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Why might your Chapter 7 case convert into a Chapter 13 case?

You're fine with liquidating your assets. You want to sell them off, pay off whatever debt you can and be done with it. As such, you've decided to use Chapter 7 bankruptcy. You want that fresh start with no debt.

However, the court may choose to convert that case into a Chapter 13 case, or you could find that you're eligible to file for Chapter 13 and not Chapter 7. Why does this happen?

It all comes down to income. Remember the goals. With Chapter 7, the goal is to eliminate debt and start fresh. With Chapter 13, the goal is to spread the debt -- or, at least, most of it -- out over a longer period of time so that you can pay it back.

What you can afford depends on income. If you have no disposable income at all, Chapter 7 is the right plan for you. You're not paying that debt back at any time. It's just not happening. The only value you have is in assets, which will be liquidated.

If you have enough disposable income, though, the court may rule that you need to make those monthly payments. They generally run for three to five years. That extra money makes you a prime candidate for Chapter 13 bankruptcy.

One of the key things to take away from this is that you don't always have full control over the type of bankruptcy that you use. It's not as simple as picking off of a menu. Be sure you understand how the process works, what rights you have and what options exist.

Source: FindLaw, "Pros and Cons of Declaring Bankruptcy under Chapter 7," accessed July 21, 2017

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