§ 142.4     Notice Issues under § 342 at Conversion
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 142.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

By intent or (fortuitous?) inadvertence, important amendments to § 342 are captured by a cross-reference in § 348 with consequences for conversion from Chapter 13 to Chapter 7 after BAPCPA.

[2]

Some of the most important consumer bankruptcy changes by BAPCPA concern notice to creditors under § 342 of the Code.1 Before BAPCPA, § 342(a) required notice to the holder of a community claim of an “order for relief in a case under this title.”2 Section 348 defines the effects of conversion from one chapter to another. Prior to BAPCPA, § 348(c) cross-referenced § 342 with an adjustment that in a case converted from Chapter 13 to Chapter 7, § 342 applied “as if the conversion order were the order for relief.”3 The effect of this cross-reference was to require appropriate notice to the holder of a community claim of the conversion order when a Chapter 13 case converted from Chapter 13 to Chapter 7.

[3]

BAPCPA made no changes to § 348(c) and its cross-reference to § 342. But BAPCPA substantially amended § 342 to add many intricate and important new notice provisions that go light-years beyond notice to community claim holders. The vestigial cross-reference to § 342 in § 348(c) now means that, at conversion from Chapter 13 to Chapter 7, whenever used in § 342, the phrase “order for relief” should be read to mean the “conversion order.”

[4]

True to form for BAPCPA, the amendments to § 342 are not consistent in the use of language to describe the timing of importance events. For example, new § 342(c)(2) defines one method to give effective notice based on two communications with the current account number of the debtor specifying a correspondence address supplied to the debtor “within the 90 days before the commencement of a voluntary case.4 When is the “commencement of a voluntary case” for a Chapter 13 case that is converted to Chapter 7? “Order for relief” and “commencement of the case” both appear in § 348(a), strongly suggesting that these terms do not mean the same thing. Section 303 supports this conclusion because the commencement of an involuntary case is not necessarily the date of the order for relief in an involuntary case.5 There is no reference to commencement of a voluntary case in § 348(c)—suggesting that only the order for relief becomes the conversion order for purposes of § 342 at conversion from Chapter 13 to Chapter 7. If this interpretation prevails, the 90-day period in § 342(c) would be counted from the commencement of the Chapter 13 case notwithstanding a later conversion to Chapter 7.

[5]

There is evidence in § 342(d) that the drafters of BAPCPA did not analyze the cross-reference to § 342 in § 348(c). Under new § 342(d), in a Chapter 7 case in which the presumption of abuse arises under § 707(b), the clerk of the bankruptcy court is required to give written notice to all creditors “not later than 10 days after the date of the filing of the petition.”6 The “date of the filing of the petition” is another term of art in § 348(a) that is not changed by conversion from Chapter 13 to Chapter 7, and there is no reference in § 348(c) to change this absence of change. If § 707(b) applies at conversion from Chapter 13 to Chapter 7,7 in a case converted from Chapter 13 to Chapter 7 in which the presumption of abuse arises under § 707(b), the clerk of the bankruptcy court is required to give notice of the presumption of abuse within 10 days after the filing of the original Chapter 13 petition. Of course, that is ridiculous.

[6]

There is another consequence of the cross-reference to § 342 in § 348(c) that is anything but ridiculous. New § 342(g)(2) provides as follows:

(2) A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.8
[7]

As explained above, the cross-reference to § 342 in § 348(c) means at conversion from Chapter 13 to Chapter 7 the “order for relief” for purposes of new § 342(g)(2) becomes the conversion order. It follows that until a creditor receives notice effective under § 342 of the “conversion order,” the prohibition on monetary penalties in new § 342(g)(2) applies. It is not enough that all creditors received notice of the original order for relief in the Chapter 13 case. A new notice must be issued at conversion, and notice of the conversion order must be “effective” under § 342 else the bar to recovery of monetary penalties applies under § 342(g)(2).

[8]

The names and addresses of creditors used to give notice of the original Chapter 13 petition may or may not be sufficient to give “effective” notice of a conversion order months or years after the Chapter 13 case was filed. In the interim, creditors may have filed notices of addresses under new § 342(e) or (f) and creditors may have designated persons or organizational subdivisions to be responsible for receiving notice under new § 342(g)(1).9 There will be problems giving effective notice at conversion from Chapter 13 to Chapter 7.


 

1  See § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3  Section 342: Notice What Didn’t Happen.

 

2  11 U.S.C. § 342(a) (same before and after BAPCPA).

 

3  11 U.S.C. § 348(c) (same before and after BAPCPA).

 

4  11 U.S.C. § 342(c)(2)(A), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3  Section 342: Notice What Didn’t Happen.

 

5  See 11 U.S.C. § 303(h).

 

6  11 U.S.C. § 342(d).

 

7  See § 531.1 [ Application of § 707(b) Abuse Test at Conversion ] § 142.3  Application of § 707(b) Abuse Test at Conversion.

 

8  11 U.S.C. § 342(g)(2), discussed in detail in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3  Section 342: Notice What Didn’t Happen.

 

9  See § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3  Section 342: Notice What Didn’t Happen.