What is a Bankruptcy Conversion and When Do They Happen in Alabama?

Dealing with mounting debt while facing financial hardship can leave anyone feeling scared and overwhelmed. When solutions like debt consolidation loans or credit counseling no longer provide relief, bankruptcy often emerges as a last resort for Alabamians seeking a fresh start. However, even after beginning the bankruptcy process, changing life circumstances can alter your situation significantly. Fortunately, bankruptcy law provides an important tool for adapting to these fluid conditions through a process known as bankruptcy conversion.

What Is Bankruptcy Conversion?

Bankruptcy conversion involves switching or changing your bankruptcy case between the two main types of personal bankruptcy filings – Chapter 7 and Chapter 13. It allows debtors to transition their existing case over to the other bankruptcy chapter if their financial situation or eligibility status shifts after initially filing. Reasons for considering conversion might include difficulty keeping up with Chapter 13 repayment plan payments, discovering you no longer qualify for Chapter 7 bankruptcy, or wanting better tools to save assets like your home or vehicle from liquidation.

The option to convert can provide more flexibility in pursuing debt relief when your needs evolve. However, bankruptcy laws impose specific limitations around when and how conversion can occur. Consulting an attorney experienced in this intricate process can help safeguard your interests when evaluating if bankruptcy conversion is the most strategic choice.

Key Situations Where Bankruptcy Conversion Comes into Play in Alabama

These scenarios represent some of the most common reasons Alabamians might need to convert their bankruptcy case:

Losing Chapter 7 Eligibility

When you first file for Chapter 7 bankruptcy, a determination is made regarding whether your income level and assets fall below certain thresholds. Known as passing the Chapter 7 “means test”, this ensures high-income earners with sufficient assets or discretionary income to repay some debt are not abusing the system. However, unexpected financial changes afterward like job promotions, bonuses, inheritances, or personal injury settlements can unexpectedly push you above Chapter 7 limits.

Conversion to Chapter 13 provides an alternative path to negotiate debt relief through structured repayments over three to five years. Your attorney will petition the court to convert the case and work with you to craft a feasible debt repayment plan aligned with your new financial profile.

Difficulty Maintaining Chapter 13 Payments

Maybe you started out feeling positive about keeping up with the monthly payments laid out in your Chapter 13 plan. But suffering later financial blows like job loss, divorce, major medical bills or other unforeseen expenses can rapidly change that outlook. If continuing payments under your repayment plan now seem impossible, conversion back to a Chapter 7 filing might wipe the slate clean by liquidating applicable assets.

Saving Assets from Liquidation

Some filers realize too late that they wish to keep certain property like a house, car, or family heirloom safe from liquidation under Chapter 7. Transitioning to Chapter 13 can allow you to hang on to these cherished possessions. Through conversion, the court essentially hits pause on the liquidation process, giving you time to bring a repayment plan proposal before the court to cover some debt with the asset preserved.

How Bankruptcy Conversion Works in Alabama

Judges maintain discretion around granting bankruptcy conversions, but they typically approve requests that meet legal standards and get trustee consent. The procedural steps involved will vary based on individual circumstances but usually involve the following:

• Consult an Attorney: Discuss how conversion could impact your situation before formally pursuing it. Understand eligibility factors, timing rules, filing requirements, and plan proposal guidelines.
• Request Conversion: Work with your attorney to petition the Bankruptcy Court to convert the case. Include a statement outlining reasons for conversion and meet any filing deadlines.
• Motion Approved: If approved, the case transitions to the new bankruptcy chapter. A dismissal order discharging prior filing.
• Filing New Paperwork: Submit updated forms reflecting your converted case, including new asset disclosures, income details, and repayment plan proposal if now in Chapter 13.
• Attend Meeting of Creditors: Appear along with your attorney at a court hearing before the new trustee overseeing the converted case.
• New Orders Issued: The trustee and judge issue new orders on discharge status or repayment plan confirmation aligned with the converted case details.

It’s important to understand that bankruptcy conversions receive intense trustee and court scrutiny. Judges want assurance the request stems from a legitimate need, not as a stalling tactic or abuse of the system. Experienced attorneys like those at Padgett & Robertson help ensure you cross every “t” and dot every legal “i” during this complex process. Their oversight gives clients the confidence of knowing someone has their back through the transition.

Weighing the Considerations Around Bankruptcy Conversion

Given the intricacies involved, bankruptcy conversion warrants careful thought and advice from legal professionals. It’s not always the appropriate choice, even when eligibility hurdles or economic challenges emerge post-filing. Some key considerations in deciding next steps include:

• Timing Limitations: Strict rules govern when you can request conversion, usually early on after initial filing. This impacts options if circumstances shift later in proceedings.
• Increased Costs: Additional attorney fees and filing charges come with conversion, potentially totaling several thousand dollars. This compounds financial hardship for some individuals.
• New Repayment Burdens: Transitioning from Chapter 7 to Chapter 13 means committing to years of payment plans you may struggle to maintain, risking case dismissal.
• Asset Exemptions Impacted: Laws limit exemptions in converted cases, meaning some possessions you originally safeguarded could get liquidated under the new filing.

With economic stressors frequently in flux for those battling financial difficulties or job uncertainty, circumstances sabotaging initial bankruptcy plans often emerge. Fortunately, the flexibility built into the law does allow for navigating these fluid scenarios. Discussing changes candidly with your attorney ensures you understand how conversion could help or hurt your situation before taking action.

Retaining Legal Experts to Guide Your Bankruptcy Conversion Process

Trying to steer the intricacies of bankruptcy conversion without an expert legal guide increases the chances of taking wrong turns. For Mobile, Alabama residents and individuals throughout counties across southern Alabama struggling with debt, the seasoned attorneys at Padgett & Robertson bring the advanced bankruptcy knowledge needed to simplify these complex proceedings. We take pride in our compassionate support and comprehensive counsel regarding bankruptcy conversion implications and eligibility.

Contact Padgett & Robertson Today for Legal Help with Bankruptcy in Alabama

Bankruptcy cases don’t always go according to plan, especially when impacted by the inherent uncertainty of changing jobs, growing expenses, or other money-related variables. But bankruptcy conversion procedures create possibilities for tailoring your debt relief approach more precisely to your evolving situation. If you need help with anything related to bankruptcy in the Mobile, AL area, call Padgett & Robertson today at 251-336-3695 or reach out to us online. We are ready to go to work for you!

What is a Bankruptcy Conversion and When Do They Happen in Alabama?

Facing financial challenges post-bankruptcy filing in Alabama? Learn about bankruptcy conversion, its process, and when it might benefit you. Consult with Padgett & Robertson's experienced attorneys at 251-336-3695.

Service Type: Bankruptcy attorney