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Bankruptcy/chapter23 convert to chapter 7
The wage attachment order is attached. Please give it to your payroll office to process ASAP.
Because the wage attachment was not put into place, the Trustee is missing your August payment and the trustee sent the attached notice that I sent to you on 9/8. You must get $594.66 to the trustee’s office (via TFS) by 9/18 or the case will be dismissed. Please send me a screen shot or some other proof of payment so that I can show that the trustee to prevent dismissal of the case.
Keep in mind that for your August and September payments, you will need to monitor your payments and pay directly to the trustee anything that the wage attachment does not. My office does not audit or double check the payments you make to the trustee to check for payment underfunding. You will need to make sure that the trustee gets the full payment each month – whether it be from the wage attachment or in the form of a direct payment from you through TFS.
Converting the case to Chapter 7 would not be helpful and probably harmful for two reasons:
1. You would lose the protection of the bankruptcy automatic stay. Your mortgage company is only being held at bay right now because you have a confirmed plan that pays the pre-petition and post-petition arrears. If you cannot catch up the arrears on your own and maintain the mortgage payments, then you will lose the house unless you can convince the bank to give you a modification. If losing the house is inevitable because you cannot afford the mortgage or plan payments, then the best option is to modify the plan to provide for the sale of the house while still maintaining the protection of the stay. A sale in chapter 13 is controlled by you, you control the price, realtor and timetable for sale. In chapter 7, the trustee sets all of the sale conditions and you do not control anything.
2. Based on current real estate valuation and the CMA we obtained almost 2 years ago, you probably have non-exempt equity in the house, and a chapter 7 trustee would take control of the house and would sell the house. You cannot say “no” to the trustee – who has legal authority to sell the house for the benefit of your unsecured creditors. When we filed the case almost two years ago, we had estimated according to a market analysis that it was worth $285,000d and subject to a mortgage claim of $228,000s. Your two household equity exemptions exempted all of the equity in the house based on a valuation of $280,000, but that was probably on the low end and since then, real estate prices have increased. A Chapter Seven trustee is required to sell the house in order to unlock the unexempt equity in the house for the benefit of unsecured creditors.
Brent
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2 Replies
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I recommend to amend your chapter 13 bankruptcy instead of converting to Chapter 7. Talk to various different bankruptcy lawyers.
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I agree with the attorney that the Chapter 13 payment is urgent. However, the explanations about the automatic stay and the Chapter 7 trustee’s role in selling a home could be easier to understand.
Several distinct issues need attention. The pressing matter of the Chapter 13 payment stands apart from the question of converting to Chapter 7.
The September 18 deadline is crucial. Missing it could trigger serious consequences.
If the Chapter 13 Trustee is missing $594.66 due to a wage-deduction mistake, pay this amount right away and keep your receipt. Missing a big payment under a confirmed Chapter 13 plan can quickly cause the case to be dismissed or changed.
Take care of this urgent payment before weighing any conversion or plan changes.
Converting to Chapter 7 does not, by itself, terminate the automatic stay.
One section of the attorney’s email could use more explanation.
The email states:
“You would lose the protection of the bankruptcy automatic stay.”
Changing from Chapter 13 to Chapter 7 does not automatically stop the automatic stay.
According to 11 U.S.C. § 348, conversion usually means that the same bankruptcy case continues under a different chapter rather than starting a new one.
The automatic stay usually remains in effect, unlike when a case is dismissed, when it typically ends. Still, switching to Chapter 7 does not fix the main mortgage problem.
Here, I agree with the attorney’s central concern.
Chapter 7 simply does not offer the same help for overdue mortgage payments that Chapter 13 provides.
One of the biggest benefits of Chapter 13 is that it lets you catch up on missed mortgage payments through a court-approved plan while still making your regular payments.
This valuable option disappears if you convert to Chapter 7.
Chapter 7 usually does not give homeowners extra time to catch up on missed mortgage payments, and a Chapter 7 discharge will not remove the mortgage claim on your home.
If the mortgage is very late and the homeowner cannot pay, get a loan change, or make another arrangement, the mortgage company may ask the court to end the automatic stay and begin collection under state law. Changing chapters does not automatically end the stay, but it can create serious risks for anyone trying to keep their home after missing several payments.
Clarifying the Requirement to Sell Homes with Equity
I want to clarify the statement from the email: “A Chapter Seven trustee is required to sell the house in order to unlock the unexempt equity.”
This statement is too broad. A Chapter 7 trustee’s job under 11 U.S.C. § 704 is to collect and sell property that is not protected from creditors if it helps pay them.
This does not mean that every property with some value is sold automatically.
The trustee must decide if there is real unprotected value after looking at factors like:
- The actual current property value
- The current mortgage payoff
- Other valid liens
- Bankruptcy exemptions
- Realtor commissions
- Transfer costs
- Taxes and other sales expenses
- Administrative expenses
- The amount that would actually remain for creditors
According to the United States Courts, if a debtor’s assets are protected or tied up by claims, a Chapter 7 trustee may find nothing to sell. Current property values are very important. A two-year-old market report is not enough.
The attorney mentioned that approximately two years ago, the property was estimated at around $285,000, and the mortgage claim was approximately $228,000.
Those numbers alone do not show whether Chapter 7 is a safe or risky choice right now. To really consider changing chapters, I would need:
- A realistic current market value for the property.
- A current mortgage payoff statement.
- A complete list of any other liens against the property.
- The exact exemptions claimed in the bankruptcy case.
- An estimate of reasonable selling expenses.
- A bankruptcy attorney’s estimate of the possible value that is not protected.
There is another key rule to consider here.
Under 11 U.S.C. § 348(f), special rules determine what constitutes property of the bankruptcy estate when a Chapter 13 case is converted to Chapter 7.
Section 348(f)(1)(B) also specifically provides that property valuations made during the Chapter 13 case do not simply carry over and control a converted Chapter 7 case.
Handling property value increases after filing is complicated, and courts often have different views. This makes it even clearer that a two-year-old market report is not enough to estimate what a Chapter 7 trustee might get.
This must be reviewed under the law that applies to the specific bankruptcy case.
I suggest considering changes to the Chapter 13 plan before thinking about converting.
Another option from the attorney’s email is changing the current Chapter 13 plan. Under § 1329, a confirmed Chapter 13 plan can be changed before it ends. Depending on the situation, this change could reduce the payment amount or extend the payment period, as permitted by bankruptcy law. If the household’s financial situation has changed significantly since the original plan, I would ask the bankruptcy attorney to review the current budget rather than assuming the old payment still works.
This requires preparing an accurate, up-to-date summary of:
- Gross monthly income
- Net monthly income
- Social Security or retirement income
- Mortgage payment
- Trustee payment
- Utilities
- Insurance
- Transportation
- Food
- Medical expenses
- Other necessary household expenses
If the household’s income has gone down, I would ask the attorney:
Can the confirmed Chapter 13 plan be adjusted to a payment amount the household can realistically afford while still complying with bankruptcy rules?
This question should be answered before making any big decisions, especially if you are worried the case might be dismissed.
Selling the home through Chapter 13 may also be an option.
If keeping the home is not possible, the attorney’s idea of selling during the Chapter 13 case makes sense. Selling in Chapter 13 gives you much more control than letting a Chapter 7 trustee handle it. You can pick your real estate agent, market the property, negotiate the sale, and get court approval for a deal that works for you. Still, I recommend waiting to sell until all your financial details are clear.
Take immediate action: Pay the $594.66 shortfall to the Chapter 13 Trustee before the September 18 deadline and give proof of payment to your bankruptcy attorney. This gives you time to address larger issues without risking your Chapter 13 case due to a missed payment.
Next, set up a thorough meeting with your bankruptcy lawyer and ask for a side-by-side breakdown of your options, starting with Option 1: Continue the current Chapter 13 plan.
Option 2: Modify the Chapter 13 plan based on the household’s current income and expenses.
Option 3: Pursue a mortgage modification or other loss-mitigation solution while remaining in Chapter 13.
Option 4: Sell the property through the Chapter 13 case if keeping it is no longer realistic.
Option 5: Convert to Chapter 7 only after calculating the actual nonexempt equity and understanding exactly what happens to the mortgage and the home.
Conclusion
I strongly urge you not to convert this case to Chapter 7 until you have completed a thorough equity analysis.
The attorney is right that Chapter 7 can put nonexempt property at risk of sale, and that Chapter 13 often offers homeowners better ways to catch up on missed mortgage payments.
However, two crucial points still need to be clarified.
Converting to Chapter 7 does not automatically end the automatic stay. Also, a Chapter 7 trustee is not always required to sell a house just because its value has gone up.
The real question is whether the converted Chapter 7 estate has sufficient unprotected value to make selling the home worthwhile after accounting for the mortgage, claims, exemptions, selling costs, and other expenses. Get an updated property value, the current mortgage payoff, a detailed exemption review, and your current household budget. With the September 18 trustee deadline approaching, make sure to address the payment shortfall first so you do not risk your Chapter 13 case while considering these options.
This is general educational information and not legal advice. Bankruptcy exemptions, property-of-the-estate issues, mortgage rights, and Chapter 13 modifications are highly fact-specific. The borrowers should review the actual case documents and available options with qualified bankruptcy counsel before converting or dismissing the case.
The legal points above are supported by current federal law: confirmed Chapter 13 plans may potentially be modified under §1329, while Chapter 7 trustees administer nonexempt assets rather than automatically liquidating every asset showing gross equity. Section 348 also contains specific rules for property when Chapter 13 is converted to another chapter, including the treatment of prior valuations.
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