Max Gardner’s Top Reasons to File a Chapter 13
Before Filing a Chapter 7
1. You can file a 13 for the Husband or the Wife. If the
single-debtor case runs into viability problems, then you
can always file a new Chapter 13 case for the non-filing
spouse. And, during the single-debtor case the non-filing
spouse is protected by the 1301 stay. This strategy allows
you to avoid the multiple-filing limitations on the
automatic stay plus the 109(g) problems.
2. You control all of the consumer claims in the Chapter
13. The debtor has standing to file Adversary Proceedings
on all pre-petition claims; to object to improper proof of
claims; to pursue all claims arising during the case such
as automatic stay violations; and to have a venue for
filing all dischargeability proceedings.
3. Almost all of the adversary proceedings provide for
fee-shifting statues that require the creditor to pay your
legal fees.
4. The Debtor Educational Course can be completed before
the final plan payment versus within 45 days of the first
date for the 341 meeting.
5. If the Debtor wants to keep a car, then the Debtor can
file a Chapter 13 and avoid all of the Chapter 7 problems
with redemption and ipso factor clauses if the Debtor seeks
to ride-through under a keep and pay approach. Also, if the
debtor determines that the Chapter 13 is beyond his or her
means, the case can be converted to Chapter 7 and the debt
canceled. This is not the case when the debtor has signed a
Reaffirmation Agreement.
6. The dischargeability bar dates for Adversary Proceedings
(which must be filed in the Chapter 13 case) transfers over
to the Chapter 7. So, if the AP is not filed within 60 days
of the first 341 date in the Chapter 13 case it will be
barred in the converted 7 case.
7. You can now do a Chapter 13 with a “0” percent pay-back
to the unsecured creditors. As a result, the Chapter 13
plan can be used to pay the Trustee, the Legal fees and the
secured debts for the property the debtor really wants to
keep. Why should an attorney do a Chapter 7 and spend 12
months trying to collect the Chapter 7 legal fee when the
Chapter 13 Trustee will do all of this collecting and
accounting for free.
8. If you convert a Chapter 13 case to Chapter 7, there is
no Means Test. The Means Test only applies to a case filed
“under Chapter 7.” 707(b)(3)(“filed by an individual debtor
under this chapter whose debts are primarily consumer
debts”). And, 348(b) does not mention 707 as a Section that
applies when your convert from 13 to 7.
9. If you convert a Chapter 13 case to Chapter 7, then the
duty of the attorney to perform a “reasonable
investigation” and to “certify” that the information on the
schedules is “not incorrect” does not arise since these
obligations only apply to a case filed “under Chapter 7” of
the Code. 707(b)(3)(C) and (D). And, none of these new
attorney liability rules apply to a Chapter 13 case at all.
10. You completely avoid the concern about liability when
you sign-off on a debtor Reaffirmation Agreement. And, you
avoid all of the automatic stay termination rules and
possible turnover actions in a Chapter 7 if the debtor does
not reaffirm or redeem.
11. You are dealing with a Chapter 13 Trustee who really
wants your business rather than a Chapter 7 Trustee who
hates all of the new paper-work.
12. You avoid less scrutiny by the United States Trustee
because you are doing exactly what Congress said should be
done-file for Chapter
13. You retain the ability in most jurisdictions to modify
the plan as necessary to abandon secured collateral and
reduce the plan payments if appropriate. You really have to
read 1329(a)(1), (a)(2) and (a)(3) and 1329(c) to realize
how big a loophole this really is. The (a)(1) thru (a)(3)
Sections allow a plan to be modified for cause by either
increasing or reducing the amount of payments on claims to
a particular class or by extending or reducing the time for
such payments. There is no reference in these sections to
the Disposable Income Test or the Applicable Commitment
Period. 1329(c) then provides that "a plan modified under
this section may not provide for payments over a period
that expires after the [Applicable Commitment Period] after
the time that the first payment under the original
confirmed plan was due, unless the court, for cause,
approves a longer period, but the court may not approve a
period that expires after five years after such date." I
think this last section means that for a BMFI debtor the
court can extend the term of the plan from 36 to 60 months
but in no event may the plan be extended to more than 60
months. This Section does not otherwise limit the right to
reduce the payments to the unsecured creditors.
14. The legal fees for Chapter 13 case are generally 3 to 4
times the fees for Chapter 7 cases.
15. The opportunity for additional non-base fees in Chapter
13 cases is 20 times the rate in Chapter 7 cases.
16. Chapter 13 provides the debtor with the ability to
repay non-dischargeable taxes.
17. Chapter 13 provides the debtor with a greater
opportunity to protect exempt assets from DSO claims. It is
anticipated that many Chapter 7 Trustees will pursue such
claims as a source of fees and commissions.
18. The automatic stay in Chapter 13 is of longer duration
than the Chapter 7 stay and provides the debtor with a
greater opportunity to reorganize his or her affairs.
19. With all of the new front-end fees (credit counseling,
asset and credit checks, etc) and the enhanced filing fees
($189.00 to $274.), the ability to offer a consumer
immediate protection with all of your fees in the plan is a
guaranteed business generation device.
20. If you start off with a Chapter 13 case and then
convert to Chapter 7, you can file another Chapter 13
within 2 years to stop a foreclosure or to deal with
non-discharge priority claims. Although there is no
discharge, you still get the full protection of the
automatic stay.
21. You can cure mortgage arrears in a Chapter 13 plan and
if you do then you have a new cause of action for
misapplication of payments or improper fees and charges
against the mortgage servicers upon discharge per 524(i).
Since there is no ability for the mortgage servicers to
comply with this new statutory mandate, you will have a new
post-discharge cause of action in every Chapter 13 case
with a residential mortgage.
22. You can still cram down non-910 claims, non-PMSI
claims, and PMSI claims that are older than 1 year (other
than a motor vehicle), and a vehicle purchased for use by
someone other than the debtor.
23. You can reverse the 910 claims by filing a 13 for the
husband and cram down the car purchased for the wife and
then file a 13 for the wife and cram down the car purchased
for use by the husband.
24. No attorney fees for the pure 910 and 365 claims since
506 does not apply to these claims. 506 is the only basis
for the award of attorney fees to an over-secured creditor.
Also, there is no right to pre-confirmation interest on
these claims for the same reason.
25. The Till interest rate still applies to the 910 and 365
claims plus you can stretch out payments on a 365 claim to
60 months. And, in many jurisdictions the debtor has the
option of taking the Till rate or the contract rate,
whichever is less. So, you can still take a 0 interest 910
claim and pay back the contractual amount due over 60
months.
26. There is no automatic relief from the co-debtor stay of
1301 even in multiple filing cases.
27. Debts incurred to pay taxes are not discharged in a 7
but are discharged in a 13.
28. Willful and malicious injury to property not discharged
in a 7 but is subject to discharge in a 13.
29. Willful and malicious injury to a person is
dischargeable in a 13 but only if the state court action
has gone to judgment. So, you file the 13 before judgment.
30. Older taxes that were timely filed are dischargeable in
a 13.
31. Non-DSO obligations are still dischargeable in a 13. In
short, read this as obligations under a Property Settlement
Agreement that do not qualify for alimony.
32. You can separately classify non-dischargeable debt in a
13 and repay the debt in full with interest if the general
unsecured creditors receive 100% of filed and allowed
claims.
33. You could theoretically have a debtor in a Chapter 13
forever. The bar on refilling is from filing date to filing
date. So, as long as you carry each case for at least 2
years, you can dismiss and re-file against and again.
34. Child support income is not included in a 13, but is
included in a Chapter 7.
35. Little chance of any abuse in Chapter 13 since you get
to subtract all the secured payments that are contractually
due over a period of 60 months. If a mortgage is in
foreclosure when you file a Chapter 13, then under the law
in most states the full debt has been “accelerated” so you
divide the full debt plus all foreclosures fees and
expenses by 60.
36. You can use 363(a)(3) to reclaim personal property that
was repossessed pre-petition.
37. Chapter 13 allows you to make a mistake since you
always have the right to file a voluntary dismissal. Hank
Hildebrand refers to this as the “mulligan rule.”
38. You can continue to repay your pension loans. The loans
are no longer debts and are not even subject to the
automatic stay. And, the payments are not part of
disposable income.
39. Fixed and standard pension contributions are allowed to
continue and are not party of the debtor’s disposable
income.
40. Chapter 13 allows you to cure child support arrears, to
repay back taxes, and even deal with student loans.
41. Even in a second filing within 1 year of a prior
dismissal, the stay is still effective for more than 30
days as to “property of the estate.” And, if you have a
1306 plan then all pre and post-petition property would be
fully protected even if the stay was not extended as to the
debtor.
42. In a Chapter 13 case, the stay does not terminate “as
to the debtor” in a repeat filing with 1 year of a prior
dismissal unless some pre-filing action was taken with
respect to a debt or property securing the debtor before
the 2nd filing. 362(c)(3)(A).
43. You have the option to return collateral secured by a
910 or 365 claim to the creditor in full satisfaction of
the underlying debt.
44. The filing fee is $274.00 versus $299.99.
45. The Chapter 13 discharge provides more opportunities
for post-discharge litigation than the Chapter 7 discharge.
And, of equal importance, the Chapter 13 Trustee normally
has little interest in any of this litigation.
46. The so-called “Nine Traps and One Slap” attorney
liability provisions of BAPCPA do not apply to lawyers
representing debtors in Chapter 13 case.
47. The Chapter 13 attorney completely avoids the issue of
“certifying the ability of the debtor to repay” under a
Chapter 7 Reaffirmation Agreement. 524(k)(5).
48. You have the creative ability to draft a plan that
includes other terms and conditions not inconsistent with
what at best is a poorly drafted statute. And, if the
creditors do not object, then the plan is deemed accepted
as to them.
49. The Executive Office of the United States Trustee has
indicated that they do not monitor Chapter 13 cases but
leave this solely to the discretion of the Chapter 13
Trustees.