The case law with regard to whether a chapter 7 debtor has the right to convert from a chapter 7 to a chapter 13 is open and not settled. There may be a scenario in which a debtor files a Chapter 7 case and subsequently determines that he/she does not meet the criteria for Chapter 7 or that the trustee wishes to sell a valuable asset. Under this scenario, depending on the circumstances, the debtor may be permitted to convert to a Chapter 13 for the purpose of avoiding a dismissal and/or the sale of an asset. Under all circumstances the debtor may only convert if the debtor(s) meet the chapter 13 criteria.
Typically, the debtor is permitted to convert if the chapter 7 trustee is not interested in selling an asset. Generally, if the chapter 7 trustee is interested in selling an asset, the debtor may convert, but must convert back to the chapter 7, if the debtor is unable to complete the chapter 13 case. If the case was previously converted from a chapter 13 to a chapter 7, the debtor may only convert a second time, with the permission from the court. This means that a second conversion is not permitted as of right.
Conversion from a Chapter 13 to a Chapter 7
As explained in our section about how a chapter 13 bankruptcy works, in general, a person may file for Chapter 13 bankruptcy protection for various reasons, which may include the following:
- pay a portion of the unsecured debt through the bankruptcy plan due to the failure to meet the Chapter 7 criteria;
- save the house or other property from foreclosure or repossession;
- protect assets from the sale of a Chapter 7 trustee.
However, the debtor may be unable to complete the chapter 13 bankruptcy case, due to financial reasons or other problems. If the debtor is unable to comply with the chapter 13 bankruptcy plan, the case will ultimately be dismissed. If the case is dismissed, he/she will no longer be protected from any creditors. The debtor may avoid the dismissal of the chapter 13 and convert to a chapter 7. Typically, at the time of the conversion, the debtor’s household income must be less than their monthly necessary and reasonable expenses.