When you file for Chapter 13 bankruptcy, you enter into a repayment plan to pay back some or all of your debts over three to five years. You don't lose any of your property, but instead fund your plan through your income.
Unfortunately, many people who file for Chapter 13 are unable to complete their repayment plans. In Chapter 13, you must repay certain debts in full (such as child support and back taxes). You must pay all of your disposable income (as defined by the law, not by your checkbook) into the plan. This can result in a fairly large monthly payment, sometimes too large for filers to make while still paying their other bills. Even if you could afford the monthly payment when you began your plan, you might face a change in circumstances (job loss or disability) that cuts your income significantly. In this situation, you may be considering converting your case to Chapter 7.
When Can You Convert to Chapter 7?
You have the right to convert your Chapter 13 case to Chapter 7 at any time, as long as you haven't received a Chapter 7 bankruptcy discharge within the last eight years.
How to Convert Your Case
To convert your case, you must file a motion with the court. Some courts have forms you can use for this purpose; if yours doesn't, ask the trustee for help. The motion will be granted automatically, without a court hearing. You may have to notify your creditors of the conversion; again, the trustee should be able to tell you what's required in your court.
Typically, the forms you filed in your Chapter 13 case will be used in your Chapter 7 case. However, your court may require you to file a new set of forms, even if nothing has changed. You will also have to file a Statement of Intention, which is required in Chapter 7 but not Chapter 13.
Will You Be Eligible for Chapter 7 Bankruptcy?
If you convert your case to Chapter 7, you still must be eligible for Chapter 7 in order to proceed with the case. There are several eligiblity requirements for Chapter 7. The one that trips up most people is the means test. The means test looks at your income and expenses -- if you have too much left over income you may not be eligible for Chapter 7. However, whether the means test applies to converted cases is not clear. Some courts say debtors in coverted cases must pass the means test; others say those debtors don't have to pass.
To learn more, see The Means Test and Other Eligibility Requirements.