Cite as: Keith M. Lundin, Lundin On Chapter 13, § 37.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
BAPCPA made many changes to the Bankruptcy Code that will affect the decision when to file a Chapter 13 petition. Of course, many debtors have imperatives that leave little discretion whether to file the Chapter 13 petition sooner or later. If a foreclosure on the debtor’s home is scheduled for 10:00 a.m. tomorrow, there are still many good reasons why a Chapter 13 petition filed (and recorded!)1 before 10:00 a.m. is a good idea.2 Several BAPCPA changes will more or less subtlely impact the timing for filing a Chapter 13 petition.
For the Chapter 13 debtor who needs a discharge, there is a new statutory limit on successive discharges that bears on a subsequent filing decision. Under § 1328(f), no Chapter 13 discharge is available if the debtor received a discharge in a Chapter 7, 11 or 12 case filed within four years.3 There is also a two-year prohibition on successive discharges when the prior discharge was in a Chapter 13 case.4 These periods are counted from the filing of the prior case to the filing of the current case. If the debtor received a prior bankruptcy discharge and the four-year or two-year limitations is in play, a delay to get beyond the applicable limitation could invigorate the discharge in the current case.
A debtor with prior bankruptcy experience also has to be concerned about new limitations on the automatic stay. Section 362(c)(3), as amended by BAPCPA, terminates some aspects of the automatic stay on the 30th day after a Chapter 13 petition if an individual or joint case of the debtor was pending within one year but was dismissed.5 If two or more individual or joint cases for the debtor were pending within the previous year but were dismissed, no automatic stay arises at the filing of a subsequent petition and the debtor must request a court hearing to determine whether a stay is warranted.6 Debtors with one or more prior bankruptcy cases who can wait out the year in § 362(c)(3) and (4) will be advantaged with respect to the automatic stay.
A debtor who has not received the prepetition “briefing” described in § 109(h)(1)7 and who can’t qualify for a permanent waiver8 or submit a certification of “exigent circumstances”9 should delay filing the Chapter 13 petition until getting a briefing. This shouldn’t require much of a delay because briefings can be conducted by telephone or on the Internet. There is controversy whether a briefing on the same calendar day as the filing is effective for § 109(h)(1) purposes.10 If circumstances permit, the debtor should obtain the briefing at least one calendar day before filing the Chapter 13 petition. Filing a Chapter 13 petition without a briefing or with a false certification is a really bad idea. The briefing is an eligibility requirement. Without a prepetition briefing, the papers filed by the debtor may not constitute a petition for purposes of commencing a bankruptcy case or invoking the automatic stay.11
Potential Chapter 13 debtors sometimes arrive at counsel’s office with landlord-tenant problems. If the debtor is facing state court action for possession, eviction or unlawful detainer, BAPCPA created new incentives to hurry up and file the Chapter 13 petition. A lessor of residential property has substantial new leverage against a debtor in bankruptcy if the lessor obtains a judgment for possession before the petition and begins an eviction or unlawful detainer action.12 The debtor will be unprotected by the automatic stay unless the debtor files a special certification, makes a rent deposit and pays all rent in default within 30 days of the petition.13 If the Chapter 13 petition is filed before the lessor obtains a judgment for possession, then the automatic stay has its normal effect and the debtor is relieved of the certification and rent deposit requirements.14
For different reasons, BAPCPA creates a similar incentive for Chapter 13 debtors to file sooner rather than later when the debtor has pledged or pawned property and the right to redeem is soon to expire. Under § 541(b)(8), as amended by BAPCPA, the Chapter 13 estate15 does not include the debtor’s interest in personal property pledged or sold as collateral for a loan when the property is in possession of the pledgee, the debtor is not obligated to redeem and any contractual or state law right to redeem is not exercised in a timely manner. In the typical pawn, this new exclusion from the estate means that the debtor must file the Chapter 13 case before the contract or state law redemption period expires else the pledged collateral will not be retrievable through the Chapter 13 plan.
The new definition of “current monthly income” (CMI) creates important timing considerations. As detailed elsewhere,16 CMI is the new platform for measuring financial ability of consumer debtors in bankruptcy cases. The definition of CMI is retrospective—it is based on an average of income for six months before the month in which the petition is filed.17 Whether the debtor’s CMI is above or below applicable median family income determines which form of the disposable income test applies18 and will determine whether a five-year commitment period is applicable.19
Debtors whose income has increased or decreased during the six months before visiting counsel may be advantaged or disadvantaged by the timing of the petition with respect to the calculation of CMI. For example, a debtor whose hourly wage recently increased will probably show more CMI with each passing month and could be required to pay more money to unsecured creditors to satisfy the disposable income test at confirmation. But this outcome is not certain because a debtor with increasing CMI might pass from being an under-median-income debtor to being an over-median-income debtor if the filing of the Chapter 13 petition is delayed for a few months. Although the over-median-income debtor is mandated a five-year commitment period,20 the strange disposable income test calculation imposed by BAPCPA on over-median-income debtors may actually require less money to fund the Chapter 13 plan.21
A debtor who has experienced a recent decrease in income may be encouraged to delay filing a Chapter 13 petition until the reduced income shows up in the retrospective six-month calculation of CMI. Otherwise, an immediate filing may show the debtor with CMI that is substantially higher than the resources actually available to fund a Chapter 13 plan.
Tax returns are another subject that may figure into the timing of the Chapter 13 petition. Somewhat oversimplified, it is almost always in a consumer debtor’s best interest to file tax returns that are past due before filing a Chapter 13 petition.22 By filing the tax returns first, some older prepetition tax liabilities that would otherwise be nondischargeable (because no return was filed) become dischargeable debts in the Chapter 13 case.23 The unpaid taxes retain their priority character and must be paid in full through the Chapter 13 plan,24 but dischargeable priority taxes are payable without postpetition interest in a Chapter 13 case; nondischargeable taxes continue to accumulate nondischargeable postpetition interest.
Counsel has to question the debtor about tax returns and consider delaying the Chapter 13 petition until any missing returns are filed. The IRS is more likely to “discover” the debtor with respect to unfiled tax returns once the Chapter 13 petition is filed. It just makes sense to clean up unfiled tax return problems before filing the Chapter 13 case if other time imperatives don’t intrude.
BAPCPA exacerbates the unfiled tax return issue by imposing many new filing and disclosure requirements with respect to tax returns that should have been filed before the Chapter 13 petition. Seven days before the first date set for the meeting of creditors, the debtor is required to provide to the Chapter 13 trustee—and to any timely requesting creditor—the tax return for the year immediately preceding the petition for which a return was filed.25 One day before the first scheduled meeting of creditors, the debtor in a Chapter 13 case is required to have filed the previous four years of required tax returns with all taxing authorities.26 Failure to comply with the new tax-return-filing duties prompts dismissal of the Chapter 13 case.27 If the debtor can delay filing until prepetition tax return issues are resolved, the period between the filing and confirmation will be much simplified and less likely to be characterized by expensive motions to convert or dismiss.
Changes to the exemption rules by BAPCPA may influence the timing of a Chapter 13 filing. How long has the debtor lived in the current state? If less than 730 days, the new domiciliary rules in BAPCPA may apply the exemption law of the state in which the debtor lived for the greater part of the 180 days prior to 730 days before the petition.28 If the debtor is close to the magic 730-day threshold and the current state of residence is more favorable for exemption purposes, then delaying the Chapter 13 petition to allow 730 days of residency becomes a good strategy. Obviously, if that other state—the one the debtor lived in two years ago—has more favorable exemptions, filing immediately may be more favorable.
If the debtor has accumulated 730 days of residency in the current state, but prior to that two-year period the debtor lived in another state with more favorable exemptions, then perhaps the debtor should consider moving before filing a Chapter 13 petition. This will rarely be practical, but the discussion must take place before the petition fixes the counting periods.
There are other new exemption rules that count 1,215 days backward from the petition to determine the effect of property transfers on homestead exemptions.29 Delaying the filing of a Chapter 13 petition to allow 1,215 days to pass after the debtor acquired an interest in property that may be exempt could be advantageous.
New nondischargeable debts in Chapter 13 cases could also influence the timing of a filing decision. As amended by BAPCPA, the exceptions to discharge in a Chapter 13 case now include the luxury goods and cash advances presumptions of fraud in § 523(a)(2)(C).30 The time periods for counting the luxury goods presumption and the cash advance presumption were shortened by BAPCPA to 90 days and 70 days before the petition. A Chapter 13 debtor who has been liberally using credit cards may need to delay filing the petition to avoid presumptively nondischargeable debt. Counsel will have to get the most recent credit card statements from the prospective debtor and do the math to determine whether and how long a delay is necessary to avoid the presumptions.
Potential Chapter 13 debtors should be questioned by counsel to determine whether a motor vehicle was acquired for personal use within 910 days. BAPCPA amendments to § 1325(a) give special treatment to purchase money interests secured by a car acquired within 910 days of the petition.31 The same special treatment is applied to a purchase money security interest in “any other thing of value” if the debt was incurred within a year of the petition.32 If the debtor incurred a significant debt within the previous year that is secured by anything of value or bought a car within 910 days, a delay in the filing of the Chapter 13 petition might allow that year to expire or the 910 days to pass. The debtor will then be able to manage the secured claim more aggressively through the Chapter 13 plan.
For Chapter 13 debtors engaged in business33 the new administrative expense in § 503(b)(9) may be relevant to the timing of the petition. BAPCPA defined a new administrative expense for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”34 Counsel should question a potential debtor engaged in business about inventory deliveries and the like to determine whether administrative expenses can be avoided by a brief delay in filing the petition.35
1 See 11 U.S.C. § 362(b)(24), discussed in § 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
2 See §§ 38.1 [ When to File Petition ] § 37.2 When to File Petition and 130.1 [ Prepetition Defaults ] § 82.1 Prepetition Defaults—When is Property “Sold” at Foreclosure?.
3 See 11 U.S.C. § 1328(f)(1), discussed in § 543.1 [ New Limitations on Successive Discharges ] § 156.2 Limitations on Successive Discharges.
4 See 11 U.S.C. § 1328(f)(2), discussed in § 543.1 [ New Limitations on Successive Discharges ] § 156.2 Limitations on Successive Discharges.
5 11 U.S.C. § 362(c)(3)(A), discussed in § 432.1 [ When Does § 362(c)(3) Apply? ] § 60.1 When Does § 362(c)(3) Apply?.
6 See 11 U.S.C. § 362(c)(4)(A), discussed in § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1 When Does § 362(c)(4) Apply?.
7 See 11 U.S.C. § 109(h)(1), discussed in § 18.1 In General.
8 See 11 U.S.C. § 109(h)(2) and (h)(4), discussed in §§ 369.10 [ In General ] § 21.1 In General–369.13 [ 11 U.S.C. § 109(h)(4): Incapacity, Disability or Active Military Duty ] § 21.4 11 U.S.C. § 109(h)(4): Incapacity, Disability or Active Military Duty.
10 See § 369.3 [ Timing of Briefing ] § 19.2 Timing of Briefing.
12 See 11 U.S.C. § 362(b)(22) & (l), discussed in § 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
13 See 11 U.S.C. § 362(l), discussed in §§ 382.1 [ Certification and Rent Deposit ] § 36.35 Certification About Eviction Judgment and Rent Deposit and 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
14 Both before and after BAPCPA, a judgment for possession of residential property does not always preclude a Chapter 13 debtor from assuming the lease and curing defaults through the Chapter 13 plan. See §§ 172.1 [ Debtor Can Assume, Assign or Reject Executory Contracts ] § 102.1 Debtor Can Assume, Assign or Reject Executory Contracts and 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA.
15 See 11 U.S.C. § 1306, discussed in § 403.1 [ Property of the Chapter 13 Estate—New Ins and Outs ] § 46.2 Property of the Chapter 13 Estate—Changes by BAPCPA.
16 See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19 Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
17 See 11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
18 See 11 U.S.C. § 1325(b)(3), discussed in §§ 466.1 [ In General ] § 92.1 In General and 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4 Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).
19 See 11 U.S.C. § 1325(b)(4), discussed in § 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.
20 See 11 U.S.C. § 1325(b)(4), discussed in § 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation. See also 11 U.S.C. § 1322(d), discussed in § 500.1 [ Length of Plan ] § 112.2 Length of Plan after BAPCPA.
21 See 11 U.S.C. § 1325(b)(2) and (3), discussed in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues–494.1 [ Projected Disposable Income ] § 101.1 What Do Unsecured Creditors Get?.
22 See §§ 389.1 [ New Tax Return Duties—In General ] § 42.4 Tax Return Duties—In General–393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8 Consequences of Failure to File or Provide Tax Returns and 499.1 [ All Tax Returns Must Be Filed ] § 113.4 All Tax Returns Must Be Filed.
23 See 11 U.S.C. §§ 1328(a)(2) and 523(a)(1)(B), discussed in § 548.1 [ Taxes ] § 159.1 Taxes.
24 See § 98.1 [ Plan Must Provide Full Payment ] § 73.1 Plan Must Provide Full Payment.
25 See 11 U.S.C. § 521(e), discussed in § 390.1 [ Tax Return Duties Seven Days before First Scheduled Meeting of Creditors ] § 42.5 Tax Return Duties Seven Days before First Scheduled Meeting of Creditors.
26 See 11 U.S.C. § 1308, 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.
27 See 11 U.S.C. § 1307(e), discussed in § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8 Consequences of Failure to File or Provide Tax Returns.
28 See 11 U.S.C. § 522(b)(3), discussed in § 406.1 [ New Domicile Rules ] § 48.6 Domicile Rules after BAPCPA.
29 See 11 U.S.C. § 522(p), discussed in § 407.1 [ New Exemptions and New Exemption Limitations ] § 48.3 Exemptions and Exemption Limitations Added by BAPCPA.
30 See 11 U.S.C. §§ 523(a)(2)(C)(i) and 1328(a)(2), discussed in § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2 False Representations and Fraud: § 523(a)(2).
31 See hanging sentence at the end of 11 U.S.C. § 1325(a), discussed in § 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
32 See hanging sentence at the end of 11 U.S.C. § 1325(a), discussed in § 451.1 [ In General: Modification Without § 506 ] § 75.1 In General: Modification Without § 506.
33 See §§ 57.1 [ Operating a Chapter 13 Debtor Engaged in Business ] § 52.1 Operating a Chapter 13 Debtor Engaged in Business and 57.2 [ Additional Filing and Reporting Requirements ] § 52.2 Additional Filing and Reporting Requirements.
34 11 U.S.C. § 503(b)(9).
35 See also 11 U.S.C. § 546(c), amended by BAPCPA to enlarge the reclamation rights of some sellers of goods.