Choosing between a Chapter 13 plan and a Chapter 7 plan can be a big decision, one that can impact you immediately. It could mean changing where you live, or agreeing to spend 3-5 years spending your money exactly as the court directs.
Reasons for Switching
Sometimes, a borrower starts their path to financial freedom on a Chapter 13 bankruptcy plan only to find it’s not working for them. Perhaps the plan wasn’t structured well enough, and they can’t make payments. Perhaps their situation has changed in a way that makes it hard to make those payments, but the trustee won’t agree to a modification.
And perhaps Chapter 13 was the wrong choice in the first place. This happens, most often, when a borrower attempts to file Chapter 13 pro se only to learn a pro se Chapter 13 is all but impossible. They go to an attorney, who realizes they shouldn’t have gone for Chapter 13 in the first place, and the attorney recommends a change.
Sometimes, judges will demand the change as well, especially if you’re having trouble making your plan payments, or if you don’t file your Chapter 13 plan in time.
But even though it’s possible to switch bankruptcy Chapters, it isn’t always easy. It’s a complex legal maneuver.
Switching comes with a few consequences you should be aware of.
First, if you used Chapter 13 in an attempt to hold on to secured debt property like your car or house, switching may force you to give up that property. It’s a good idea to have a secondary plan in place. Note that a good attorney can help you discover whether your property is already exempt, which means you might be able to keep it.
There is no attorney maneuver which can help you keep property that’s already gone to the trustee. The Supreme Court has ruled that any monies you’ve already paid to the trustee become part of the bankruptcy estate and can go to creditors even after you switch Chapters.
Before you switch, you need to work with your lawyer to figure out whether you qualify for Chapter 7 under the federal means test. In addition, you’ll want to have a plan for handling the consequences of the change if your lawyer is, say, unable to protect your home under exemptions and reaffirming that debt is no longer feasible.
Finally, keep in mind that this is a one-time correction strategy. Once you switch, it’s all but impossible to switch back.
Got tough bankruptcy questions? Contact the Law Offices of Michelle Labayan today.