When considering filing for bankruptcy in Texas, the options available to individual consumers can lead to a great deal of confusion. For some, Chapter 7 bankruptcy is preferable. For others, Chapter 13 bankruptcy is right for them. When piling the different possibilities on top of the financial challenges that led to the bankruptcy consideration, a person might begin to feel overwhelmed. For those who are confronted with a troublesome financial situation, having a grasp on the differences can be achieved with legal help.
One particular couple tried to convert their case from Chapter 7 to Chapter 13. The Chapter 7 trustee sought to sell their fire-damaged property for slightly less than $143,500. There was a disagreement as to what the property was worth. One assessor asserted a secured claim for $280,000. There was also $74,000 from insurance in an escrow account. Another had a mechanic's lien for $39,630 in addition to interest that had not be paid. The second company filed a proof of claim in the Chapter 7 for $131,210. They then agreed to purchase the property for $290,000 as is.
The process had been approved by the bankruptcy court and estimated that the property was worth $175,000. Before the final hearing regarding the sale, the couple sought to have the case converted to Chapter 13 in order to take the power to sell the property away from the trustee. This was opposed by the trustee and the second company. It was their position that the couple was ineligible for Chapter 13 since they were unemployed and did not have any income to craft a plan to repay the creditors under Chapter 13. The filing was changed right before the hearing to state that one of the filers was employed. After settlement talks were unsuccessful, the court denied the motion to convert.
Converting a bankruptcy filing is not guaranteed and is subject to the rules that dictate which form of bankruptcy is applicable according to a particular case circumstances. This is why the couple was not able to convert their bankruptcy. As this story shows, filing for bankruptcy can be complex and result in disputes and confusion. With this in mind, it is imperative to understand the rules that govern bankruptcy to make sure that the right type of bankruptcy is chosen from the start.
Source: bna.com, "Couple Lacking Income Can't Convert Ch. 7 to Ch. 13," Diane Davis, Feb. 9, 2016