From Payment Plans to Fresh Starts
Life brings unexpected changes, and sometimes the financial plan you thought was perfect no longer fits your current situation. If you’re currently in a Chapter 13 bankruptcy repayment plan but finding yourself in different circumstances than when you first filed, you might be wondering: “Can I switch to Chapter 7?” The answer is often yes, and for many Florida residents, this conversion can be exactly what they need for a true fresh start.
When Life Changes Course: Common Reasons for Converting
You filed Chapter 13 with the best intentions, but circumstances have shifted. Maybe you lost your job, faced a medical emergency, or realized that keeping certain assets just isn’t worth the stress of a three-to-five-year payment plan. Perhaps you initially filed Chapter 13 to save your home, but now you’ve decided to let it go and want the clean slate that Chapter 7 provides.
The good news? Under federal bankruptcy law, specifically 11 U.S.C. § 1307(a), “The debtor may convert a case under this chapter to a case under chapter 7 of this title at any time.” This means you have an absolute right to convert from Chapter 13 to Chapter 7, provided you meet Chapter 7’s eligibility requirements.
Can I Convert My Chapter 13 to Chapter 7 in Florida?
Yes, but there’s an important requirement – you must qualify for Chapter 7 bankruptcy. This primarily means passing the means test, which examines your income and expenses to determine if you have sufficient disposable income to continue with a Chapter 13 repayment plan.
The conversion process involves several key requirements:
Income Eligibility: If your average income in the last 6 months is under the state median income for a household of the same size as yours, you automatically pass the Means Test and do not need any further qualification. For Florida residents, the current median income thresholds vary by household size.
Discharge Limitations: If you received a Chapter 7 discharge within the past eight years, you won’t be eligible for another Chapter 7 discharge, even if you convert. However, you may still benefit from the automatic stay protection and the ability to abandon unwanted property.
Good Faith Requirements: The court expects conversions to be made in good faith, not as a scheme to avoid paying creditors what they’re legitimately owed.
What Happens to My Property When I Convert?
This is where Florida’s generous exemption laws provide significant benefits. When you convert from Chapter 13 to Chapter 7, your property rights are generally determined by what you owned when you originally filed your Chapter 13 case, not what you’ve acquired since then.
Florida’s Homestead Protection: Florida has one of the most generous homestead exemptions in the United States. An individual or couple filing for bankruptcy can exempt an unlimited amount of equity in their home so long as they have owned the property for at least 1,215 days prior to filing their case. If you qualified for Florida’s homestead exemption in your Chapter 13, you’ll likely keep that protection in Chapter 7.
Motor Vehicle Exemptions: The motor vehicle exemption in Florida allows filers to claim up to $1,000.00 in equity per person filing. Married couples can claim $2,000.00. While this might seem modest, many vehicles have little equity due to depreciation and outstanding loans.
Wildcard Exemptions: In Florida, if you do not claim the benefit of the homestead exemption you are entitled to claim an additional $4,000.00 for an individual and $8,000.00 for a married couple filing jointly in personal property exemptions. This can be particularly useful if you’re willing to give up a home with little or no equity to protect other valuable assets.
The Chapter 20 Strategy: Getting the Best of Both Worlds
Some Florida residents use what’s informally called a “Chapter 20” strategy. Converting a Chapter 13 to Chapter 7 is commonly referred to as a Chapter 20 case, since the borrower gains the benefits of both Chapter 13 and 7. For instance, you may be able to modify a home mortgage with Chapter 13 and then convert to discharge the credit card bills in Chapter 7.
This approach allows you to:
- Use Chapter 13 to catch up on mortgage payments or modify loan terms
- Strip off wholly unsecured second mortgages (in some cases)
- Then convert to Chapter 7 to eliminate credit card debt and other unsecured obligations
The strategy works particularly well for homeowners who need the reorganization tools of Chapter 13 initially but want the finality and broader discharge of Chapter 7.
When Conversion Might Not Be the Right Choice
Converting isn’t always the best option. Here are some situations where staying in Chapter 13 might be more beneficial:
Priority Debts: If you have significant priority debts like recent taxes, child support arrearages, or student loans, Chapter 13’s broader discharge provisions might be more beneficial.
Asset Protection: If you have valuable non-exempt property that you want to keep, Chapter 13 allows you to retain everything as long as you can make the plan payments.
Foreclosure Prevention: If you’re still behind on your mortgage and want to save your home, Chapter 13’s ability to cure defaults over time is unmatched.
Co-debtor Protection: Chapter 13 provides protection for co-signers on consumer debts, while Chapter 7 does not.
Understanding the Florida Means Test for Conversion
The means test is the primary obstacle for conversion eligibility. If your projected disposable income is less than $7,025, you will pass the Florida Means Test. If your projected disposable income is greater than $11,725, you will not satisfy the Means Test. If the number is between $7,025 and $11,725, you may still be eligible for Chapter 7 bankruptcy – as long as that disposable income is less than 25% of outstanding unsecured debt.
Income Calculation: When calculating monthly income for your means test, you must include: gross wages, salary, tips, bonuses, overtime, and commissions (before deductions) However, Social Security benefits or government payments associated with a disability, combat-related injury or disability, or death of a uniformed services member are typically excluded.
Allowable Deductions: The means test allows you to deduct necessary living expenses, secured debt payments, priority debt obligations, and certain other expenses to determine your disposable income.
Potential Complications and How to Address Them
Several issues might complicate your conversion:
Prior Discharges: If a debtor has received a discharge under Chapter 7 within the last eight years, they will not be able to get a discharge under that chapter again if they convert from Chapter 13. Even without a discharge, conversion might still be valuable for the automatic stay protection and the ability to abandon burdensome property.
Property Acquired After Filing: Generally, property you acquired after filing Chapter 13 but before converting won’t become part of your Chapter 7 bankruptcy estate, as long as the conversion is made in good faith.
Updated Financial Information: You’ll need to update your bankruptcy schedules to reflect any changes in income, expenses, assets, or debts since your original Chapter 13 filing.
Court-Ordered Conversions: When It’s Not Your Choice
While most conversions are voluntary, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause This can happen for reasons including:
- Failure to make plan payments
- Failure to file required documents or attend meetings
- Material default under a confirmed plan
- Denial of plan confirmation without filing a modified plan
If the court is considering requiring conversion, it’s crucial to work with an experienced bankruptcy attorney to protect your interests and examine alternatives.
Steps to Take Before Converting
Before making the conversion decision, consider these important steps:
- Assess Your Current Financial Situation: Has your income decreased significantly? Have your expenses increased? These changes might make you eligible for Chapter 7 even if you weren’t initially.
- Review Your Property: Determine whether you can protect all your important assets under Florida’s exemption laws. Remember, you might lose non-exempt property in Chapter 7.
- Calculate the Means Test: Work through the calculation to ensure you’ll qualify for Chapter 7. This is complex, and professional help is often worthwhile.
- Consider Timing: If your income has recently decreased, waiting a month or two might improve your means test results.
- Evaluate Your Goals: Are you trying to eliminate debt quickly, protect specific assets, or address particular types of obligations? Make sure conversion aligns with your objectives.
What Debts Get Discharged After Conversion?
The discharge you receive in Chapter 7 after conversion is generally the same as any other Chapter 7 discharge. This means you can eliminate:
- Credit card debt
- Medical bills
- Personal loans
- Certain older tax debts
- Utility bills
- Most unsecured debts
However, certain debts typically survive even a Chapter 7 discharge:
- Recent taxes
- Student loans (in most cases)
- Child and spousal support obligations
- Debts incurred through fraud
- Criminal fines and restitution
Notably, Debts that you incurred after filing under Chapter 13 can be included and discharged in the Chapter 7 proceeding if they are dischargeable.
Working with Creditors During Conversion
The automatic stay that protects you in Chapter 13 continues during the conversion process and throughout your Chapter 7 case. This means creditors must stop collection efforts, lawsuits, foreclosures, and repossessions while your case is pending.
However, secured creditors (like mortgage and car loan companies) may seek relief from the automatic stay if you’re not making payments. If you want to keep secured property, you’ll need to continue making payments or work out arrangements with these creditors.
Common Mistakes to Avoid
Several problems can complicate or prevent a successful conversion:
Incomplete Financial Disclosure: Failing to update your schedules with current financial information can lead to problems with the trustee or court.
Assuming Exemptions Will Apply: Don’t assume that exemptions available in other states will protect your property in Florida. Make sure you qualify for Florida exemptions or understand which state’s exemptions apply to your case.
Ignoring Secured Debts: Conversion doesn’t eliminate your obligations on secured debts. If you want to keep your car or home, you’ll need to stay current on payments or work out arrangements with lenders.
Poor Timing: Converting too early or too late can affect your eligibility or the protection of your assets. Proper timing can make a significant difference.
Life After Conversion: What to Expect
Once your Chapter 7 case is complete, you’ll receive a discharge that eliminates your qualifying debts. This typically happens about 90 days after conversion, providing you with a much faster resolution than completing a Chapter 13 plan.
The discharge provides a genuine fresh start. You’ll no longer owe the discharged debts, creditors can’t attempt to collect them, and you can begin rebuilding your financial life without the burden of a multi-year payment plan.
Your credit report will show the bankruptcy, but many people find they can begin rebuilding credit relatively quickly after Chapter 7, especially compared to being in a Chapter 13 plan for years.
Key Takeaways
Converting from Chapter 13 to Chapter 7 in Florida can provide significant benefits for debtors whose circumstances have changed or who want a faster resolution to their debt problems. The key points to remember:
- You have an absolute right to convert if you meet Chapter 7 eligibility requirements
- Florida’s generous exemption laws, particularly the unlimited homestead exemption, often protect your most important assets
- The process is relatively quick and inexpensive, with a $25 filing fee and completion typically within 90 days
- You must pass the means test, which considers your income and expenses over the past six months
- The “Chapter 20” strategy can provide benefits of both bankruptcy chapters
- Prior Chapter 7 discharges within eight years may prevent you from receiving another discharge
- Professional guidance is valuable given the complexity of bankruptcy law and the importance of timing
Converting from Chapter 13 to Chapter 7 isn’t right for everyone, but it can be an excellent option for Florida residents who qualify. The decision requires careful analysis of your financial situation, your goals, and the likely outcomes under each chapter.
Frequently Asked Questions
Q: How long do I have to wait after filing Chapter 13 to convert to Chapter 7? A: You can convert at any time. There’s no waiting period required under federal bankruptcy law.
Q: Will converting hurt my credit score more than staying in Chapter 13? A: Both chapters appear on your credit report, but Chapter 7 typically provides a faster path to rebuilding credit since it concludes more quickly than a 3-5 year Chapter 13 plan.
Q: Can I convert back to Chapter 13 if I change my mind? A: While theoretically possible in some limited circumstances, this is extremely rare and not recommended. The conversion decision should be made carefully with full consideration of the consequences.
Q: Do I need a lawyer to convert from Chapter 13 to Chapter 7? A: While not legally required, the complexity of bankruptcy law and the importance of properly protecting your assets make attorney representation highly advisable.
Q: What happens to the payments I already made in Chapter 13? A: Money already paid to the Chapter 13 trustee may be distributed to creditors according to your confirmed plan, or held until the conversion is complete. Your attorney can explain what happens in your specific case.
Q: Can the court force me to convert even if I don’t want to? A: Yes, but only for specific reasons like failure to make plan payments or comply with other Chapter 13 requirements. Voluntary conversion is much more common.
Q: Will I lose my house if I convert to Chapter 7? A: Not necessarily. Florida’s generous homestead exemption protects unlimited equity in your primary residence if you meet the requirements. However, you must continue making mortgage payments to avoid foreclosure.
Q: Can I include new debts that I incurred after filing Chapter 13? A: Yes, debts incurred after your original Chapter 13 filing can typically be included and discharged in your Chapter 7 case, as long as they’re otherwise dischargeable.
Contact Rivera Law Firm, P.A. – Your Path to Financial Freedom Starts Here
Making the decision to convert from Chapter 13 to Chapter 7 is significant, and you shouldn’t have to figure it out alone. At Rivera Law Firm, P.A., we focus on helping West Palm Beach area residents find the best path forward when their financial circumstances change.
Our team has extensive experience with both Chapter 13 and Chapter 7 bankruptcies, and we understand the unique aspects of Florida bankruptcy law that can make a real difference in your case. We’ll review your specific situation, help you determine if conversion makes sense, and guide you through every step of the process.
Whether you’re struggling to keep up with Chapter 13 plan payments, your financial situation has improved or worsened significantly, or you simply want to explore your options, we’re here to help. We believe everyone deserves a genuine fresh start, and sometimes that means changing course to find the best path forward.
Don’t spend another day wondering if there’s a better option for your financial future. Contact Rivera Law Firm, P.A. today to schedule your consultation and determine how Chapter 7 conversion might be the solution you’ve been seeking. Your financial freedom is too important to leave to chance – let us help you make the informed decision that’s right for your unique situation.
