Bankruptcy – Conversions

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    Converting Between Chapter 7 and Chapter 13 Bankruptcy

    📌 What Conversion Means

    Conversion is when a bankruptcy case is switched from one chapter to another — most commonly:

    • Chapter 7 ➜ Chapter 13 (“up-conversion”)

    • Chapter 13 ➜ Chapter 7 (“down-conversion”)

    The Bankruptcy Code allows these conversions under 11 U.S.C. §§ 706, 1307, and 348, provided certain requirements are met.

    🔄 Converting Chapter 7 ➜ Chapter 13

    Why Convert:

    • Save home or car by catching up on missed payments over time

    • Protect non-exempt assets that might otherwise be liquidated by the Chapter 7 trustee

    • Deal with priority debts (e.g., taxes, domestic support arrears) in an organized repayment plan

    Requirements:

    • Debtor must be eligible for Chapter 13 (regular income, debt limits under § 109(e))

    • Must propose a feasible plan and show ability to make monthly payments

    • Must not have received a Chapter 7 discharge in the last 8 years

    Effect of Conversion:

    • Case keeps the same filing date

    • Automatic stay remains in place

    • Chapter 13 trustee is appointed; payments begin promptly

    🔄 Converting Chapter 13 ➜ Chapter 7

    Why Convert:

    • Loss of income or other hardship makes plan payments impossible

    • Want a faster discharge of unsecured debts

    • Avoid dismissal for plan default

    Requirements:

    • File notice or motion to convert under § 1307(a)

    • Must qualify for Chapter 7 (pass means test, no recent 7 discharge)

    • Property of the estate re-determined as of the conversion date (special rules apply)

    Effect of Conversion:

    • Chapter 13 plan stops; trustee files final report

    • Non-exempt property as of conversion date may be liquidated by Chapter 7 trustee

    • Certain debts incurred after filing but before conversion may be treated differently

    ⚖️ Key Considerations

    • Strategic timing matters: Converting early can protect more property or avoid dismissal.

    • Plan feasibility is crucial: When moving to 13, prepare updated schedules and a realistic budget.

    • Attorney and trustee fees: Each chapter has different fee structures and trustee roles.

    Converting Between Chapter 7 and Chapter 13

    Factor Chapter 7 ➜ Chapter 13 Chapter 13 ➜ Chapter 7
    Why Convert • Save home or car from foreclosure/repossession
    • Catch up on arrears over time
    • Protect non-exempt assets from liquidation
    • Deal with priority debts (taxes, support)    		 • Loss of income makes plan infeasible
    • Want quicker discharge of unsecured debt
    • Avoid dismissal for missed plan payments
    Eligibility • Must have regular income
    • Debts must be below §109(e) limits
    • Must not have a recent Ch. 13 bar to refiling    		 • Must pass Ch. 7 means test (or show special circumstances)
    • Must not have received Ch. 7 discharge in last 8 years
    Effect on Case • Filing date stays the same
    • Automatic stay continues
    • Ch. 13 trustee appointed
    • Must file feasible plan and start payments quickly    		 • Ch. 13 plan stops
    • Property of the estate re-determined as of conversion date
    • Ch. 7 trustee may liquidate non-exempt assets
    Advantages • Keep property that would have been sold in Ch. 7
    • Cure arrears over 3–5 years
    • Consolidate debts into one payment    		 • Often results in quicker discharge
    • Ends obligation to make plan payments
    • Can reduce legal/administrative burden
    Risks / Downsides • Must maintain payments for 3–5 years
    • Failure can lead to dismissal or reconversion
    • More expensive (trustee percentage + attorney fees)    		 • May lose non-exempt property
    • Certain debts (mortgage arrears, car loans) not restructured — risk of foreclosure or repossession
    Procedure • Motion or notice to convert under §706(a)
    • File amended schedules & plan    		 • Notice or motion to convert under §1307(a)
    • Update schedules if needed

    ⚖️ Practice Tip

    When counseling clients, discuss:

    • Goals (keep house vs. quick discharge)

    • Ability to pay going forward

    • Impact on property and creditors

    • Timing — sometimes conversion early in the case preserves more assets