Our Phoenix readers may be interested in a recent Fox Business article discussing the issue of converting from Chapter 13 to Chapter 7. Our readers may not be aware that it is possible to do so provided you meet the requirements to qualify for a Chapter 7 bankruptcy.

The possibility of converting can be a relief to those who begin with a Chapter 13 bankruptcy and find themselves months into the process and unable to keep up payments. Converting to Chapter 7 allows such individuals to transition from a repayment plan to a liquidation plan.

Folks may initially file for Chapter 13 bankruptcy because they have too high a household income to qualify for Chapter 7, or because they want to protect an asset that wouldn't receive protection in Chapter 7 bankruptcy. Chapter 13 bankruptcy does have the advantage of allowing filers to keep their property and to make court-supervised repayments on their debt. That takes place over a three to five year period.

As an individual progresses through a Chapter 13 repayment plan, though, their circumstances can change. They may go through an expensive divorce, lose their job, decide they don't need their home anymore, qualify for a loan modification and have their monthly mortgage payments reduced, or fall ill with a costly disease or condition.

Chapter 7 allows the filer to discharge their debt by liquidated nonexempt property and distributing the proceeds to their creditors. As far as exempt property, federal law delineates certain exemptions and many states have established their own as well.

Filers who are unable to qualify for Chapter 7 bankruptcy should periodically review their financial status to determine whether they may qualify for a conversion to Chapter 7. Doing so will allow you and the court to ensure you are on the best path out of debt.

Source: Fox Business, "Convert From Ch. 13 to Ch. 7 in Bankruptcy?," Justin Harelik, Sep 13, 2011.