Any person who files for Chapter 13 payment plan has the absolute right under Section 1307(a) of the Bankruptcy code, with qualification, to convert to a Chapter 7 without restriction. In order to qualify, the party must have not previously converted the case from another chapter (you don't get to convert a second time), and must be eligible financially under the "Means Test".
Once your case is converted, you may be concerned that you might lose your car or a house. You may be concerned about the effect of the conversion on your credit. You want to know whether you will have to pay additional legal fees for the conversion. You may simply want to know what is involved when you convert your case.
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There are several reasons why a person may want to convert to a Chapter 7. The most obvious reason is an inability to make Chapter 13 payments. If you cannot pay the Trustee your regular monthly payment due to a lost job or reduction in income, the Trustee may file a Motion to Dismiss your case. Conversion to a Chapter 7 stays the dismissal, and will allow the person to discharge any unsecured debt still remaining.
Many Chapter 13 cases are filed in an attempt to catch up payments on a house mortgage or car payments. If you are unable to make those payments under the Chapter 13 due to a lost job or reduced income, the lender will usually file a Motion for Relief From The Automatic Stay. The Court may then allow a foreclosure or repossession.
If your house or car is foreclosed, but the sale of the property does not satisfy the entire debt, the lender may still come after you for any remaining debt. If you're going to lose the house or car anyway, conversion to a Chapter 7 is a fantastic course of action to ensure that any remaining deficiency after the foreclosure is wiped away.
Finally, a 3-5 years payment plan in a Chapter 13 takes can be stressful. Some people are willing to surrender some assets in a Chapter 7 instead of making monthly Chapter 13 payments for an extended period of time.
A conversion can be accomplished using a "Notice of Conversion" or "Motion to Convert", depending on your Court's local procedures. The Court usually enters a Conversion Order a day or two later. You may have to file a new Means Test form and amended schedules. You may be entitled to a refund of some or all of the payments held by the Chapter 13 Trustee that haven't been sent to your creditors.
After the Order to Convert is in, you may have to attend a new Meeting of Creditors (341 Meeting), and comply with the requirements for a Chapter 7. However, you can add debt you have incurred since your Chapter 13 case was filed into the Chapter 7 providing the debt was used reasonably.
Depending on the status of your Chapter 13 case, you may or may not have to pay your lawyer additional fees for him or her to handle your Chapter 7 case. You will also have to pay a conversion fee which is typically low. Generally, the earlier in your Chapter 13 case you convert the less money (if any) that would have to be paid in additional attorney's fees. Some attorneys will do this for free, others may not. Check with your attorney.
You can legally represent yourself in Court but if things go wrong by not having someone whose job it is to do these things, the results can be both more painful and expensive to correct than it would have been to hire someone good in the first place. Like trying to fix your car when you know nothing about cars, doing it yourself can be more costly in the long run.
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