§ 141.4     Cause for Conversion Added or Changed by BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 141.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

BAPCPA implanted new grounds for conversion (and dismissal)1 in § 1307—where the grounds for conversion and dismissal of a Chapter 13 case have always been codified—and in § 521, as a consequence for the failure of an individual debtor to perform the new duties and filing responsibilities added to § 521 by BAPCPA.2 Lack of careful draftsmanship erects technical barriers to accurate interpretation of some of the new grounds for conversion.

[2]

Section 1307(c) contains the laundry list of included causes for permissive conversion to Chapter 7 or dismissal of a Chapter 13 case.3 There is a cross-reference in the first sentence of § 1307(c): “Except as provided in subsection (e) of this section.” Prior to BAPCPA, that cross-reference picked up the limitation in (former) subsection (e) that the court “may not convert a case under this chapter to a case under chapter 7, 11 or 12 of this title if the debtor is a farmer, unless the debtor requests such conversion.”4 BAPCPA inserted a new subsection (e) in § 1307, bumping former subsection (e) to new subsection (f).

[3]

The cross-reference to “subsection (e)” in the first sentence of § 1307(c) was not changed by BAPCPA. Was this a scrivener’s error or was the cross-reference left as subsection (e) to change the meaning of the cross-reference?

[4]

It is possible to make sense of the cross-reference to (e) in the first sentence of § 1307(c) without reaching for a drafting error. Section 1307(c) addresses the permissive grounds for conversion or dismissal—the court “may” convert a case or dismiss a case for any of the enumerated causes. As amended by BAPCPA, § 1307(e) identifies a new ground for dismissal or conversion—the debtor’s failure to file a tax return under § 1308—but this ground is mandatory, not permissive: the court “shall” dismiss or convert a Chapter 13 case upon the failure of the debtor to file a tax return under § 1308. The opening phrase in § 1307(c), “[e]xcept as provided in subsection (e) of this section,” can make sense because the mandatory ground for conversion or dismissal in new subsection (e) is an exception to the permissive grounds listed in § 1307(c).

[5]

This construction of § 1307(c) is some evidence that there is no error in the cross-reference to subsection (e) notwithstanding the re-lettering of subsection (e) by BAPCPA. This construction raises the question whether the elimination of the former cross-reference signals that it is now possible to involuntarily convert a farmer from Chapter 13 to another chapter. There is no mention of this intent in the House Report, and it is enough of a change from former law that some mention would have been expected. Also, former subsection (e) is still present in § 1307, just redesignated as § 1307(f). Arguably, the prohibition on conversion from Chapter 13 to another chapter for a farmer without the debtor’s request remains applicable without a specific cross-reference in § 1307(c).

[6]

There are also cross-reference problems in § 1307(c)(9) and (10). BAPCPA did not change the ground for permissive conversion or dismissal in § 1307(c)(9): “only on request of the United States trustee,” the failure of the debtor to file “within fifteen days, or such additional time as the court may allow, after the filing of the petition” the “information required by paragraph (1) of section 521.”5 Section 521 was extensively amended by BAPCPA to add many new debtor duties and filing responsibilities.6 In the process, the numbering and lettering in § 521 was changed and the cross-reference to “paragraph (1) of section 521” in § 1307(c)(9) no longer makes sense. There are now eight subparagraph (1)s but no “paragraph (1)” in § 521.

[7]

To make sense out of the cross-reference in § 1307(c)(9), it is probably necessary to find that the drafters intended to cross-reference subparagraph “(a)(1)” of § 521. The logic to support this substitution is that most of what was in “paragraph (1) of section 521” before BAPCPA is now in subparagraph (a)(1) of § 521. But this revision is not without problems.

[8]

First, there is more in subparagraph (a)(1) of § 521 after BAPCPA than there was in paragraph (1) of § 521 before BAPCPA. BAPCPA added several new filing responsibilities to § 521(a)(1), including a new § 342(b) notice,7 copies of payment advices or other evidence of payment received by the debtor from an employer within 60 days of the petition,8 a new statement of monthly net income,9 and a new statement of reasonably anticipated increases in income or expenditures.10 To conclude that the cross-reference to paragraph (1) of § 521 is an error that should be corrected to read subparagraph (a)(1) entails a more difficult additional conclusion that Congress meant to include in the mistaken cross-reference an enlarged capture of filing duties contained in § 521(a)(1), as amended by BAPCPA.

[9]

And there is another problem with this correction: BAPCPA separately enacted a new § 521(i) that directly addresses the consequences of the failure of an individual debtor to file all of the information required by new subsection (a)(1) of § 521. Detailed elsewhere,11 new § 521(i) provides that a Chapter 7 or Chapter 13 case is “automatically dismissed” on the 46th day after the petition if an individual debtor “fails to file all of the information required under subsection (a)(1) within 45 days after the . . . filing of the petition.”12

[10]

To rewrite the cross-reference in § 1307(c)(9) to read subparagraph (a)(1) of § 521, it must also be true that Congress intended cumulative remedies and consequences when a debtor fails to file the information required by § 521(a)(1). There would be permissive conversion or dismissal—but only on the request of the U.S. trustee—if the debtor failed to file the information required by new § 521(a)(1) “within fifteen days or such additional time as the court may allow” after the Chapter 13 petition. There would also be “automatic” dismissal on the 46th day after the petition if the debtor did not file the information required by § 521(a)(1) on or before 45 days after the Chapter 13 petition.

[11]

These remedies are not so much contradictory as they are oddly constructed when § 1307(c)(9) is rewritten as described. Dismissal is the only consequence if the § 521(a)(1) information is not filed within 45 days of the petition. But inside that 45-day period, conversion or dismissal is permissive on the request of the U.S. trustee. Arguably, no other party could seek conversion or dismissal before 15 days after the petition or within such additional time as the bankruptcy court allowed the debtor to file the information required by § 521(a)(1). If no additional time is granted, perhaps after 15 days, other parties in interest—the Chapter 13 trustee, for example—could request conversion or dismissal.

[12]

This analysis could affect the meaning of “automatic dismissal” under new § 521(i). As detailed elsewhere,13 there will be difficult questions of statutory construction with respect to new § 521(i)—such as whether the bankruptcy court can extend the debtor’s time for filing the information required by § 521(a)(1) beyond the 45-day automatic dismissal. New § 521(i)(3) allows a debtor to make such a request within the 45-day period but limits the court’s extension authority to an additional period not exceeding 45 days.14 The timing and circumstances that would permit a debtor an extension of time to file the information required by § 521(a)(1) would not be so limited for purposes of § 1307(c)(9), but the interaction of new § 521(i) and old § 1307(c)(9) is not certain. Would permissive conversion under § 1307(c)(9) for failure of the debtor to file the information required by § 521(a)(1) be available on the request of the U.S. trustee after 45 days after the petition?

[13]

There is a similar problem in § 1307(c)(10) with a different twist. Under § 1307(c)(10), “only on request of the United States trustee,” conversion to Chapter 7 or dismissal of a Chapter 13 case is permissive when the debtor fails to “timely file the information required by paragraph (2) of section 521.”15 Once again, the cross-reference to “paragraph (2) of section 521” makes no sense because there is no paragraph (2) in § 521, but there are now many subparagraph (2)s. If the cross-reference is reconstructed to read “subparagraph (a)(2),” then § 1307(c)(10) makes the same nonsense that existed before BAPCPA.

[14]

In its pre-BAPCPA form, § 1307(c)(10) stated a permissive ground for conversion or dismissal of a Chapter 13 case when the debtor failed to file the “statement of intention” described in § 521(2) of former law. After re-lettering, § 521(a)(2)—with some minor modifications by BAPCPA—requires debtors only in Chapter 7 cases to file and perform the statement of intention with respect to debts secured by property of the estate. Correcting the cross-reference in § 1307(c)(10) to read subparagraph (a)(2) of § 521 assumes that Congress intended to incorporate the BAPCPA changes to § 521(a)(2) and assumes that Congress intended (but failed) to change the internal cross-references in § 1307(c)(10) without realizing that § 521(a)(2) has no application whatsoever in a Chapter 13 case. There is some point at which assumptions of this sort collapse under their own weight.

[15]

“Technicalities” aside, BAPCPA enacted several new grounds for conversion of a Chapter 13 case to Chapter 7. Two of the new grounds are in § 1307—one is permissive and the other is mandatory. The third new ground for conversion is in § 521 and is mandatory but can’t be raised by just anyone.

[16]

BAPCPA added to the list of included permissive grounds for conversion or dismissal in § 1307(c) a new paragraph (11): “failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.”16 Domestic support obligation (DSO) is a new term of art that includes any debt in the nature of alimony, maintenance or support that “accrues before, on or after” the petition in a Chapter 13 case, including interest that accrues under applicable nonbankruptcy law.17 “Becomes payable” in new § 1307(c)(11) perhaps means something different from “accrues.” A Chapter 13 debtor must stay current in the payment of any DSO that becomes payable after the petition else the case may be converted to Chapter 7 (or dismissed).

[17]

This new permissive ground for conversion or dismissal in § 1307(c)(11) is in addition to the new condition for confirmation of a Chapter 13 plan in § 1325(a)(8) that the debtor has paid all DSOs that first became payable after the petition.18 There is also a new condition for discharge in § 1328(a) that the debtor certifies that all amounts payable under a DSO that are due on or before the date of the certification have been paid.19

[18]

Separate from the list of included grounds for permissive conversion or dismissal in § 1307(c), BAPCPA added a new subsection (e) to § 1307 that contains a new mandatory ground for conversion or dismissal:

(e) Upon the failure of the debtor to file a tax return under section 1308, on request of a party in interest or the United States trustee and after notice and a hearing, the court shall dismiss a case or convert a case under this chapter to a case under chapter 7 of this title, whichever is in the best interest of the creditors and the estate.20
[19]

New § 1308 requires Chapter 13 debtors—no later than one day before the first date scheduled for the § 341(a) meeting of creditors—to file with applicable taxing authorities all tax returns required for a taxable period ending during the four years before the petition.21 If all required tax returns are not filed by the first scheduled date for the meeting of creditors, the Chapter 13 trustee may “hold open” the meeting of creditors for a “reasonable period of time” to allow the debtor to file required tax returns.22 The hold-open period can extend 120 days or more after the meeting of creditors and can be further extended for up to 30 days by the bankruptcy court.23

[20]

The predicate to mandatory conversion or dismissal under new § 1307(e) is that the debtor has failed “to file a tax return under section 1308.” There are several possible points in time under new § 1308 when failure to file a tax return might occur. If the debtor was required to file a return for a prepetition tax period and that return was not filed before the day before the first scheduled meeting of creditors under § 341(a), it is arguable that the debtor has failed to “file a tax return under section 1308.” An immediate motion by a party in interest to convert or dismiss under § 1307(e) would mandate that the bankruptcy court convert or dismiss the Chapter 13 case perhaps without regard to whether the Chapter 13 trustee has held open the meeting of creditors to allow the debtor a reasonable time to correct the problem.

[21]

More charitably to the debtor, § 1308 might be read that failure to file a tax return under § 1308 does not occur until all “hold-open” periods and other extensions have expired under new § 1308. Reading new § 1308 this way, a motion to convert or dismiss under new § 1307(e) would not be appropriate until all hold-open periods have expired, the debtor is no longer eligible for any automatic extensions of time and the possibility of a court-ordered extension has expired.

[22]

New § 1307(e) mandates dismissal or conversion to Chapter 7, “whichever is in the best interest of the creditors and the estate.” Notice to all creditors of a § 1307(e) motion is indicated, and there will be circumstances when it is definitely in the interests of some creditors that the court dismiss the case rather than convert to Chapter 7. Section 1308 deals with the filing of tax returns, and there is some likelihood that unfiled tax returns will include unpaid taxes that may be entitled to priority. Ordinary unsecured creditors may prefer to have the Chapter 13 case dismissed rather than face discharge and a relatively slim likelihood of distribution after conversion to Chapter 7.

[23]

The third new ground for conversion from Chapter 13 to Chapter 724 is in new § 521(j):

(j)(1) Notwithstanding any other provision of this title, if the debtor fails to file a tax return that becomes due after the commencement of the case or to properly obtain an extension of the due date for filing such return, the taxing authority may request that the court enter an order converting or dismissing the case.
(2) If the debtor does not file the required return or obtain the extension referred to in paragraph (1) within 90 days after a request is filed by the taxing authority under that paragraph, the court shall convert or dismiss the case, whichever is in the best interests of creditors and the estate.25
[24]

New § 521(j) is mandatory—the court “shall” convert or dismiss if the debtor fails to file a tax return that “becomes due” after the commencement of the case or to “properly obtain an extension of the due date for filing such return.” Only the taxing authority is authorized by new § 521(j) to request conversion or dismissal.

[25]

The powerful introductory phrase “notwithstanding any other provision of this title” puts a complicated spin on the interaction among new § 521(j), new § 1307(e) and new § 1308. New § 1307(e) allows any party in interest to move for mandatory conversion or dismissal if the debtor fails to file a tax return under § 1308. New § 521(j) specifically reserves to the taxing authority the right to request a mandatory conversion or dismissal when the debtor fails to file a tax return that becomes due after the commencement of the Chapter 13 case. There will be “required” tax returns that fall within the requirements of new § 1308 that “become due” after commencement of the case for purposes of § 521(j).26 This will be true, for example, when a Chapter 13 case is filed early in a calendar year and the “required” income tax return for the previous taxable year is not due until April 15 (or after) of the year in which the Chapter 13 case is filed.

[26]

Arguably, the limitations in § 521(j) would prohibit a request for mandatory conversion or dismissal under § 1307(e) by anyone except a taxing authority with respect to a return that becomes due after the petition. And § 521(j) grants the debtor at least 90 days to file the missing return after the taxing authority’s motion under § 521(j) notwithstanding the distinctly different timing provisions in § 1308 and the completely different “best-interests-of-the-creditors and the estate” considerations in new § 1307(e). There are intricate overlaps and conflicts among §§ 521(j), 1307(e) and 1308 with respect to a required tax return that becomes due after the filing of the Chapter 13 case.

[27]

What should debtors do when the Chapter 13 case is filed before April 15 and an income tax return for the previous tax year is required by § 1308? The best position for the debtor is to get that return filed, if at all possible, before one day before the first date scheduled for the § 341(a) meeting of creditors. If that is not possible, then certainly file the return before the due date on or about April 15 of the year in which the Chapter 13 petition is filed. Requesting a timely extension from the taxing authorities would offer protection from mandatory conversion or dismissal under § 521(j) but might not stop a request from a party in interest for mandatory conversion or dismissal under § 1307(e)—unless the Chapter 13 trustee holds open the meeting of creditors under § 1308(b)(1). If the meeting of creditors is not held open but a timely extension of time is requested by the debtor for the filing of the tax return, then the debtor should have a good defense to any § 1307(e) motion to dismiss based on the “notwithstanding any other provision of this title” in new § 521(j).

[28]

A Chapter 13 debtor that fails to file a required return or obtain an extension under § 521(j)(2) is out of luck if a taxing authority moves to convert or dismiss for failure to file a return that becomes due after the petition. But if anyone other than the taxing authority moves for conversion or dismissal—presumably under new § 1307(e)—the debtor might win the argument that new § 521(j) reserves standing to the taxing authority with respect to policing tax returns that become due after the petition.

[29]

It has to be said that this is all way too complicated. The underlying problem—that a Chapter 13 debtor has not filed a required tax return—is a real problem that needs a simple straightforward solution. Multiple overlapping provisions for conversion or dismissal are not helpful and are likely to have the opposite of the intended effect. There will be more litigation and more loopholes in the process of converting or dismissing Chapter 13 cases when debtors have failed to file tax returns.

[30]

All of the new grounds for conversion discussed above are also grounds for permissive or mandatory dismissal.27


 

1  See § 540.1 [ New and Changed Grounds for Dismissal ] § 152.3  Cause for Dismissal Added or Changed by BAPCPA.

 

2  See § 388.1 [ Consequences of Failure to File Required Information, Including “Automatic Dismissal” ] § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

3  See § 312.1 [ Cause for Conversion ] § 141.3  Cause for Conversion.

 

4  11 U.S.C. § 1307(f) (formerly designated as § 1307(e)).

 

5  11 U.S.C. § 1307(c)(9), discussed in § 312.1 [ Cause for Conversion ] § 141.3  Cause for Conversion.

 

6  See § 387.1 [ New Filing Requirements and Other Duties: A List ] § 42.1  Filing Requirements and Other Duties: A List.

 

7  See §§ 375.1 [ Certificate of § 342(b) Notice ] § 36.33  Certificate of § 342(b) Notice after BAPCPA and 387.1 [ New Filing Requirements and Other Duties: A List ] § 42.1  Filing Requirements and Other Duties: A List.

 

8  See §§ 376.1 [ Payment Advices ] § 42.3  Payment Advices and 387.1 [ New Filing Requirements and Other Duties: A List ] § 42.1  Filing Requirements and Other Duties: A List.

 

9  See §§ 377.1 [ Statement of Monthly Net Income ] § 36.17  Statement of Monthly Net Income and 387.1 [ New Filing Requirements and Other Duties: A List ] § 42.1  Filing Requirements and Other Duties: A List.

 

10  See §§ 378.1 [ Statement of Anticipated Increase in Income or Expenditures ] § 36.18  Statement of Anticipated Increase in Income or Expenditures and 387.1 [ New Filing Requirements and Other Duties: A List ] § 42.1  Filing Requirements and Other Duties: A List.

 

11  See § 388.1 [ Consequences of Failure to File Required Information, Including “Automatic Dismissal” ] § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

12  11 U.S.C. § 521(i)(1).

 

13  See § 388.1 [ Consequences of Failure to File Required Information, Including “Automatic Dismissal” ] § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

14  11 U.S.C. § 521(i)(3), discussed in § 388.1 [ Consequences of Failure to File Required Information, Including “Automatic Dismissal” ] § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

15  11 U.S.C. § 1307(c)(10).

 

16  11 U.S.C. § 1307(c)(11).

 

17  11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

18  See 11 U.S.C. § 1325(a)(8), discussed in § 498.1 [ Domestic Support Obligations Must Be Current ] § 113.3  Domestic Support Obligations Must Be Current.

 

19  11 U.S.C. § 1328(a), discussed in § 545.1 [ New Domestic Support Obligation Certification ] § 156.4  Domestic Support Obligation Certification.

 

20  11 U.S.C. § 1307(e).

 

21  11 U.S.C. § 1308(a), discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

22  11 U.S.C. § 1308(b), discussed in §§ 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors and 398.1 [ Holding Open the Meeting of Creditors ] § 43.7  Holding Open the Meeting of Creditors.

 

23  11 U.S.C. § 1308(b)(1)(A), (B) and (2), discussed in § 398.1 [ Holding Open the Meeting of Creditors ] § 43.7  Holding Open the Meeting of Creditors.

 

24  There are other new grounds for dismissal that do not include the option of conversion. See § 540.1 [ New and Changed Grounds for Dismissal ] § 152.3  Cause for Dismissal Added or Changed by BAPCPA.

 

25  11 U.S.C. § 521(j).

 

26  See § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

27  See § 540.1 [ New and Changed Grounds for Dismissal ] § 152.3  Cause for Dismissal Added or Changed by BAPCPA.