Converting From Chapter 7 Bankruptcy to Chapter 13 Bankruptcy

If you are reading this page, then you are likely looking for some form of help. Maybe you are looking to consolidate your debt or maybe you are looking to have a fresh start and wipe out your debt; however, at The Sellers Law Firm we are here to offer assistance and find ways to protect your car, home, and wages from your creditors. Remember, all consultations are free, our phones are answered 24 hours a day, and there is no up-front attorney’s fee to file a Chapter 13 bankruptcy! 

The two types of bankruptcy protections for individuals are found under Chapter 7 and Chapter 13 of the Unites State Bankruptcy Code. There are different requirements or tests associated with determining a person’s eligibility for each kind of individual bankruptcy. There are also separate goals associated with filing one type over another. Sometimes there are even reasons to convert from Chapter 7 to a Chapter 13 or even vice-versa. In this article we will explain how, why, and when a person may switch from a Chapter 7 bankruptcy to a Chapter 13 bankruptcy, and the Montgomery, Selma and Central Alabama bankruptcy lawyers at The Sellers Law Firm can explain and guide you through the process.

Chapter 7 bankruptcy protection is often referred to as straight bankruptcy, liquidation, or fresh start. This is because a person may elect to surrender the security to a secured creditor, which leaves any remaining debt as unsecured as to that creditor. All pre-petition listed non-priority unsecured debt would then be discharged and no longer collectable from the person by the creditor. Some of the tests that are used to determine if a person can file a Chapter 7 is the means test, equity test, and the good faith test. The means and good faith tests both look at your income and either compares that to your expenditures, for good faith, or an amount determined by the Federal Government as median income (average income) for the area you live in and the number of people in your household. If you exceed the threshold amount for the means test, after taking certain deductions, then you will be required to file a Chapter 13 and pay some percentage of your unsecured debt. Under the good faith test, your income is compared to your monthly expenditures to determine your disposable income. If this disposable income allows you to pay a certain amount of your unsecured debt, then you must file a Chapter 13. The equity test simply determines if you have excess equity in real or personal property above certain exemption levels than you would need to buy that equity back from the trustee. As an example, Alabama allows an individual to retain $15,500 equity in their residence. If you own and live in a home valued at $31,000.00 with no mortgage then you would have $15,500 worth of equity and could either hand the property to the trustee to sell or buy the equity back from the trustee in a Chapter 13.

Chapter 13 bankruptcy protection is often called a reorganization, although it is often referred to as a consolidation situation. The Chapter 13 needs to be filed if you failed the good faith or means test or if you need to buy back excess equity for real or personal property from the trustee. However, a Chapter 13 may also be used to cure (catch-up) back payments for mortgages, cars, taxes, and/or child support. All these tests and considerations are used by the Montgomery, Selma and Central Alabama bankruptcy lawyers at The Sellers Law Firm when advising you on filing for bankruptcy protections. 

So why would an individual under bankruptcy protection switch from a Chapter 7 to a Chapter 13? First and foremost, would be due to a discovery of possible excess equity. For instance, a person filed a Chapter 7 after a family member passes away. Then during the Chapter 7 the individual discovers the family member left the family farm to him without any debt. Then the person, wanting to protect the family property, could switch to a Chapter 13 where he or she has the opportunity to keep the farm. Also, the individual’s financial situation may have changed from a new job and he can now afford to keep some items that were planned to be surrendered in the Chapter 7. Under a Chapter 13 a person can consolidate their financial situation and keep some additional property. Finally, there are some debts that can be discharged under a Chapter 13 that are non-dischargeable in a Chapter 7 such as property settlement debts from a divorce, and debts used to pay a tax bill. So, there are times when an individual may convert a bankruptcy petition from a Chapter 7 to a Chapter 13, and the Montgomery, Selma and Central Alabama bankruptcy lawyers at The Sellers Law Firm are willing and able to assist you with any bankruptcy questions or issues.

For your convenience, we have offices located in Montgomery, Selma, Greenville, and Troy. Consultations are always free, and our phone lines are answered 24 hours a day. We can usually meet with you within 24 hours! You may reach us by calling or texting 334-LAWYERS (529-9377) or by using the Contact Form on our website. You may also email us at bsellers@sellerslawfirm.com. Remember that doing nothing changes nothing so act now!