In recent months, many Georgian families have made the difficult decision to file bankruptcy in order to alleviate their financial burdens and to better position themselves to improve their family finances.
There are two different types of bankruptcies that families or individuals can file – Chapter 7 and Chapter 13. Before attempting to file bankruptcy on your own, it is highly recommended that you work with an experienced attorney who can help you decide if Chapter 7 or Chapter 13 is better for you and your family.
Why Would I File Chapter 7?
Chapter 7 bankruptcy is ideally suited for an individual or family whose income is not even close to covering their debts. The purpose of Chapter 7 is for the bankruptcy court to discharge (i.e. forgive) the family’s debts. While debt forgiveness is very attractive, Chapter 7 does not mean that the family’s creditors get nothing. Most of the time the home, cars, and personal property will be exempt from sale by the trustee, but sometimes they cannot be exempt. Instead, the bankruptcy trustee assigned to oversee the case can sell the family’s house, car, and other property in order to pay off as much of the debt as possible – with the remaining debt being discharged after the bankruptcy concludes.
Additionally, it should be noted that not everyone can qualify to file a Chapter 7 bankruptcy. The bankruptcy court can decide that the family makes too much money and should have filed a Chapter 13 bankruptcy instead.
Why Would I File Chapter 13?
Chapter 13 bankruptcy is better suited for families who have access to a sufficient level of income but have just let their bills get a little out of hand. In Chapter 13, the bankruptcy court works with the family to come up with a repayment plan that will allow the family to pay its creditors over a period of about 5 years (though the length of the plan may vary from case to case).
Unlike Chapter 7, in Chapter 13 no one sells any of the debtor’s property in order to pay the creditors (because the debtor him or herself will be paying the creditors over the life of the repayment plan). This aspect of Chapter 13 bankruptcy makes it very attractive to many prospective debtors.
Converting from Chapter 7 to Chapter 13
It is possible for a debtor (i.e. the person who files the bankruptcy petition) to convert the case from a Chapter 7 to Chapter 13. There are many possible reasons for chapter conversion but one of the most frequent causes is that the debtor did not know he/she did not qualify for Chapter 7 and filed it by mistake. In order to avoid the case being dismissed by the bankruptcy court, the debtor needs to convert the case to Chapter 13.
In order to convert the bankruptcy case from Chapter 7 to Chapter 13, the debtor (or the debtor’s attorney) needs to file a motion requesting the conversion with the bankruptcy court. The motion must also inform the court of the reasons why the debtor now seeks to convert the case and must provide proof that the debtor can afford to make a repayment plan as required by Chapter 13.
Does Converting Hurt My Bankruptcy Case?
Filing a motion to convert a case from Chapter 7 to Chapter does not detrimentally affect the case because every debtor has the right to convert a case – but only one time. The conversion motions are usually approved, but there is always the possibility that the court could deny the motion because the judge finds that the debtor acted in bad faith (i.e. committed fraud or lied) or that the debtor cannot afford to file Chapter 13 bankruptcy.
The possibility (or necessity) of converting a Chapter 7 case to a Chapter 13 case is just one reason why it is highly recommended that Georgians who are interested in or have questions regarding bankruptcy contact an experienced attorney to discuss these critically important issues.
Contact our office today to speak to one of our attorneys who can explain these issues to you and assist you with your case.