for Chapter 7 bankruptcy protection based on your current income and expenses."
As long as the debtor has not already made a bankruptcy conversion and is eligible for a Chapter 7 filing, a conversion can take place at any time for any reason. "This is an absolute right, and there are no restrictions," states Maryland attorney Brett Weiss, writing for BankruptcyLawNetwork.com.
The most common reasons why debtors makes such a change is their inability to keep up with court-ordered payments under a Chapter 13 plan or to make mortgage or car payments. If the debtor is likely to lose the house or the car anyway, Weiss advises that converting to a Chapter 7 case makes sense because the debtor will no longer be liable for any loss that occurs when the property is sold.
In some cases, debtors are willing to surrender their assets rather than continue for the three to five years is takes to finish a Chapter 13 repayment plan.
To make the conversion, a motion must be filed with the court, along with updated financial records, recent tax returns and proof of unemployment if the debtor has a lost a job that led to reduced finances. In some cases, a debtor may be eligible to receive a refund of some of the payments made under the Chapter 13 repayment plan if the trustee hasn't forwarded them to creditors.
The individual would then follow all the requirements of a Chapter 7 case, and would have the ability to add debts incurred since the Chapter 13 petition was filed.
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