Some of my clients have to file a Chapter 13 Bankruptcy because they filed a previous Chapter 7 Bankruptcy within the past eight years, and are ineligible for a Chapter 7 discharge. Very often in these Chapter 13 cases, which last three to five years, at some point during the case, their prior bankruptcy now occurred more than eight years ago, prompting the inevitable question: “Can I convert to Chapter 7 now?”
The answer, of course, is no. But let’s talk about why.
To prevent abuse of the system, the bankruptcy code limits discharges in serial bankruptcy cases to situations where a certain period of time has elapsed – the period of time depending on which chapters of bankruptcy are being considered.
The most common time limit is between two consecutive Chapter 7 bankruptcy cases. If you file a Chapter 7 Bankruptcy, you cannot get another Chapter 7 discharge for eight years.
If you filed a Chapter 13 Bankruptcy first, you cannot get a Chapter 7 discharge for six years (with exceptions, which I’m not going to get into for purposes of this discussion).
If you filed a Chapter 7 bankruptcy first, you cannot get a Chapter 13 discharge for four years. If you filed a Chapter 13 bankruptcy first, you cannot get another Chapter 13 discharge for two years (which is rare, since most Chapter 13 cases run for 3-5 years anyway).
A couple of things to note. First, of all, you do not need to be eligible for a discharge to file under Chapter 13 (meaning you can file Chapter 13 virtually anytime – again with certain restrictions and caveats). I don’t think there is a bar to filing Chapter 7 if you’re ineligible for a discharge, but it’s a colossal waste of time and money, and nobody does it.
Second, when measuring the applicable time period (2, 4, 6, or 8 years), the relevant dates to consider are the date your last bankruptcy case was filed with the court and the date your next bankruptcy case will be filed with the court. Simplified: filing dates control this issue.
However, the discharge (which occurs months (Chapter 7) or years (Chapter 13) after a bankruptcy case is filed) does come into the equation, and this generates a source of confusion. And this is where conversion comes in.
Let’s say that you filed Chapter 13 bankruptcy on October 17, 2005, completed it, and received your discharge. You would be eligible to file Chapter 7 anytime after October 17, 2011 (6 years later).
But what if, instead, you filed Chapter 13 bankruptcy on October 17, 2005, but converted to Chapter 7 on October 17, 2007 and received your discharge on December 25, 2007? Are you still eligible to file a Chapter 7 case on October 18, 2011?
The answer is no. The date of conversion and the date of discharge are irrelevant. We still look to the original filing date of October 17, 2005. However, we look at the TYPE of discharge you received. In this example, the person received a Chapter 7 discharge. It is therefore as though the person filed a Chapter 7 case on October 17, 2005, and accordingly, he cannot refile a Chapter 7 until 8 years later, on October 17, 2013.
Sound confusing? It sort of is, but it can be boiled down pretty simply. The law doesn’t care what chapter you originally filed under – it cares what chapter you ultimately received your discharge under, and the date your case was originally filed.
File date to file date, but look at the type of discharges received. 7 to 7, 8 years; 7 to 13, 4 years; 13 to 7, 6 years; and 13 to 13, 2 years.
Using this logic, you can understand why you can’t convert a case from Chapter 13 to Chapter 7 once your eight years have passed. In this example, the debtor files and receives a discharge under Chapter 7 on October 17, 2005. Under the rules, he cannot refile a Chapter 7 until October 18, 2013. In the meantime, the debtor gets into more financial trouble and can’t wait for 2013. So he files a Chapter 13 case in 2011. When October 2013 rolls around, he cannot convert to Chapter 7. Why? Because it would be as though he originally filed a Chapter 7 in 2011, which he was ineligible to do.
In order to get the Chapter 7 discharge, the debtor would have to dismiss the Chapter 13 case and re-file under Chapter 7. This happens sometimes, BUT, take caution! Remember when I said you could file Chapter 13 virtually anytime – with certain caveats and conditions? Dismissing your Chapter 13 case and refiling Chapter 7 might not be the wise thing to do. First of all, depending on the circumstances of your dismissal, you will most likely be barred from refiling ANY bankruptcy case for 180 days. Not everyone is in the situation where they can afford to go 180 days without a discharge and an automatic stay. Additionally, if your prior bankruptcy case was pending in the 365 days prior, you may be faced with an automatic stay that lasts for only 30 days, and has to be extended by the court after a showing of good faith.
P.S. If you’re wondering why I kept referencing October 17, 2005, it’s because we are now less than a year away from the eight year anniversary of BAPCPA. Prior to 10/17/05, there was a massive surge of Chapter 7 bankruptcy filings fueled by fear that people would either be forced into Chapter 13 or be prohibited from filing at all. Consequently, we do expect to have a noticeable spike in bankruptcy filings a year from now when all of those people become eligible to refile under Chapter 7. If you are not one of those people, but are struggling financially, you might want to consider visiting an attorney now before the surge.