Can I Change From A Chapter 7 To A Chapter 13 Bankruptcy?
Can I Change From A Chapter 7 to a Chapter 13 Bankruptcy?
The short answer is yes. A better question might be “Why Would I…?”
If your attorney files your case as a Chapter 7, there are a couple of reasons to switch chapters. If you and your attorney have planned well, this should almost never be necessary, though. I have the distinction of NEVER having had a client forced into making this change. Let’s talk about the “why.”
Many of these so-called “conversions” – happen not because the client actually wants them. Instead, a case the client and his / her attorney thought was okay as a Chapter 7 drew the attention of the U.S. Trustee. The trustee is on the lookout for cases they think debtors have a duty to change from a Chapter7 to a Chapter 13, that is. They don’t seem to have a mandate to find 13’a that the debtor should have filed as Chapter 7.) When they think they’ve identified such a case, they file a motion to convert.
What Triggers a Motion to Convert a Case from a 7 to a 13?
There are basically two important factors that determine a case should be a 13 instead of a 7. The most common is cash flow. The trustee thinks the debtor is either overspending on monthly expenses or is under-reporting her income. Therefore, the trustee concludes, the debtor should pay at least some money to the creditors.
The second factor is assets. Or, more specifically, non-exempt assets. Let’s take a simple example to make the point. The debtor has a collector car. he doesn’t know it yet, but the trustee discovers that it’s a real gem worth, say, $100,000. It’s worth more than the statutory automobile exemption. Even if we add “wild card” taking that exemption up to over $30,000, it’s not enough.
As a practical matter, this situation would be dealt with the in the planning stages before the case is filed. But let’s imagine that the debtor inadvertently undervalued the vehicle, not realizing that his 1939 Studebaker was a highly desirable item. he now has a problem. So he or she has to decide: turn over the car to the Chapter 7 trustee or convert to a Chapter 13. If he converts the case, he will basically buy back the asset from the “bankruptcy estate.”
When the Unexpected Happens
Okay, it’s probably more likely you’ll be struck by lightning than that you’ll win the lottery or come into an inheritance. At least during the 180 days after your Chapter 7 is filed. But it does happen. Sometimes a relative dies unexpectedly. Or leaves an inheritance to certain persons who had no reason to expect it. The lottery scenario I have yet to encounter. The inheritance scenario I have so far encountered twice.
These “windfall events” are required to be reported. But a sizable lottery winning solves more money problems than most of my clients have ever come in to my office with. Except the $17,500,000 debt load of one unfortunate couple. A small-ish inheritance, however, is more troublesome. $40,000 is too much to keep all of it but too little to pay off all the debts of most filers. And when it’s cash, there is no point in buying it back.
The Seven “P’s” Will Save Your Chapter 7 At Every Stage
One of my favorite Chapter 7 trustees is fond of reminding bankruptcy lawyers (when they screw up) about the “Seven P’s.” Marine Corps members present and past will know exactly a drill sergeant means by this idiom. “Proper Preparation and Planning Prevents P***-Poor Performance.” I cannot count the times I have reviewed failing Chapter 13 cases and concluded that the client’s former attorney was unfamiliar with the Seven P’s. Some things can’t be foreseen. But nearly everything that can affect your case can be.