Presto, change-o! Converting a bankruptcy case

When you file a bankruptcy case, the debtor must choose a particular chapter of the bankruptcy code (chapters 7, 11, 12 and 13 are the most common), and the rules of the chose chapter are then applied to the case.

The initial choice of chapter is not forever binding, however. Indeed, debtors have a great deal of latitude in converting an existing case from one chapter to another as need be.

Quite often, Chapter 13 cases are converted into Chapter 7’s, the usual reason being that the debtor is unable to make timely Chapter 13 plan payments to the trustee, often due to changed (i.e. worsening) financial conditions. There is a $25 fee for this conversion, representing the difference in fees between chapters ($299 for Ch. 7 vs. $274 for Ch 13).

Cases can go the other way too, although it is somewhat less common. There is no fee involved, since the debtor has already paid the full $299 on filing under Chapter 7.

On converting a case between chapters, a new trustee is appointed — once that handles the type of case for the new chapter.

One important consideration when changing to Chapter 7 from 13 is that any property acquired after the original filing date cannot be touched by the new Chapter 7 trustee — no matter what it’s value is. According to section 348 of the bankruptcy code, “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.” So after-acquired property is completely “exempt” from attachment in a converted case!

This entry was posted in Chapter 13, Chapter 7, Practical tips. Bookmark the permalink. Both comments and trackbacks are currently closed.