Converting from Chapter 13 to Chapter 7
Sometimes people will enter a Chapter 13 with the best intentions of making their plan payment and their regular mortgage payments. Often they will succeed. There are times, however, when despite the best efforts of the debtor, factors beyond their control make it impossible for them to continue in a Chapter 13.
One way this happens is when the debtor loses a job during the case or when unexpected expenses cause them to miss plan payments or mortgage payments. A few missed mortgage payments will generally lead to a motion to lift the automatic stay by the debtor’s mortgage holder. Once the stay has been lifted and the lender begins a trustee sale or foreclosure on the debtor’s home, the Chapter 13 plan offers little benefit over a Chapter 7.
If a debtor qualified for Chapter 7 at the time the original case was filed but chose to proceed under Chapter 13, they can convert their case to a Chapter 7 any time along the way. To convert a Chapter 13 to Chapter 7, the debtor must file a Motion to Convert.
The typical Motion to Convert says something like:
Debtor in the above-entitled case, by and through counsel undersigned, and pursuant to 11 U.S.C. § 1307(a), hereby MOVES this Court for an Order converting this case under Chapter 13 to a case under Chapter 7 of the Bankruptcy code (title 11 of the United States Code). On _______, 2009, the above-named Debtor filed a Voluntary Petition under Chapter 13 and Debtor’s Plan was confirmed by the Court on ________, 2010. On the date the original petition was filed, Debtor could have filed under Chapter 7 without the presumption of abuse but decided to proceed under Chapter 13 primarily for the purpose of curing arrears on her primary residence and retaining possession of said residence. The primary lender on Debtor’s residence has now obtained relief from the automatic stay and is commencing proceedings to retake possession and title to Debtor’s home. This case has not been previously converted. Form 22A and Form 8 are being filed concurrently herewith.
WHEREFORE, Debtor submits that good cause for conversion exists and respectfully requests an Order converting this case under Chapter 13 to a case under Chapter 7 of the Bankruptcy Code.
The Debtor must also file a Form 8 Statement of Intention, a Form 22A Chapter 7 Statement of Current Income, and update any other schedules (property, income, expenses) that require changes.
When the Court enters the order converting the case from Chapter 13 to Chapter 7, the Chapter 13 Trustee will turn over any funds that have not been paid to creditors over to the new Chapter 7 trustee. The Debtor will also have to have another 341 Meeting of Creditors with the new Chapter 7 trustee. From there, the case proceeds just as though it were a Chapter 7.
Issues with secured debts are common after conversion. For instance, during the Chapter 13 plan, an auto loan was probably not paid its normal monthly payment. Many creditors will treat the time during the Chapter 13 as a stay on payments and will not penalize the debtor for having attempted the Chapter 13 (after all, they will end up with more interest with a longer term). Nevertheless, the debtor or her attorney must get in touch with each secured creditor to resolve any deficiencies if they intend to keep the collateral.