Switching (converting) your bankruptcy from a chapter 7 to a chapter 13 is possible.
You might want to consider attempting to convert if you run into issues in your chapter 13. For example, you might discover that your home is worth more than you thought so there is non-exempt equity. Converting to a chapter 13 would prevent the sale of your home by the chapter 7 trustee. You would then pay an amount equal to the non-exempt equity though your chapter 13 plan.
Until fairly recently, a debtor seeking to change chapters had to be acting in good faith. Recent case law makes this requirement less clear.
Bankruptcy Code 706(a) plainly states “The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time..” However, in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), the US Supreme Court held a debtor who acted in bad faith could not convert. The creditor, Citizen’s Bank, argued that Marrama had acted in bad faith by concealing real estate and a tax refund. In a 5-4 decision, the Court ruled that there is a “bad faith” exception to the right of conversion in Section 706(a). The opinion by Justice John Paul Stevens held that a Chapter 7 debtor who engages in bad faith conduct does not qualify as a “debtor” under Chapter 13 and thus cannot convert his petition. The majority also felt that courts have the inherent power to deny the motions of litigants who act in bad faith.
However, seven years later, in Law v. Siegel, 571 U.S. 415 (2014) the Supreme Court held that bankruptcy courts “may not use their equitable powers under § 105(a) to contravene express provisions of the Bankruptcy Code.” The Court held that the bankruptcy trustee could not force the debtor to forfeit his homestead exemption because he had engaged in illegal conduct.
Recently, In In re Nichols), 10 F.4th 956 (9th Cir. 2021) the Ninth Circuit Court of Appeals, relying on Siegal, held that a debtor could dismiss a chapter 13, even if the debtor had been acting in bad faith. The evolution of the law was explained in the unpublished BAP opinion of Richards v. Marshack:
“… Law did not overrule Marrama, and Nichols did not so hold. Marrama involved a different statute with different language. As noted above, the right to convert under § 706(a) is qualified by § 706(d), which requires that a debtor seeking conversion must qualify to be a debtor in the converted case. The Supreme Court in Marrama held that when a debtor has engaged in bad faith conduct, he or she is disqualified from being a debtor under chapter 13, which has an explicit statutory good faith requirement. See § 1307(c) (authorizing dismissal of a chapter 13 case “for cause,” including bad faith) and § 1325(a)(7) (requiring, as a condition to confirmation of a chapter 13 plan, that “the action of the debtor in filing the Put another way, Marrama’s holding that the right to convert is not absolute was not premised upon the bankruptcy court’s equitable power but on explicit provisions of the Bankruptcy Code. Thus, it does not run afoul of Law. This is so despite the Supreme Court’s reference to § 105(a) as authorizing immediate denial of a motion to convert under § 706 instead of granting conversion and then entertaining a motion to reconvert or dismiss. Marrama, 549 U.S. at 375. The right to convert is expressly conditioned upon § 706(d)’s requirement that the debtor qualify to be a debtor in the converted case, and nothing in the Code requires the bankruptcy court to grant a motion to convert if that requirement is not met.”
To summarize: a debtor currently has an absolute right to dismiss a chapter 13. However, a debtor may not convert from chapter 7 to chapter 13 if the debtor has acted in bad faith, because not acting in bad faith is an explicit statutory requirement of being a chapter 13 debtor. A debtor also has to have regular income and the ability to fund a plan.
Once you have converted the chapter 7 trustee can file an administrative claim in your chapter 13,
