My old friend Phil, a lawyer who is currently serving our country in Iraq emailed me with a question. A soldier there wants to convert from a Chapter 13 to a Chapter 7 – what is involved?
Here are the things I would address to answer this question. First of all, I think that the jurisdiction for filing a conversion is the same jurisdiction where the original Chapter 13 was filed. I am not aware of any rules regarding the jurisdiction of soldiers out of the country, but I could be mistaken about this.
Second, be aware that there is a “Soldiers and Sailors” Act which can provide protection for military personnel, i.e. limitations on foreclosures, repossessions and evictions. I suspect that Phil may have a better understanding about these rules than I do. The question, therefore – does the Soldiers & Sailors Act provide sufficient protection such that a conversion is not necessary and/or what protection would be offered if the solder converts to a Ch. 7.
Third, with regard to a conversion, it is a matter of right (unless there is a court order to the contrary). A Chapter 13 debtor can convert to Chapter 7. When you convert, you need to file new schedules, and show that your budget no longer has disposable income.
I believe that if your case was filed pre-October 17, 2005, the “old rules” for Chapter 7 apply and if it was filed after October 17, 2005, you need to go thru the median income/means test analysis.
The biggest practical issue I see with conversions has to do with secured debt. In a Chapter 13, the rights and payments to secured creditors (cars, furniture, jewelry, real estate) are modified. For example, if your car note calls for $350 per month, and you file a Ch. 13, the car lender may only get $200 per month from the trustee. While you are in a confirmed Ch. 13, the car lender has to accept these reduced payments. Upon conversion, however, the car lender will revert back to the contract and you may very well be several months delinquent.
Since reaffirmation of a secured debt is voluntary in a Chapter 7, the lender may not want to enter into a reaffirmation agreement.
Similarly, a Chapter 13 can provide that co-debtors are protected by paying co-signed debts in full under the Ch. 13 plan. Upon conversion, the co-debtors may be exposed because the bankruptcy stay will come to an end when the case is closed.
The bottom line is that the soldier needs to understand the repercussions of conversion. Assuming he had a lawyer to file his Ch. 13, he needs to communicate with that lawyer about the conversion. With tools like e-mail and Skype this communication may be feasible.
That is my take on Phil’s question. And, with much appreciation to Phil, his soldier client and all of our military personnel serving in Iraq, this post is closed.