Shortly after we filed our initial Chapter 13 case, Tony’s unemployment compensation ran out. We went through with the 341 hearing because it was already scheduled, and we really wanted to find a way to make it work. We accrued all of our debt with the full intention to pay it off completely, and we thought Chapter 13 would allow us some protection while paying back as much as we could given our current situation.
Then we received the Trustee’s objections to our confirmation, and…there were fourteen of them. A few were not surprises; we knew our attorney had made some mistakes on the paperwork that needed to be corrected. But some of the objections were about not being able to realistically complete the proposed Ch13 plan, and after we reviewed everything again, we realized that they were right. Without that unemployment income, there was no way we could make the plan payments. We were setting ourselves up for failure.
Our alternatives to bankruptcy at this point are not great. One option involves calling all our creditors and negotiating lower settlements with them. We would be OK with doing that, even though it is time-consuming work. However, there are several problems with that approach in our specific situation. Firstly, it can take a matter of years to work everything out, and in the meantime we’d be at risk for legal judgment and wage garnishment, which we simply cannot afford right now. Also, it would not help us with the estimated $80,000 negative equity on our mortgage. Finally, “settled” is not the same as paid in full (or discharged in bankruptcy) and we do not want zombie debt coming back to haunt us for the next ten years. Bankruptcy is fucking traumatic, but once it’s done, it’s done.
We scheduled a meeting with our attorney to talk about alternatives, and to ask whether it would be possible to convert our case to a Chapter 7. He reminded us that even with only my income, we are well over the median income level for our family size in our jurisdiction, so if we converted, our case would automatically be scrutinized by the US Trustee in addition to the local Trustee. That said, we aren’t trying to mislead anyone or hide anything, and he agreed that we don’t have a lot of other options. The attorney estimated that we had about a 60% chance of having it approved, so we decided it was worth a shot. We forked over an additional $500 and he got to work.
The process of converting from Chapter 13 to Chapter 7 is pretty straightforward. Documents to be filed with the court include the Debtor’s Motion to Convert to Chapter 7, New Schedules I and J, Statements of Intention for both individual and joint debts, and various summaries. We reviewed everything, gave our approval, and the attorney sent everything in at the end of July.
Once the conversion was filed, we were issued a new Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines. This document specified that ours is a no-asset case, and that “The presumption of abuse does not arise.” It also contained new deadlines and a date for our new 341 Meeting of Creditors in late August. It was a pain to take another day off from work and go all the way to federal court again, but the hearing itself was much like the first one, and went fairly quickly.