- Chapter 13 bankruptcy allows you to keep your property and repay your creditors some or all of your debt. Chapter 13 is ideal for consumers who are behind on their house payments or their car payments, because you can catch up on your mortgage and pay off your car through the Chapter 13 plan over a period of three to five years. A trustee collects payments from you and uses the money to pay your creditors. If you're current on your house and car loans, and you file Chapter 13 for other reasons, you can continue to make your house and car payments outside the plan, directly to the creditor.
- Chapter 7 bankruptcy is a liquidation. A trustee sells any non-exempt assets to repay your creditors; the rest of your debt is discharged. Most debtors, however, are able to keep most or all of their property. If you have a house payment or a car payment in a Chapter 7, you can keep the house and the car, if you agree to continue making payments as if the bankruptcy never happened. If you're behind on the house or the car, however, you must typically surrender the property. You walk away from the loans, give back the house and the car, and end up debt free.
- You can convert your case from a Chapter 13 to a Chapter 7 as long as you qualify for a Chapter 7 discharge. Conversion is the process by which your case ceases to be a Chapter 13 and becomes a Chapter 7. Your Chapter 13 trustee is released from her duties, and a Chapter 7 trustee is appointed over your case.
- If you were current on your house and your car before you filed Chapter 13 and were still current on the payments when you converted your case to Chapter 7, you can keep your house and your car, if you can show the court that you can afford the payments. If you're behind on the payments when you convert the case, or if you were paying for the house or the car through the Chapter 13 plan because you were behind when you filed Chapter 13, you will likely have to surrender the property. Even if you were current on your Chapter 13 plan payments, the mortgage lender and the car lender will not consider you current if you were paying through the Chapter 13 plan, and you convert to Chapter 7.
- This article is for informational purposes only and should not be construed as legal advice. Talk to your bankruptcy attorney about your options before you convert your case. Every jurisdiction is different.
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