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CHAPTER 13 BASICS. © By: John Gustafson, Chapter 13Trustee. A. Chapter 13 Eligibility And Jurisdictional Issues. 1. Why Are Chapter 13s Filed? Chapter 13 is used primarily for debtors who have: 1) fallen behind on their mortgages; 2) sought out an attorney at a time when their debts are still manageable; 3) a significant debt which would not be discharged in a Chapter 7, but would be discharged in a Chapter 13; 4) filed/received a discharge in a Chapter 7 more than four years ago but less than eight years ago; 5) a less-than-70% Chapter 13 within the last 6 years; or, 6) an aversion to filing "bankruptcy". The biggest incentive to file a Chapter 13 is that it allows debtors to retain their property while making payments over time under the terms of their Chapter 13 Plan. This advantage is most often used when there is a problem with a mortgage arrearage and an imminent foreclosure. Often, lenders will not accept payments, or work out a payment plan, after a foreclosure is commenced. Filing a Chapter 13 can

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CHAPTER 13 BASICS. ©

By: John Gustafson, Chapter 13Trustee.

A. Chapter 13 Eligibility And Jurisdictional Issues.

1. Why Are Chapter 13s Filed?

Chapter 13 is used primarily for debtors who have: 1) fallen behind on their

mortgages; 2) sought out an attorney at a time when their debts are still manageable; 3) a

significant debt which would not be discharged in a Chapter 7, but would be discharged in

a Chapter 13; 4) filed/received a discharge in a Chapter 7 more than four years ago but less

than eight years ago; 5) a less-than-70% Chapter 13 within the last 6 years; or, 6) an

aversion to filing "bankruptcy".

The biggest incentive to file a Chapter 13 is that it allows debtors to retain their

property while making payments over time under the terms of their Chapter 13 Plan. This

advantage is most often used when there is a problem with a mortgage arrearage and an

imminent foreclosure. Often, lenders will not accept payments, or work out a payment

plan, after a foreclosure is commenced. Filing a Chapter 13 can force the mortgage lender

to accept payments on the arrearage over time, and the automatic stay stops the foreclosure.

Stopping a foreclosure is a primary goal in most Chapter 13 filings.

Even absent a foreclosure, where there is sufficient disposable income, and there is

equity in the debtor's residence, Chapter 13 can be the best and most comprehensive

solution for the debtor. In other situations, a client who really needs bankruptcy relief may

simply refuse to file "bankruptcy" for moral or religious reasons. In cases where a

bankruptcy is needed but the client refuses to consider a Chapter 7, a "court supervised

repayment plan" may be something this type of client can live with, even if Chapter 13 is

not otherwise ideally suited to their situation.

BAPCPA has added a new reason to file Chapter 13 – above the median debtors

with primarily consumer debts who can repay as little as $166.67 per month, or 25% of

their unsecured debts, under the “means test” will be presumptively ineligible for relief

under Chapter 7 under Section 707(b)(2) of the Bankruptcy Code.

In addition, the language of 11 U.S.C. §707(b) has changed the requirement for

dismissal of a Chapter 7 case from the case being a “substantial abuse” of the provisions of

Chapter 7, to simply an “abuse” of those provisions. This lower standard applies to debtors

with primarily consumer debts who are below the median income level, as well as those

with income above the median.

The Office of the United States Trustee brings motions to dismiss Chapter 7 cases

under Section 707(b)(3) – the general “abuse” provision - in cases where no presumption of

abuse exists under Section 707(b)(1) and the B22A “Means Test”. See generally, In re

Haar, 360 B.R. 759 (Bankr. N.D. Ohio 2007); In re Mestemaker, 359 B.R. 849; 2007

(Bankr. N.D. Ohio 2007).

2. Section 109(a) And Venue.

Section 109(a) is applicable to all bankruptcy cases:

(a) Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.

Thus, to be eligible for bankruptcy protection under Chapter 13, an individual must meet

one of the requirements set forth in 11 U.S.C. §109(a).

For venue purposes, under 28 U.S.C. Section 1408(1), a bankruptcy case can be

commenced in the district in which the “domicile, residence, principal place of business in the

United States, or principal assets in the United States, of the person or entity that is the subject of

such case have been located for the one hundred and eighty days immediately preceding such

commencement, or for a longer portion of such one-hundred-and-eighty-day period than the

domicile, residence, or principal place of business, in the United States, or principal assets in the

United States, of such person were located in any other district”….

The United States Trustee, using the Sixth Circuit Court of Appeals holding in

Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2008), has been seeking dismissal, based

on improper venue, for cases where Michigan residents who live near the state line have

filed in Toledo. The most common exception to the venue restriction for Michigan

residents who file in Ohio is ownership of real estate in Ohio.

3. Eligibility Under Section 109(e)

At the beginning of Section 109(e)’s list of requirements for eligibility to file a

bankruptcy case under Chapter 13 is the statement that the debtor must be an “individual”. See,

Section 109(e). The Bankruptcy Code defines the term “person” as an “individual, partnership,

and corporation”. See, 11 U.S.C. §101(41). Inherent in this definition is the idea that an

“individual” is a flesh and blood human being – as distinguished from business entities like a

“partnership and corporation”. Accordingly, only real human beings are eligible to file a

bankruptcy under Chapter 13.

Section 109(e) sets forth additional specific eligibility requirements for relief under

Chapter 13, including a limitation on the amount of non-contingent, liquidated secured and

unsecured debt that debtors can have at the time of the filing of the petition. These amounts are

indexed to inflation [11 U.S.C. §104(b)(1)], and were most recently raised on April 1, 2007.

Thus, 11 U.S.C. §109(e) currently provides, in pertinent part:

(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $336,900 and noncontingent, liquidated, secured debts of less than $1,010,650, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $336,900 and noncontingent, liquidated, secured debts of less than $1,010,650 may be a debtor under chapter 13 of this title.

Chapter 13 jurisdictional issues arise most often with the unsecured debt limits.

The Chapter 13 Trustee moves to dismiss cases where the debtor(s) appear to be over the

debt limits based upon the case Matter of Pearson, 773 F.2d 751, 756 (6th Cir. 1985), in which the

Sixth Circuit Court of Appeals stated: “. . . a court should rely primarily upon the debtor's schedules

checking only to see if the schedules were made in good faith on the theory that section 109(e)

considers debts as they exist at the time of filing, not after a hearing. We adhere to this construction

as more harmonious with congressional intent and with the statutory scheme. First, section 109(e)

provides that the eligibility computation is based on the date of filing the petition; it states nothing

about computing eligibility after a hearing on the merits of the claims.” See also, In re Holland, 293

B.R. 425, 428-429 (Bankr. N.D. Ohio 2002).

The Ninth Circuit adopted the Pearson test, and stated it to be: “We now simply and

explicitly state the rule for determining Chapter 13 eligibility under §109(e) to be that eligibility

should normally be determined by the debtor’s originally filed schedules, checking only to see if the

schedules were made in good faith.” In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001).

While the debtors are, to a large extent, bound by what they have filed with the court,

Chapter 13 Trustees can also look at the reality of the debts, not just what the debtors claim in their

schedules.

For example, just asserting that a debt is “contingent” may not defeat a Chapter 13 Trustee’s

motion to dismiss based on the jurisdictional dollar limits. "For purposes of §109(e), a contingent

debt may be defined as "one for which the debtor will be called upon to pay only upon the

occurrence of happening of an extrinsic event which will trigger the liability of the debtor to the

alleged creditor." In re Martz, 293 B.R. 490 (Bankr. N.D. Ohio 2002), citing, In re Fostvedt, 823

F.2d 305, 206 (9th Cir. 1987); see also, In re Mazzeo, 131 F.3d 295, 302-305 (2nd Cir. 1997). A

debt is not rendered contingent merely because it is a jointly owed debt. In re Martz, 293 B.R. 409,

411 (Bankr. N.D. Ohio 2002).

In addition, without regard to the nature of the underlying cause of action, if a debt has been

reduced to a pre-petition judgment against the debtor, that debt is noncontingent and is counted

toward the debt limit. See, In re Hammers , 988 F.2d 32 (5th Cir. 1993)(tax court judgment fixes

claim); In re Miloszar, 238 B.R. 266 (D.N.J. 1999)(default judgment is a noncontingent debt); In re

Monroe, 282 B.R. 219, 223 (Bankr. D. Ariz. 2002); In re Snell, 227 B.R. 127 (Bankr. S.D. Ohio

1998); In re Mannor, 175 B.R. 639 ( Bankr. E.D. Pa. Mich. 1994)(pre-petition judgment against

debtor precluded argument that debt was owed by a corporation and should be excluded).

Similarly, a security interest in the assets of another entity (other than the debtor) does not

make the debt secured as to the debtor. See, In re Maxfield, 159 B.R. 587 (Bankr. D. Idaho 1993);

In re Lane, 215 B.R. 810 (Bankr. E.D. Va. 1997).

Under bankruptcy case law, guaranteed corporate debt that is in default must be included as

unsecured debt in calculating the guarantor’s eligibility for Chapter 13. See, In re Tabor, 232 B.R.

85, 90 (Bankr. N.D. Ohio 1999); In re Robertson, 105 B.R. 504, 508 (Bankr. D. Minn. 1989); In re

Pulliam, 90 B.R. 241 (Bktcy. N.D. Tex. 1988)(corporate debt guaranteed at the date of filing is

noncontingent and must be included in the calculation of the monetary limitations); In re Williams,

51 B.R. 249 (Bktcy. S.D. Ind. 1984); DeKalb Bank v. Flaherty, 10 B.R. 118 (N.D. Ill. 1981); In re

Wilson, 9 B.R. 723 (Bktcy. E.D.N.Y. 1981).

Similarly, “Unsecured claims for taxes, claims by employees of a debtor engaged in

business, and administrative expenses are examples of priority claims that would be counted as

unsecured debts. Priority tax claims typically are not contingent for purposes of §109(e) because,

with respect to prepetition years, all of the acts and events necessary to trigger the debtor’s liability

have occurred. Most reported decisions also find that prepetition tax debts are liquidated for

elegibilty purposes in the amount claimed by the IRS.” Keith M. Lundin, 1 Chapter 13 Bankruptcy,

3rd Ed. At 17-5 to 17-6.

A recent decision by a bankruptcy court in Kansas held that where a husband and wife have

separate debts, for Section 109(e) eligibility purposes the debts are only counted to the extent each

debtor is liable for each debt (even if the debtors file a joint petition). See, In re Werts, 410 B.R.

677 (Bankr. D. Kan. 2009). Under Werts, if a husband had $100,000 in debts that he was solely

liable on, and the wife had $100,000 that she was solely liable on, and the couple had $200,000 in

joint debts, they would still be eligible to file a joint Chapter 13 case, because each would have

debts of $300,000, the total of the debt each was liable on, not $400,000, the total of both the

husband and the wife’s debts. Werts is the first decision to address this issue, and it is unclear

whether the decision will be accepted by other courts.

Note that if a debtor has debts greater than those allowed under Chapter 13, Chapter 11 is

available.

4. Filings Prohibited Under Section 109(g).

Section 109(g) prohibits any debtor from filing if they have been a debtor in a bankruptcy

case in the previous 180 days and: 1) the case was dismissed “for willful failure of the debtor to

abide by orders of the court, or to appear before the court in proper prosecution of the case”; or

2) the debtor voluntarily dismissed the bankruptcy case after a motion for relief from stay was

filed. This provision is intended to prevent serial filings, and provides a window for creditors to

complete liquidation of their security before the debtor can refile a bankruptcy case.

Cases have held that the order dismissing the case does not have to explicitly state that

dismissal is under Section 109(g) – the issue can be raised if a subsequent case is filed within

180 days. But, in the Northern District of Ohio, the Chapter 13 Trustee generally provides

specific notice if dismissal is being sought under Section 109(g). Or, in some cases where there

is questionable conduct, the debtor(s) and the Chapter 13 Trustee may stipulate that if the case is

dismissed, it will be dismissed under Section 109(g), prohibiting any refiling for 180 days.

B. Procedural Matters.1. Debt Counseling Requirement.

Because Section 109 is captioned “Who may be a debtor”, it appears that §109(h)

actually sets up debt counseling as a jurisdictional requirement for debtors.

Under § 521(b) and Bankruptcy Rule 1007(b)(3) and (c), either a certificate from

the approved credit counseling agency attesting to the fact that the debtor has received the

required counseling, a certification under §109(h)(3), or a request for a determination under

§ 109(h)(4) must be filed with an individual’s voluntary petition.

The case law indicates that it will be very difficult to meet the requirements to obtain an

extension of time, allowing the debtor to receive the credit counseling post-petition. The courts

are emphasizing that each element of the statute must be met, in order to obtain an extension.

2. Payment Advices.

In a Chapter 13 bankruptcy, a debtor must file with the Court –

(6) Copies of all “pay advices” (pay stubs) that the debtor has received within 60 days before the date of filing;

If a debtor fails to file the pay advices within 45 days (plus up to an additional 45 days if

granted by the Court) after the date of the filing of the petition, the case is “automatically

dismissed” on the 46th day under Section 521(a)(1). In reality, the dismissal is generally not

“automatic” after 45 days, but cases where no payment advices have been filed (or an affidavit

that the debtor has not received any payment advices within the previous 60 days) will be

dismissed upon the Chapter 13 Trustee’s motion, a creditor’s motion, or at some point, by the

court.

3. Tax Returns:

The better practice is to be sure that, prior to filing their Chapter 13 case, your debtors

have filed all tax returns for the last four years. See, §1308(a). Section 1308(a) states that the

debtor must have all tax returns for the last four years filed with the appropriate taxing

authorities on the day before the first date scheduled for the first meeting of creditors. This

deadline can be extended (apparently by the Trustee) for a maximum of 120 days after the first

meeting date. An additional 30 day extension, beyond the 120 days extension, requires an

evidentiary hearing before the Bankruptcy Court. After that, it appears that the Bankruptcy Code

requires that the case be dismissed.

However, unless the Trustee requests additional tax returns (or the Judge orders the

debtor to provide additional returns to the Trustee) the only copy of a tax return that the debtor

must provided to the Chapter 13 Trustee is the most recent filed federal tax return . The statute

provides that seven (7) days before the date first set for the Section 341 meeting of creditors, the

debtor must provide to the trustee a copy of the most recent filed Federal income tax return (or

transcript of the return). See, Section 521(e)(2)(A)(i). If the debtor fails to comply with this

requirement, the case “shall” be dismissed. See, Section 521(e)(2)(B).

When the tax return is provided to the Office of the Chapter 13 Trustee, we do an entry

on the case docket, showing that the required federal tax return has been provided.

4. Various Deadlines

In a Chapter 13 bankruptcy, a debtor’s attorney, must complete, have the debtor sign

(where necessary) and file with the Court –

1) The Petition and a mailing matrix (list of all creditors), with the filing fee or an

Application to Pay Filing Fee in Installments, with an Order granting the Motion;

2) A certificate of the attorney stating that the §342(b) notice has been delivered to the

debtor. (Exhibit B to the Petition.)

3) Schedules of assets and liabilities;  

4) Schedules of current income and current expenditures (Schedules I & J), including a

response, if required, to the question whether a change in income of more than 10% is

anticipated in the year following the filing of Schedule I;

5) The Statement of Financial Affairs;

6) Copies of all “pay advices” (paystubs) that the debtor has received within 60 days before

the date of filing;

7) The Chapter 13 Statement of Current Monthly Income, completing at least Part I (Report

of Income) and Part II (Calculation of §1325(b)(4) Commitment Period), and the entire form if

the Debtor(s) is “over the median”;

If a debtor fails to file all of the required information (listed above in italics) within 45

days (plus up to an additional 45 days, if granted by the Court) after the date of the filing of the

petition, the case is “automatically dismissed” on the 46th day under Section 521(a)(1).

8) A Declaration Re: Electronic Filing of Documents and Statement of Social Security

Number;

9) A certificate of credit counseling from an approved credit counseling agency and a debt

repayment plan (if any);

10) A Chapter 13 Plan;

11) A record of any interest that the debtor has in an IRC 529(b)(1) or 530(b)(1) education

individual retirement account or qualified State tuition program;

5. Additional Documents

a. Insurance Information To Secured Creditors.

Within 60 days of the filing of the petition, a Chapter 13 debtor must provide to lessors of

personal property, or purchase money secured creditors, reasonable evidence of insurance on the

property that the debtor retains. The debtor must continue to provide proof of such insurance for

as long as the debtor retains possession of the property. See, Section 1326(a)(4).

b. Debt Relief Agency Requirements:

A bankruptcy attorney must provide to any “Assisted Person” (a potential debtor who is

given legal advice) who has received and counsel has retained a signed copy of: A Section

342(b) notice, with the Section 527(a) supplement. Although §342(b) (BAPCPA) says that the

notice shall be given by the clerk before the bankruptcy is filed (!), §527(a) states that a “Debt

Relief Agency” (DRA) must provide the §342(b) bankruptcy notice, with the supplemental

information required by §527(a), must be given to the “Assisted Person”, “no later than 3

business days after the first date on which a debt relief agency first offers to provide any

bankruptcy assistance services to an assisted person”.

At the same time the Section 527(a)(1) notice is given, the Section 527(b) statement must

also be provided to the “assisted person”. The text of the §527(b) notice is set forth in that

subsection.

6. Domestic Support Obligation Requirement.

If the debtor has a domestic support obligation – which is broadly defined in Section

101(14)(A), the debtor must provide the Chapter 13 Trustee with the address and telephone

number of the holder of the claim (usually, the custodial parent), and the child support

enforcement agency that the claim is paid through. Because of what appears to be poor

draftsmanship, we need the information to notify the child support enforcement agency

whenever there is a “domestic support obligation”, which includes claims for alimony only.

C. The Chapter 13 Plan.

A Chapter 13 Plan serves two related purposes:  First, it provides notice to the

creditors in the bankruptcy case of what the debtor(s) are proposing to do in the Chapter

13.  Second, the Chapter 13 Plan is a set of directions to the Chapter 13 Trustee for

payment of the various claims.

1. Contents of the Plan.

Section 1322 sets forth the contents of a Chapter 13 Plan:

(a) The plan shall—

(1) provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan;

(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim;

(3) if the plan classifies claims, provide the same treatment for each claim within a particular class; and

(4) notwithstanding any other provision of this section, a plan may provide for less than full payment of all amounts owed for a claim entitled to priority under section 507(a)(1)(B) only if the plan provides that all of the debtor's projected disposable income for a 5-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

Those are the mandatory provisions of §1322.  Section 1322 also has permissive

provisions that you may want to include in your Chapter 13 Plan, including (b)(1) a

separate classification (and a different treatment) of consumer debts with a cosigner; (b)(2)

modification of the rights of the holders of secured claims, other than a creditor secured

only by a security interest in real property that is the debtor's principal residence; (b)(3) a

provision for the curing or waiver of any default; (b)(4) front loading unsecured claim to be

made concurrently with payments on any other secured claim; (b)(5) curing defaults,

including defaults on mortgages, within a reasonable time; (b)(6) payment of any allowed

post-petition claim(s); (b)(7) assumption, rejection or assignment of executory contracts;

(b)(8) provide for payment to be made from a sale of property of the estate or property of

the debtor; (b)(9) vesting of property of the estate upon confirmation of the Plan, or at a

later time, in the Debtor, or any other entity; and (b)(10) provide for the payment of interest

accruing after the date of the filing of the petition on unsecured claims that are

nondischargeable under section 1328(a), except that such interest may be paid only to the

extent that the debtor has disposable income available to pay such interest after making

provision for full payment of all allowed claims; and, (b)(11) include any other appropriate

provision not inconsistent with this title.

2. Tests The Plan Must Meet.

Section 1325 provides certain tests that must be met for a Chapter 13 Plan to be

confirmed.  Specifically, the most commonly contested requirements are of good faith

[§1325(a)(3)]; the best interest of creditors/a.k.a. liquidation test [§1325(a)(4)] - are the

creditors receiving as much or more than they would receive in a Chapter 7 case; and

feasibility [§1325(a)(6)] - usually an issue of whether the Debtor(s) can make the required

payments.  Section 1325(b)(1)(B) sets forth the disposable income test, which is further

defined in §1325(b)(2).

There are also some new requirements implemented by BAPCPA. First, the

treatment of secured creditors has changed:

(5) with respect to each allowed secured claim provided for by the plan—

(A) the holder of such claim has accepted the plan;

(B)(i) the plan provides that--(I) the holder of such claim retain the lien securing such claim until the

earlier of--(aa) the payment of the underlying debt determined undernonbankruptcy law; or(bb) discharge under section 1328; and

(II) if the case under this chapter is dismissed or converted withoutcompletion of the plan, such lien shall also be retained by such holder to theextent recognized by applicable nonbankruptcy law;

(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and

(iii) if--(I) property to be distributed pursuant to this subsection is in the form ofperiodic payments, such payments shall be in equal monthly amounts; and(II) the holder of the claim is secured by personal property, the amount ofsuch payments shall not be less than an amount sufficient to provide to theholder of such claim adequate protection during the period of the plan; or

(C) the debtor surrenders the property securing such claim to such holder;

The “good faith” requirement has also been expanded (to conform with the case

law) in §1328(a)(7) – permitting confirmation of the Chapter 13 Plan only if “the action of

the debtor in filing the petition was in good faith”. Section §1328(a)(3) has always

required that the Plan have been proposed in good faith, and pre-BAPCPA court decisions

had held that the filing must have been in good faith as well.

Debtors are now also required to have paid all amounts that are required to be paid

under a domestic support obligation and that first become payable after the date of the

filing of the petition if the debtor is required by a judicial or administrative order, or by

statute, to pay such domestic support obligation. §1328(a)(8). DSO obligations are

discussed in more detail in the Family Law section of this outline, Section V.

Finally, Section 1328(a)(9) permits confirmation of a Chapter 13 Plan only if all

applicable Federal, State, and local tax returns have been filed as required by Section 1308.

3. The Benefit Of A 70% Plan.

Under Section 727(a)(9), the Court shall grant a discharge in a Chapter 7 case, unless:

    (a)(9) the debtor has been granted a discharge under Sections * * * 1328 of this title * * * in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totalled at least – 

(A)  100 percent of the allowed secured claims in such case; or 

(B)(i)  70 percent of such claims; and                             (ii) the plan was proposed by the debtor in good faith and was the

debtor's best effort;

So, if a debtor completes a less than 70% Chapter 13 Plan, they cannot receive a

Chapter 7 discharge for six years from the date of the filing of the Chapter 13. (Discussed

in more depth, below.)

4.               Typical Chapter 13 Plan Provisions - Giving Direction To TheTrustee. 

a.        Real Estate.

Usually, Chapter 13 debtors are behind on their mortgages.  In this jurisdiction, one

judge (Hon. Richard L. Speer) requires "conduit" mortgage payments where debtors have a

substantial arrearage on their mortgage. The Hon. Mary Ann Whipple does not require

conduit mortgage payments based on the debtor(s) having an arrearage, but she has

required conduit mortgage payments in some cases where there has been a post-petition

mortgage default resulting a motion for relief from stay.

Both bankruptcy judges have the same rule for mortgage arrearages: all payments

toward curing the mortgage arrearage are to be made through the Chapter 13 trustee's office

- or "inside the Plan" as it is often referred to by practitioners.

For Judge Whipple cases, the most common way to deal with mortgage debt in a

Chapter 13 Plan is to provide that "the current monthly mortgage payments will be paid by

the Debtor(s) directly, "outside" the Plan, with any arrearages to be paid by the Chapter 13

Trustee, "inside” the Plan” - or language to that effect.  This treatment of mortgage debt

can be used on first, second, third, etc. mortgages, if the debtor so desires.

In cases assigned to Judge Speer, debtors may be required to have the Chapter 13

Trustee make the regular monthly mortgage payment through the Plan, as well as curing

any mortgage arrearage. This form of payment of the regular monthly mortgage payment

is called a “conduit” payment – where the Chapter 13 trustee acts as a conduit for the

regular monthly mortgage payment from the debtor to the mortgage company.

Debtors’ attorneys can either wait until they know which bankruptcy judge they

have drawn before submitting their Chapter 13 Plan, or include language in the last

paragraph of the Plan that states: “If this case is assigned to the Honorable Richard L.

Speer, the mortgage will be paid via conduit payment made through the Chapter 13

Trustee.” Plan payments can be increased by stipulation to fund the required conduit

mortgage payments.

Debtors may also elect to have conduit mortgage payments as part of their Chapter

13 Plan even where they are not required. Typically this is done where the debtor(s)

anticipate that there may be some problem with the mortgage company properly crediting

payments. When the debtor(s) testify that they made payments, a bankruptcy judge has to

make difficult decisions about credibility and evidence. When the Chapter 13 trustee

testifies that mortgage payments were made, and when, that usually settles the issue.

The statutory Chapter 13 trustee fee applies on top of the regular monthly mortgage

payment, adding the Chapter 13 trustee’s percentage fee to the cost of direct payment. But,

if that just serves to reduce the amount going to unsecured creditors, debtors may prefer to

make their payment to the Chapter 13 Trustee’s office, if for no other reason than the

trustee’s statements that payments were, in fact, made to the mortgage company often

carries more weight than the same testimony by a debtor.

It is also possible to include a provision that real estate is being surrendered "in full

satisfaction" of the mortgage debt.  If the Chapter 13 Plan with that provision is confirmed,

it may prevent the filing of an unsecured claim.  However, an objection to such a provision

in a Chapter 13 Plan by the mortgage lender would prevent confirmation as there is no right

to surrender real estate and extinguish the mortgage company’s right to file a deficiency

claim.  A Chapter 13 debtor cannot force an objecting creditor to accept surrender of real

estate in full satisfaction. Counsel should also be very sure that proper service of all

Chapter 13 Plans – no matter how minor the changes – are made on any mortgage creditor

who is going to receive property in full satisfaction, as courts are even more concerned that

all the niceties of due process were observed where surrender in full satisfaction provisions

are in issue. See, In re Tessier, 333 B.R. 174 (Bankr. D. Conn. 2005)(Notice that creditor

received in connection with First Amended Plan, stating that the vehicle would be returned in

full satisfaction, was not sufficient for due process purposes to preclude filing of deficiency

claim where Second Amended Plan, with a similar but not identical provision, was not served

on the secured creditor.)

Note that if the mortgage creditor is a federally insured banking institution, service of

the Chapter 13 Plan should be made as provided by Federal Rule of Bankruptcy Procedure

7004(h).

Finally, the Sixth Circuit has held that a wholly unsecured second or third mortgage

can be stripped off under §1322(b)(2), and paid as an unsecured creditor.  See, In re Lane,

280 F.3d 663 (6th Cir. 2002).  Mechanically, it appears that a wholly unsecured second or

third mortgage can be stripped off without an adversary proceeding – the bankruptcy court

in In re Hill, 304 B.R. 800 (Bankr. S.D. Ohio 2003) held that the Plan provision, with a

subsequent motion, was sufficient under the Bankruptcy Code to strip these unsecured

mortgages.  However, the Hill court specifically declined to address the issue of whether a

Plan provision by itself was sufficient for purposes of due process, since that issue had not

been raised by the parties. Other courts have held a motion to be sufficient for mortgage

stripping where the treatment of the junior mortgage had been specifically provided for in

the Chapter 13 Plan. See, In re Sadala, 294 B.R. 180 (Bankr. M.D. Fla. 2003); In re Fisher,

289 B.R. 544 (Bankr. W.D.N.Y. 2003), In re Robert, 313 B.R. 545 (Bankr. N.D.N.Y.

2004), In re Bennett, 312 B.R. 843 (Bankr. W.D. Ky. 2004).

b.        Motor Vehicles.

The two most common choices for payment of loans secured by motor vehicles in

Chapter 13 are: 1) current payments "outside the Plan”, with any arrearages in the Plan; or,

2) 100% "inside the Plan” (the entire obligation paid by the Trustee).

Prior to BAPCPA, motor vehicles loans that were “inside the Plan” were paid the

fair market value of the vehicle as a secured claim (with interest), and the balance was paid

as unsecured an unsecured claim (without interest). BAPCPA eliminated the ability to

force motor vehicle lenders to accept this option where the purchase money debt on the

motor vehicle was incurred within 910 days of filing, and the vehicle is for personal (not

business) use of the debtor. Where the loans were incurred within 910 days of bankruptcy,

bifurcation of vehicle loans into secured and unsecured claims is no longer permitted over a

creditor’s objection.

Section 1325(a)(the “hanging paragraph” at the end of that subsection), states:

For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.

Note that the “910” restriction is much less sweeping than the prohibition that

prevents Chapter 13 debtors from modifying secured claims that are secured only by a

mortgage on interest in the debtor’s primary residence. It appears that there are still two

ways that “910 car loans” can be modified, even over a creditor’s objection: 1) the car

payments can be stretched out over the five year life of the Plan; and 2) the interest rate can

be modified under Till v. SCS Credit Corp., 541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d

787 (2004). See, In re Jordan, 521 F.3d 343, 348-350 (5th Cir. 2008); In re Robinson, 338

B.R. 70 (Bankr. W.D. Mo. 2006)(BAPCPA did not overrule Till).

For non-910 vehicle claims that can be bifurcated, BAPCPA now requires that the

value of the item securing the allowed claim must be determined based upon the property’s

“replacement value”, as of the date of the filing of the petition, without deduction for the

expenses of marketing the property, or the cost of sale. See, §506(a)(2).

However, the old practice of having Chapter 13 Plan provide that the secured

creditor’s lien would be released upon the completion of payments on the secured portion

of the claim is no longer permitted. A Chapter 13 Plan must provide that a secured creditor

retains its lien until the payment of the entire debt, or the entry of the discharge. See,

§1325(a)(5)(B)(i).

Finally, the Plan can also provide for surrender of the vehicle in full satisfaction of

the debt.  But, like surrender of real estate in full satisfaction, a Chapter 13 Plan with this

provision cannot be confirmed over a creditor’s objections. The Sixth Circuit has recently

ruled on this issue, and held that surrender in full satisfaction is not permitted over the

secured creditor’s objection. See, In re Long, 519 F.3d 288, 290-98 (6th Cir. 2008). So

far, all of the other circuit court decisions have also prohibited surrender in full satisfaction:

Capital One Auto Financing v. Osborn, 515 F.3d 817 (8th Cir. 2008); In re Wright, 492 F.3d

829, 832 (7th Cir. 2007); In re Ballard, 526 F.3d 634 (10th Cir. 2008); Tidewater Finance

Co. v. Kenney, 531 F.3d 312 (4t' Cir. 2008); In re Barrett, 543 F.3d 1239 (11th Cir. 2008).

i. Adequate Protection And Equal Monthly Payments.

BAPCPA now requires the payment of adequate protection payments to certain

secured creditors prior to the confirmation of the Chapter 13 Plan.

Section 1326(a) provides:

(a)(1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, in the amount—

(A) proposed by the plan to the trustee;(B) scheduled in a lease of personal property directly to the lessor for that

portion of the obligation that becomes due after the order for relief, reducing the payments under subparagraph (A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment; and

(C) that provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim is attributable to the purchase of such property by the debtor for that portion of the obligation that becomes due after the order for relief, reducing the payments under subparagraph (A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment.

(2) A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b).

(3) Subject to section 363, the court may, upon notice and a hearing, modify, increase, or reduce the payments required under this subsection pending confirmation of a plan.

Under this provision, a Chapter 13 debtor must commence direct payments to

secured creditors within 30 days after the filing of the petition. The amount to be paid must

be sufficient to provide the secured creditor with adequate protection of their security

interest. Some jurisdictions have presumptive formulas for calculating how much needs to

be paid as and for adequate protection. The Western Division of the Northern District of

Ohio does not have such a formula.

In some jurisdictions, the Chapter 13 Trustee makes the pre-Petition adequate

protection payments: In the Western Division, we DO NOT. Payments are to be made

directly by the debtor(s) to the holder of the purchase money security interest in personal

property, where the secured creditor’s claim is going to be paid through the Plan. See,

§1326(a)(1)(C).

The amounts paid directly to the secured creditor as adequate protection are

deducted from the amount of the monthly payment paid to the Trustee. This is illustrated

in the Chapter 13 Plan example that is attached as Exhibit 1.

Say the Plan proposes to pay the Chapter 13 Trustee $500 per month, with the

debtor’s vehicle being paid inside the Plan. Prior to confirmation, the debtor proposes (in

the Plan) to pay $200 per month directly to Ford Motor Credit as adequate protection on a

2000 Ford F-150 pick up. The payments to the Chapter 13 Trustee prior to confirmation

should be $300 per month until the Plan is confirmed – then the payments to the Chapter 13

Trustee will go to $500 per month, the direct payment for adequate protection will cease,

and the Trustee will pay Ford Motor Credit.

Proof of the adequate protection payments made directly to the secured creditor are

required to be provided to the Chapter 13 Trustee. See, Section 1326(a)(1)(C). This

information is needed for the Trustee to reconcile what has been paid to the creditor with

the proof of claim.

BAPCPA now requires that Chapter 13 Trustees pay secured creditors in equal

monthly payments when their post-petition obligations are paid through the Chapter 13

Plan. In other words, if the Chapter 13 debtor is going to retain the personal property that

serves as collateral, and the payment is going to be made by the Chapter 13 Trustee, then

the amount of the payments to that creditor have to be equal monthly payments, and

sufficient to provide adequate protection to the creditor.

Section 1325(a)(5)(B)(iii) states:

(iii) if--(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and

(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan.

If secured creditors insist on fixed monthly payments, they are entitled to them.

However, most Chapter 13 Plans in this Division provide for “pro-rata” payment of non-conduit

secured creditors who are being paid directly. The benefits are: from the creditor’s side, is that

the interest bearing secured debt payments are front loaded to the maximum extent possible;

from the debtor side, the problem of guessing too low on the amount of the fixed payments – and

having an unfeasible Plan - is avoided. So, we prefer that Plan use “pro-rata” language for motor

vehicle loans being paid through the Plan by the Trustee.

If you are going to use equal monthly payments guess high, so if a bigger-than-expected

claim comes in, it can be paid over the life of the Plan. Where the Chapter 13 Plan does provide

for fixed payments, most Chapter 13 Plans use the same dollar amounts specified for the

adequate protection payments as the equal monthly payments paid by the Chapter 13 Trustee

after confirmation of the Plan. Just be sure, if your Plan does provide for fixed payments, that

the payments are sufficient to pay off the loan during the term of the Plan, and that you have left

enough money for the prompt payment of administrative expense claims – i.e., attorney fees.

c.        Miscellaneous Personal Property.

The limitation on the bifurcation of undersecured claims secured by personal

property are covered in the same section of the Bankruptcy Code as the provision for motor

vehicles. If the purchase money security interest is on any other type of personal property,

other than a motor vehicle, the limitation on bifurcation is if the loan was taken out within

one year of filing. See, Section 1325(a). For personal property used for personal, family or

household purposes, the “replacement value” shall mean the price a retail merchant would

charge for property of that kind, considering its age and condition. Section 506(a)(2). In

many instances, this would appear to be a pawn shop, or Goodwill store value.

There is another tool for debtors’ counsel to consider for non-purchase money

security interests in personal property.  Section 522(f)(1)(B) has a provision for removing

nonpossessory, nonpurchase-money security interests from "household furnishings,

household goods, appliances, books, animals, crops, musical instruments, or jewelry that

are held primarily for the personal, family or household use of the debtor or a dependent of

the debtor".  Keep in mind, lien avoidance under this provision will not be possible if the

creditor has a purchase money security interest (money was loaned to actually purchase the

item), or if the property is actually held by the creditor (like a pawn shop situation).

d. Priority Claims.

Priority claims have to be paid 100% and those payments generally have to be made

through the Chapter 13 Trustee. “Domestic Support Obligation” debts are now priority

claims. And many tax claims are also priority claims.

e. Student Loans.

Student loans can be paid "inside" the Plan, at the same percentage as other

creditors, with any balance being unaffected by the Chapter 13 discharge. (i.e., the

debtor(s) will owe the balance of the student loan, and any accrued interest, after the

Chapter 13 Plan is completed.)

If the Chapter 13 Plan proposes to pay unsecured creditors 100% of their claims, the

student loans can be paid either inside or outside the Plan.  Outside of these broad

parameters, there is some variation between what the Toledo bankruptcy judges will allow.

Judge Speer appears to prefer, in less than 100% Chapter 13 Plans, that the student

loans be paid through the Chapter 13 Plan at the same percentage as other creditors. Judge

Whipple appears to allow payments of student loans directly, even in less than 100% Plans,

where the actual amount paid on the student loan debt is not more than the student loan

creditor would have received if its claim was paid through the Plan.

Neither judge will allow a provision in the Chapter 13 Plan that provides for

discharge of unpaid student loans through the Plan confirmation process.  Inclusion of such

a provision is improper, and a valid basis for denying confirmation of the Chapter 13 Plan. 

See, In re Hensley, 249 B.R. 318 (Bankr. W.D. Okla. 2000); In re Mammel, 221 B.R. 238

(Bankr. N.D. Iowa 1998).

The Sixth Circuit Court of Appeals has considered the issue of whether or not

inclusion of a “discharge by declaration” provision in a Chapter 13 Plan is res judicata,

resulting in the discharge of the student loan upon confirmation. The Appellate Court held

that Bankruptcy court properly granted creditor's Fed. R. Civ. P. 60(b)(4) motion and

vacated a portion of the Chapter 13 discharge order, which discharged student loan debt.

The decision held that the creditor's due process rights were violated because debtor had

not initiated adversary proceeding to obtain discharge as required by 11 U.S.C.S. § 523(a)

(8) and Fed R. Bankr. P. 7001(6). See, In re Ruehle, 412 F.3d 679 (6th Cir. 2005).

f. Unsecured Creditors.

The information on unsecured debts that should be included in the Chapter 13 Plan

is: 1) the amount of the payment - usually expressed in the Plan as a monthly figure; 2) the

number of months the Chapter 13 will run; and 3) the percentage to paid to unsecured

creditors under the Chapter 13 Plan.

Chapter 13 debtors must pay their unsecured debts through the Chapter 13 trustee. 

Please do not propose a Chapter Plan calling for direct payment of any general unsecured

creditors. The Chapter 13 trustee will object.

g.        401(k) Loans.

Prior to BAPCPA, unless the Chapter 13 Plan provided for payment of 100% to

unsecured creditors, the Chapter 13 debtors were not permitted to repay 401(k) loans

during the life of the Chapter 13 Plan. See e.g., In re Behlke, 358 F.3d 429 (6th Cir. 2004);

In re Harshbarger, 66 F.3d 775 (6th Cir. 1995); In re Esquivel, 239 B.R. 146, 149-54 (E.D.

Mich. 1999).

BAPCPA has changed the rule, and made repayment of 401(k) or other pension

loans an expense that is properly deducted in calculating disposable income.

h.        Executory Contracts.

If the Debtor(s) have an executory contract, such as a car lease, the Plan should

state whether the Debtor(s) are assuming or rejecting that executory contract.

Under BAPCPA, if the lease of personal property is not assumed in the Chapter 13

Plan, then at the conclusion of the hearing on confirmation the lease is deemed rejected and

the stay and the codebtor stay are terminated as to the property. See, Section 365(p)(3).

i. Selling Real Estate Or Other Property.

If the Plan calls for the sale of real estate, or other property, to either pay off

secured loans or to fund the Chapter 13 Plan, the Chapter 13 Plan must state a date certain

for completion of the sale.  The reason for this rule is that too many Chapter 13 cases have

lingered on without consummation of the sales promised in the Plan.

j. Means Test.

The BAPCPA uses mandatory language in the Means Test, which appears intended to

remove much of the bankruptcy court’s discretion in allowing expenses. However, the statute is

so poorly drafted, it is difficult to determine what is required.

The Judges do take different approaches to the Means Test. Judge Speer views the

Means Test as primarily a tool for determining how long the Chapter 13 Plan must run – either

the minimum of 36 months for below median debtors, or 60 months for above-median debtors.

Judge Speer looks at actual current income in determining Chapter 13 Plan payments. If the

does not pay 100% to unsecured creditors, he requires a review of the debtor’s ability to pay

every 9 months.

Judge Whipple has held that the Means Test is the first thing that is looked at in

determining the minimum payments that need to be made into the Chapter 13 Plan to meet

the “disposable income” requirement. If the debtor wishes to argue for “changed

circumstances”, and the Chapter 13 trustee has objected to confirmation, the debtor must

show the changed circumstances at an evidentiary hearing. If certain expenses are not

going to be part of the debtor’s actual budget going forward, then those monies must go

into the Plan. For example, “phantom expenses” for monthly payments on property that is

being surrendered, or for a lien or mortgage that is being stripped would have to be added

back into the debtor’s Chapter 13 Plan payment. See, In re Petro, 395 B.R. 369 (B.A.P. 6th

Cir. 2008); In re Thomas, 395 B.R. 914, 922-23 (B.A.P. 6th Cir. 2008); In re Whitaker, 08-

34057, unpublished, (Bankr. N.D. Ohio April 23, 2009); In re Kelly, 08-30084,

unpublished, (Bankr. N.D. Ohio April 23, 2009)(unpublished decisions are available on

Judge Whipple’s website, at: http://www.ohnb.uscourts.gov/judges/whipple.asp ).

Similarly, where the debtors have a 401(k) loan, the monies for that monthly repayment go

into the Plan when the 401(k) loan is paid off.

For below median debtors, the confirmation of the Chapter 13 Plan depends on the

traditional “disposable income test”. The debtor’s income is netted against actual expenses

that are both reasonable and necessary. Put simply, the difference is what must go into the

Plan to pay unsecured creditors in order to meet the disposable income test.

k. Tests A Chapter 13 Plan Must Meet.

In addition to the “disposable income test”, §1325 provides certain additional tests that

must be met for a Chapter 13 Plan to be confirmed.  Specifically, the most commonly contested

requirements are of good faith [§1325(a)(3)]; the best interest of creditors/a.k.a. liquidation

test [§1325(a)(4)](are the creditors receiving as much or more than they would receive in a

Chapter 7 case?); and feasibility [§1325(a)(6)] - usually an issue of whether the Debtor(s) can

make the required payments.

The “good faith” requirement has been expanded by BAPCPA (to conform with the case

law). Section 1328(a)(7) permits confirmation of the Chapter 13 Plan only if “the action of the

debtor in filing the petition was in good faith”. Section §1328(a)(3) has always required that the

Plan have been proposed in good faith, and court decisions have held that the filing must have

been in good faith as well – but now the Code specifically supports that case law rule.

The “best interest of creditors test” – also called the “liquidation test” – requires

Chapter 13 debtors to pay their unsecured creditors at least as much as they would get in a

hypothetical Chapter 7. Accordingly, if the debtor has valuable assets that are owned free and

clear, provision will have to be made to pay at least the non-exempt value of those assets

(perhaps with some allowance for cost of sale) regardless of the amount of disposable income the

debtor has. The best interest of creditors test is a separate test that must be met in addition to the

other confirmation requirements.

“Feasibility” is often referred to as the easiest Chapter 13 test to meet – but if the Plan is

patently unfeasible, it is not going to be confirmed. Moreover, the failure to make payments

prior to the Hearing on Confirmation is evidence that the Plan is not, in fact, feasible. The best

evidence that the debtors can make the payments is that they have made the payments from the

time of filing up to the Confirmation Hearing.

2. The Length Of The Chapter 13 Plan Under BAPCPA.

Chapter 13 Plan must provide for payment of all of the debtors’ projected disposable

income for the ‘applicable commitment period’. See, §1325(b). This period must be at least

Three (3) years if the debtor(s) are under the state median income level. The length of the

Chapter Plan for above state median income level debtors must be Five (5) years. If the Chapter

13 Plan proposes to pay general unsecured creditors 100%, the Plan can end earlier than 3 and 5

year time periods.

D. HOW TO COMPUTE A CHAPTER 13 PLAN.

First, make sure the Schedules and Statement of Financial Affairs (and the Means

Test, if applicable) have been completed accurately.

You will need to know the mortgage arrearages, or else have enough information to

make a “worst case” estimate of the mortgage arrearages. In most Chapter 13 cases in the

Western Division, the regular mortgage payments are paid directly by the debtor(s), and

any arrearages are paid by the Chapter 13 Trustee.

Next, if one or more cars are going to be paid through the Plan, the amount of the

secured claim, and the interest rate, need to be made part of your calculations.

If there are adequate protection payments to be made, or fixed payments after

confirmation, those should also be included.

Priority creditors are almost always paid through the Plan. The most common

priority claims are for income taxes and domestic support arrearages. Priority claims must

be paid in full in a Chapter 13 case.

All unsecured creditors must be paid through the Plan. Unsecured creditors

generally get paid after administrative expenses, mortgage arrearages, secured claims, and

priority claims.

CALCULATING THE FIGURES IN A CHAPTER 13 PLAN:

As prepared by Trustee’s Case Analyst Debbie Lilja:

Secured Creditors: (each secured creditor’s treatment as set forth in Plan)

1st Mortgageholder – arrears $ 5,000.002nd Mortgageholder – arrears 2,500.00

In some districts any mortgage with an arrearage must be paid as a conduit that is the regular mortgage payment paid by the Trustee. (See below)

Ford Motor Credit – 06 Mustang 25,000.00 + 10% 5,000.00 int

Adequate protection pmt by Debtor – $500.00/monFixed pays by Trustee after confirmation - $600.00/mon – or Ford may be paid on a pro rata basis (preferred)

Household Bank – 2006 Coleman Pro rata Camper 7,000.00 + 10% 1,400.00 int = (7000.00 x 10% = 700.00 x 2*)*this is a rough estimate of simple interest to be paid on claim.

Priority Creditors: (usually paid through the Plan)IRS - 3,400.00City of Toledo 158.00

Unsecured Creditors: (must be paid through Plan)100% 35,000.00**Student loans are unsecured, non-priority debts that are non-dischargeable. They are not priority debts – and are the only unsecured debts which can be paid directly by the Debtor(s). In this ‘case’ the student loans are in deferment and will not be included in calculations, but will be included in the total unsecured debt.

TOTAL: 79,958.00

Trustee fees: 7,995.80*Trustee fees for the purpose of the 341 hearing are always calculated at 10% (the maximum the Trustee may receive) The actual fees for each Chapter 13 Trustee are

determined by the Office of the U.S. Trustee on an annual basis and may be modified for short periods of time during the fiscal year.

87,953.80

Need: $1467.00 per mon x 60 = $88,020.00

(If your client’s disposable income is $900.00/mon – this could be a problem)

***Always assume that the mortgageholders will tack on fees and costs (escrow shortages, foreclosure costs, NSF penalties) It is a good idea to estimate ‘high’ as to the arrearage figure to make sure that these possible legitimate conditions are covered.

Priority - $3558.00Secured - $147,000.00Unsecured - $50,000.00

--If you intend to set fixed monthly payments for a number of secured creditors, if not all of

them – make sure that the final monthly Plan payment is not less than the total of the fixed

payments, and includes the 10% of each month’s payment that is designated for Trustee

fees. In this case, of the $1467.00 of each monthly payment – the Trustee receives $146.70

off the top.

Conduits: The regular monthly mortgage payment per Debtors’ most recent information,

multiplied by 10% Trustee fees added together, should be added into the figure determined

necessary to complete the plan . (as for any fixed pays)

Therefore, if the mortgage payment is: $1255.67 per mon

Plus trustee fees 10% 125.56 = $1381.23*

$1381.23 must be added to $1467.00 to determine the monthly payment required to pay the

conduit as well as maintain the feasibility of the case.

TOTAL MONTHLY PAYMENT NEEDED: ($2848.23) - $2849.00 per month.

*Be reminded that mortgage companies look at exact figures - $1255.67 in a bankruptcy

If you round up to $1256.00 or a dollar or two more – they will not know what to do with

the extra funds of even a few cents and the possibility of improper crediting of payments is

increased. Make sure you have an accurate and exact monthly mortgage payment figure.

E. Meeting Of Creditors.

The first meeting of creditors is usually scheduled somewhere around 30 to 50 days after

the filing of the Chapter 13 case. There is a strong preference for the first meeting to be

scheduled at least 25 days after the date the Chapter 13 Plan was served on creditors. For cases

assigned to Judge Whipple, the first date set for the first meeting of creditors is also the deadline

for filing Objections to Confirmation of the Chapter 13 Plan.

For Chapter 13 cases, the first meetings are scheduled every 15 minutes. The questioning

is generally directed as to whether the Chapter 13 Plan complies with the requirements for

Confirmation, whether the debtor’s real estate is insured, any discrepancies in the filed

documents, and whether the Plan has given the Chapter 13 Trustee specific directions on the

payment of each secured creditor and each class of unsecured creditors.

1. What The Debtors Need To Bring To The First Meeting.

Debtors need to bring a government issued ID – preferably a driver’s license or a state ID

card. If the debtor’s identification card does not include their social security number, they need

to provide proof of their social security number – in those circumstances, our strong preference

is for the debtors to bring their social security card with them to the first meeting of creditors.

Most of the documents that need to be filed in a Chapter 13 (described more fully above)

are required to be filed BEFORE the first meeting of creditors. Of course, it is necessary for the

Office of the Chapter 13 Trustee to receive those documents within the statutory time limits – the

only way that we can conduct a thorough 341 examination within the allotted time period is

through comprehensive pre-hearing preparation.

One item of information that the Chapter 13 Trustee often needs, which is not required to

be provided prior to the first meeting of creditors, is the telephone number of the person or

persons to whom the debtor owes a domestic support obligation(s) (a “DSO” claimant).

BAPCPA imposes new duties on trustees to formally notify domestic support obligation

creditors (and the state child support agency) of the bankruptcy, and one of the statutorily

required pieces of information is the telephone number of the domestic support obligation

creditor. We also need the proper spelling of the DSO claimant’s name, and a proper address –

but in most situations, that address should have been included in the debtor’s Schedules, usually

on Schedule E.

Counsel needs to bring the original signed Petition, Schedules, and Statement of Affairs,

Means Test and Plan with them to the first meeting so that the debtors can identify, under oath,

their “wet signatures”.

F. The Confirmation Process

1. Procedural Matters – Notice To Creditors Re: The Chapter 13 Plan.

Federal Rule of Bankruptcy Procedure 2002(b) states in relevant part:

(b) Twenty-eight-day notices to parties in interest.

Except as provided in subdivision (1) of this rule, the clerk, or some other person as the court may direct, shall give the debtor, the trustee, all creditors and indenture trustees not less than 28 days notice by mail of * * * * and (2) the time fixed for filing objections and the hearing to consider confirmation of a chapter 9, chapter 11, or chapter 13 plan.

Please note that the time periods for bankruptcy noticing were changed as of December 1,

2009. All the time limits are now in seven day increments. So, the old 25 day notice period is

now 28 days, and the 20 day notice period is now 21 days.

A similar 21 day notice period will apply to all substantive changes to a Chapter 13 Plan

that might adversely affect a creditor or creditors. See, Federal Rule of Bankruptcy Procedure

2002(a)(5). However, this notice period will not apply to changes that would only benefit

creditors, or would be essentially neutral. For example, while an increase of $100 per month in

Plan payments and a corresponding 10% increase in the percentage paid to unsecured creditors is

a substantial change in the terms of a Chapter 13, it would not require 25 days notice to creditors

because the only effect of the change is to benefits unsecured creditors. On the other hand, if an

Amended Plan proposed reduction in the Plan payment, a reduction in the percentage, or a

change in the treatment of a secured claim, 28 days notice would be required.

While some courts do not hold confirmation hearings on the confirmation of uncontested

Chapter 13 Plans, both bankruptcy Judges in the Western Division of the Northern District of

Ohio do hold confirmation hearings on all Chapter 13 cases. However, attendance is not always

required by counsel or the debtor(s) if there is no objection filed to confirmation of the Chapter

13 Plan.

The two judges have slightly different rules for attendance at uncontested (i.e., no

objection filed) confirmation hearings. For United States Bankruptcy Judge Richard L. Speer,

debtors and their counsel are not required to attend if the Plan proposes to pay 70% or more of

the allowed unsecured claims. For cases where the percentage is under 70% debtors and their

counsel are required to appear, unless specifically excused by the Chapter 13.

For United States Bankruptcy Judge Mary Ann Whipple, attendance is generally not

required if no objection has been filed (regardless of the percentage) unless the Chapter 13

Trustee suggests attendance to address an issue. If attendance is required, Judge Whipple

permits telephonic attendance by counsel at the first confirmation hearing, provided counsel calls

her office to make arrangements for telephonic appearance well before the time set for the

hearing - it is best to make arrangements for a telephonic hearing at least a day before the

hearing. Where there is an objection filed, the debtor(s) are not usually required to attend if the

basis for the objection is just legal, not factual, and the issue can be adequately addressed by

counsel.

2. Objections To Confirmation.

A party in interest, usually a creditor or the Chapter 13 Trustee, may file an objection to

confirmation of the Chapter 13 Plan. Any objection to the confirmation of a Chapter 13 Plan

filed in a case assigned to Judge Whipple should be filed on (or before) same day as the first

meeting of creditors. For cases assigned to Judge Speer - where the Confirmation Hearing is

usually held the same day as the first meeting of creditors - the objection should be filed before

the hearing, but if that is not possible, Judge Speer will usually hear objections to confirmation

made (even just orally) at the time of the hearing.

There are numerous reasons for objecting to confirmation of a Chapter 13 Plan: 1) the

Plan may not comply with one or more of the requirements of Section 1325, or Section 1322; 2)

the treatment of a secured creditor may be improper under the Bankruptcy Code; 3) there may be

an issue regarding the good faith of the debtor; or, 4) the payments being made to the Trustee

will not be adequate to pay the actual amount of the mortgage arrearage.

One basis for objecting to a Chapter 13 Plan that has arisen recently comes from a

decision that was issued by Judge Baxter, a Bankruptcy Judge in Cleveland. In In re Thaxton,

335 B.R. 372 (Bankr. N.D. Ohio 2005), Judge Baxter held that the confirmation of a properly

noticed Chapter 13 Plan, which included language setting the amount of an arrearage, prevailed

over a subsequently filed proof of claim. While the Western Division has always used a “proof

of claims prevail over amounts in the Plan” rule – there is nothing in writing (a local rule, or a

judicial order) that sets that custom in stone. Accordingly, creditors have been filing protective

objections to confirmation, to prevent the binding effect of the Chapter 13 Plan from sticking

them with an artificially low deficiency claim. Of course, this concern is only valid where the

Chapter 13 Plan actually attempts to set the amount of the deficiency. Debtors’ counsel are

encouraged NOT to put specific arrearage figures in their Chapter 13 Plans. Amounts that are

listed for arrearages should be clearly labeled as “estimates”, or specific Chapter 13 Plan

language can make it clear that the claim will control the arrearage amount (subject to any

objection). In the Western Division, the amount of the arrearage should be dealt with through

the claims objection process, not through the binding effect of the Plan.

G. Amendment Or Modification Of The Plan.

Prior to confirmation of a Chapter 13 Plan, changes to the Plan can be made by filing an

Amended Plan (or a Second Amended Chapter 13 Plan, or a Third Amended Chapter 13 Plan).

After confirmation, debtor’s counsel needs to file a Motion to Modify Confirmed

Chapter 13 Plan. Service of the Amended Plan should generally be made on all creditors by

debtor’s counsel. A Motion to Modify must be served on all creditors, unless the bankruptcy

court orders otherwise. See, Federal Rule of Bankruptcy Procedure 3015(g). A certification of

service of each Amended Plan or Motion to Modify must be filed with the Bankruptcy Court.

Good service is necessary if the confirmation order, or order granting modification, is going to

serve to bind on all creditors to the terms of the Plan.

The other technique used to amend Chapter 13 Plans prior to confirmation is the use of a

form Stipulation prepared by the Chapter 13 Trustee at the first meeting of creditors. This

Stipulation form is most often used to increase the amount of the payments being made to the

Trustee, or increase a Plan’s percentage to unsecured creditors, or change the length of the Plan.

Because the changes made by Stipulation are not detrimental to any creditor, these types of

changes can be made by stipulation (assuming the stipulation is approved by the bankruptcy

judge), without notice.

H. Motion Practice.

1. Motions For Relief From Stay.

Relief from stay is generally more difficult for a creditor to obtain in Chapter 13 than it is

in a Chapter 7 because in most cases, Chapter 13 creditors will have to overcome the debtor’s

position that the collateral is “necessary for an effective reorganization”. See, Section 362(d)(2).

When the property in question is the debtor’s residence or car, it usually is going to be necessary.

Accordingly, relief from stay in Chapter 13s is most often obtained based upon a lack of

adequate protection under Section 362(d)(1).

The filing fee for a motion for relief from stay is currently $150. Motions for relief from

stay are required [by local General Order 99-1] to comply with a standard format, and are also

required to include a completed form “Worksheet” - showing financial information, value

information, etc – which should be attached as “Exhibit C” to any motion for relief from stay.

The Northern District of Ohio relief from stay forms are available at:

http://www.ohnb.uscourts.gov/

To get to these forms, highlight “Judges’ Information” in the blue list on the left, and then

click on “General Orders”. Next, scroll down to “General Order 99-1 Standardized Forms” and

click on “Standardized Forms”. This will provide you with a list of the standardized forms for

motions for relief from stay, under both Chapters 7 and 13, in WordPerfect and PDF formats.

Note that the requirement that lessors and creditors with purchase money security

interests in personal property be paid “adequate protection payments” [§1326(a)] provides those

creditors with a more concrete statutory basis for claiming that they are not adequately protected

when the required post-filing payments are not made to the creditor by the Chapter 13 debtor.

2. Motions To Dismiss Or Convert.

Under 11 U.S.C. §1307(a), the debtor may convert a Chapter 13 case to a Chapter 7 at

any time.  Under 11 U.S.C. §1307(b), the debtor has the right, if the Chapter 13 case had not

been converted from another Chapter, to the dismissal of the case at any time, subject to some

case law limitations. See, Marrama v. Citizens Bank , 549 U.S. 365, 127 S. Ct. 1105, 166 L. Ed.

2d 956 (2007).

Section 348(b) provides that upon conversion, the date of the “order for relief” becomes

the date of conversion. While it is commonplace to talk about “pre-petition” and “post-petition”

debts, the Bankruptcy Code actually speaks in terms of debts that arise before or after the order

for relief. See, §727(b). So, by changing the date of the order for relief, post-petition debts

incurred during the Chapter 13 can be discharged when the case is converted to a Chapter 7.

Of course, if the debtor wishes to convert from Chapter 7 to Chapter 13, the debtor must

meet the eligibility requirements of §109(e) - limiting the amount of unsecured and secured debt

that a debtor can have and still seek relief under Chapter 13.  See, §706(d); In re Hansen, 316

B.R. 505 (Bankr. N.D. Ill. 2004).

The courts have generally rejected objections to allowing a case to convert from Chapter

7 to Chapter 13 under Section 706(a) just because the broader discharge of Chapter 13 would

benefit the debtor.  See, In re Young, 237 F.3d 1168 (10th Cir. 2001).

The Chapter 13 Trustee reviews each case to be sure it complies with the eligibility

requirements of Section 109(e), and will move to dismiss if the debtor exceeds either the secured

debt limit [currently $1,010,650] or the unsecured Chapter 13 debt limit [currently $336,900].

During the Chapter 13, debtors’ payments to the Chapter 13 Trustee are monitored, and

the Trustee will file a motion to dismiss [or affidavit of default] if a debtor falls behind on

payments. If the payment problem is temporary, that fact should be promptly communicated to

the Office of the Chapter 13 Trustee to prevent the filing of an unnecessary motion to dismiss.

3. Other Motions.

Debtors are usually required to file motions to incur debt, or to lift the Court’s injunction,

when they wish to borrow more than a $1,000 (most often for a car), or liquidate an assets that

the Court has enjoined them from using (cash assets) or selling (other property).

Although it is not a “motion”, one of the most common pleadings filed in Chapter 13s are

objections to claims. Since the Western Division looks to proofs of claim as controlling, it is the

job of debtors counsel to object to proofs of claim that the Chapter 13 debtor legitimately

disputes as to the amount owed, or his or her liability on the debt.

I. DISCHARGEABILITY ISSUES.

The old Chapter 13 “Super Discharge” is now only a “pretty good discharge” after the

October 17, 2005 BAPCPA amendments.

Previously, the Chapter 13 discharge provided Debtors who complete their plans with a

discharge that was far superior to a Chapter 7 discharge.  The Chapter 13 discharge was broader

than the Chapter 7 discharge, and discharged many types of debt that would not be dischargeable

in a Chapter 7.

Perhaps the best way to see the changes is to compare the old Chapter 13 discharge with

the one a successful Debtor would receive in a case filed today. A comparison of the old

Chapter 13 discharge provision, and the new one, shows the incredibly shrinking discharge:

Section 1328(a) previously provided:

(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—

     (1)       provided for under section 1322 (b)(5) of this title; (2)       of the kind specified in paragraph (5), (8), or (9) of section 523 (a) of this title; or  (3)             for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.

After the BAPCPA amendments, the same provsion (Section 1328(a) now reads: 

(a) Subject to subsection (d), as soon as practicable after completion by the debtorof all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section of this title, except any debt—

(1) provided for under section 1322(b)(5);

(2) of the kind specified in section 507(a)(8(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a);

(3) for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime; or

(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.

The initial reference to “subject to subsection (d)” does not appear to make any

substantive change in the statute. Section 1328(d) remains unchanged by BAPCPA, preventing

the discharge of debts incurred post-petition without the permission of the Chapter 13 trustee, if

getting permission was “practicable and was not obtained.”

The requirement that the debtor certify that all DSO payments have been made – pre-

petition paid to the extent provided by the Plan, and post-petition have been paid in full - is new.

Non-payment of post-petition DSO obligations is now grounds for denying Chapter 13 debtors

their discharge.

The changes in the Chapter 13 discharge are primarily found in Section 1328(a)(2). The

amendments make claims under Section 507(a)(8)(C) non-dischargeable in Chapter 13. Section

507(a)(8)(C) sets the priority for trust fund taxes – taxes that are “required to be collected or

withheld and for which the debtor is liable in whatever capacity”. It appears that the effect of

§507(a)(8)(C) being referenced, and not Section 523(a)(1)(A), is that taxes incurred during the

“gap period” of an involuntary bankruptcy case are not non-dischargeable, as they are in Chapter

7 cases. Perhaps this distinction was made because involuntary cases cannot be filed against

Chapter 13 debtors, or it is to encourage individuals who have an involuntary filed against them

under Chapter 7, to convert to Chapter 13.

Similarly, claims under Section 523(a)(1)(B) and (C) are now non-dischargeable.

Section 523(a)(1)(B) deals with debts where a tax return has not been filed, or was filed within

two years of the filing of the bankruptcy. Thus, taxes non-dischargeable under what is

commonly referred to as the “two year rule” are not discharged in a Chapter 13. Nor are taxes

associated with a fraudulent return, or where the debtor has willfully attempted in any manner to

evade or defeat a tax.

What do these tax provision mean?

Prior to October 17, 2005, priority tax debts were generally dischargeable in a Chapter

13.  However, there was a limitation. Section 1322(a)(2) required that the Chapter 13 Plan must

provide for full payment of all priority tax claims (actually all priority claims under Section

507).  What this meant was that tax claims – even priority tax claims - did not have to be paid

interest.  See, In re Smith, 196 B.R.565 (Bankr. M.D. Fla. 1996).  Pursuant to Section 1322(a)

(2), the Plan had to provide that the priority tax claim be paid in full, but unlike claims that are

non-dischargeable in Chapter 13s – such as a student loan, or a claim for child support - interest

was not only not required to be paid in the Plan, it was also discharged under Section

1328(a).

Under this new amendment, for trust fund taxes, taxes non-dischargeable under the two

year rule (late tax returns filed within 2 years of the bankruptcy) , and situations where the debtor

attempted to willfully attempt in any manner to evade or defeat a tax, interest will be required

to paid, or those interest obligations will continue to be owed by the Debtor, even after

repayment of 100% of these tax claims.

Under BAPCPA, interest on tax claims are to calculated at “nonbankruptcy law” rates.

Section 511(a). Where interest is to be paid under a confirmed Plan, the interest rate is to be

fixed at the rate in place the month the Plan is confirmed. Section 511(b). The payment of

interest on non-dischargeable debts accruing after the date of filing is permitted to be paid under

a Chapter 13 Plan only where the debtor has disposable income available to pay such interest

after making provision for full payment of all allowed claims. Section 1322(b)(10).

There will also be no discharge of debts that are non-dischargeable under Sections 523(a)

(2) (fraud); (a)(3) (unscheduled debts); and (a)(4) (embezzlement, larceny, or defalcation in a

fiduciary capacity. Unlike the non-dischargeable tax debts, these are not priority claims. Thus,

it appears that they will generally have to be paid pro rata with other dischargeable unsecured

debts.

Again, note that interest on non-dischargeable debts is also nondischargeable, even if the

debt is paid 100% (without interest) under the Chapter 13 plan. See, Leeper v. PHEAA, 49 F.3d

98 (3d Cir. 1995);  In re Burns, 887 F.2d 1541, 1543 (11th Cir. 1989); In re Hanna, 872 F.2d

829, 830-31 (8th Cir. 1989); In re Wagner, 200 B.R. 160 (Bankr. N.D. Ohio 1996); In re Crable,

174 B.R. 62 (Bankr. W.D. Ky. 1994); In re Quick, 152 B.R.. 902, 906-08 (Bankr. W.D. Va.

1992).  However, this does not mean that interest must be paid on either priority or non-priority

non-dischargeable claims in the Plan.  It just means the interest is not discharged at the end of the

case.

Section 1328(a)(4) makes non-dischargeable civil claims for willful or malicious injury

by the debtor that caused personal injury to an individual or the death of an individual. This

provision is more limited than Section 523(a)(6), which makes damages to property interests (for

example from the tort of conversion) non-dischargeable.

Other dischargeability limitations remain essentially unchanged. Section 1322(b)(5)

deals with secured debts that extend, by their terms, beyond the length of the Chapter 13 Plan,

and which are not paid in full in the Chapter 13 Plan.  For example, the balance of a mortgage

debt that is only seven years into a 30 year mortgage cannot be discharged in a Chapter 13.

Note that recent pre-BAPCPA case law holds that the specific classes of non-

dischargeable debts listed in §1328(a) cannot be “discharged by declaration”.  Meaning, the

specific provisions of  §1328(a) cannot be overridden by simply declaring the non-dischargeable

debt to be discharged in the Chapter 13 Plan, and putting the burden on the creditor to object to

Confirmation.  See, In re Ruehle, 307 B.R. 28 (6th Cir. BAP 2004).

Debts that are of the type that are usually non-dischargeable under §523(a)(7), are non-

dischargeable in Chapter 13 pursuant to §1328(a)(3).  See, In re Bova, 326 F.3d 319 (1st Cir.

2003)(judgment arising from criminal restitution order was nondischargeable in Chapter 13

proceeding).

If a Chapter 13 Plan is not completed as proposed, the debtor may still, under some

circumstances, obtain what is called a ”hardship discharge” under Section 1328(b):

(b) Subject to subsection (d), at any time after the confirmation of the plan and after notice and a hearing, the court may grant a discharge to a debtor that has not completed payments under the plan only if—

(1) the debtor’s failure to complete such payments is due to circumstances for which the debtor should not justly be held accountable;(2) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date; and(3) modification of the plan under section 1329 of this title is not practicable.

(c) A discharge granted under subsection (b) of this section discharges the debtor from all unsecured debts provided for by the plan or disallowed under section 502 of this title, except any debt—

(1) provided for under section 1322(b)(5) of this title; or(2) of a kind specified in section 523(a) of this title.

In order to qualify for a hardship discharge, the failure to complete the Plan payments

must not be the fault of the Chapter 13 debtor, and the “best interest of creditors” (a.k.a. the

“liquidation test”) must be met based upon the monies actually distributed to unsecured creditors.

A hardship discharge is almost identical to a Chapter 7 discharge, except that the personal

liability of the Chapter 13 debtor for long term debts not scheduled to be paid during the

pendency of the Chapter 13 Plan – like a home mortgage – are not discharged by a hardship

discharge.

On of the consequences of the dilution of the “super discharge”, there is now much less

of a difference between the discharge granted upon the successful completion of a Chapter 13,

and a hardship discharge.

1. New Time Limits For Chapter 13 Debtors Receiving A Discharge.

BAPCAP implemented longer time periods before a debtor is eligible for a discharge

receiving a discharge in a prior Chapter 13, or Chapter 7. Section 1328(f) states:

(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge—

(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter, or

(2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.

These provisions do not appear to prevent the FILING of a Chapter 13 bankruptcy, but

they do prevent the entry of a DISCHARGE. Thus, in a typical “Chapter 20” case, where the

only debt is a mortgage arrearage, Chapter 13 will remain an effective solution to the problem of

catching up the mortgage.

However, where there are unsecured debts, the absence of eligibility for a Chapter

13 discharge may raise difficult issues regarding unsecured creditor’s entitlement to interest

and late charges. Those additional charges are discharged in a typical Chapter 13, and

therefore do not have to be otherwise dealt with. Under the new restrictions on the granting

of a Chapter 13 discharge, it is possible that the holder of, for example, a credit card debt,

could come back on the debtor after the Chapter 13 is completed (and the automatic stay

terminates) and demand permits the filing of a non-523(a)(2), (4) or (6) complaint “at any

time”. But some courts have held that filing the complaints early in the Chapter 13 – well in

advance of the discharge – is not permitted, usually on “ripeness” grounds. (The reasoning is:

the plan may never be completed, so the issue of whether the debt is dischargeable is too

speculative early in the case and a waste of judicial resources.) their contractual interest and

late charges, even if the Plan paid unsecured creditors “100%”.

It remains to be seen how many creditors would actually take such a position.

2. When Can (Or Must) A Complaint To Determine Dischargeability Be FiledIn A Chapter 13 Case?

There is has been considerable uncertainty among the members of the bar about

when complaints to determine dischargeability need to be filed. Bankruptcy Rule 4007(b)

expressly

a. Complaints Based Upon Section 523(a)(2) or (4) Must Be FiledWithin 60 Days Of The First Date Set For The Meeting OfCreditors.

The time limits in Chapter 13 is the same as in Chapter 7 for complaints based upon

§523(a)(2) and §23(a)(4), and are fixed by law. See, §523(c)(1); Rule 4007(c). The

complaint must be filed within 60 days after the first date set for the first meeting of creditors.

See, In re Hannen, 383 B.R. 683 (Bankr. N.D. Ohio 2008); In re Nwoke, 2008 Bankr. LEXIS

857 (Bankr. E.D. Va. March 18, 2008).

Of course, if the deadline is missed, the debtor will not get her discharge unless the

Chapter 13 Plan is completed. It appears that nothing would prevent a creditor with a §523(a)

(2) or §523(a)(4) claim and a blown deadline, from seeking ‘automatic’ dismissal based on,

for example, debtor’s failure to timely file all pay advices.

b. The Rules For Complaints Based On §1328(a)(3) and (4).

While the BAPCPA incorporated more of the §523 grounds for non-dischargeability

as exceptions to Chapter 13’s (formerly) “super discharge”, there remain nondischarge-ability

provisions specific to Chapter 13. These exceptions to a Chapter 13 discharge are found in

§1328(a)(3), for debts based on restitution or for a criminal fine, and §1328(a)(4), for

restitution or damages, awarded in a civil action against the debtor, based on willful or

malicious injury that caused personal injury or death to an individual.

Section 1328(a)(3) has been interpreted as a narrower version of Section 523(a)(7):

“The exception to discharge in chapter 7 included in § 523(a)(7) has been interpreted since

Kelly to cover costs of prosecution imposed as part of a criminal sentence, whether they are

considered as a "fine, penalty, or forfeiture," but the language of § 1328(a)(3) is different. By

its terms, it provides a more limited exception to discharge in chapter 13, one that we

determine does not encompass costs of prosecution imposed as part of a criminal sentence.”

In re Ryan, 389 B.R. 710, 719 (9th Cir. BAP 2008).

The BAPCPA added Section 1328(a)(4), which is narrower in one sense, than Section

523(a)(6). See, In re Buckley, 388 B.R. 115, 117 n.1 (Bankr. M.D. Pa. 2008). Several courts

and commentators have held that §1328(a)(4) only applies where there has been a civil

judgment. See, In re Byrd, 388 B.R. 875 (Bankr. C.D. Ill. 2008); In re Nutall, 2007 WL

128896 (Bankr. D. N.J. 2007); 8 Collier on Bankruptcy (15th Edition Revised 2006); Keith

M. Lundin, 6 Chapter 13 Bankruptcy, §554.1 (3rd ed. 2000 & Supp. 2006). A recent case

has acknowledged the above listed authorities, and disagreed with them holding that a pre-

petition civil judgment is not necessary for nondischargeability. See, In re Taylor, 388

B.R. 115 (Bankr. M.D. Pa. 2008). Section 1328(a)(4) also requires that the willful or

malicious action caused personal injury or death. Thus, willful and malicious injury to

property is not excepted from discharge in a Chapter 13. On the other hand, §1328(a)(4) is

broader in that it requires only willful OR malicious conduct – not both, as §523(a)(6)

requires. See, In re Nwoke, 2008 Bankr. LEXIS 857 (Bankr. E.D. Va. March 18, 2008).

The time for filing complaints under §1328(a)(3) and §1328(a)(4) is not cut off by

§523(c) and Rule 4007(c). A review of the case law reflects that complaints based on

§1328(a)(3) and §1328(a)(4) have been filed very early in the Chapter 13s. For example, in In

re Taylor, 388 B.R. 115 (Bankr. M.D. Pa. 2008) reflects a Chapter 13 filing date of October 2,

2007, and a complaint filed by the creditor on December 11, 2007. In re Byrd, 388 B.R. 875,

875-876 (Bankr. C.D. Ill. 2008) recites a Chapter 13 filing date of August 21, 2006 and a

complaint to determine dischargeability filed December 5, 2006. In re Sweeney, 341 B.R. 35,

37 (10th Cir. BAP 2006) indicates that the complaint to determine dischargeability was filed

within a year of the filing of the Chapter 13 case. In contrast, the decision in In re Ryan, 389

B.R. 710, 711 (9th Cir. BAP 2008) states that the original complaint, filed with the Idaho

bankruptcy court, had been dismissed based on it being premature.

c. Student Loan Undue Hardship Complaints.

The 9th Circuit’s decision In re Coleman, 2009 U.S. App. LEXIS 6403 (9th Cir. March

25, 2009), holds that, under proper circumstances, student loan undue hardship complaints

may be filed and decided early in the Chapter 13 case. Under Coleman, appears that

bankruptcy courts have the discretion not to hear the case – either based on “prudential

ripeness”, or the need for a longer period of time to determine whether there has been a good

faith effort at repayment, as required under the Brunner test. Coleman’s holding follows In re

Ekenasi, 325 F.3d 541, 547 (4th Cir. 2003). See also, In re Hoffer, 383 B.R. 78 (Bankr. S.D.

Ohio 2008); In re Strahm, 327 B.R. 319, 323-24 (Bankr. S.D. Ohio 2005).

The Sixth Circuit Bankruptcy Appellate Panel recently followed the earlier version of

the Coleman decision (withdrawn on other grounds) and held that the contingency of a

debtor’s discharge does not create a constitutional ripeness impediment to the bankruptcy

court’s resolution of whether or not a student loan is dischargeable as an under hardship. In re

Cassim, 395 B.R. 907 (6th Cir. BAP 2008).

Other courts that have held that a complaint to determine the dischargeability of a

student loan based on undue hardship must be brought close to the time of the completion of

Chapter 13 Plan payments. See, In re Bender, 368 F.3d 846, 848 (8th Cir. 2004); Matter of

Rubarts, 896 F.2d 107, 109 (5th Cir. 1990); In re Boaz, 386 B.R. 756; (Bankr. D.N.D. 2008);

In re Pair, 269 B.R. 719, 721 (Bankr. N.D. Ala. 2001); In re Soler, 250 B.R. 694, 697 (Bankr.

D. Minn. 2000); In re Raisor, 180 B.R. 163, 166 (Bankr. E.D. Tex. 1995).

d. Dischargeability Complaints Under Other Provisions Of §523Listed In §1328(a)(2).

All the ripeness decisions on tax issues appear to involve the IRS seeking dismissal of

the Chapter 13 debtor’s complaint. In In re Nixon, 2007 Bankr. LEXIS 1536, *; 2007-2 U.S.

Tax Cas. (CCH) P50,528; 99 A.F.T.R.2d (RIA) 2859 (Bankr. N.D. W.V. 2007) the decision

states: “the ripeness of a pre-discharge adversary complaint to determine the dischargeability

of income tax obligations under §§ 507(a)(8) and 523(a)(1) -- all of which have concluded that

the issue is ripe for review. See United States v. Clavelle, No. 93-2059, 1994 U.S. Dist.

LEXIS 18203 (W.D. La. Dec. 8, 1994); Malin v. Internal Revenue Service (In re Malin), 356

B.R. 535 (Bankr. D. Kan. 2006); Swanson v. Internal Revenue Service (In re Swanson), 343

B.R. 678 (D. Kan. 2006)[a Chapter 12 case]; Craine v. United States (In re Craine), 206 B.R.

598 (Bankr. M.D. Fla. 1997); see also 9 Collier on Bankruptcy P 4007.03 (Alan N. Resnick &

Henry J. Sommer eds. 15th ed. rev. 2006) ("In a chapter 13 case, [dischargeability

proceedings under § 523(a)(1)] need not await the completion of a plan or a motion for a

hardship discharge."). [In re Dixon, 2004 Bankr. LEXIS 1774; 53 Collier Bankr. Cas. 2d

(MB) 373, (Bankr. D. Kan. November 16, 2004) denied the government’s motion to dismiss

the adversary on ripeness grounds even though the Chapter 13 Plan had not yet been

confirmed.] Nevertheless, the Nixon court held that based on the facts of that case, the issue

was not ripe because the parties had stipulated that the debt was dischargeable.

A complaint for nondischargeability under §523(a)(3) could be filed by creditor at any

time prior to the closing of the case. In re Nwoke, 2008 Bankr. LEXIS 857 (Bankr. E.D. Va.

March 18, 2008).

Creditor/ex-spouse filed a complaint against Chapter 13 debtor for non-

dischargeability (and denial of discharge) on several grounds, including §523(a)(5), less than

four months after the Chapter 13 case was commenced. In re Fisher, 2007 Bankr. LEXIS

1356 (Bankr. N.D. Ohio April 13, 2007). The bankruptcy court determined, on summary

judgment, that the debt was not alimony, maintenance or support and did not address the issue

of ripeness. Similarly, in In re Williams, 2003 Bankr. LEXIS 1566, (Bankr. W.D. Mo.

November 17, 2003), a complaint filed by a former spouse within four months of the filing of

the Chapter 13 was decided by the bankruptcy court, against the plaintiff, without any

reference to ripeness issues.

e. Anything Different If A Chapter 13 Debtor Seeks A HardshipDischarge?

In In re Screen, 2004 Bankr. LEXIS 812 (Bankr. S.D. Ga. May 14, 2004), the court

held that where the discharge of a debt could only be contested if the Chapter 13 debtor sought

a hardship discharge, the issue was not ripe (where no hardship discharge had yet been

sought) and the complaint was dismissed.

There is a more particular problem that is now dealt with by Rule 4007(d). Although

the distinction between a Chapter 7 discharge and a Chapter 13 discharge [formerly known as

a “super discharge”] has shrunk over the years, there are some differences. And, when a

Chapter 13 debtor seeks a hardship discharge, they do not get a discharge under §1328(a), the

discharge is under Section 1328(c), which makes all of the exceptions to discharge in §523

fully applicable to the Chapter 13 hardship discharged debtor.

The problem is, that §523(a)(6) is NOT one of the §523 subsections listed in §1328(a)

(2). So, there was no basis for filing a complaint based on §523(a)(6) before the statutory

deadline. And, at the time the hardship discharge is granted, the deadline for seeking a

determination of dischargeability for willful and malicious conduct under §523(a)(6) is

usually long past. So, Federal Rule of Bankruptcy Procedure 4007(d) provides

for bankruptcy courts to tee-up the issue by setting a deadline for filing a complaint to

determine dischargeability under §523(a)(6) any time a motion for hardship discharge is filed.

f. What About If There Is A Conversion From Chapter 13 toChapter 7?

If a case is converted from Chapter 13 to Chapter 7, creditors get another bite at the

apple, with the deadline for filing a complaint to determine dischargeability being

automatically reset to 60 days after the first date set for the first meeting of creditors in the

Chapter 7 case. See, Fed.R.Bankr.P. 1019(2) and 4007; In re Pendergrass, 376 B.R. 473,

475-476 (Bankr. E.D. Pa. 2007).

J. Time Limits For Chapter 13 and Chapter 7 Debtors Receiving ADischarge.

1. Section 1328(f) – Eligibility For A Discharge In A Chapter 13 Filed AfterA Previous Chapter 7 or 13.

BAPCAP implemented new “look back periods” – time that must pass before a

debtor is eligible to receive a discharge if the debtor had filed a prior Chapter 13 or Chapter

7 case and received a discharge. Section 1328(f) states:

(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts

provided for in the plan or disallowed under section 502, if the debtor has received a

discharge—

(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter, or

(2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.

a. Section 1328(f) Does Not Prevent The Filing Of A Chapter 13.

Section 1328(f) does not prevent the FILING of a Chapter 13 bankruptcy (or other

relief provided by Chapter 13), but it does prevent the entry of a DISCHARGE. See e.g.,

In re Bateman, 515 F.3d 272 (4th Cir. 2008); In re Sours, 350 B.R. 261, 267 n.3 (Bankr.

E.D. Va. 2006); In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006); 8 Collier on

Bankruptcy, ¶1328.06[1] at 1328-36 (15th Ed. Rev. 2008); Hon. William Houston Brown,

Taking Exception to Debtor’s Discharge: The 2005 Bankruptcy Amendments Make It

Easier, 79 Am. Bankr. L. J. 419, 448-49 (Spring, 2005); and cf., Johnson v. Home State

Bank, 501 U.S. 78, 87; 111 S. Ct. 2150, 2156; 115 L. Ed. 2d 66, 77 (1991)(“We disagree.

Congress has expressly prohibited various forms of serial filings. See, e.g., 11 U. S. C. §

109(g) (no filings within 180 days of dismissal); § 727(a)(8) (no Chapter 7 filing within six

years of a Chapter 7 or Chapter 11 filing); § 727(a)(9) (limitation on Chapter 7 filing within

six years of Chapter 12 or Chapter 13 filing). The absence of a like prohibition on serial

filings of Chapter 7 and Chapter 13 petitions, combined with the evident care with which

Congress fashioned these express prohibitions, convinces us that Congress did not intend

categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who

previously has filed for Chapter 7 relief.” Cf. United States v. Smith, 499 U.S. 160, 167,

113 L. Ed. 2d 134, 111 S. Ct. 1180 (1991) (expressly enumerated exceptions presumed to

be exclusive)”).

Thus, in a typical “Chapter 20” case, where the only debt is a mortgage arrearage,

Chapter 13 will remain an effective solution to the problem of catching up the mortgage - a

bankruptcy discharge isn’t needed. Cure under Code Section 1322(b)(3) and (5) is

typically the primary goal, provided the debtors have not incurred additional unsecured

debts between the filing of the Chapter 7 and the filing of the Chapter 13.

However, where there are unsecured debts, the absence of eligibility for a Chapter

13 discharge creates problems regarding unsecured creditors’ entitlement to interest and

late charges after the Chapter 13 case is completed. Those additional charges are

discharged at the conclusion of a typical Chapter 13, and therefore do not have to be

otherwise dealt with. Under the new restrictions on the granting of a Chapter 13 discharge,

it is possible that the holder of (for example) a credit card debt could come back on the

debtor after the Chapter 13 is completed and demand their contractual interest and late

charges, even if the Plan proposed to pay unsecured creditors “100%”.

It remains to be seen how many creditors would actually take such a position after a

Chapter 13 Plan is completed.

b. No Lien Stripping In A 13 Without A Discharge?

A recent decision holds that stripping a junior mortgage, discharged in a prior

Chapter 7, is prohibited in a Chapter 13 where the debtor is not eligible for a discharge.

See, In re Jarvis, 390 B.R. 600 (Bankr. C.D. Ill. 2008)(Chapter 13 Plan proposing to strip

off junior mortgage, previously discharged in prior Chapter 7, could not be confirmed

where debtor was not eligible for a Chapter 13 discharge.) Contra, In re Picht, 396 B.R. 76,

79 (Bankr. D. Kan. 2008)(does not reference Jarvis).

2. Majority View: The Two And Four Year Waiting Periods AreMeasured Filing To Filing.

A very solid majority of cases hold that the two year (discharged Chapter 13 to

Chapter 13) and four year (discharged Chapter 7 to Chapter 13) waiting periods are

measured “filing-to-filing”. In other words, where a Chapter 13 debtor has received a

discharge in a case filed more than two years ago, s/he is eligible for a discharge in a

subsequent Chapter 13 case. See, In re Gagne, 394 B.R. 219 (1st Cir. BAP 2008). Of

course, that means that the two-year waiting period of §1328(f)(2) almost never applies,

since Chapter 13 requires a minimum three year commitment period in cases where

unsecured creditors receive less than 100%.

Since the enactment of the BAPCPA, the Chapter 7 to Chapter 13 waiting period of

§1328(f)(1) has been held to be properly measured “filing-to-filing” by a clear majority of

courts, including the Sixth Circuit Court of Appeals. See, In re Sanders, 551 F.3d 397 (6th

Cir. 2008); In re Bateman, 515 F.3d 272, 272 (4th Cir. 2008); In re McGhee, 342 B.R. 256

(Bankr. W.D. Ky. 2006); In re West, 352 B.R. 482 (Bankr E.D. Ark. 2006); In re Grydzuk,

353 B.R. 564, 568 (Bankr. N.D. Ind. 2006); In re Knighton, 355 B.R. 922, 926 (Bankr.

M.D. Ga. 2006)(“The Court now turns to the Bank's alternative argument-that the look

back period starts running on the date of discharge in the prior case rather than the date of

filing in the prior case. Nothing in the language of § 1328(f)(1) supports such an

interpretation. The statute bars discharge in the pending case if the debtor received a prior

discharge in a case "filed under chapter 7 … during the 4-year period preceding the date of

the order for relief" in the pending case. Because the order for relief arises on the date of

filing, a plain reading of §1328(f)(1) indicates that the lookback period runs from the filing

date of the prior case to the filing date of the current case.”); In re Grice, 373 B.R. 886

(Bankr. E.D. Wis. 2007)(in unconverted cases, the measure is filing-to-filing, where the

prior case was a Chapter 7 or a Chapter 13).

Other cases, while not explicitly stating a rule about how the “look back” period should be

measured, simply use the filing-to-filing dates in determining whether or not the required

time that has passed. See e.g., In re Ybarra, 359 B.R. 702, 703 & 709 (Bankr. S.D. Ill.

2007)(court used February 3, 2003, the date of the filing of the prior case to measure the

applicable look back period).

a. When A Case Converts, Which Look back Period Applies?

Several published opinions address the question of which chapters’ look back

period will apply when the prior case was converted from a Chapter 13 to a Chapter 7.

Typically, the debtor wants the look back period to be based on the chapter the case was

filed under – Chapter 13. Creditors would prefer that the look back period be based on the

chapter in which the debtor received a discharge – Chapter 7.

To date, most bankruptcy courts have held that the relevant “look back” period is

determined by the chapter under which the discharge in the prior case was received

(Chapter 7), and not by the chapter under which the petition was originally filed (Chapter

13): See, In re Capers, 347 B.R. 169, 171 (Bankr. D.S.C. 2006); In re Sours, 350 B.R. 261,

262-263 (Bankr. E.D. Va. 2006)(Section 1328(f) cannot be read in a vacuum; it must be

read in conjunction with § 348(a), which "mandates that a case which has been converted

[from Chapter 13 to Chapter 7] … is deemed to be 'filed under' Chapter 7 on the date on

which the Chapter 13 was filed.); In re Grydzuk, 353 B.R. 564, 568 (Bankr. N.D. Ind.

2006); In re Knighton, 355 B.R. 922, 924-925 (Bankr. M.D. Ga. 2006); In re Ybarra, 359

B.R. 702, 706-709 (Bankr. S.D. Ill. 2007); In re Grice, 373 B.R. 886, 889 (Bankr. E.D.

Wis. 2007)(“This court joins with Capers, Sours, Grydzuk, Knighton, and Ybarra and holds

that the 4-year waiting period contained in § 1328(f)(1) applies to the case at bar.”). The

issue was raised in In re Gagne, 394 B.R. 219 (1st Cir. BAP, but was denied as moot.

There is one case that goes the other way in a situation where a Chapter 13 was converted

to a Chapter 7. In re Hamilton, 383 B.R. 469 (Bankr. W.D. Ark. 2008) held that where the

debtor filed a Chapter 13 petition, and then converted to a Chapter 7, the shorter two year

Chapter 13 look back period applied. The bankruptcy court relied on its interpretation of

§348 in holding that the conversion of the case from a Chapter 13 to a Chapter 7 did not

change the look back period under §1328(f)(1).

b. Enforcing §1328(f) – What Do You File?

Actions seeking to prevent the debtor’s discharge under §1328(f) are being filed as

motions, as adversary complaints, and as objections to confirmation. Compare, In re

Capers, 347 B.R. 169, 171 (Bankr. D.S.C. 2006)(adversary); In re Grice, 373 B.R. 886

(Bankr. E.D. Wis. 2007)(adversary decided on motion for judgment on the pleadings); In re

Hamilton, 383 B.R. 469 (Bankr. W.D. Ark. 2008)(adversary); with, In re Grydzuk, 353

B.R. 564 (Bankr. N.D. Ind. 2006)(motion); In re Ybarra, 359 B.R. 702, 706-709 (Bankr.

S.D. Ill. 2007)(motion), with, In re Knighton, 355 B.R. 922 (Bankr. M.D. Ga. 2006)(on

objection to confirmation); In re Sanders, 368 B.R. 634 (Bankr. E.D. Mich. 2007), rev’d,

Sanders v. Carroll, 2008 U.S. Dist. LEXIS 6994; Bankr. L. Rep. (CCH) P81,129; 59

Collier Bankr. Cas. 2d (MB) 359 (E.D. Mich., January 31, 2008)(ineligibility for discharge

raised in objection to confirmation). To date, no decision appears to have directly

addressed whether or not an adversary complaint is necessary to litigate this issue.

3. §727(a)(9): Six Years Must Pass From Sub-70% Chapter 13 (OrChapter 12) To Discharge In Chapter 7.

“§727(a)(9) constrains successive discharges under Chapters 13 and 7”. Young v.

United States, 535 U.S. 43, 51; 122 S. Ct. 1036, 1041; 152 L. Ed. 2d 79, 88 (2002).

Section 727(a)(9) sets forth the six-year bar rule for a Chapter 7 discharge. The rule

precludes the discharge of a debtor if he obtained a Chapter 13 discharge (or Chapter 12

discharge) within the preceding six years, unless the latter involved payment of 100% of

the allowed unsecured claims or both payment of 70% of such claims and a finding that the

plan "was proposed by the debtor in good faith, and was the debtor's best effort." See, In re

Lewis, 392 B.R. 308 (E.D Mich. 2008).

At least one bankruptcy court has rejected, as improper, a Chapter 13 Plan that

included a provision in the confirmation order that establishes Debtors' eligibility under 11

U.S.C. § 727(a)(9) to receive a discharge in a subsequent Chapter 7 proceeding. See, In re

Layton, 2008 Bankr. LEXIS 3363 (Bankr. D. N.M. December 10, 2008).

A debtor is “granted a discharge” in a prior Chapter 13, for §727(a)(9) purposes,

even if all of the debtor’s debts are not discharged, and under Parr, even if NO debt was

discharged. See, In re Parr, 222 B.R. 337 (Bankr. D. Minn. 1998)(debtor had only student

loans).

a. §727(a)(9) And Filing-To-Filing Under §1328(f)

The In re Bateman, 515 F.3d 272, 279-280 (4th Cir. 2008) decision (which included

an appeal of the Graves case) made an interesting argument regarding the measuring of the

two different discharge bars under §1328(f) using the filing-to-filing rule:

“As the Graveses' case illustrates, however, the "discharge date to filing date" interpretation urged by the Chapter 13 Trustee would reach an absurd result that runs counter to Congress's often-expressed preference for Chapter 13 bankruptcy. The Graveses filed for Chapter 13 bankruptcy on January 4, 1999, and received a Chapter 13 discharge on June 16, 2004. Under the Chapter 13 Trustee's interpretation, the Graveses would not be able to receive a discharge in a new Chapter 13 bankruptcy, which would pay all creditor claims in full, until June 16, 2006. But because the Graveses' previous Chapter 13 plan paid at least 70 percent of the allowed unsecured claims, was proposed in good faith, and represented their best efforts, the Graveses would be eligible for a Chapter 7 discharge on the very day they received their previous Chapter 13 discharge. See 11 U.S.C.A. § 727(a)(9) (West 2004 & Supp. 2006) (providing for a six-year waiting period for a Chapter 7 discharge after a debtor has been granted discharge in a Chapter 13 case, unless payments under the plan totaled 100% of allowed claims or 70% of such claims and the plan was proposed by the debtor in good faith and with the debtor's best efforts). This would produce the strange result that the Graveses would not be able to receive a Chapter 13 discharge, which would pay the creditor claims in full, but would be permitted to file a Chapter 7 bankruptcy and thereby avoid payment of a larger portion of their outstanding debts. The Chapter 13 Trustee's interpretation thus would encourage debtors that had intended to pay back all of their debts to instead opt for a Chapter 7 discharge merely because a Chapter 13 discharge would not be available to them at the height of their financial difficulties.

b. The Fly In The Ointment - What Is A 70% Chapter 13 Plan For§727(a)(9) Purposes?

The Seventy percent level in Chapter 13 Plans are important because if that threshold is

met, a debtor is not prohibited from receiving a discharge in a subsequent Chapter 7 filed

within Six years of the Chapter 13 petition date. See, Section 727(a)(9). Also, in many

areas, local practices truncate certain Chapter 13 requirements where the Plan calls for

unsecured creditors to be paid at least 70%.

Up until recently, we all knew what a “70% Plan” was. Although it was not a

heavily litigated issue, it was commonly accepted that a “70% Plan” was a Plan that paid at

least 70% to unsecured creditors.

That assumption has been called into question by In re Griffin, 352 B.R. 475 (8th

Cir. BAP 2006), one of the best “the emperor has no clothes” decisions in recent memory.

Initially, the decision acknowledges that there is substantial case law on Section 727(a)(9) that assumes the restriction refers to the payment of 70% of unsecured claims:

The bankruptcy court's interpretation of the statute is consistent with every reported opinion which has commented upon or mentioned the statute. See, e.g., In re Hiatt, 312 B.R. 150, 152 n.2 (Bankr. S.D. Ohio 2004); In re McMeekan, No. 9682757, 1997 WL 33475211 at *4 (Bankr. C.D. Ill. Jan. 30, 1997); In re Messenger, 178 B.R. 145, 149 (Bankr. N.D. Ohio 1995); In re Karayan, 82 B.R. 541 (Bankr. C.D. Cal. 1988); In re Pierce, 82 B.R. 874 (Bankr. S.D. Ohio 1987); In re Greer, 60 B.R. 547 (Bankr. C.D. Cal. 1986); In re Raines, 33 B.R. 379, 381 (M.D. Tenn. 1983); In re Price, 20 B.R. 253 (Bankr. W.D. Ky. 1981); Triplett v. Arndt (In re Aalto), 8 B.R. 157 (Bankr. M.D. Fla. 1981); In re McClaflin, 13 B.R. 530 (Bankr. N.D. Ill. 1981); In re Poff, 7 B.R. 15 (Bankr. S.D. Ohio 1980). However, none of these courts was actually interpreting the section in a Chapter 7 case in which this issue had arisen.

In re Griffin, 352 B.R. at 477.

See also, In re Brown, 399 B.R. 162, 166 n.4 (Bankr. W.D. Va. 2009)(“unless the debtor's plan

paid one-hundred percent of unsecured claims or seventy-percent using the debtor's "best efforts."

§ 727(a)(9).”)

The 8th Circuit BAP Panel looked at the statutory language, noting that that §727(a)(9)

provides, in relevant part:

The court shall grant the debtor a discharge, unless --

the debtor has been granted a discharge under section 1228 or 1328 of this title . . . in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least –

(A) 100 percent of the allowed unsecured claims in such case; or(B) (i) 70 percent of such claims; and (ii) the plan was proposed by the debtor in good faith, and was the debtor's best effort.

The Panel focused on the “payments under the plan” language, which is not the

same as “payments to unsecured creditors under the plan.” And, the same term, “payments

under the plan”, is used in Section 1325(b)(1)(B), and it does not mean just payments to

unsecured creditors. Further, in Section 1328(b), the hardship discharge section, when

Congress wanted to refer to the payment of unsecured claims, it did so differently than in

Section 727(a)(9).

The Panel then looked at the legislative history of Section 727(a)(9) and found nothing to

support the assertion that Congress intended the statute to mean the payment to unsecured

creditors of 70% of their claims in order to be eligible for a discharge.

So, what does Section 727(a)(9) mean?

The language of § 727(a)(9) is clear and plain. If a debtor in a Chapter 13 case pays to the trustee for distribution under the plan an amount equal to 70% of the allowed unsecured claims, and the court finds that the plan was proposed by the debtor in good faith and was the debtor's best effort, or if such debtor pays to the trustee for distribution under the plan an amount which totals at least 100% of the allowed unsecured claims, the debtor, when filing a Chapter 7 case within six years of the petition date of the Chapter 13 case, will not be denied a discharge.

In re Griffin, 352 B.R. at 479-480.

If Griffin is right, “70% to unsecured creditors” will rarely be a “magic number”

triggering a Chapter 13 debtors right to immediately file a Chapter 7 and receive a

discharge. Under Griffin, the percentage going to unsecured creditors could be much

lower, and it would still qualify as a “70% Plan” because the trustee distributed an amount

equal to 70% of the unsecured claims to ALL creditors – including secureds. For example,

Chapter 13 Offices that do conduit mortgage payments, “payments to the trustee for

distribution under the plan” will often equal more than 70% of unsecured claims,

sometimes even in “zero percent” Plans. Mortgage arrearages, motor vehicle payments,

and the payment of priority tax claims may similarly influence whether or not the debtor, in

their prior Chapter 13, reached the “70%” level.

To date, no subsequent court has addressed the Griffin interpretation of what “70%”

means in §727(a)(9).

4. §727(a)(8) - The Eight Year Chapter 7 To Chapter 7 Bar.

Pursuant to Section 727(a))of the Bankruptcy Code, the Court shall grant the Debtor

a discharge unless:---

(8) the debtor has been granted a discharge under this section, or section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act [former 11 U.S.C. §§ 32, 771, 876], in a case commenced within 8 years before the date of the filing of the petition.

Thus, §727(a)(8) bars discharge in a debtor's second Chapter 7 case filed in an eight

year period if the debtor received a discharge in the first case. This time period was

extended from six years to eight years by the 2005 Amendments to the Bankruptcy Code.

a. The Eight Years Are Filing To Filing.

The measurement of the time for §727(a)(8) purposes is from the commencement of

the previous Chapter 7 case – in other words, filing-to-filing. See, In re Bateman, 515 F.3d

272, 282-283 (4th Cir. 2008)(dicta); In re Burrell, 148 B.R. 820, 822 (Bankr. E.D. Va.

1992); In re Canganelli, 132 B.R. 369, 378 (Bankr. N.D.Ind. 1991).

b. §727(a)(8) Is Not A Bar To Filing A Second Chapter 7.

Like Section 1328(f)’s bar to a Chapter 13 discharge, most courts hold that §727(a)

(8) does not prevent the filing of a second Chapter 7 within the 8 year period. As In re

Bateman, 515 F.3d 272, 282-283 (4th Cir. 2008) states:

“Collier on Bankruptcy instructs that § 727(a)(8), the Chapter 7 provision that is analogous to § 1328(f), "does not preclude a debtor [who received a discharge in a prior case] from again becoming a debtor within eight years of commencement of the prior case, although no discharge may be granted in the second proceeding." 6 Collier P 727.11[1][a]; see also In re McKittrick, 349 B.R. 569, 574 (Bankr. W.D. Wis. 2006) ("The amended version of § 727(a)(8) does not even act to deny access to the bankruptcy system, as debtors remain free to file; they simply may not receive a discharge.").

However, unlike Chapter 13, where the absence of a discharge doesn’t necessarily

destroy the utility of the filing, there is usually little or no benefit to an individual filing a

Chapter 7 without the possibility of getting a discharge. See, In re Bateman, 515 F.3d 272,

283 n.17 (4th Cir. 2008)(“Like the district court, we believe that §§ 727(a)(8), 727(a)(9) and

1328(f) do function as limitations on serial filing in practice, even though they do not

expressly prohibit the filing of any bankruptcy petition. In re Khan, 2006 U.S. Dist. LEXIS

90421 at *8” (D. Md. Dec. 14, 2006)(“ Furthermore, even the Supreme Court's

characterization of section 727(a)(8) and (a)(9) as types of provisions "prohibiting" serial

filings is not inconsistent with the conclusion that section 1328(f) speaks only to the power

to grant a bankruptcy discharge. All three statutory provisions prohibit bankruptcy

discharge orders under certain circumstances of serial filing, and thus operate to decrease

the incentives to engage in those types of serial filing. In this manner, these provisions

function as limitations on serial filing in practice, even though they do not directly prohibit

the filing of any bankruptcy petition.”); but cf., Johnson v. Home State Bank, 501 U.S. 78,

87; 111 S. Ct. 2150, 2156; 115 L. Ed. 2d 66, 77 (1991)(“We disagree. Congress has

expressly prohibited various forms of serial filings. See, e.g., 11 U. S. C. § 109(g) (no

filings within 180 days of dismissal); § 727(a)(8) (no Chapter 7 filing within six years of a

Chapter 7 or Chapter 11 filing); § 727(a)(9) (limitation on Chapter 7 filing within six years

of Chapter 12 or Chapter 13 filing). The absence of a like prohibition on serial filings of

Chapter 7 and Chapter 13 petitions, combined with the evident care with which Congress

fashioned these express prohibitions, convinces us that Congress did not intend

categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who

previously has filed for Chapter 7 relief. Cf. United States v. Smith, 499 U.S. 160, 167, 113

L. Ed. 2d 134, 111 S. Ct. 1180 (1991) (expressly enumerated exceptions presumed to be

exclusive)”).

c. Conversion From Chapter 13 To Chapter 7 Does Not ChangeThe Date Of Filing – So Dismiss And Refile, Do NOT Convert.

There are significant malpractice risks associated with using a Chapter 13 case to

get past the eight-year bar to a Chapter 7 discharge, and then converting to a Chapter 7

because the majority of case law supports the concept that conversion does not change the

filing date of the case. Where the second case filed after a Chapter 7 discharge is filed as a

Chapter 13, and then converted to a Chapter 7, the date of the original filing is used to

determine if the debtor is eligible for a discharge. See, In re Asay, 364 B.R. 423, 424 n.1

(Bankr. D.N.M. 2007).

Similarly, In re Hiatt, 312 B.R. 150 (Bankr. S.D. Ohio 2004), a case under the old

six-year bar to a second Chapter 7 discharge, states:

In calculating the six year time period from the commencement of the prior case (August 1, 1997) to the commencement of this present case (August 16, 2002), it is clear that less than six years have elapsed. The fact that the conversion to chapter 7 in this present case occurred more than six years after the commencement of the prior chapter 7 case is not legally

relevant to the calculation of the six year period under 11 U.S.C. § 727(a)(8). The date of a subsequent conversion to a different chapter of the Bankruptcy Code does not change the date a case was commenced. See 11 U.S.C. §§ 301 and 348(a). It is not correct to calculate the applicable six year period from the date of a conversion of a case from one chapter to a different chapter of the Bankruptcy Code -- whether the conversion occurred in the prior case or the current case -- in determining the six year period under 11 U.S.C. § 727(a)(8). The applicable six year period is determined from the commencement of the prior case to the commencement of this present case.

The authorities agree the applicable Code sections [11 U.S.C. §§ 301, 348(a) and 727(a)(8)] compel this conclusion. Riske v. Lyons (In re Lyons), 162 B.R. 242 (Bankr. E.D. Mo. 1993); In re Burrell, 148 B.R. 820 (Bankr. E.D. Va. 1992); Canganelli v. Lake Cty. Dep't of Public Welfare (In re Canganelli), 132 B.R. 369 (Bankr. N.D. Ind. 1991); Mulford v. Marshall (In re Marshall), 74 B.R. 185 (Bankr. N.D.N.Y. 1987); In re Czikalia, 2000 Bankr. LEXIS 2063, 2000 WL 33716969 (Bankr. D. Idaho Jan. 18, 2000); See also Norton Bankruptcy Law and Practice, Second Edition, Section 74:18 (1994, updated by March 2004 supplement).

Similarly, in counting from a prior case where a Chapter 13 was converted to a

Chapter 7, courts have measured the bar from the date of the original filing, not the date of

conversion.

The unpublished case In re Czikalia, 2000 Bankr. LEXIS 2063 (D. Idaho, January

18, 2000) reviewed this issue on a creditor’s motion to dismiss:

The Court finds no case law supporting Creditor's interpretation of Section 727(a)(8). Indeed, several decisions and Collier on Bankruptcy advance the opposite:

The six years begins to run as of the date the first case is "commenced," i.e. the date the petition is filed, and ends as of the date that the subsequent proceeding is begun by the filing of the petition."

6 Collier on Bankruptcy P 727.11[2] (15th Ed. Revised 1999). Accord Resendez v. Lindquist, 691 F.2d 397, 399 (8th Cir. 1982); Riske v. Lyons (In re Lyons), 162 B.R. 242, 243-44 (Bankr. E.D. Mo. 1993); In re Burrell, 148 B.R. 820, 822 (Bankr. E.D. Va. 1992). Creditor's argument that the six-year time period runs from the date of conversion of the prior bankruptcy to the filing of the petition in this bankruptcy case therefore

lacks merit. Under Section 727(a)(8), because more than six years had expired between the filing date of Debtors' prior bankruptcy case and the filing date of the second petition, Section 727(a)(8) will not prevent Debtors from obtaining a discharge in this Chapter 7 case.”

The majority view is that Chapter 13 debtors have an absolute right to

dismiss, but there is a substantial minority view that disagrees. See, In re Polly, 392

B.R. 236 (Bankr. N.D. Tex. 2008)(citing cases and discussing Marrama).

d. Does The Time In A Chapter 13 Toll The Eight Years?

The holding in Tidewater Fin. Co. v. Williams, 498 F.3d 249 (4th Cir. 2007) was

that §727(a)(8)’s time bar to receiving a discharge in a second Chapter 7 case was not

equitably tolled during the debtor's intervening Chapter 13 proceedings because §727(a)(8)

was not a statute of limitations.

Note that Tidewater was a majority decision – there was a dissent that argued for

the tolling of the §727(a)(8) bar to a Chapter 7 discharge.

e. I Screwed Up The Eight Year Bar –What Do I Do?

If a second Chapter 7 case is filed within the eight-year period, is there anything

debtor’s counsel can do – besides call their carrier? The answer is yes. Dismissal of the

Chapter 7 case can be sought under §707(a). [I’ll leave out a discussion of the sneakier

stuff like not filing the most recent tax return and moving to dismiss your own case under

§521(e)(2)(B), or pay advices, with a motion to dismissal under §521(i)(1). After all, this

is supposed to be a Chapter 13 outline.]

The Haney decision discusses the hurdles to dismissal under 707(a): “Pursuant to

section 707(a) of the Bankruptcy Code, in a chapter 7 case a court has discretion to dismiss

a chapter 7 case only after notice and a hearing and "only for cause." Unlike the chapter 13

context, the debtor has no absolute right to dismissal. In re Wilde, 160 B.R. 625, 626

(Bankr. W.D. Mo. 1993). In order to obtain a dismissal of a chapter 7 case, the debtor must

make the showing of cause, Mann v. American Federated Life Insurance Company, 215

B.R. 822 (S.D. Miss. 1997), and the Court should deny the motion if there is any showing

of prejudice to creditors, In re Leach, 130 B.R. 855 (B.A.P. 9th Cir. 1991).” In re Haney,

241 B.R. 430, 432 (Bankr. E.D. Ark. 1999).

While there are not many published cases where a Chapter 7 was dismissed because

early filing resulted in a discharge bar date problem, and the majority of cases go the other

way [e.g., In re Kimball, 19 B.R. 300 (Bankr. D. Me. 1982)], anecdotally it appears that

this method is often used, if creditors do not object. Cf., In re McDaniel, 363 B.R. 239

(M.D. Fla. 2007)(Dismissal of Chapter 7 allowed for purposes of refiling because of

mistake on the date for dischargeability of taxes).

f. Filing A Chapter 13 During The §727(a)(8) Bar – Are There AnyConsequences For The Chapter 13 Case?

The decision in In re Paley, 390 B.R. 53, 59-60 (Bankr. N.D.N.Y. 2008) reflects a

tension that always exists between Chapter 7 and Chapter 13 cases – when is a Chapter 13

too much like a Chapter 7 to be allowed? In the Paley case, the bankruptcy court held: “A

plan whose duration is tied only to payment of attorney's fees simply is an abuse of the

provisions, purpose, and spirit of the Bankruptcy Code. These cases, basically Chapter 7

cases hidden within Chapter 13 petitions, blur the distinction between the chapters into a

meaningless haze. To allow them to go forward would, in effect, judicially invalidate §

727(a)(8)'s requirement of an eight year hiatus between Chapter 7 discharges and replace it

with either the four year break required by § 1328(f)(1), or the two year gap mandated by §

1328(f)(2). The court need not decide what would hypothetically satisfy good faith under §

1325(a)(3), only that these plans do not.” See also, In re Montry, 393 B.R. 695 (Bankr.

W.D. Mo. 2008)(Chapter 13 Trustee’s objection to confirmation of Chapter 13 plan that

would only pay debtors’ attorney fees was sustained; plan was not filed in good faith).

Tougher “good faith” standards for cases where the debtors are not eligible for a

Chapter 7 discharge is an ongoing issue that the courts are thinking about.

5. Dismissal Under Section 707(b) – In Truth? No Consequences.

The court in In re Garrett, 2008 Bankr. LEXIS 1673, 2008 WL 2206559 (Bankr.

E.D. Va. May 23, 2008) stated: “Normally, when a debtor has been a debtor in a previous

bankruptcy case that was dismissed within one year of the filing of the new case, the

automatic stay of §362(a) terminates as to the debtor on the thirtieth day following the new

filing. See 11 U.S.C.A. §362(c)(3) (Cum. Ann. Supp. 2008). For the stay to continue within

that thirty days, the debtor must seek and the court must complete a hearing on the debtor's

motion. See 11 U.S.C.A. §362(c)(3) (Cum. Ann. Supp. 2008). But the scope of § 362(c)(3)

is limited to cases "other than . . . [those] . . . refiled under a chapter other than chapter 7

after dismissal under section 707(b)." As the Debtor's Previous Case was dismissed

pursuant to § 707(b), and the Debtor's present case was filed under chapter 13, §362(c)(3)

does not apply and the automatic stay does not terminate on the thirtieth day after filing.”

6. What Is The Rule On Extending The Stay In A Second Case File Within One Year Of A Non-§707(b) Dismissal?

Section 362(c)(3) is not a model of clarity. In re Charles, 332 B.R. 538 (Bankr.

S.D. Tex. 2005)(the language is “at best, particularly difficult to parse and, at worst,

virtually incoherent”). The statute was intended to prevent abusive serial filings by

individual debtors. In re Taylor, 334 B.R. 660 (Bankr. D. Minn. 2005).

The statute provides that the case is presumed abusive, causing the automatic stay

to terminate thirty days after filing if: (a) the case at hand is a single or joint filing by or

against a debtor under Chapter 7, 11, or 13; (b) the debtor is an individual; (c) the same

debtor had one other single or joint case pending within the preceding year; (d) the prior

case was dismissed; and (e) the later case is not a Chapter 11 or 13 case that has been

refilled after a dismissal under §707(b). See, Lisa A. Napoli, The Not-So-Automatic Stay:

Legislative Changes to the Automatic Stay in a Case Filed by or Against an Individual

Debtor, 79 Am. Bankr. L.J. 749 (2005).

For purposes of the statute, you measure whether or not a case was “pending” in the

last year using the dismissal date, not the closing date of the prior case. See, In re Moore,

337 B.R. 79, 81 (Bankr. E.D.N.C. 2005).

The statute also does not apply when a case is completed and closed, rather than

dismissed. Thus, a prior Chapter 7 case that was discharged and closed would not be a case

that was “dismissed” under the statute. See, In re Williams, 390 B.R. 780 (Bankr.

S.D.N.Y. 2008); In re Forletta, 397 B.R. 242 (Bankr. E.D.N.Y. 2008).

As discussed in Section E above, the previous dismissal of a case under Section

707(b) does not give rise to any presumption of abuse when the case is refiled as a Chapter

13. See, In re Garrett, 2008 Bankr. LEXIS 1673, 2008 WL 2206559 (Bankr. E.D. Va. May

23, 2008).

a. Section 362(c)(3): The Stay Terminates As To What?

According to the majority view, the termination of the automatic stay 30 days after

filing, in a case filed within one year of the dismissal of an earlier case (other than pursuant

to Section 707(b)), does not terminate the stay as to property of the estate. See, e.g., In re

Holcomb, 380 B.R. 813 (10th Cir. BAP 2008)(the unambiguous language of § 362(c)(3)(A)

terminated the stay only with respect to the debtors and the debtors' property and did not

terminate as to property of the estate); In re Jumpp, 356 B.R. 789 (1st Cir. BAP 2006); In re

Harris, 342 B.R. 274 (Bankr. N.D. Ohio 2006). Contra, In re Curry, 362 B.R. 394, 400-02

(Bankr. N.D.Ill. 2007); In re Jupiter, 344 B.R. 754, 759 (Bankr. D.S.C. 2006).

b. What About The Co-Debtor Stay?

The termination of the automatic stay under Section 362(c)(3) does not appear to

have any effect on the co-debtor stay. See, In re Lemma, 393 B.R. 299, 303-305 (Bankr.

E.D.N.Y. 2008); see also, In re King, 362 B.R. 226, 231-234 (Bankr. D. Md. 2007)(co-

debtor stay applies even when the stay does not go into effect because of a third filing

within one year.)

K. POST-CONFIRMATION DEFAULT.

A default in direct payments to a secured creditor (or the failure to maintain insurance,

for example, on a vehicle) will generally result in a motion for relief from stay being filed by the

creditor. In some instances, a missed post-petition mortgage payment or car loan payment can

be rolled into the Chapter 13 Plan. Other times, that is not going to be a solution that either the

creditor will accept, or the bankruptcy court will impose. Defaults on post-petition direct

payments to creditors are going to be covered in Section III – Automatic Stay Litigation.

A post-confirmation default on payments to the Chapter 13 Trustee can be handled

several ways. First, prompt communication with the Chapter 13 Trustee’s Office, for a minor

problem, can often times result in an agreement as to when the next payment will be made, an

agreed schedule of payments allowing the debtor to catch up, or the like. If an agreement is

reached, the Chapter 13 Trustee will not take action, but a secured creditor who is being paid

through the Plan, and who doesn’t get a monthly check, may seek relief from stay on their own.

If a debtor is going to miss more than one payment, or at the most two, debtor’s counsel

should file a motion to modify the Plan. In many instances, all the creditors do not file timely

claims in a case, and the motion to modify could simply ask that the debtor be permitted to skip

three payments, resume payments on a specific date, and that the Plan will still complete within

(for example) 60 months at 100%. This type of motion to modify is almost always granted.

In cases where there are more severe and/or long lasting payment problems, the motion to

modify the Chapter 13 Plan may need to seek to reduce the percentage paid to unsecured

creditors, or propose increased payments in the future to make up for the missed payments, or

that additional monies will come to the trustee from tax refunds, or a refinance or the sale of

property.

At some point – determined on a case-by-case basis – the Chapter 13 Trustee will move

to dismiss Chapter 13 cases where there has been a post-petition default. After confirmation,

both judges set those motions to dismiss for hearing. Those hearings have become much better

attended since the enactment of BAPCPA, because dismissal of a Chapter 13 now has additional

serious consequences, including the provision that limits the automatic stay to a period of 30

days, unless the debtor successfully moves to extend it.

In resolving a post-petition default that has resulted in a motion to dismiss, the Chapter

13 Trustee will usually seek a “drop dead” provision in the Order denying or withdrawing the

motion to dismiss. The “drop dead” will typically provide that upon the debtor missing any

further payments, the Chapter 13 case can be dismissed without further notice or hearing, upon

the filing of a notice by the Trustee’s Office that the debtor has missed another Chapter 13 Plan

payment.

Finally, in some cases where the debtor is unable to continue to make payments – like in

cases where there is a catastrophic health problem – counsel can move for a hardship discharge

(discussed previously in this outline) if the debtor qualifies for that relief. (Specifically,

“qualifying” requires that the ‘best interest of creditors test’ must still be met for the debtors or

they cannot receive a hardship discharge.)

L. DISMISSAL AND CONVERSION ISSUES

1. Conversion From Chapter 13 To Chapter 7, And Vice Versa.

Under 11 U.S.C. §1307(a), the debtor may convert a Chapter 13 case to a Chapter 7 at

any time. Under 11 U.S.C. §1307(b), the debtor has the right, if the Chapter 13 case had not

been converted from another Chapter, to the dismissal of the case at any time, subject to some

case law limitations.

Section 348(d) specifically states that where a case is converted under 1112, 1208 or

1307, almost all claims against the estate or the debtor shall be treated as if such claim had arisen

immediately prior to the filing of the petition. Accordingly, post-petition debts incurred during

the Chapter 13 can be discharged when the case is converted to Chapter 7. See, In re Weinstock,

43 Collier Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12,

1999)(quoting Weinstock II)(“The most relevant exception is contained in subsection (d) which

directly addresses the effect of conversion on the status of creditors' claims. This subsection

instructs that following a conversion under §§1112, 1208, or 1307, claims arising prior to

conversion should be treated as if they arose before the case was filed. Conspicuously absent

from the subsection, however, is any reference to a conversion under §706, i.e., from Chapter 7

to Chapter 13, as occurred in the present case. The latter type of conversion therefore continues

to be governed by the general rule in which the petition filing date remains unchanged.”).

Section 348(d) does NOT include any reference to conversion under Section 706, which

would govern a conversion from a Chapter 7 to a Chapter 13. See, In re Weinstock, 43 Collier

Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12, 1999)(“section

348(d) may recharacterize post-petition preconversion debts as pre-petition claims. In re Bottone,

226 B.R. 290, 294 (Bankr. D. Mass. 1998). "However, section 348(d) does not apply to claims

arising in Chapter 7 cases subsequently converted to another chapter, pursuant to § 706(a)." Id.;

accord In re Toms, 229 B.R. 646, 656 n.10 (Bankr. E.D. Pa. 1999) ("Section 348(d) only applies

when bankruptcy cases are converted to chapter 7, not from chapter 7."); see also Masterson v.

Berkeley Federal Bank & Trust (In re Masterson), 189 B.R. 250, 252 (Bankr. D.R.I. 1995)

(finding that automatic stay, which was lifted in debtor's prior Chapter 7 case to enable creditor

to foreclose, was not renewed upon conversion of case to Chapter 13).”).

Accordingly, upon conversion from a Chapter 7 to a Chapter 13, there is no right to

include post-Petition debts (incurred after the filing of the Chapter 7) in a Chapter 13 case. In re

Weinstock, 1999 Bankr. LEXIS 453 (Bankr. E.D. Pa. April 27, 1999), aff’d, In re Weinstock, 43

Collier Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12, 1999).

There is a split of authority as to a debtor's right to dismiss when faced with a motion to

convert. Some courts have held that a Chapter 13 debtor's right to voluntary dismissal under

§1307(b) is absolute. See, In re Molitor, 76 F.3d 218, 220 (8th Cir. 1996)(citing cases). Other

courts have held that §1307(c) (authorizing conversion for cause) curtails a right to voluntary

dismissal.  The District Court decision in In re McCraney, 172 B.R. 868 (N.D. Ohio 1993)

upheld the Bankruptcy Court’s decision vacating the debtor’s voluntary dismissal, and reopening

the case for cause.  Accordingly, it appears that the Northern District of Ohio has not followed

the “absolute right” line of cases. And this approach appears to be consistent with the recent

Supreme Court decision in Marrama v. Citizens Bank, 549 U.S. 365, 127 S. Ct. 1105; 166 L. Ed.

2d 956 (2007).

Where there has been bad faith, some courts have held that the court has the power to

convert the Chapter 13 case to a Chapter 7, even though the debtor was not eligible for Chapter

13 under Section 109(e).  See, Rudd v. Laughlin, 866 F.2d 1040 (8th Cir. 1989).

In In re Copper, 426 F.3d 810 (6th Cir. 2005), the Sixth Circuit Court of Appeals held

that the debtor was properly denied the right to convert his bankruptcy filing from a Chapter 7 to

a Chapter 13 pursuant to §706(a), where it was clear from the record that the debtor acted with a

lack of good faith to avoid a determination of nondischargeability, rather than to meet the

statutory purpose of paying his debts. See also,  In re Bejarano, 302 B.R. 559 (Bankr. N.D. Ohio

2003)(conversion to Chapter 7 was not in bad faith).  Courts in other jurisdictions have held the

right to convert to be “absolute”.  In re Croston, 313 B.R. 447 (9th Cir. BAP  2004); In re

Carrow, 315 B.R. 8 (Bankr. N.D.N.Y. 2004).  However, in order to be able to obtain the full

benefits of the Chapter 7 after conversion, the debtor must be eligible to receive a Chapter 7

discharge.  See, In re Hiatt, 312 B.R. 150 (Bankr. S.D. Ohio 2004)(prior Chapter 7 discharge

rendered debtor inelligible for discharge in case converted from Chapter 13 to Chapter 7, where

the filing of the Chapter 13 was within 6 years [now 8 years] of the previous Chapter 7 case).

Of course, if debtors wish to convert from Chapter 7 to Chapter 13, they must meet the

eligibility requirements of §109(e), limiting the amount of unsecured and secured debt that a

debtor can have and still seek relief under Chapter 13.  See, §706(d), In re Hansen, 316 B.R. 505

(Bankr. N.D. Ill. 2004). The Supreme Court also held that a bankruptcy court may deny

conversion where there is fraud or other evidence of bad faith. Marrama v. Citizens Bank, 549

U.S. 365, 127 S. Ct. 1105; 166 L. Ed. 2d 956 (2007).

The courts have rejected attempts to create some type of rule that conversion from

Chapter 7 to Chapter 13 under Section 706(a) should be prevented just because the broader

discharge of Chapter 13 would benefit the debtor.  See, In re Young, 237 F.3d 1168 (10th Cir.

2001.

2. Dismissal Issues For Chapter 13’s and Chapter 7’s.

The debtor does not have a statutory right to dismiss a Chapter 7 case.

A voluntary dismissal of a Chapter 7 case is governed by Section 707(a), which

states as follows: "The court may dismiss a case under this chapter only after notice and

hearing and only for cause, including . . . ." This section, with the use of the limiting word

"only" and the discretionary word "may", is clearly different from the dismissal provision

governing Chapter 13 cases, Section 1307, which provides that the court "shall" dismiss a

case on the request of a debtor at any time. Section 707 provides three instances when a

debtor's actions would lead to dismissal. Because of the use of the word "including", these

three instances are not the exclusive grounds for dismissal. However, it should be noted

that the three instances set forth in the Bankruptcy Code all deal with situations where the

debtor's actions would permit dismissal on a motion by a creditor. See, In re McCullough,

229 B.R. 374, 376 (Bankr. E.D. Va. 1999). Section 707(a) provides no examples of what

would be adequate grounds for debtors to obtain dismissal of their own cases.

To the extent that a debtor can seek voluntary dismissal of a Chapter 7 case, it is the

debtors' burden to make the showing of cause, "and the Court should deny the motion if

there is any showing of prejudice to creditors." In re Haney, 241 B.R. 430, 432 (Bankr.

E.D. Ark. 1999)(citing cases).

In reviewing motions to dismiss Chapter 7 cases, numerous cases have placed

substantial barriers in the way of a Chapter 7 debtor desiring to dismiss his or her

proceeding. In re Banks, 35 B.R. 59, 60 (Bankr. D. Md. 1983). The debtors must show

cause why they wish to dismiss, and "obviously the dismissal should not work any

prejudice to any creditor." Id., at 60-61. The barriers to dismissal are so substantial that:

"The fact that no creditor appears at the hearing on the motion for dismissal is

inconclusive." Id., at 61. Recent cases include: In re Hull, 339 B.R. 304 (Bankr. E.D.N.Y.

2006)(Pro se first-time debtor was permitted to voluntarily dismiss her Chapter 7 case

under Section 707(a), where debtor claimed she did not understand that the proceeds of her

personal injury case would go to creditors). A contrary holding is found in In re Fulton,

339 B.R. 698 (Bankr. N.D. Iowa 2006)(Chapter 7 debtor could not voluntarily dismiss case

under “for cause” dismissal provision of Section 707(a).)

Chapter 13 debtors have a right to dismiss their cases. There have been some

successful attacks on attempts to dismiss cases in “bad faith”, but the general rule is clearly

that the debtors may dismiss at any time.

The problem is, if the debtors voluntarily dismiss, they may run afoul of 11 U.S.C.

§109(g)(2), which prevents the debtor from filing a new Chapter 13 case for 180 days if the

case is voluntarily dismissed after a motion for relief from stay is filed. The key word in

the statute is “voluntarily”. A case dismissed on the Chapter 13 Trustee’s motion, or a

creditor’s motion, or the Court’s own motion, is not “voluntarily” dismissed. So, in cases

where a motion for relief from stay has been filed, debtors will often suspend payments,

and wait for the Chapter 13 Trustee to move to dismiss their case.

The Chapter 13 Trustee reviews each case to be sure it complies with the eligibility

requirements of Section 109(e), and will move to dismiss if the debtor exceeds the secured

or unsecured Chapter 13 debt limits.

Debtors’ payments to the Chapter 13 Trustee are also monitored, and motions to dismiss

are filed if a debtor falls behind on payments. If the payment problem is temporary, that fact

should be communicated to the Office of the Chapter 13 Trustee as soon as possible to prevent

the filing of an unnecessary motion to dismiss.