Converting Chapter 13 To Chapter 7 In Order To Strip Immediately A S...

Since a May, 2012, court opinion was issued  Chapter 7 bankruptcy debtors became eligible to strip a wholly unsecured mortgage on their primary residences. Many of my Chapter 13 clients are trying to convert their confirmed Chapter 13 bankruptcy to a Chapter 7 in order to get their second mortgages stripped quicker and for less money through Chapter 7. Debtors can wipe out unsecured second mortgages in Chapter 13 when they get their discharge at the end of a typical five year payment plan. Chapter 7 now permits debtors to wipe out their second mortgage upon entry of the Chapter 7 discharge which is usually issued about 90 days after the filing date.

Many of my Chapter 13 clients are having problems converting to Chapter 7 for one or more reasons. For example, people who maintain a Chapter 13 plan have sufficient income to pay much of their debt. When these same people try to convert their case to Chapter 7 some find that their income exceeds Chapter 7 eligibility.

Some Chapter 13 clients did not attempt to strip their second mortgage because their house value exceeded their first mortgage balance- the second mortgage was not wholly unsecured. Since filing their Chapter 13 these debtors experienced further decline in their home’s value and now believe their home is worth less than their first mortgage. It won’t work. Your assets are set you file your first bankruptcy, in these cases the Chapter 13. Existing Chapter 13 debtors do not become eligible to strip a second mortgage by conversion to Chapter 7 due to valuation changes which occurred after they filed Chapter 13.

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