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Can a Chapter 13 bankruptcy be converted to a Chapter 7?

Consumers in the midst of Chapter 13 bankruptcies sometimes find that the payments are too onerous to keep up with. They may wonder about the possibilities of converting their bankruptcy filing from a Chapter 13 to a Chapter 7 and still retain possession of the family home.

While there are exceptions to everything, in general this is either not possible or a very risky venture. Below are the reasons why.

Many consumers wind up filing Chapter 13 instead of 7 because they are disqualified from the latter via the means test, i.e., they earn too much money. So unless their circumstances are radically altered, this option remains unavailable.

Another problem facing homeowners who wish to convert to Chapter 7 is that their mortgage lender was initially unwilling to cooperate with them to modify their home loan. While it is not impossible that a lender could change direction and decide now to work with the homeowners, it is definitely unlikely.

However, homeowners who stay the course and continue to make their scheduled mortgage payments under the terms of their Chapter 13 bankruptcy will not have to face uncertainties about the agreement. Even those that were delinquent on their payments will have between three to five years to catch up on the balance in incremental payments.

Still other homeowners forced into bankruptcy have more equity in their homes than is able to be protected by filing Chapter 7. For them, Chapter 13 remains the only viable option.

In cases where there are second or third mortgages in place, your bankruptcy attorney can advise as to whether or not filing Chapter 13 will discharge severely underwater mortgages.

Source: Bankrate, "Failed Chapter 13 bankruptcy may cost home," Justin Harelik, accessed May 16, 2017

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  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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