Can a Debtor Convert a Chapter 13 Bankruptcy to Chapter 7?
A Legal and Strategic Analysis for Debtors and SC Bankruptcy attorneys
Summary
Yes — a debtor generally has the statutory right to convert a Chapter 13 bankruptcy to Chapter 7 under the United States Bankruptcy Code. That right is broad, powerful, and intentionally debtor-friendly. However, it is not unlimited. Courts to include the South Carolina Bankruptcy Court may restrict or deny the benefits of conversion when a debtor acts in bad faith, commits fraud, or abuses the bankruptcy system.
This memo analyzes the legal authority governing conversion from Chapter 13 to Chapter 7, examines statutory limitations, reviews controlling national precedent and South Carolina case law, and evaluates the strategic pros and cons of conversion. It is intended for debtors evaluating their options and for professionals advising them.
Throughout, we emphasize why consultation with an experienced bankruptcy attorney is essential before making this decision.
I. Statutory Authority: The Right to Convert from Chapter 13 to Chapter 7
A. The Bankruptcy Code Grants a Near-Absolute Right
The starting point is 11 U.S.C. § 1307(a), which provides:
“The debtor may convert a case under this chapter to a case under chapter 7 of this title at any time.”
This language is deliberately expansive. Unlike Chapter 11 or Chapter 12, Chapter 13 is voluntary and debtor-controlled. Congress designed Chapter 13 to encourage repayment plans — but not to trap debtors in plans that become unworkable.
Key points:
- Conversion does not require court permission
- Conversion does not require creditor consent
- Any contractual waiver of the right to convert is unenforceable
- There are some limitations such as bad faith and fraud
From a statutory perspective, conversion is a debtor’s right, not a privilege.
B. Procedural Mechanics of Conversion
In most jurisdictions, conversion from Chapter 13 to Chapter 7 is accomplished by filing a Notice of Conversion rather than a motion. Upon conversion:
- A Chapter 7 trustee is appointed
- The Chapter 13 trustee’s authority terminates
- The case is administered as if originally filed under Chapter 7, subject to statutory exceptions
Federal Rule of Bankruptcy Procedure 1019 governs post-conversion duties, including updated schedules and statements.
II. Eligibility Issues After Conversion
A. The Means Test Still Matters
Conversion does not automatically guarantee a Chapter 7 discharge. The debtor must still be eligible under Chapter 7, including compliance with the means test.
Courts typically analyze:
- Current monthly income at conversion
- Changes in financial circumstances
- Whether conversion would constitute abuse under § 707(b)
A bankruptcy attorney will often run a fresh means-test analysis before advising conversion.
B. Prior Discharges and Timing Issues
If a debtor previously received:
- A Chapter 7 discharge within 8 years, or
- A Chapter 13 discharge within 6 years (with exceptions),
The debtor may convert but may not receive a discharge in the converted case.
This distinction is critical: conversion is allowed, but relief may be limited.
III. Limitations on Conversion: Fraud, Bad Faith, and Abuse
A. The Supreme Court’s Bad Faith Doctrine
While § 1307(a) grants a broad right to convert, courts have long recognized an implicit good-faith requirement.
The seminal case is Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007). Although Marrama addressed conversion from Chapter 7 to Chapter 13, its reasoning applies with equal force in reverse.
The Supreme Court held:
- A debtor who engages in fraudulent conduct may forfeit statutory conversion rights
- Bankruptcy courts have inherent authority to prevent abuse of process
In practice, this means:
- Conversion may occur procedurally
- But discharge may be denied
- Assets may be recovered by the trustee
- Sanctions or dismissal may follow
B. Common Conduct That Triggers Court Scrutiny
Courts routinely find bad faith where a debtor:
- Conceals assets or transfers property pre-petition
- Fails to disclose income, businesses, or real estate
- Manipulates timing to shield non-exempt property
- Repeatedly defaults on Chapter 13 plan obligations without justification
A bankruptcy attorney’s role is often damage control, ensuring full disclosure and minimizing exposure before conversion.
IV. National Authority: What Happens to Money and Property After Conversion
Harris v. Viegelahn — Supreme Court Clarity
In Harris v. Viegelahn, 575 U.S. 510 (2015), the Supreme Court resolved a critical issue:
Who gets post-petition wages held by the Chapter 13 trustee after conversion?
The Court held:
- Undistributed post-petition wages must be returned to the debtor
- Creditors have no claim to those funds after conversion to Chapter 7
This ruling reinforces the principle that Chapter 13 earnings are distinct from Chapter 7 estate property, and that conversion materially changes creditor rights.
V. South Carolina Case Law: Local Courts Apply the Same Principles
A. In re Boyle (Bankr. D.S.C.)
In In re Boyle, the U.S. Bankruptcy Court for the District of South Carolina converted a Chapter 13 case to Chapter 7 under § 1307(c) after finding:
- Incomplete financial disclosures
- Pre-petition misconduct
- Inability to confirm a feasible plan
The court emphasized that conversion was in the best interests of creditors and the estate, demonstrating how South Carolina courts actively police abuse.
B. Failure to Disclose Assets — A Recurring Theme
South Carolina bankruptcy courts have repeatedly held that failure to disclose real estate, business interests, or income streams constitutes cause for conversion or denial of discharge.
Local trustees are particularly vigilant, making accurate schedules and strategic guidance from a bankruptcy attorney essential.
VI. Strategic Pros of Converting from Chapter 13 to Chapter 7
1. Relief from an Unsustainable Plan
Life changes. When income drops or expenses rise, Chapter 13 payments may become impossible. Conversion provides a lawful exit. For many of my Chapter 13 clients, they either lose their job or overtime hours. Converting to a Chapter 7 is often the best option.
2. Faster Resolution
Chapter 7 cases typically conclude in months, not years. The conversion happens quickly – usually within 48 hours. A 341 creditor hearing is usually held within six weeks.
3. Elimination of Unsecured Debt
Most credit card debt, medical bills, and personal loans are dischargeable. Even some tax debts are discharged. A complex three part test is used to determine if the specific income tax is discharged,
4. Return of Post-Petition Wages
Under Harris, undistributed wages are returned to the debtor.
VII. Strategic Cons and Risks of Conversion
1. Loss of Non-Exempt Assets
Unlike Chapter 13, Chapter 7 involves liquidation. Non-exempt property is at risk. This is where an experienced bankruptcy attorney is criticial!
2. Heightened Trustee Scrutiny
Conversion often triggers a deeper investigation of finances and pre-petition conduct. Chapter 7 Trustee may ask what was the reason for the conversion. Be prepared to provide a concise answer.
3. Potential Denial of Discharge
Fraud or bad faith can result in denial under § 727.
4. Cost Considerations
Additional trustee fees and attorney fees may apply. There is a small bankruptcy court filing fee to convert to a Chapter 7.
VIII. Why a Bankruptcy Attorney Is Essential
Conversion is deceptively simple procedurally — but strategically complex.
An experienced bankruptcy attorney will:
- Analyze asset exemption exposure
- Evaluate fraud and bad-faith risk
- Time conversion strategically
- Communicate with trustees proactively
- Protect the debtor’s discharge
- Means Test Analysis
In South Carolina, where trustees and courts are particularly detail-oriented, professional guidance is not optional — it is critical.
Conclusion
A debtor can convert a Chapter 13 bankruptcy to Chapter 7 as a matter of statutory right under 11 U.S.C. § 1307(a). However, that right exists within a framework of good faith, transparency, and judicial oversight.
National precedent and South Carolina case law make clear:
conversion is permitted — abuse is not.
For debtors facing financial strain, conversion may offer a faster, cleaner path to relief. But when mishandled, it can expose assets, jeopardize discharge, and invite litigation.
The difference often comes down to one factor: working with a skilled bankruptcy attorney who understands both the law and the strategy behind. If you would like a free bankruptcy consult, feel free to call us at the Stone Law Firm. We help people throughout the State of SC to include Columbia, Irmo, Charleston, Greenville, Sumter, Camden, Orangeburg and Rock Hill.