You can convert Chapter 13 to Chapter 7 at any time while your case is open. Section 1307(a) of the Bankruptcy Code gives the debtor that right, and it cannot be waived. Conversion is most often used after a job loss or income drop makes plan payments impossible, but it changes what happens to your property, your remaining payments and any liens stripped in the plan.
Common reasons people convert
A Chapter 13 plan is built on a budget that must hold for three to five years. Life does not always cooperate. The situations that most often lead filers to switch include:
- Job loss or reduced hours. The plan payment no longer fits, and a modification cannot bring it down far enough.
- Illness, disability or a death in the family. Household income falls for the foreseeable future.
- The house is no longer the goal. Many people choose Chapter 13 to catch up on a mortgage. If you decide to sell or surrender the home, the main reason for the plan disappears.
- Divorce or separation. A two-income plan may not work on one income.
If one of these describes you and payments are already slipping, call (415) 754-0115 to schedule a free consultation before the trustee moves to dismiss, or use our contact page. A conversion filed in time can deliver a discharge that a dismissal never would.
Eligibility to convert Chapter 13 to Chapter 7
The right to convert is broad, but receiving a discharge in the converted Chapter 7 case is a separate question.
The means test at conversion
Courts have not all agreed on how the means test applies to converted cases, and the analysis can depend on the court. In practice, attorneys generally run the means test with your current income. If a job loss has pulled your recent six-month average below the California median, this usually is not a barrier. If your income is still relatively high, it deserves careful review before you file the conversion notice. Our guide to the California bankruptcy means test explains the calculation.
Time limits between discharges
Chapter 7 does not allow a discharge if you received a Chapter 7 discharge in a case filed within the previous eight years. If you had an earlier bankruptcy, check the dates before converting.
Good faith
A conversion made in bad faith, such as hiding assets or manipulating income, can bring harsher treatment of property and may lead the court to deny relief. Honest conversions after a genuine change in circumstances are routine.
What happens to your property
This is where conversion requires the most thought, because Chapter 7 involves a trustee who can sell non-exempt property.
Property measured from your original filing date
Under section 348(f), when a good-faith debtor converts, the Chapter 7 estate generally consists of property from the original Chapter 13 filing date that you still own or control on the conversion date. Property acquired during the plan, such as wages earned after filing, generally stays out of the Chapter 7 estate.
Home equity after years in a plan
In the Ninth Circuit, which includes California, courts have held that an increase in home value between the original filing and the conversion can belong to the Chapter 7 estate, so years of appreciation may be exposed to a trustee. If your home has appreciated significantly in Pleasanton, Dublin or another Tri-Valley market, an attorney should compare that equity with your California homestead exemption before you convert.
Liens stripped in the plan
If your Chapter 13 plan stripped a wholly unsecured second mortgage or HELOC, that lien strip generally depends on completing the plan and receiving a Chapter 13 discharge. Converting to Chapter 7 usually undoes it, and the junior lien stays on the property.
Cars and other secured property
In Chapter 7 you will need to keep paying secured lenders to keep collateral, or choose to surrender or redeem it. Arrears that were being cured through the plan must be addressed directly with the lender.
What happens to your plan payments
- Payments stop. Once the case converts, your Chapter 13 plan obligation ends.
- Funds the trustee still holds. Under the Supreme Court's 2015 decision in Harris v. Viegelahn, post-filing wages the Chapter 13 trustee has not yet distributed are generally returned to the debtor after conversion.
- Payments already distributed stay with creditors. They reduce what you owe but are not refunded.
- Debts incurred during the plan. Debts that arose after the Chapter 13 filing but before conversion can generally be treated as if they arose before filing, so they can be included in the Chapter 7 discharge.
How the conversion works, step by step
Attorney Bob Somal handles conversions for Pleasanton, Tri-Valley and East Bay filers as part of The Somal Law Firm's Chapter 7 and Chapter 13 bankruptcy practice. The process generally runs like this:
- Your attorney files a notice of conversion. In most cases no hearing is needed.
- You file updated schedules showing current income, expenses and any post-filing debts.
- A Chapter 7 trustee is appointed and a new 341 meeting of creditors is scheduled.
- You complete the financial management course if you have not already.
- If no one objects, the Chapter 7 discharge typically follows a few months after conversion.
Before anyone files the notice, it pays to answer a short list of questions. Is any non-exempt property now at risk that was safe inside the plan? Is there a vehicle or home you want to keep, and can you stay current on it without the plan's help? Has anything changed that the new schedules must disclose, such as an inheritance, a lawsuit you could bring, or a tax refund? Deciding to convert Chapter 13 to Chapter 7 is usually simple on paper, but those answers determine whether it is the right move.
For a side-by-side view of the two chapters, see Chapter 7 vs. Chapter 13 bankruptcy.
Frequently asked questions
Can the trustee or a creditor force a conversion?
They can ask the court to convert or dismiss a Chapter 13 for cause, such as missed payments. The judge decides which outcome is in the best interest of creditors and the estate.
Should I convert or seek a hardship discharge?
Conversion usually discharges more debts, but it brings a trustee's review of non-exempt property. An attorney can compare both against your assets.
Will I lose my house if I convert?
Not necessarily. It depends on equity, your exemption and whether you can stay current on the mortgage outside a plan.
A plan that no longer fits your life does not have to end in dismissal. Call (415) 754-0115 or use our contact form to request a free consultation. We will review your plan, your property and your current income, and explain whether converting is likely to help.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.