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.

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.

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.

Get a free, confidential bankruptcy evaluation. Learn More

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
How to Reduce the Payments to the Court Trustee in a Bankruptcy
 

References

Related articles

Defaulting on Chapter 13

Chapter 13 is called a wage earner's bankruptcy for a reason -- you need enough disposable income each month after paying your living expenses to fund a repayment plan through the bankruptcy trustee. You must give him your extra money each month for three to five years, and he apportions it among your creditors. In exchange, your property is not subject to liquidation. If you fail to make your payments to the trustee, however, you could find yourself right back in the situation you were in before you filed for bankruptcy protection.

Difference Between Bankruptcy Closing & Dismissal

When your bankruptcy case comes to an end, it is said to have closed, but how it closes could have a significant impact on your liability for your debts. For example, if the court discharges your bankruptcy, you are no longer liable for your debts. If your bankruptcy is dismissed, however, you are still on the hook for payment. Even worse, the automatic stay that prevents creditors from coming after you during the bankruptcy process can be shortened or eliminated altogether if you file for bankruptcy again in the future.

Can You File Bankruptcy Again If You Have Filed Before, But it Didn't Go Through?

When you file for bankruptcy, you usually want to have your obligations to creditors discharged, or extinguished, so that you can have a fresh financial start in life. However, your case can be dismissed before the discharge is entered, or your discharge can be denied by the court. In most cases, you can file for bankruptcy again, but you might have to sit out a waiting period and, sometimes, the relief you may receive in any subsequent bankruptcy is limited.

Related articles

What Can Be Done When Unexpected Expenses Happen While in Bankruptcy?

Filing for bankruptcy doesn't stop time in its tracks. Your life goes on, and events you had no way of anticipating can ...

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 ...

Filing for Bankruptcy Vs. Paying Old Collections and Charge-Offs

If you're struggling to dig out from under a mountain of debt, you've probably considered your various options many ...

Maximum Time for a Chapter 13 Bankruptcy

The amount of your income is a qualifying factor for both Chapter 7 and Chapter 13 bankruptcies. For Chapter 7, it ...

Browse by category
Ready to Begin? GET STARTED