Cite as: Keith M. Lundin, Lundin On Chapter 13, § 8.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
It is common that individuals in need of debt relief come to counsel’s office with some prior bankruptcy experience. Recent studies indicate that approximately 30 percent of debtors have had at least one prior bankruptcy case.1 Chapter 13 is often the only meaningful bankruptcy relief available to an individual with a prior bankruptcy case or cases.
An individual debtor who received a discharge in a Chapter 7 or Chapter 11 case commenced within the past eight2 years is not eligible to again receive a discharge in a Chapter 7 or Chapter 11 case.3 Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),4 there was no similar bar to successive discharges in a Chapter 13 case. This made Chapter 13 an especially attractive bankruptcy alternative for a debtor who had a recent prior discharge under another chapter of the Code. It is still true that Chapter 13 (or Chapter 12) may be the only bankruptcy discharge available when the debtor was discharged in a Chapter 7 or 11 case commenced within eight years.
BAPCPA imposed new restrictions on successive bankruptcy discharges: Chapter 13 discharge is not available if the debtor received a discharge under Chapter 7, 11 or 12 in a case filed within four years; Chapter 13 discharge is not available if the debtor received a discharge under Chapter 13 in a case filed within two years.5 These new restrictions on successive discharges are not eligibility provisions—an individual debtor is eligible for Chapter 13 relief notwithstanding proximity to a prior bankruptcy that precludes discharge in the Chapter 13 case.6
There is significant debt relief available in Chapter 13 even though the debtor is prohibited to receive a discharge. Chapter 13 debtors routinely confirm plans notwithstanding a prior bankruptcy that bars discharge in the current case. A confirmed Chapter 13 plan provides broad debt relief for three to five years with or without formal discharge of debt. The plan does not need a discharge to rehabilitate a broken home mortgage by curing default and maintaining payments—with an order at the end of the case declaring the mortgage current.7 The plan can modify the terms of secured debts—changing payment schedules and interest rates to fit the debtor’s budget—ultimately paying lienholders in full on terms the debtor can afford.8 Though somewhat controversial, a confirmed Chapter 13 plan can strip off wholly unsecured liens on a debtor’s residence without regard to whether the debtor will receive a discharge at the completion of payments.9 A Chapter 13 plan can manage long-term debt—for example, a student loan—that perhaps survived discharge in a prior bankruptcy case and continues to bedevil the debtor.10
Aggressive debtors’ counsel have filed Chapter 13 cases within hours or days of a discharge in a Chapter 7 case, sometimes even before the prior case has been closed.11 Confirmation of a plan in a “Chapter 20” case often turns on the outcome of “good faith” objections to confirmation by creditors whose claims survived the Chapter 7 discharge.12 The courts have uniformly held that a recent bankruptcy discharge is not per se a barrier to Chapter 13 relief.13
There may be obstacles to Chapter 13 eligibility embedded in a prior bankruptcy case—a possibility debtor’s counsel should investigate before pulling the trigger on a new Chapter 13 case. Foremost, under 11 U.S.C. § 109(g), an individual is not eligible to be a debtor in any bankruptcy case for 180 days if (1) a prior bankruptcy case was dismissed for willful failure of the debtor to abide by orders of the court or to appear before the court in proper prosecution of the case; or (2) the debtor voluntarily dismissed a prior case following the filing of a request for relief from the automatic stay.14 An individual who has experienced a prior disabling dismissal must wait the 180-day period in § 109(g) to become eligible to refile. But, again, eligibility in this context is not discharge dependent—that the debtor received a discharge in a recent prior bankruptcy case or will not receive a discharge in any new bankruptcy case does not affect whether the debtor is eligible for Chapter 13 relief once the 180-day period in § 109(g) expires.
1 See Ed Flynn, Chapter 13 Revisited: Can It Help Solve the Judiciary’s Fiscal Problems, 32-Dec. Am. Bankr. Inst. J. 20 (2013) (citing http://www.uscourts.gov/statistics/table/all/bankruptcy-abuse-prevention-and-consumer-protection-act-bapcpa/2012/12/31.)
2 Six years in cases filed prior to October 17, 2005.
3 See 11 U.S.C. §§ 727(a)(8), 1141(d)(3)(C).
4 Pub. L. No. 109-8, 119 Stat. 23 (2005).
5 See 11 U.S.C. § 1328(f), as amended by Pub. L. No. 109-8, 119 Stat. 23 (2005). The counting of these time periods is controversial. See also § 156.2 Limitations on Successive Discharges.
7 See § 81.1 Overview: General Rules for Saving Debtor’s Home, § 82.1 Prepetition Defaults—When is Property “Sold” at Foreclosure?, § 82.2 Postpetition Defaults, § 82.3 Nonmonetary Defaults, § 82.4 Reasonable Time to Cure Defaults, § 83.1 In General: Rake and Contracts before October 22, 1994, § 83.2 Section 1322(e): Contracts after October 22, 1994, § 83.3 Rate of Interest to Cure Default: Contracts before October 22, 1994, § 83.4 Rate of Interest to Cure Default: Contracts after October 22, 1994, § 83.5 Undersecured Mortgage and Interest to Cure Default, § 83.6 Late Charges, Attorneys' Fees, Costs and Other Charges, § 84.1 In General, § 84.2 Calculating Plan Payments to Cure Default on Mortgages before October 22, 1994, § 84.3 Calculating Plan Payments to Cure Default on Mortgages after October 22, 1994, § 85.1 Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994, § 85.2 Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994, § 85.3 Prepetition Foreclosure Judgment: Curing Default, Payment in Full or Modification under § 1322(c)(2)?, § 85.4 Accelerating Payment of a Home Mortgage and § 85.6 Direct Payment of Mortgage or Payment by Trustee.
8 See § 74.11 The Power to Modify.
11 See § 22.1 Eligibility of a Simultaneous Filer, § 23.1 Eligibility of a Serial Filer: “Chapter 20” and Beyond and § 23.2 Eligibility of Repeat Filers after BAPCPA for eligibility of a debtor who is already in a bankruptcy case or has recently emerged from a prior bankruptcy case.
14 See 11 U.S.C. § 109(g)(1) and (g)(2), discussed in § 25.2 11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution and § 25.3 11 U.S.C. § 109(g)(2)—Voluntary Dismissal after Request for Relief from Stay.