A Chapter 13 Cure and Conversion Strategy for Homeowners

You’ve seen the 2026 figures: bankruptcy filings are surging for businesses and individuals. If assets like your home’s equity aren’t protected, then Chapter 13 is the only option to save your home.  However, Chapter 13 can feel like a five-year prison sentence where you can’t make important financial decisions, such as buying a new car without approval from the bankruptcy judge.

Chapter 7 wipes out your unsecured debt, like credit cards and personal loans, but at the cost of losing your home. But what if you didn’t have to choose just one, and instead used both Chapters 7 and 13?

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Discussion Points on Converting from Chapter 13 Bankruptcy to 7

• Chapter 13 bankruptcy can save a home from foreclosure, but its 3–5 year repayment plan can feel restrictive and financially suffocating.
• Chapter 7 wipes out unsecured debt, but homeowners risk losing non‑exempt equity.
• The Cure‑and‑Convert strategy uses Chapter 13 only long enough to stop foreclosure and cure mortgage arrears, then pivots to Chapter 7 for a full discharge of unsecured debt.
• This strategy works because debtors have an absolute right to convert under 11 U.S.C. §1307(a), but should consider it only if they pass the Chapter 7 liquidation test and have minimal disposable income.
• In 2026, with rising bankruptcy filings, record household debt, and increased foreclosure pressure, the Cure‑and‑Convert approach is a powerful and strategic tool for homeowners seeking both protection of their non-exempt assets and the elimination of their credit card debt.

The Tactical Pivot: Using Chapter 13 as a Bridge to a Chapter 7 Fresh Start

In my recent analysis of the 2026 bankruptcy filing figures, it’s clear that bankruptcy filings are rising. Last month even saw a spike of 76% in business filings. This coincides with an increase in personal filings, but as household debt hits record highs, homeowners need to protect their home equity. Chapter 13 does protect the non-exempt value, and payment plans are between 3 and 5 years. But let’s be honest, five years is a long time. This is where the Tactical Pivot comes into play.

Instead of viewing Chapter 13 as a five-year commitment, experienced bankruptcy attorneys can use it as a bridge by saving their home first, then convert to Chapter 7 bankruptcy.

The Strategy: Cure Missed Payments and Convert to Chapter 7

The concept is a two-step process with the intent of protecting your most important asset, your home, while still achieving a total discharge of unsecured debt.

The Cure (Chapter 13): The debtor files a Chapter 13 petition specifically to stop a foreclosure thanks to the automatic stay. Through the payment plan, the debtor can “cure” (catch up on missed payments) mortgage arrears over a period of 6 to 18 months, depending on the specifics of the debtor’s financial situation.

The Pivot- Conversion From Chapter 13 Bankruptcy to 7: Once the mortgage is current and your home is safe from foreclosure, you do have the absolute right under 11 U.S.C. § 1307(a) to convert the case to Chapter 7. However, just because you have the right, doesn’t mean you should, as it depends on the Chapter 7 Liquidation Test and your disposable income when comparing Schedule I (Income) and Schedule J (Expenses).

The Chapter 7 Liquidation Test

The Chapter 7 liquidation test is to protect unsecured creditors. In a Chapter 13 bankruptcy, you keep your assets by paying their non-exempt value over time. With Chapter 7, the bankruptcy trustee is to sell non-exempt assets for the benefit of creditors. For this reason, Chapter 7 is commonly referred to as a liquidation.

In a Chapter 13 bankruptcy plan, unsecured creditors must receive at a minimum the same amount they would have received in a hypothetical Chapter 7 case. For example, suppose you have $10,000 in equity in your vehicle and the state’s motor vehicle exemption is $3,000. This leaves $7,000 in non-exempt equity that belongs to the bankruptcy estate.

Because the equity is substantial, it’s likely the car has to be surrendered, and the bankruptcy trustee will sell the vehicle at an auction and use the proceeds to pay the unsecured creditors.

Applying the Chapter 7 Liquidation Test to a Chapter 13 bankruptcy, the $7,000 non-exempt equity is the minimum that would be paid into the plan, regardless of how much is owed to unsecured creditors.

The Disposable Income Cross-Check: Schedule I vs. Schedule J

The Chapter 7 Liquidation Test is just step one. You also have to compare Schedules I and J. The difference between your current income and expenses determines your monthly net disposable income, which also gets paid back into the plan, plus the non-exempt amount.

 So even for a debtor with no assets, if there is significant disposable income when comparing Schedule I to J, then the bankruptcy trustee may argue that you have the “ability to pay” your unsecured creditors, potentially blocking your conversion under 11 U.S.C. §707(b).

The Professor’s Conclusion: Why the “Pivot” and Conversion from Chapter 13 to 7 Works in 2026

In a financial year likely to be defined by a surge in bankruptcy filings, the Cure‑and‑Convert strategy stands out as one of the most effective tools available in 2026 to wipe out credit card debt while protecting your home.

Chapter 13 bankruptcy gives homeowners the breathing room they need to stop a foreclosure and cure arrears, while combining it with Chapter 7 delivers the true fresh start that wipes out unsecured debt like credit cards and personal loans.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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