Can I File Chapter 7 After Chapter 13 if I Can No Longer Maintain My Chapter 13 Bankruptcy Plan Payments?
The bankruptcy process allows individuals and businesses to eliminate or repay part or all of their debts while they are under bankruptcy protection by the federal bankruptcy court. Personal bankruptcies are often classified into two types: Chapter 7 (liquidation) and Chapter 13 (reorganization). A question you might ask is: Can I file Chapter 7 after Chapter 13 if I cannot keep up with my Chapter 13 plan payments?
If you can no longer pay the Chapter 13 monthly payment because you have lost your job or your source of income, you can switch from Chapter 13 to Chapter 7. Switching to Chapter 7 frees filers from the three- to five-year Chapter 13 plan while allowing them to wipe off qualified debts for as short as four months. Additionally, a Chapter 7 bankruptcy conversion does not activate a new automatic stay. Conversion may be an excellent option, particularly if you cannot change your Chapter 13 bankruptcy payment.
If you are considering filing Chapter 7 after a Chapter 13 bankruptcy, consult with a local bankruptcy attorney who can:
- Determine if your income qualifies under Chapter 7;
- Confirm that you have not gotten a discharge under Chapter 7 in the last eight years; and
- Explain if you can retain your entire property or if you’re likely to lose some.
Do you have more questions about bankruptcy and need legal advice on bankruptcy relief and debt settlement? Call E. Orum Young Law now to book a FREE CASE REVIEW and get answers to all your bankruptcy and debt relief questions. With over 30 years of experience, you can be confident you’re dealing with the best bankruptcy attorney in Louisiana.
Changes to Chapters 7 and 13 of the Bankruptcy Code
Congress overhauled the bankruptcy law in 2005. These modifications have made it more difficult for certain people to file for Chapter 7 bankruptcy. Filers with high incomes who fail the means test will be required to repay at least part of their unsecured debt under Chapter 13. The 2005 legislation also compels all bankruptcy filers to receive credit counseling before bankruptcy filing and more counseling regarding budgeting and debt management before their debts could be discharged.
Below are several of the most noteworthy changes to the bankruptcy code in 2005.
Credit Counseling Requirements
Before filing for bankruptcy under Chapter 7 or Chapter 13 bankruptcy, you must undergo credit counseling with an agency recognized by the office of the United States Trustee. This credit counseling aims to help you determine if filing for bankruptcy is truly needed or if an informal repayment plan will help you on your feet financially.
There is a filing fee and costs associated with credit and debt counseling. If you cannot pay the filing fee, you may be eligible for a fee waiver or be able to pay in installments.
Credit counseling is essential even if it is evident that a repayment plan is not viable or if you have debts you believe are unjust and do not want to pay. You are obligated to participate, not to agree to any repayment plan proposed by the agency. But if the agency comes up with a repayment plan, you must present it to the court, along with a certificate proving that you have gone through and finished credit counseling, before filing for bankruptcy.
You will be required to attend another credit counseling session after your bankruptcy case to learn about personal financial management. Only after submitting the certification to the court that you met this criterion will you be granted a bankruptcy discharge, which will wipe off your debts.
New Chapter 7 Bankruptcy “Means Test”
Before 2005, most filers could pick the best type of bankruptcy for them – and the majority chose Chapter 7 bankruptcy (liquidation bankruptcy) over Chapter 13 bankruptcy (repayment plan). The 2005 Bankruptcy Code prohibits certain filers who have higher incomes from filing for Chapter 7 bankruptcy.
How Much Income Do I Make?
The first step in determining whether you may file for Chapter 7 bankruptcy under the new 2005 rules is to compare your “existing monthly income” to the average income for a family of your size in your state. You may file for Chapter 7 bankruptcy if your monthly income is below or equal to the average monthly income. If your income is higher than the average, you must therefore pass “the means test,” which is another condition of the new legislation, for you to be able to file for Chapter 7.
The Means Test in Chapter 7
The means test determines if you have adequate disposable income to pay the Chapter 13 monthly payment. To determine if you pass the means test, deduct certain debt payments and allowable expenses from your present monthly income. If your remaining income after these computations is less than a specific amount, you may file bankruptcy Chapter 7.
How Can I File Chapter 7 After Chapter 13?
Before converting a Chapter 13 bankruptcy case to Chapter 7 bankruptcy, you must verify if you qualify first and learn what will happen to your property. Because many people switch due to a drop in income or a job loss, qualifying is typically not a problem. Nevertheless, you may lose the property you hoped to protect when filing for Chapter 13.
The following is an overview of what you need to think about and what you can anticipate if you decide to switch from Chapter 13 to Chapter 7 bankruptcy.
What Happens When Your Bankruptcy is Converted to Chapter 7?
You will get a new Chapter 7 bankruptcy trustee when you convert your case. You will also be required to attend a new creditors’ meeting (also referred to as the 341 hearing). While you do not need to file a new bankruptcy application after converting your bankruptcy, you will often be required to complete additional paperwork and change particular schedules.
In rare situations, you may need to submit updated Schedules I and J to prove that your current financial situation has changed and you can no longer afford to pay Chapter 13 payments. A statement detailing your reasons for converting may also be required by the court. If you have mortgage payments, a car loan, or any other secured debt, you must also submit a Statement of Intention, which tells the court what you plan to do with the property that secures the loan.
You must also reveal if you acquired any post-petition debts or acquired any post-petition assets while under the Chapter 13 case.
Are You Qualified to Convert From Chapter 13 to a Chapter 7 Bankruptcy?
Before shifting to Chapter 7 bankruptcy, you must first overcome an eligibility restriction by passing the means test. This means the test examines your earnings and expenses to assess if you can afford to pay off certain debts under Chapter 13. If you are, you will not be eligible for Chapter 7.
Although some courts do not require the debtors to undergo the means test before shifting from a Chapter 13 plan to a Chapter 7 plan, the Chapter 7 bankruptcy trustee appointed to your case will review your most recent income and expenses declarations. If a hefty amount is left after deducting your expenses from your earnings, the bankruptcy trustee or your creditor would most likely object because you can pay creditors.
If it is shown that you have enough money in your budget to pay part or your entire debts, the bankruptcy court will refuse the conversion. An experienced bankruptcy attorney will be able to give you advice on local practices.
Is it Possible to Get a Discharge if You Convert from Chapter 13 to Chapter 7 Bankruptcy?
It depends if you have already filed for Chapter 7. You cannot pay off your debts anytime you want. Even if you switch from Chapter 13 to Chapter 7, the multiple bankruptcy filing rule restricts you to a Chapter 7 discharge once every eight years.
This rule will not apply if you haven’t filed for a Chapter 7 bankruptcy in the past or if you filed more than eight years ago. However, you must wait until the eight-year window has elapsed before erasing any further debt if you filed during the previous eight years and received a debt discharge.
That does not mean you cannot change your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case. You still can, but you would not get a debt discharge. If you are like most people, filing for bankruptcy will not be worthwhile.
What Will Happen If You File Chapter 7 Bankruptcy Without a Discharge?
The main advantage of applying for Chapter 7 if you are not eligible for a discharge is it may save you some effort. Even then, it will almost certainly cost you extra money.
Another advantage is that you will not need to sell your property yourself. The bankruptcy trustee will sell any “nonexempt” property you cannot protect with Louisiana bankruptcy exemptions, and the revenues will be used to pay your creditors. Even though the payments will lower the amount due to the creditors, you would still be obliged to pay your outstanding debts after your Chapter 7 bankruptcy case ended. None of your debts would be erased.
What is the problem? Most people do not find this beneficial. You would be better off skipping Chapter 7, selling your property, and repaying your creditors yourself since you’d likely sell it for more and avoid the bankruptcy trustee’s service charge entirely.
The Process of Changing Your Chapter 13 Bankruptcy Case to a Chapter 7 Case
Here is what to expect once you convert your Chapter 13 case.
- Paperwork: Your bankruptcy petition and the majority of the bankruptcy forms you filed for your Chapter 13 case can be moved to your Chapter 7 bankruptcy case throughout most courts. If your income, expenses, or debts have changed, you may need to replace some of the bankruptcy forms.
Some jurisdictions necessitate a fresh set of schedules even when nothing has changed. At the very least, you should prepare to take the means test, update your income and expenses, and include any debts accrued since filing Chapter 13. Your new debts that qualify can be dismissed in your Chapter 7 bankruptcy.
One of the bankruptcy forms you will also need to submit is the Statement of Intention for Individuals Filing Chapter 7, which informs the United States bankruptcy court and your creditors if you want to retain “secured” property that you are currently paying for, like a house or a car.
- Meeting of creditors: Even if you have attended a creditors’ meeting during your Chapter 13 bankruptcy proceeding, you need to attend another one.
- Bankruptcy exemptions: Most of the time, the bankruptcy court will evaluate how much of your property can benefit from bankruptcy exemption based on the date you filed for a Chapter 13 bankruptcy. If you are discharging debts accumulated after the first Chapter 13 petition, a creditor may object to this date.
- Creditor payment claims: The proofs of claims that existing creditors have filed—the documents they use to request payment during bankruptcy—transfer to your Chapter 7 bankruptcy. Creditors may be able to file fresh proofs of claim if more money becomes available to them resulting from the sale of non-exempt property. Any bankruptcy exemptions will be applied to the same date as your first Chapter 13 filing, and you can retain any property purchased after that date.
- Course on debtor education: If you haven’t already, you’ll need to complete the second education class before you can get a Chapter 7 discharge.
Experienced Monroe Bankruptcy Attorney Willing to Help You File Chapter 7 After Chapter 13
We have an outstanding reputation in bankruptcy practice, and we work hard to ensure that each client has a good experience during their most vulnerable moments. Our goal is to deliver unrivaled client service while maintaining integrity, respect, and professionalism. This is why we provide our legal staff with the knowledge, authority, and ability to give our clients an unparalleled experience in pursuing their unique legal needs.
Call E. Orum Young Law now to schedule a FREE CASE REVIEW with our bankruptcy lawyer!