To start with, Chapter 7 bankruptcy is different from Chapter 13 in the sense that the former permanently discharges a debtor's obligations to repay certain debts, whereas the latter only offers a fractional repayment plan. Although there are more benefits provided by Chapter 13 compare to Chapter 7, a debtor may or may not be able to legally convert from one type of bankruptcy to another.
Chapter 7 V.S. Chapter 13
It is necessary for an individual filing for Chapter 7 to provide proof that he or she is not capable of repaying the creditors and sustain basic needs. Only when an individual under has changed his or her income can become eligible to convert to Chapter 13 bankruptcy. In addition, a debtor who has unsecured debts worth more than $360,475 is not qualified to file for Chapter 13. If a debtor who has secured debts amounting to more than $1,081,400, he or she cannot also file for Chapter 13 in accordance to the U.S. Bankruptcy Court.
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Post-Chapter 7
A debtor who has been discharged from a Chapter 7 bankruptcy case is ineligible to change it to a Chapter 13. It is very rare for the bankruptcy court to approve a Chapter 13 filing immediately after a discharge from Chapter 7. Usually, you must wait four years after a Chapter 7 discharge to file Chapter 13, and you cannot file another Chapter 7 case for eight years after your initial case discharge.
Possible Costs
Filing Chapter 7 bankruptcy costs $299, except if the fee is waived. Currently, there is still no fee for converting a Chapter 7 case, which is still not discharged into a Chapter 13 proposal. On the other hand, if the case has been discharged already, a $274 fee must be paid in order to file for Chapter 13. An attorney's help may also be necessary in filing for a Chapter 13 plan, which may cost an additional hundreds or thousands of dollars.
Credit Rating
Filing for bankruptcy negatively affects an individual's credit rating with the consumer agencies TansUnion, Equifax, and Experian. In fact, the credit ratings are affected each time an individual declares a bankruptcy. Moreover, even a bankruptcy case that is not successful would still negatively impact an individual's credit standing; that is why it is necessary to consider things thoroughly before filing any type of bankruptcy case. For the case of Chapter 7, a bankruptcy stays on the credit report for up to 10 years from the date of discharge, while for the case of Chapter 13, it is 7 years from the date of discharge. Additionally, if an individual converts to a Chapter 13 case and the repayment plan is still incomplete, one has to get a court permission to get new credit accounts. A Chapter 13 plan normally takes three to five years to complete, whereas a Chapter 7 bankruptcy takes about a month, at minimum, or several months.
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