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Converting a Chapter 13 Bankruptcy Into a Chapter 7

Chapter 13 Bankruptcy
If your credit card debt, medical debt, mortgage payments, or student loans have become too much to handle, you may be mulling over the prospect of bankruptcy. For many debtors, entering a Chapter 13 repayment plan can streamline and restructure their finances enough to emerge from the plan with a manageable debt load and even a bit of savings.
Most Chapter 13 plans last between three and five years, a relatively short period over the course of a person's financial life. But in some cases, circumstances may keep a debtor from completing his or her Chapter 13 plan.
Rather than throw in the towel and go back to unmanageable monthly payments, these debtors often have the option to convert their Chapter 13 repayment plan to a Chapter 7 discharge. Read on to learn more about some of the basic procedural differences between a Chapter 13 and Chapter 7 bankruptcy and what to expect after your bankruptcy case is converted. 
Why Would a Debtor Convert From Chapter 13 Bankruptcy? 
Chapter 13 bankruptcy allows debtors to continue making payments on real estate or personal property they'd like to keep. Because of this, Chapter 13 can be ideal for individuals with high asset levels but even higher debt levels; by reducing the amount of your monthly payments while still paying enough to pay off principal, your debt load will decrease over time.
But cases where everything goes according to plan are rare. A loss of income, disability, or medical event could leave Chapter 13 debtors unable to make their plan payments. In other cases, a debtor may decide that he or she would rather relinquish the bankrupt property to get rid of the payment obligation, rendering the purpose of a Chapter 13 plan obsolete.
 When these situations happen, the debtor may opt to convert the bankruptcy to a Chapter 7.
In other cases, the bankruptcy court can order a forced conversion for any one of a number of procedural or substantive reasons. These reasons can include a failure to file your bankruptcy paperwork on time, a failure to timely make plan payments, or a failure to disclose information (like an additional source of income) that might make you ineligible for Chapter 13 relief.
If any of these situations occur, the bankruptcy court will provide you advance notice and an opportunity to respond to the conversion before it takes place, but the bankruptcy court and trustee have the ability to make the ultimate decision on your behalf.
In either event, it's important to have legal representation during the process. Bankruptcy can be complex, especially when you're dealing with multiple sources of income, real estate holdings, blended families or child support obligations, and other factors. Trying to navigate the process on your own can be tough and is likely to cost you far more in time and money than paying an attorney's fee.
What Happens After You Convert to a Chapter 7? 
If you've chosen to convert to a Chapter 7 or have gone through a forced conversion, the debt you've been paying on pursuant to your Chapter 13 repayment plan will instead be discharged.
With secured debt, like home mortgages and auto loans, you'll need to either reaffirm the debt by promising to continue paying the required monthly payment or relinquish title to the lender. This means that as long as you can afford to pay your mortgage or auto payment, you can keep your home and car.
Other consumer debt like credit card debt, medical bills, and civil collections will be discharged. This process eliminates your legal obligation to pay these loans in exchange for a red mark on your credit report and a significant point drop in your credit score.
But fortunately, after seven to ten years of responsible credit use, your credit score should be equal to or even higher than someone who has never declared bankruptcy.
For help getting through your bankruptcy journey, call on an experienced attorney like Attorney Patrick T. Smith.


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