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Conversion from chapter 13 to chapter 7 what happens to the $$$

Armonk, NY |

I am going to convert my chapter 13 bankruptcy to a chapter 7 because I cannot afford it. However, to date I have paid the chapter 13 trustee nearly $14,000. The case is not confirmed. What happens to the $14,000 when I convert? Does the trustee send it back to me? Can the chapter 7 trustee claim part of it as non-exempt?

Attorney Answers 9

  1. Please review this with your attorney. Here in Cleveland, OH, we have pretty quick confirmation of Chapter 13 so either your plan payments are really large, or your Chapter 13 has dragged on forever. The former speaks of either having above average income, or having large non-exempt assets. The latter speaks of a very complicated case or counsel having problems achieving confirmation. Review with your attorney the available exemptions for $14,000 or thereabouts cash. But if no confirmation, the trustee is not authorized to pay any creditors, you will get most of that back. And of course the Chapter 7 Trustee will want to know where in the heck all that money went since you are now claiming you are unable to pay unsecured creditors anything.

    I am not your attorney unless you and I have signed a retainer agreement. What I am saying is not legal advice. Do not act on this information without engaging my services, this is for consideration only.

  2. As Mr. Brewer indicated, your case appears to have some complications that may impact the outcome in a Chapter 7. I would think at minimum the Chapter 7 trustee would want to see that your circumstances have changed if you are now going to say you cannot afford to make payments. As for what happens to the $14,000, if the case was not confirmed I would expect that money to be returned to either you or the Chapter 7 Trustee, who can administer the non-exempt portion for the benefit of your creditors.

    The information provided herein is general information only and not legal advice. The information provided herein does not create an attorney client relationship and is not a substitute for having a consultation with an attorney. It is important to have a consultation with an attorney as the information provided in this forum is limited and cannot possibly cover all potential issues in a given situation.

  3. That is an easy one. All of the money less the trustee's fee of 10% goes back to you.

    Answers are provided for direction only; it is not a substitute for an office consultation.

  4. Since your case has not been confirmed, creditors have received no distributions. The Trustee should be giving that money back to you, minus the Trustee's fees (10%). I would discuss your state's exemptions with your attorney, but in Idaho, the Trustee would go after that money if there were no applicable exemptions to protect it (ex. 75% of wages are exemptible, 25% are subject to turn over to the estate). You may be looking at a situation where you may have to spend some or all of those returned funds before you file your chapter 7 in order to keep the funds out of the reach of creditors; unless there is an exemption to protect the funds.

  5. You should speak to NY attorney on the exemption of assets. If your income has decreased, I want to make sure you know you can possibly amend a ch 13 plan also depending on the facts..and must use the new form Schedules I and J in effect as of 12-1-13. Any new debts incurred POST ch 13 filing though will be dischargeable in the ch 7 if you convert so that is an advantage of a conversion also. There will be a $25 or so conversion filing fee also. Good luck.

  6. Either the Ch 13 Trustee will distribute it, or the Ch 7 Trustee will. That will probably be spelled out in the conversion order.

  7. While I do not practice in New York, in New Hampshire you would receive all of the money back, and it would normally be mailed to your bankruptcy attorney. The Chapter 7 trustee can not claim it as an asset since the payments came from your income after filing the Chapter 13 case.

  8. In my district, if you convert the money will be handed over to the Ch 7. Therefore, here we usually suggest that you let the case dismiss and refile the Ch 7 after the Ch 13 sends the money back to you, less his 10% fee. Therefore, you should discuss this with your attorney to see what applies in your district.

    This is not legal advice and I am not your attorney until you retain my office. Always consult with an attorney in your area before acting on anything you read on the internet.

  9. As indicated by the previous answers, generally, if the funds paid to the Trustee came from post-petition earnings and the case is not confirmed; the Trustee will refund the funds to you less administrative expenses. In the Southern District of Indiana, the Trustee will also deduct 1/2 of the unpaid Debtor's attorney fee that is then remitted to the Debtor's attorney. An exception to that rule would be if Court determined the conversion was done in bad faith Then the bankruptcy estate is established as of the date of conversion. In that case, the Chapter 7 Trustee may be entitled to some portion of the funds the Chapter 13 Trustee is holding.

    You should have local counsel to make sure that this is not a possibility.

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