Can You File a Chapter 7 After Filing a Chapter 13 & Suspending Your Payments?

By Beverly Bird

One of the drawbacks of a Chapter 13 bankruptcy proceeding is that it takes a long time – a minimum of three years, and possibly as many as five. A lot can change in three to five years, and if you've committed to a Chapter 13 repayment plan, you may think you're locked in no matter what. This doesn't have to be the case.

One of the drawbacks of a Chapter 13 bankruptcy proceeding is that it takes a long time – a minimum of three years, and possibly as many as five. A lot can change in three to five years, and if you've committed to a Chapter 13 repayment plan, you may think you're locked in no matter what. This doesn't have to be the case.

How Chapter 13 Works

Chapter 13 is typically the choice of debtors who don't want to lose certain assets, such as their homes. When you enter into a court-supervised repayment plan, you can include any past due mortgage payments – or payments toward other secured assets – in the plan. If you continue making your current payments in addition to your Chapter 13 plan payments, you can keep the asset. This is in contrast to a Chapter 7 bankruptcy, where the trustee may liquidate your assets to pay your creditors.

Get a free, confidential bankruptcy evaluation. Learn More

Defaulting on Payments

If you can't keep up with your Chapter 13 payments, you have a few options. If you do nothing and just suspend your payments, the court will dismiss your case. If this happens, you can usually file for Chapter 7 immediately without too much difficulty, although it may affect your automatic stay – the provision of bankruptcy law that prohibits creditors from taking collection measures against you. If you refile within a year after your Chapter 13 dismissal, your stay is typically limited to 30 days. Another alternative is to ask the court to modify your Chapter 13 payments to more accurately reflect your current financial situation. You also have the option of converting your case to a Chapter 7 bankruptcy before the court dismisses it, and if you do this, it should not affect the automatic stay.

Converting to Chapter 7

If you elect to convert to Chapter 7 before the court dismisses your Chapter 13 case, there are a few requirements. You must pass the means test, which determines if you have enough excess income left over after paying your necessary living expenses each month to fund a Chapter 13 plan. If you've suspended your Chapter 13 payments because you can no longer afford them, this requirement may not present a problem. You must also be able to establish to the court's satisfaction that something has changed since you began your Chapter 13 plan – your income has dropped or expenses increased, so the plan payments now present a hardship. Also, you cannot have received a Chapter 7 discharge in the last eight years. If you meet these requirements, you can file a notice with the bankruptcy court to convert to Chapter 7 before the court officially dismisses your Chapter 13 case.

Some Considerations

If you filed for Chapter 13 because you wanted to save your home or some other asset, you'll lose this protection if you convert to or refile for Chapter 7. However, if you incurred new debts, such as medical bills, after you began your Chapter 13 plan, they now become eligible for discharge in Chapter 7. Your existing Chapter 13 plan would have had no effect on them.

Get a free, confidential bankruptcy evaluation. Learn More
What Can Be Done When Unexpected Expenses Happen While in Bankruptcy?

References

Related articles

Is it Possible to Keep Paying a Loan & Go Bankrupt?

Many bankruptcies involve continuing payments on existing loans--and in most cases, this is perfectly legal. The catch is that the bankruptcy court must be aware of what you're doing and must approve the payments. With some bankruptcies, it's part of the plan that you're going to keep making payments to your creditors, but you do it through the trustee, not on your own.

Will I Lose My Car if My Chapter 13 Is Dismissed?

Vehicles are one type of asset the court can address during Chapter 13 bankruptcy, but a dismissal won’t necessarily affect your ownership of a vehicle that has been paid off. Since the only creditor who can repossess your vehicle is the one who holds the loan on it, none of your other creditors can take your car. However, if your case is dismissed, you may have to sell some of your assets, including your car, to raise the cash to pay your remaining debts.

How Many Times Can You File Chapter 13?

Sometimes life can go from bad to worse. You file for Chapter 13 bankruptcy, dig out from under your debts, then a short time later, you lose your job or something else goes wrong. Your fresh start isn't so fresh anymore, and you need to file again. There's no limit to the number of times you can file for Chapter 13 protection, but you can only do it so often.

Related articles

Can a Pending Divorce Force You to Alter Your Repayment Plans or Make You Switch to a Chapter Seven?

Sometimes, life's timing can make you feel like the world is caving in on your head. If you were facing financial ...

What Happens to Chapter 13 During a Divorce?

A Chapter 13 bankruptcy filing isn’t a quick or simple procedure. You’re not eliminating your debts as you ...

Can I Go Bankrupt & Keep My House if It's in Foreclosure?

If you've fallen behind on your mortgage payments, catching up may prove challenging. Not only do mortgage companies ...

What Percentage of Secured Debt Is Repaid in Chapter 13?

Consumers who file for Chapter 13 bankruptcy enjoy a few benefits that those who file for Chapter 7 don't receive. They ...

Browse by category