Cite as: Keith M. Lundin, Lundin On Chapter 13, § 8.18, at ¶ ____, LundinOnChapter13.com (last visited __________).
Debtors who are eligible under several chapters should first consider Chapter 13 when there is significant likelihood of continuing financial instability.
Chapter 7 is suited for relief of catastrophic financial distress. When the debtor’s immediate financial problems are significant but not catastrophic, Chapter 13 is often an effective solution that does not forfeit the debtor’s right to convert to Chapter 7 or to later seek a Chapter 7 discharge. For example, a debtor with continuing medical problems can deal with accumulated debt in a Chapter 13 case without giving up the right to seek a Chapter 7 discharge when and if overwhelming problems are present. Postpetition claims in the Chapter 13 case become prepetition claims in the event of conversion from Chapter 13 to Chapter 7.1
A Chapter 13 discharge does not completely preclude discharge in a subsequent Chapter 7 case the way a Chapter 7 discharge precludes another Chapter 7 discharge for eight years under § 727(a)(9).2 After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),3 a Chapter 7 discharge bars discharge in a subsequent Chapter 13 case for four years (measured from filing to filing), but a Chapter 13 discharge bars discharge in a subsequent Chapter 13 case for only two years.4
Failing to consummate a Chapter 13 plan may result in conversion or dismissal, but it does not forfeit the debtor’s right to seek a discharge under another chapter. In cases filed before October 17, 2005, the 1994 amendments clarified that a Chapter 13 debtor could attempt and fail at a Chapter 13 case, ending in (a good-faith) conversion to Chapter 7, without being penalized by loss of payments to secured creditors.5 The BAPCPA amendments in 2005 provide that payments to secured claim holders in accordance with a Chapter 13 plan are applied to reduce the allowed amount of secured claims upon conversion to Chapter 11 or 12, but not at conversion to Chapter 7.6
1 See 11 U.S.C. § 348, discussed in § 142.5 On Postpetition Claims.
2 Compare the limit on discharge in a subsequent Chapter 7 case in 11 U.S.C. § 727(a)(9).
3 Pub. L. No. 109-8, 119 Stat. 23 (2005).
5 See 11 U.S.C. § 348(f), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-493, § 311, 108 Stat. 4106 (1994), discussed in § 145.2 In Cases Filed after October 22, 1994.
6 See 11 U.S.C. § 348(f), as amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), discussed in § 145.3 Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.