Many debtors considering Chapter 13 bankruptcy worry about their ability to make bankruptcy plan payments if they lose their job or their income decreases for some reason during their course of their bankruptcy. But the bankruptcy code has already taken into account the possibility that a debtor may not be able to complete their Chapter 13 bankruptcy payment plan and will allow a debtor to convert their case to Chapter 7 bankruptcy under certain circumstances. What this means is that the debtor's remaining debts will be discharged (if they are dischargeable under the bankruptcy code) and the debtor will be free of any obligation to repay that debt despite the fact that they initially filed a Chapter 13 bankruptcy. However, this is only the case if the debtor is converting to Chapter 7 bankruptcy in good faith and only if the debtor filed their Chapter 13 bankruptcy in good faith. What is a good faith bankruptcy and more specifically what is a bad faith bankruptcy?
Let's take a look at a two examples of bad faith bankruptcy filings:
- A bad faith bankruptcy would be a bankruptcy filing where the debtor hid assets. For example, a debtor who filed Chapter 13 bankruptcy but hid the fact that they had cash income from a side business might be considered a bad faith bankruptcy filing.
- A Chapter 7 bankruptcy conversion might be considered bad faith if a debtor has experienced positive change in their financial situation and now wants to convert their bankruptcy to a Chapter 7 bankruptcy. For example, if a debtor found a significantly better paying job during their Chapter 13 bankruptcy repayment plan and then tried to convert their case to a Chapter 7 bankruptcy that might be considered a bad faith Chapter 7 bankruptcy conversion.