July 1, 2009
Secured Debt When Converting from 13 to 7
From the Bankruptcy Roundtable List Serve:
We have a scenario where our clients filed a chapter 13 bankruptcy back in 2007. Since the filing, the debtors have separated, making them now eligible for conversion (given the separate living expenses).
1) The home and the two vehicles were in arrears at the time of the chapter 13 filing and the arrearage was included in the chapter 13 plan as unsecured debt. If we convert, what impact does the conversion have on those assets (do they have to surrender, given the arrearage?).
2) If one of the debtors accumulated more debt post filing (and we know that they were not supposed to without the trustee’s permission – hence the separation)… can the debt accumulated post filing the chapter 13 but prior to conversion be discharged in the chapter 7?
I’d appreciate any/all input here.
Calhoun, Kademenos, & Childress, Co. L.P.A.
502 West Washington Street
Sandusky, OH 44870
One of the very unfortunate amendments perpetrated by the 2005 act is a change in section 348, effect of conversion, when a 13 is converted to a 7. New section 348(f)(1)(C) means that when the debtor converts, he or she loses the benefit of the treatment of the secured claim under the plan, and the crediting of the payments pursuant to the plan.
You can try redeeming the vehicles for current replacement value (no longer wholesale value), but even that could be a problem. See section 506(a)(2)
David S. Yen
Legal Assistance Foundation of Chicago
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With respect to the second part of the question (can post-petition debts be discharged), see Section 348(d) which allows that debts accumulated between filing and conversion are treated as pre-petition claims.
Too, note that 348(d) applies to conversions under Chapter 11, 12, and 13. That means that a conversion from Chapter 13 to Chapter 7 can discharge post-petion, pre-conversion debts. However, conversion from Chapter 7 to Chapter 13 cannot.
Editors Note: Good point and thanks. JH
Posted by: Brian Rookard | Jul 2, 2009 3:53:29 AM