Cite as: Keith M. Lundin, Lundin On Chapter 13, § 23.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
“Abuse” of bankruptcy by debtors filing serial bankruptcy cases was often mentioned by the proponents of BAPCPA as a major reason bankruptcy reform was needed.1 The pre-BAPCPA statutory barrier to serial filing in § 109(g) was not changed by BAPCPA.2 In other words, there was nothing in BAPCPA that changed eligibility for Chapter 13 relief based on prior bankruptcy experience of the debtor.3
What BAPCPA contained to address the perceived abuse of serial filing was a less robust automatic stay for some Chapter 13 debtors with prior bankruptcy experience and new limits on successive discharges. Rather than forbid repeat bankruptcy filings, BAPCPA acknowledged but burdened second and third (or more) filings by the same debtor and extended the time between permitted discharges.
Detailed elsewhere,4 new § 362(c)(3) terminates parts of the automatic stay 30 days after the petition with respect to certain debts and creditors when a prior case of the debtor was pending within the year preceding the current petition but was dismissed. Under new § 362(c)(4), if two or more cases of the debtor were pending within the year before the current petition but were dismissed, then no automatic stay goes into effect in the current case except upon court order. After BAPCPA, the filing of a Chapter 13 petition does not stay enforcement of a lien against real property if the filing is in violation of a court order in a prior case that prohibits refiling or is within 180 days of a dismissal that renders the debtor ineligible under § 109(g).5 Finally, BAPCPA puts statutory legs under the concept of “in rem” relief from the stay by authorizing relief stay orders that can be entered in a (prior) bankruptcy case, then recorded to be effective in any future bankruptcy for two years.6
These new limitations on the automatic stay do not render any individual debtor ineligible for Chapter 13 relief. Changes to the automatic stay by BAPCPA reduce the relief that an eligible debtor realizes after the Chapter 13 petition is filed.
It is significant to Chapter 13 practitioners that the limitations on the automatic stay in BAPCPA have no analogues with respect to the codebtor stay in § 1301.7 When an eligible debtor files a Chapter 13 case, the codebtor stay protects a codebtor with respect to all codebtor obligations notwithstanding that BAPCPA limits the automatic stay in the filing debtor’s case.8A serially filing debtor who has lost some or all protection of the automatic stay can still expect the full protection of the codebtor stay with respect to co-signed debts. The codebtor stay may prohibit collection action with respect to collateral for a co-signed debt even when the debtor is not protected personally by the automatic stay.9
The new limitations on successive discharges in Chapter 13 cases are found in § 1328(f):
Notwithstanding [§ 1328(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.10
Perhaps by confusion or just a long hope, § 1328(f) has inspired preemptive strikes on Chapter 13 cases filed within the new four-year or two-year discharge limitations. One prong of attack has been the misguided claim that the limitation on successive discharges in § 1328(f) is an eligibility provision that stops a Chapter 13 case at the door if the debtor can’t get a discharge. Less direct, but a bit better tractioned, it has been argued that the filing by a debtor not eligible for discharge lacks good faith and should be dismissed—if for no other reason because the Chapter 13 case will “unreasonably delay” collection of debts that will not be discharged.11
To date, these arguments have all been rejected by the courts. As explained by the Bankruptcy Court for the Southern District of Georgia in In re Lewis:12
[Section] 1328(f) is not an eligibility provision. Whether an individual is eligible to be a debtor under chapter 13 is established under 11 U.S.C. § 109(e). . . . [T]he debtors are eligible to be debtors under a chapter 13 plan and § 1328(f) standing alone does not affect that eligibility. . . . The availability of a discharge to the debtor is a factor for consideration. However, this is only one factor, and that factor standing alone is insufficient to overcome the other criteria which the Trustee concedes warrants a determination of good faith . . . . [B]ecause a creditor might be required to wait to pursue the balance remaining under the obligation after conclusion of the case standing alone does not establish an unreasonable delay. In the present cases, the debtors propose to pay all creditors in full. . . . [E]ven with less than a 100% case, the lack of available discharge does not establish an unreasonable delay if the plans are otherwise confirmable. . . . Unsecured creditors have a better chance and more cost-efficient opportunity to be paid in a chapter 13 plan under court supervision than contemplated under available state debt-collection law. Merely because the chapter 13 debtor will not receive a discharge under an otherwise confirmable plan does not establish unreasonable delay that is prejudicial to creditors.13
Recognized in Lewis, there is a fundamental difference between eligibility for Chapter 13 and discharge of debt at completion of payments under a plan. There are many reasons why debtors eligible for Chapter 13 do not discharge some or all of their debts—including that some debtors never complete payments under the plan and some debts are statutorily excepted from discharge.14 Neither the Bankruptcy Code nor reported decisions confused eligibility requirements with conditions for discharge prior to BAPCPA and there is nothing in BAPCPA to suggest that confusion is now warranted.15
1 See, e.g., H.R. Rep. No. 109-31, at 3 (“S. 256 . . . includes provisions intended to deter serial and abusive bankruptcy filings.”).
2 See 11 U.S.C. § 109(g)(1), discussed in § 22.1 [ 11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution ] § 25.2 11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution, and 11 U.S.C. § 109(g)(2), discussed in § 23.1 [ 11 U.S.C. § 109(g)(2)—Voluntary Dismissal after Request for Relief from Stay ] § 25.3 11 U.S.C. § 109(g)(2)—Voluntary Dismissal after Request for Relief from Stay.
3 There is one new eligibility requirement in § 109(h) that is not related to prior bankruptcy experience. See §§ 369.1 [ In General ] § 18.1 In General–369.14 [ [ ORIGINAL SECTION TITLE NOT FOUND ] ] § 21.4 11 U.S.C. § 109(h)(4): Incapacity, Disability or Active Military Duty.
4 See § 432.1 [ When Does § 362(c)(3) Apply? ] § 60.1 When Does § 362(c)(3) Apply?.
5 See 11 U.S.C. § 362(b)(21), discussed in § 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
6 See 11 U.S.C. § 362(b)(20) and (d)(4), discussed in § 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
7 The codebtor stay in 11 U.S.C. § 1301 is discussed in §§ 84.1 [ Cosigners and Joint Obligors Are Protected ] § 65.1 Cosigners and Joint Obligors Are Protected–90.1 [ Irreparable Harm ] § 67.5 Irreparable Harm and 436.1 [ Codebtor Heaven ] § 65.3 Codebtor Heaven after BAPCPA.
8 See § 436.1 [ Codebtor Heaven ] § 65.3 Codebtor Heaven after BAPCPA.
9 See § 84.1 [ Cosigners and Joint Obligors Are Protected ] § 65.1 Cosigners and Joint Obligors Are Protected.
10 11 U.S.C. § 1328(f), discussed in § 543.1 [ New Limitations on Successive Discharges ] § 156.2 Limitations on Successive Discharges.
11 See 11 U.S.C. § 1307(c)(1) (“unreasonable delay . . . prejudicial to creditors” is a ground for conversion or dismissal), discussed in §§ 311.2 [ Conversion on Request of Creditor or Trustee ] § 141.2 Conversion on Request of Creditor or Trustee and 312.1 [ Cause for Conversion ] § 141.3 Cause for Conversion.
12 339 B.R. 814 (Bankr. S.D. Ga. 2006).
13 339 B.R. at 816–17. Accord Branigan v. Khan (In re Khan), Nos. DKC 2006-2818, DKC 2006-2788, 2006 WL 3716036, at *2–*3 (D. Md. Dec. 14, 2006) (Section 1328(f) is not an eligibility provision and does not require dismissal of Chapter 13 petition by debtor ineligible to receive a discharge. “[E]ligibility to file a Chapter 13 petition is set forth in 11 U.S.C. § 109 . . . . While there are some limitations on that general grant of eligibility, see, e.g., § 109(g), there is no prohibition based on the inability to be granted a discharge or the fact that the debtor is a serial filer. . . . Congress did not intend categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who previously has filed for Chapter 7 relief. . . . The language of section 1328(f) is clear and unambiguous. It prohibits only the grant of a discharge under Chapter 13, and does not address the circumstances, set out in section 109, under which a Chapter 13 bankruptcy petition may be filed.”); In re McGhee, 342 B.R. 256, 258 (Bankr. W.D. Ky. 2006) (Citing In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006), with approval, that debtors received a Chapter 7 discharge within four years of filing the current Chapter 13 petition precludes discharge but does not prohibit eligibility. “[I]t is clear that a debtor who received a discharge in a Chapter 7, 11, or 12 case filed within four years of the debtor filing a subsequent Chapter 13 petition is ineligible for a discharge in his/her subsequent Chapter 13 case. . . . [T]he discharge prohibition in § 1328(f) does not prevent an individual from seeking and receiving chapter 13 relief. . . . Eligibility for chapter 13 relief is governed by 11 U.S.C. § 109(e). . . . A plain reading of § 1328(f) only prevents a discharge in certain circumstances . . . . [T]hat a chapter 13 petition was filed with the knowledge that a discharge is not available is not in itself sufficient to find that the chapter 13 petition was not filed in good faith. Indeed, there may be occasions in which a financially distressed debtor would find it advantageous to seek relief under Chapter 13 knowing that a discharge is not available.”); In re Bateman, 341 B.R. 540, 542 (Bankr. D. Md. 2006) (Adopting In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006), new § 1328(f) is not an eligibility provision. “Congress just completed a massive renovation of the Bankruptcy Code. If it had intended to make ineligibility for a discharge a further bar to filing a bankruptcy case under § 109, it would have done so.”).
14 See 11 U.S.C. § 1328, discussed in §§ 345.1 [ Alimony, Maintenance or Support ] § 158.1 Alimony, Maintenance or Support–354.1 [ Exceptions to Hardship Discharge ] § 160.6 Exceptions to Hardship Discharge before BAPCPA and §§ 548.1 [ Taxes ] § 159.1 Taxes–558.1 [ New and Changed Exceptions to Hardship Discharge ] § 160.7 Exceptions to Hardship Discharge Added or Changed by BAPCPA.
15 Counting the two-year and four-year periods in new § 1328(f) is another story altogether. See § 543.1 [ New Limitations on Successive Discharges ] § 156.2 Limitations on Successive Discharges.