Motion to convert allows debtors to change bankruptcy when finances change
For some debtors, financial circumstances may change significantly while they are in the process of bankruptcy. In those cases, the U.S. Bankruptcy Court offers them an opportunity to change the type of bankruptcy they have filed.
The court allows debtors to file a "motion to convert" when they decide that another chapter within the bankruptcy code would better meet their needs. For instance, if an individual's financial situation improves after filing under Chapter 7 - in which all non-exempt property must be sold to pay off creditors - they may want to convert to a Chapter 13 petition. The court may agree that their improved financial outlook will allow them to make monthly payments under a plan to repay creditors over several years, which is required under Chapter 13, according to FilingBankruptcyForm.com.
However, if the debtor's finances take a downward turn, they have the right to convert from Chapter 13 to Chapter 7, which is faster and will eliminate all unsecured debts, such as credit card balances and medical bills, once a discharge is granted.
To make the change, a motion to convert must be filed with the court, along with updated financial records, recent tax returns and proof of unemployment if the debtor has lost his or her job and now has reduced finances. In some cases, a debtor may be eligible to receive a refund of some of the payments made under the Chapter 13 repayment plan if the trustee hasn't forwarded them to creditors.
The individual would then follow all the requirements of a Chapter 7 case, and would have the ability to add debts incurred since the Chapter 13 petition was filed.
As long as the debtor has not already made a bankruptcy conversion and is eligible for a Chapter 7 filing, a conversion can take place at any time for any reason. "This is an absolute right, and there are no restrictions," states Maryland attorney Brett Weiss, writing for BankruptcyLawNetwork.com. The most common reasons why debtors make such a change is their inability to keep up with court-ordered payments under a Chapter 13 plan or to make mortgage or car payments. If debtors are likely to lose their house or car anyway, Weiss advises that converting to a Chapter 7 case makes sense because the debtor will no longer be liable for any loss that occurs when the property is sold.
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