CHAPTER 13 BASICS.

By: John Gustafson, Chapter 13Trustee.

A. Chapter 13 Eligibility And Jurisdictional Issues.

1. Why Are Chapter 13s Filed?

Chapter 13 is used primarily for debtors who have: 1) fallen behind on their

mortgages; 2) sought out an attorney at a time when their debts are still manageable; 3) a

significant debt which would not be discharged in a Chapter 7, but would be discharged in

a Chapter 13; 4) filed/received a discharge in a Chapter 7 more than four years ago but less

than eight years ago; or, 5) an aversion to filing "bankruptcy".

The biggest incentive to file a Chapter 13 is that it allows debtors to retain their

property while making payments over time under the terms of their Chapter 13 Plan. This

advantage is most often used when there is a problem with a mortgage arrearage and an

imminent foreclosure. Often, lenders will not accept payments, or work out a payment

plan, after a foreclosure is commenced. Filing a Chapter 13 can force the mortgage lender

to accept payments on the arrearage over time, and the automatic stay stops the foreclosure.

Stopping a foreclosure is a primary goal in most Chapter 13 filings.

Even absent a foreclosure, where there is sufficient disposable income, and there is

equity in the debtor's residence, Chapter 13 can be the best and most comprehensive

solution for the debtor. In other situations, a client who really needs bankruptcy relief may

simply refuse to file "bankruptcy" for moral or religious reasons. In cases where a

bankruptcy is needed but the client refuses to consider a Chapter 7, a "court supervised

repayment plan" may be something this type of client can live with, even if Chapter 13 is

not otherwise ideally suited to their situation.

 BAPCPA has added a new reason to file Chapter 13 – above the median debtors

with primarily consumer debts who can repay as little as $166.67 per month, or 25% of

their unsecured debts, under the “means test” will be presumptively ineligible for relief

under Chapter 7.

In addition, the language of 11 U.S.C. §707(b) has changed the requirement for

dismissal of a Chapter 7 case from the case being a “substantial abuse” of the provisions of

Chapter 7, to simply an “abuse” of those provisions. This lower standard applies to debtors

with primarily consumer debts who are below the median income level, as well as those

with income above the median.

Recently, the Office of the United States Trustee has begun bringing motions to

dismiss Chapter 7 cases under Section 707(b)(3) in cases where no presumption of abuse

exists under Section 707(b)(1) and the B22A “Means Test”. See generally, In re Haar, 360

B.R. 759 (Bankr. N.D. Ohio 2007); In re Mestemaker, 359 B.R. 849; 2007 (Bankr. N.D.

Ohio 2007).

2. Section 109(a) And Venue.

Section 109(a) is applicable to all bankruptcy cases:

(a) Notwithstanding any other provision of this section, only a person that resides or has a
domicile, a place of business, or property in the United States, or a municipality, may be a
debtor under this title.

Thus, to be eligible for bankruptcy protection under Chapter 13, an individual must meet

one of the requirements set forth in 11 U.S.C. §109(a).

For venue purposes, under 28 U.S.C. Section 1408(1), a bankruptcy case can be commenced in

the district in which the “domicile, residence, principal place of business in the United States, or

principal assets in the United States, of the person or entity that is the subject of such case have
been located for the one hundred and eighty days immediately preceding such commencement,

or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence,

or principal place of business, in the United States, or principal assets in the United States, of

such person were located in any other district”….

3. Eligibility Under Section 109(e)

The first part of §109(e)’s eligibility requirements for Chapter 13 states that the debtor

must be an “individual”. See, Section 109(e). The Bankruptcy Code defines the term “person”

as an “individual, partnership, and corporation”. See, 11 U.S.C. §101(41). Inherent in this

definition is the idea that an “individual” is a flesh and blood human being, and not a business

entity. Accordingly, only real human beings are eligible to file a bankruptcy under Chapter 13.

Section 109(e) sets forth additional specific eligibility requirements for relief under

Chapter 13, including a limitation on the amount of non-contingent, liquidated secured and

unsecured debt that a debtor (or joint debtors) can have at the time of the filing of the petition.

These amounts are indexed to inflation [11 U.S.C. §104(b)(1)], and were most recently raised on

April 1, 2007. Thus, 11 U.S.C. §109(e) currently provides, in pertinent part:

(e) Only an individual with regular income that owes, on the date of the filing of the
petition, noncontingent, liquidated, unsecured debts of less than $336,900 and
noncontingent, liquidated, secured debts of less than $1,010,650, or an individual with
regular income and such individual’s spouse, except a stockbroker or a commodity
broker, that owe, on the date of the filing of the petition, noncontingent, liquidated,
unsecured debts that aggregate less than $336,900 and noncontingent, liquidated, secured
debts of less than $1,010,650 may be a debtor under chapter 13 of this title.

Chapter 13 jurisdictional issues arise most often with the unsecured debt limits.
In Matter of Pearson, 773 F.2d 751, 756 (6th Cir. 1985), the Sixth Circuit Court of Appeals
stated: “. . . a court should rely primarily upon the debtor's schedules checking only to see if the
schedules were made in good faith on the theory that section 109(e) considers debts as they exist at
the time of filing, not after a hearing. We adhere to this construction as more harmonious with
congressional intent and with the statutory scheme. First, section 109(e) provides that the eligibility
computation is based on the date of filing the petition; it states nothing about computing eligibility
after a hearing on the merits of the claims.” See also, In re Holland, 293 B.R. 425, 428-429 (Bankr.
N.D. Ohio 2002).
The Ninth Circuit adopted the Pearson test, and stated it to be: “We now simply and
explicitly state the rule for determining Chapter 13 eligibility under §109(e) to be that eligibility
should normally be determined by the debtor’s originally filed schedules, checking only to see if the
schedules were made in good faith.” In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001).
While the debtors are, to a large extent, bound by what they have filed with the court,
Chapter 13 Trustees can also look at the reality of the debts, not just what the debtors claim in their
schedules.
For example, just asserting that a debt is “contingent” may not defeat a Chapter 13 Trustee’s
motion to dismiss based on the jurisdictional dollar limits. "For purposes of §109(e), a contingent
debt may be defined as "one for which the debtor will be called upon to pay only upon the
occurrence of happening of an extrinsic event which will trigger the liability of the debtor to the
alleged creditor." In re Martz, 293 B.R. 490 (Bankr. N.D. Ohio 2002), citing, In re Fostvedt, 823
F.2d 305, 206 (9th Cir. 1987); see also, In re Mazzeo, 131 F.3d 295, 302-305 (2nd Cir. 1997). A
debt is not rendered contingent merely because it is a jointly owed debt. In re Martz, 293 B.R. 409,
411 (Bankr. N.D. Ohio 2002).
In addition, without regard to the nature of the underlying cause of action, if a debt has been
reduced to a pre-petition judgment against the debtor, that debt is noncontingent and is counted
toward the debt limit. See, In re Hammers, 988 F.2d 32 (5th Cir. 1993)(tax court judgment fixes
claim); In re Miloszar, 238 B.R. 266 (D.N.J. 1999)(default judgment is a noncontingent debt); In re
Monroe, 282 B.R. 219, 223 (Bankr. D. Ariz. 2002); In re Snell, 227 B.R. 127 (Bankr. S.D. Ohio
1998); In re Mannor, 175 B.R. 639 ( Bankr. E.D. Pa. Mich. 1994)(pre-petition judgment against
debtor precluded argument that debt was owed by a corporation and should be excluded).
Similarly, a security interest in the assets of another entity (other than the debtor) does not
make the debt secured as to the debtor. See, In re Maxfield, 159 B.R. 587 (Bankr. D. Idaho 1993);
In re Lane, 215 B.R. 810 (Bankr. E.D. Va. 1997).
 Under bankruptcy case law, guaranteed corporate debt that is in default must be included as
unsecured debt in calculating the guarantor’s eligibility for Chapter 13. See, In re Tabor, 232 B.R.
85, 90 (Bankr. N.D. Ohio 1999); In re Robertson, 105 B.R. 504, 508 (Bankr. D. Minn. 1989); In re
Pulliam, 90 B.R. 241 (Bktcy. N.D. Tex. 1988)(corporate debt guaranteed at the date of filing is
noncontingent and must be included in the calculation of the monetary limitations); In re Williams,
51 B.R. 249 (Bktcy. S.D. Ind. 1984); DeKalb Bank v. Flaherty, 10 B.R. 118 (N.D. Ill. 1981); In re
Wilson, 9 B.R. 723 (Bktcy. E.D.N.Y. 1981).
Similarly, “Unsecured claims for taxes, claims by employees of a debtor engaged in
business, and administrative expenses are examples of priority claims that would be counted as
unsecured debts. Priority tax claims typically are not contingent for purposes of §109(e) because,
with respect to prepetition years, all of the acts and events necessary to trigger the debtor’s liability
have occurred. Most reported decisions also find that prepetition tax debts are liquidated for
elegibilty purposes in the amount claimed by the IRS.” Keith M. Lundin, 1 Chapter 13 Bankruptcy,
3rd Ed. At 17-5 to 17-6.
Note that if a debtor has debts greater than those allowed under Chapter 13, Chapter 11 is
available.

4. Filings Prohibited Under Section 109(g).

Section 109(g) prohibits any debtor from filing if they have been a debtor in a bankruptcy
case in the previous 180 days and: 1) the case was dismissed "for cause"; or 2) the debtor
voluntarily dismissed the bankruptcy case after a motion for relief from stay was filed. This
provision is intended to prevent serial filings, and provides a window for creditors to complete
liquidation of their security before the debtor can refile a bankruptcy case.
B. Procedural Matters.
1. Debt Counseling Requirement.
Because Section 109 is captioned “Who may be a debtor”, and it appears that
§109(h) actually sets up debt counseling as a jurisdictional requirement for debtors.
Under § 521(b) and Interim Bankruptcy Rule 1007(b)(3) and (c), either a certificate
from the approved credit counseling agency attesting to the fact that the debtor has received
the required counseling, a certification under §109(h)(3), or a request for a determination
under § 109(h)(4) must be filed with an individual’s voluntary petition.

The case law indicates that it will be very difficult to meet the requirements to obtain an
extension of time, allowing the debtor to receive the credit counseling post-petition. The courts
are emphasizing that each element of the statute must be met, in order to obtain an extension.

2. Payment Advices.

In a Chapter 13 bankruptcy, a debtor must file with the Court –

(6) Copies of all “pay advices” (pay stubs) that the debtor has received within 60 days before

the date of filing;

If a debtor fails to file the pay advices within 45 days (plus up to an additional 45 days if

granted by the Court) after the date of the filing of the petition, the case is “automatically

dismissed” on the 46th day under Section 521(a)(1). In reality, the dismissal is not “automatic”

after 45 days, but cases where no payment advices have been filed (or an affidavit that the debtor

has not received any payment advices within the previous 60 days) will be dismissed upon a

creditor’s motion, or at some point, by the court.

3. Tax Returns:

The better practice is to be sure that, prior to filing their Chapter 13 case, your debtors

have filed all tax returns for the last four years. [§1308(a)] But, unless the Trustee requests

additional tax returns (or the Judge orders the debtor to give the return to the Trustee) it is just

the most recent filed federal tax return that must be provided to the Chapter 13 Trustee. The

statute provides that seven (7) days before the date first set for the Section 341 meeting of

creditors, the debtor must provide to the trustee a copy of the most recent filed Federal income

tax return (or transcript of the return). See, Section 521(e)(2)(A)(i). If the debtor fails to comply

with this requirement, the case “shall” be dismissed. See, Section 521(e)(2)(B).
 When the tax return is provided to the Office of the Chapter 13 Trustee, we do an entry

on the case docket, showing that the required federal tax return has been provided.

In addition, Section 1308(a) requires a Chapter 13 debtor to have all tax returns filed at

least one day before the first date set for the first meeting of creditors. However, this deadline

can be extended (apparently by the Trustee) for a maximum of 120 days after the first meeting

date. An additional 30 day extension, beyond the 120 days extension, requires an evidenciary

hearing before the Bankruptcy Court. After that, it appears that the Bankruptcy Code requires

the case to be dismissed.

4. Various Deadlines

In a Chapter 13 bankruptcy, a debtor’s attorney, must complete, have the debtor sign

(where necessary) and file with the Court –

1) The Petition and a mailing matrix (list of all creditors), with the filing fee or an

Application to Pay Filing Fee in Installments, with an Order granting the Motion;

2) A certificate of the attorney stating that the §342(b) notice has been delivered to the

debtor. (Exhibit B to the Petition.)

3) Schedules of assets and liabilities;

4) Schedules of current income and current expenditures (Schedules I & J), including a

response, if required, to the question whether a change in income of more than 10% is

anticipated in the year following the filing of Schedule I;

5) The Statement of Financial Affairs;

6) Copies of all “pay advices” (paystubs) that the debtor has received within 60 days before

the date of filing;

7) The Chapter 13 Statement of Current Monthly Income, completing at least Part I (Report

of Income) and Part II (Calculation of §1325(b)(4) Commitment Period), and the entire form if

the Debtor(s) is “over the median”;

If a debtor fails to file all of the required information (listed above in italics) within 45

days (plus up to an additional 45 days if granted by the Court) after the date of the filing of the

petition, the case is “automatically dismissed” on the 46th day under Section 521(a)(1).

8) A Declaration Re: Electronic Filing of Documents and Statement of Social Security

Number;

9) A certificate of credit counseling from an approved credit counseling agency and a debt

repayment plan (if any);

10) A Chapter 13 Plan;

11) A record of any interest that the debtor has in an IRC 529(b)(1) or 530(b)(1) education

individual retirement account or qualified State tuition program;

5. Additional Documents

a. Insurance Information To Secured Creditors.

Within 60 days of the filing of the petition, a Chapter 13 debtor must provide to lessors of

personal property, or purchase money secured creditors, reasonable evidence of insurance on the

property that the debtor retains. The debtor must continue to provide proof of such insurance for

as long as the debtor retains possession of the property. See, Section 1326(a)(4).

b. Debt Relief Agency Requirements:

A bankruptcy attorney must provide to any “Assisted Person” (a potential debtor who is

given legal advice) who has received and counsel has retained a signed copy of: A Section

342(b) notice, with the Section 527(a) supplement. Although §342(b) (BAPCPA) says that the

notice shall be given by the clerk before the bankruptcy is filed (!), §527(a) states that a “Debt
 Relief Agency” (DRA) must provide the §342(b) bankruptcy notice, with the supplemental

information required by §527(a), must be given to the “Assisted Person”, “no later than 3

business days after the first date on which a debt relief agency first offers to provide any

bankruptcy assistance services to an assisted person”.

At the same time the Section 527(a)(1) notice is given, the Section 527(b) statement must

also be provided to the “assisted person”. The text of the §527(b) notice is set forth in that

subsection.

6. Domestic Support Obligation Requirement.

If the debtor has a domestic support obligation – which is broadly defined in Section

101(14)(A), the debtor must provide the Chapter 13 Trustee with the address and telephone

number of the holder of the claim (usually, the custodial parent), and the child support

enforcement agency that the claim is paid through. Because of what appears to be poor

draftsmanship, we need the information to notify the child support enforcement agency

whenever there is a “domestic support obligation”, which includes claims for alimony only.

C. The Chapter 13 Plan.

A Chapter 13 Plan serves two related purposes: First, it provides notice to the

creditors in the bankruptcy case of what the debtor(s) are proposing to do in the Chapter

13. Second, the Chapter 13 Plan is a set of directions to the Chapter 13 Trustee for

payment of the various claims.

1. Contents of the Plan.

Section 1322 sets forth the contents of a Chapter 13 Plan:

(a) The plan shall—

(1) provide for the submission of all or such portion of future earnings or other future income
of the debtor to the supervision and control of the trustee as is necessary for the execution
of the plan;

(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority
under section 507 of this title, unless the holder of a particular claim agrees to a different
treatment of such claim;

(3) if the plan classifies claims, provide the same treatment for each claim within a particular
class; and

(4) notwithstanding any other provision of this section, a plan may provide for less than full
payment of all amounts owed for a claim entitled to priority under section 507(a)(1)(B)
only if the plan provides that all of the debtor's projected disposable income for a 5-year
period beginning on the date that the first payment is due under the plan will be applied to
make payments under the plan.

Those are the mandatory provisions of §1322. Section 1322 also has permissive

provisions that you may want to include in your Chapter 13 Plan, including (b)(1) a

separate classification (and a different treatment) of consumer debts with a cosigner; (b)(2)

modification of the rights of the holders of secured claims, other than a creditor secured

only by a security interest in real property that is the debtor's principal residence; (b)(3) a

provision for the curing or waiver of any default; (b)(4) front loading unsecured claim to be

made concurrently with payments on any other secured claim; (b)(5) curing defaults,

including defaults on mortgages, within a reasonable time; (b)(6) payment of any allowed

post-petition claim(s); (b)(7) assumption, rejection or assignment of executory contracts;

(b)(8) provide for payment to be made from a sale of property of the estate or property of

the debtor; (b)(9) vesting of property of the estate upon confirmation of the Plan, or at a

later time, in the Debtor, or any other entity; and (b)(10) provide for the payment of interest

accruing after the date of the filing of the petition on unsecured claims that are

nondischargeable under section 1328(a), except that such interest may be paid only to the

extent that the debtor has disposable income available to pay such interest after making
 provision for full payment of all allowed claims; and, (b)(11) include any other appropriate

provision not inconsistent with this title.

2. Tests The Plan Must Meet.

Section 1325 provides certain tests that must be met for a Chapter 13 Plan to be

confirmed. Specifically, the most commonly contested requirements are of good faith

[§1325(a)(3)]; the best interest of creditors/a.k.a. liquidation test [§1325(a)(4)] - are the

creditors receiving as much or more than they would receive in a Chapter 7 case; and

feasibility [§1325(a)(6)] - usually an issue of whether the Debtor(s) can make the required

payments. Section 1325(b)(1)(B) sets forth the disposable income test, which is further

defined in §1325(b)(2).

There are also some new requirements implemented by BAPCPA. First, the

treatment of secured creditors has changed:

(5) with respect to each allowed secured claim provided for by the plan—

(A) the holder of such claim has accepted the plan;

(B)(i) the plan provides that--

(I) the holder of such claim retain the lien securing such claim until the earlier of--
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan,
such lien shall also be retained by such holder to the extent recognized by applicable
nonbankruptcy law;

(ii) the value, as of the effective date of the plan, of property to be distributed under the
plan on account of such claim is not less than the allowed amount of such claim; and

(iii) if--
(I) property to be distributed pursuant to this subsection is in the form of periodic
payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments
shall not be less than an amount sufficient to provide to the holder of such claim adequate
protection during the period of the plan; or
 (C) the debtor surrenders the property securing such claim to such holder;

The “good faith” requirement has also been expanded (to conform with the case

law) in §1328(a)(7) – permitting confirmation of the Chapter 13 Plan only if “the action of

the debtor in filing the petition was in good faith”. Section §1328(a)(3) has always

required that the Plan have been proposed in good faith, and court decisions have held that

the filing must have been in good faith as well.

Debtors are now also required to have paid all amounts that are required to be paid

under a domestic support obligation and that first become payable after the date of the

filing of the petition if the debtor is required by a judicial or administrative order, or by

statute, to pay such domestic support obligation. §1328(a)(8). DSO obligations are

discussed in more detail in the Family Law section of this outline, Section V.

Finally, Section 1328(a)(9) permits confirmation of a Chapter 13 Plan only if all

applicable Federal, State, and local tax returns have been filed as required by Section 1308.

3. The Benefit Of A 70% Plan.

Under Section 727(a)(9), the Court shall grant a discharge in a Chapter 7 case, unless:

(a)(9) the debtor has been granted a discharge under Sections * * * 1328 of this title * *
* in a case commenced within six years before the date of the filing of the petition, unless
payments under the plan in such case totalled at least –

(A) 100 percent of the allowed secured claims in such case; or

(B)(i) 70 percent of such claims; and

(ii) the plan was proposed by the debtor in good faith and was the
debtor's best effort;

So, if a debtor completes a less than 70% Chapter 13 Plan, they cannot receive a

Chapter 7 discharge for six years from the date of the filing of the Chapter 13.
 4. Typical Chapter 13 Plan Provisions - Giving Direction To The
Trustee.

a. Real Estate.

Usually, Chapter 13 debtors are behind on their mortgages. In this jurisdiction, the

Chapter 13 trustee permits, but does not require "conduit" mortgage payments. In other

words, Chapter 13 debtors are not required to make their regular monthly mortgage

payments through the Chapter 13 Trustee's office.

Debtors are, however, required to have all payments toward curing the mortgage

arrearage made through the Chapter 13 trustee's office - or "inside the Plan" as it is often

referred to by practitioners.

The most common way to deal with mortgage debt in a Chapter 13 Plan is to

provide that "the current monthly mortgage payments will be paid by the Debtor(s) directly,

"outside" the Plan, with any arrearages to be paid by the Chapter 13 Trustee, "inside” the

Plan - or language to that effect. This treatment of mortgage debt can be used on first,

second, third, etc. mortgages, if the debtor so desires.

Debtors may also elect to have the Chapter 13 Trustee make the regular monthly

mortgage payment through the Plan, as well as curing any mortgage arrearage. The reason

this is not done (at least in jurisdictions where it is not required by the Chapter 13 trustee or

the local bankruptcy court) is cost. However, after BAPCPA, that may be less of an issue

in many cases.

The statutory Chapter 13 trustee fee would apply on top of the regular monthly

mortgage payment, adding approximately 10% to the cost of direct payment. But, if that

only serves to reduce, to some extent, the amount going to unsecured creditors, debtors

may prefer to make their payment to the Chapter 13 Trustee’s office, if for no other reason
than the trustee’s statements that payments were, in fact, made to the mortgage company

often carries more weight than the same testimony by a debtor.

It is also possible to include a provision that real estate is being surrendered "in full

satisfaction" of the mortgage debt. If the Chapter 13 Plan with that provision is confirmed,

it may prevent the filing of an unsecured claim. However, an objection to such a provision

in a Chapter 13 Plan by the mortgage lender would almost certainly prevent confirmation.

With the possible exception of “910 car loans”, creditors are entitled to file unsecured

deficiency claims. A Chapter 13 debtor cannot force an objecting creditor to accept

surrender of real estate in full satisfaction. Counsel should also be very sure that service of

all Chapter 13 Plans – no matter how minor the changes – are made on any mortgage

creditor who is going to receive property in full satisfaction, as courts are even more

concerned that all the niceties of due process were observed where surrender in full

satisfaction provisions are in issue. See, In re Tessier, 333 B.R. 174 (Bankr. D. Conn.

2005)(Notice that creditor received in connection with First Amended Plan, stating that the

vehicle would be returned in full satisfaction, was not sufficient for due process purposes to

preclude filing of deficiency claim where Second Amended Plan, with a similar but not

identical provision, was not served on the secured creditor.)

Finally, the Sixth Circuit has held that a wholly unsecured second or third mortgage

can be stripped off under §1322(b)(2), and paid as an unsecured creditor. See, In re Lane,

280 F.3d 663 (6th Cir. 2002). Mechanically, it appears that a wholly unsecured second or

third mortgage can be stripped off without an adversary proceeding – the bankruptcy court

in In re Hill, 304 B.R. 800 (Bankr. S.D. Ohio 2003) held that the Plan provision, with a

subsequent motion, was sufficient under the Bankruptcy Code to strip these unsecured
mortgages. However, the Hill court specifically declined to address the issue of whether a

Plan provision by itself was sufficient for purposes of due process, since that issue had not

been raised by the parties.

b. Motor Vehicles.

The two most common choices for payment of loans secured by motor vehicles in

Chapter 13 are: 1) current payments "outside the Plan”, with any arrearages in the Plan; or,

2) 100% "inside the Plan” (the entire obligation paid by the Trustee).

Prior to BAPCPA, motor vehicles loans that were “inside the Plan” were paid the

fair market value of the vehicle as a secured claim (with interest), and the balance was paid

as unsecured an unsecured claim (without interest). BAPCPA eliminated the ability to

force creditors to accept this option where the purchase money debt (secured by any

personal property, not just motor vehicles) was incurred within 910 days of filing, and the

vehicle is for personal (not business) use of the debtor. Where the loans were incurred

within 910 days of bankruptcy, bifurcation into secured and unsecured claims is no longer

permitted over a creditor’s objection.

Section 1325(a)(the “hanging paragraph” at the end of that subsection), states:

For purposes of paragraph (5), section 506 shall not apply to a
claim described in that paragraph if the creditor has a purchase money
security interest securing the debt that is the subject of the claim, the
debt was incurred within the 910-day preceding the date of the filing of
the petition, and the collateral for that debt consists of a motor vehicle
(as defined in section 30102 of title 49) acquired for the personal use of
the debtor, or if collateral for that debt consists of any other thing of
value, if the debt was incurred during the 1-year period preceding that
filing.

Note that the “910” restriction is much less sweeping than the prohibition that

prevents Chapter 13 debtors from modifying secured claims that are secured only by an

interest in the debtors primary residence. It appears that there are still two ways that “910
car loans” can be modified, even over a creditor’s objection: 1) the car payments can be

stretched out over the five year life of the Plan; and 2) the interest rate can be modified

under Till v. SCS Credit Corp., 541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (2004).

To the extent that the secured motor vehicle/personal property claim can be

bifurcated, BAPCPA now requires that the value of the item securing the allowed claim

must be determined based upon the property’s “replacement value”, as of the date of the

filing of the petition, without deduction for the expenses of marketing the property, or the

cost of sale. See, §506(a)(2).

However, the old practice of having Chapter 13 Plan provide that the secured

creditor’s lien would be released upon the completion of payments on the secured portion

of the claim is no longer permitted. A Chapter 13 Plan must provide that a secured creditor

retain its lien until the payment of the entire debt, or entry of the discharge. See,

§1325(a)(5)(B)(i).

Finally, the Plan can also provide for surrender of the vehicle in full satisfaction of

the debt. The case law on that issue is discussed more fully in Section II(G)(2) of this

program’s outline.

i. Adequate Protection And Equal Monthly Payments.

BAPCPA now requires the payment of adequate protection payments to certain

secured creditors prior to the confirmation of the Chapter 13 Plan.

Section 1326(a) provides:

(a)(1) Unless the court orders otherwise, the debtor shall commence making
payments not later than 30 days after the date of the filing of the plan or the order for relief,
whichever is earlier, in the amount—

(A) proposed by the plan to the trustee;

 (B) scheduled in a lease of personal property directly to the lessor for that portion of
the obligation that becomes due after the order for relief, reducing the payments under
subparagraph (A) by the amount so paid and providing the trustee with evidence of such
payment, including the amount and date of payment; and
(C) that provides adequate protection directly to a creditor holding an allowed claim
secured by personal property to the extent the claim is attributable to the purchase of such
property by the debtor for that portion of the obligation that becomes due after the order for
relief, reducing the payments under subparagraph (A) by the amount so paid and providing
the trustee with evidence of such payment, including the amount and date of payment.

(2) A payment made under paragraph (1)(A) shall be retained by the trustee until
confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute
any such payment in accordance with the plan as soon as is practicable. If a plan is not
confirmed, the trustee shall return any such payments not previously paid and not yet due
and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid
claim allowed under section 503(b).

(3) Subject to section 363, the court may, upon notice and a hearing, modify,
increase, or reduce the payments required under this subsection pending confirmation of a
plan.

Under this provision, a Chapter 13 debtor must commence direct payments to

secured creditors within 30 days after the filing of the petition. The amount to be paid must

be sufficient to provide the secured creditor with adequate protection of their security

interest. Some jurisdictions have presumptive formulas for calculating how much needs to

be paid as and for adequate protection. The Western Division of the Northern District of

Ohio does not have such a formula.

The amounts paid as adequate protection are deducted from the amount of the

monthly payment paid to the Trustee. This is illustrated in the Chapter 13 Plan example

that is attached as Exhibit 1.

Say the Plan proposes to pay the Chapter 13 Trustee $500 per month, with the

debtor’s vehicle being paid inside the Plan. Prior to confirmation, the debtor proposes (in

the Plan) to pay $200 per month directly to Ford Motor Credit as adequate protection on a

2000 Ford F-150 pick up. The payments to the Chapter 13 Trustee prior to confirmation
should be $300 per month until the Plan is confirmed – then the payments to the Chapter 13

Trustee will go to $500 per month, the direct payment for adequate protection will cease,

and the Trustee will pay Ford Motor Credit.

Proof of the adequate protection payments made directly to the secured creditor are

required to be provided to the Chapter 13 Trustee. See, Section 1326(a)(1)(C). This

information is needed for the Trustee to reconcile what has been paid to the creditor with

the proof of claim.

BAPCPA now requires that Chapter 13 Trustees pay secured creditors in equal

monthly payments when their post-petition obligations are paid through the Chapter 13

Plan. In other words, if the Chapter 13 debtor is going to retain the personal property that

serves as collateral, and the payment is going to be made by the Chapter 13 Trustee, then

the amount of the payments to that creditor have to be equal monthly payments, and

sufficient to provide adequate protection to the creditor.

Section 1325(a)(5)(B)(iii) states:

(iii) if--
(I) property to be distributed pursuant to this subsection is in the
form of periodic payments, such payments shall be in equal monthly
amounts; and

(II) the holder of the claim is secured by personal property, the

amount of such payments shall not be less than an amount sufficient
to provide to the holder of such claim adequate protection during the
period of the plan.

Because the requirement for the amount of the adequate protection payment (an

amount sufficient to provide adequate protection) and the requirement for the equal

monthly payment (same test) are the same, it appears that most Chapter 13 Plans are going

to use the same dollar amounts for the adequate protection payments paid directly by the
debtor, and the equal monthly payments paid by the Chapter 13 Trustee after confirmation

of the Plan.

c. Miscellaneous Personal Property.

The limitation on the bifurcation of undersecured claims secured by personal

property are covered in the same section of the Bankruptcy Code as the provision for motor

vehicles. If the purchase money security interest is in on any other type of property

(presumably, other than real estate), the bifurcation limitation is one year. See, Section

1325(a). For personal property used for personal, family or household purposes, the

“replacement value” shall mean the price a retail merchant would charge for property of

that kind, considering its age and condition. Section 506(a)(2). In many instances, this

would appear to be a pawn shop, or Goodwill store value.

There is another tool for debtors’ counsel to consider for non-purchase money

security interests in personal property. Section 522(f)(1)(B) has a provision for removing

nonpossessory, nonpurchase-money security interests from "household furnishings,

household goods, appliances, books, animals, crops, musical instruments, or jewelry that

are held primarily for the personal, family or household use of the debtor or a dependent of

the debtor". Keep in mind, lien avoidance under this provision will not be possible if the

creditor has a purchase money security interest (money was loaned to actually purchase the

item), or if the property is actually held by the creditor (like a pawn shop situation).

d. Priority Claims.

Priority claims have to be paid 100% and those payments generally have to be made

through the Chapter 13 Trustee. “Domestic Support Obligation” debts are now priority

claims.
 e. Student Loans.

Student loans can be paid "inside" the Plan, at the same percentage as other creditors,

with any balance being unaffected by the Chapter 13 discharge. (i.e., the debtor(s) will

owe the balance of the student loan, and any accrued interest, after the Chapter 13 Plan is

completed.)

If the Chapter 13 Plan proposes to pay unsecured creditors 100% of their claims, the

student loans can be paid either inside or outside the Plan. Outside of these broad

parameters, there is some variation between what the Toledo judges will allow.

Judge Speer appears to prefer, in less than 100% Chapter 13 Plans, that the student

loans be paid through the Chapter 13 Plan, at the same percentage as other creditors. Judge

Whipple appears to allow payments of student loans directly, even in less than 100% Plans,

where the actual amount paid on the student loan debt is not more than the student loan

creditor would have received its claim was paid through the Plan.

Neither judge will allow a provision in the Chapter 13 Plan that provides for

discharge of unpaid student loans through the Plan confirmation process. Inclusion of such

a provision is improper, and a valid basis for denying confirmation of the Chapter 13 Plan.

See, In re Hensley, 249 B.R. 318 (Bankr. W.D. Okla. 2000); In re Mammel, 221 B.R. 238

(Bankr. N.D. Iowa 1998).

Recently, the Sixth Circuit Court of Appeals considered the issue of whether or not

inclusion of a “discharge by declaration” provision in a Chapter 13 Plan was res judicata,

resulting in the discharge of the student loan upon confirmation. The Appellate Court held

that Bankruptcy court properly granted creditor's Fed. R. Civ. P. 60(b)(4) motion and

vacated a portion of the Chapter 13 discharge order, which discharged student loan debt.
The decision held that the creditor's due process rights were violated because debtor had

not initiated adversary proceeding to obtain discharge as required by 11 U.S.C.S. §

523(a)(8) and Fed R. Bankr. P. 7001(6). See, In re Ruehle, 412 F.3d 679 (6th Cir. 2005).

f. Unsecured Creditors.

The information on unsecured debts that should be included in the Chapter 13 Plan

is: 1) the amount of the payment - usually expressed in the Plan as a monthly figure; 2) the

number of months the Chapter 13 will run; and 3) the percentage to paid to unsecured

creditors under the Chapter 13 Plan.

Chapter 13 debtors must pay their unsecured debts through the Chapter 13 trustee.

Please do not propose a Chapter Plan calling for direct payment of general unsecured

creditors.

g. 401(k) Loans.

Prior to BAPCPA, unless the Chapter 13 Plan provided for payment of 100% to

unsecured creditors, the Chapter 13 debtors were not permitted to repay 401(k) loans

during the life of the Chapter 13 Plan. See e.g., In re Behlke, 358 F.3d 429 (6th Cir. 2004);

In re Harshbarger, 66 F.3d 775 (6th Cir. 1995); In re Esquivel, 239 B.R. 146, 149-54 (E.D.

Mich. 1999).

BAPCPA has changed the rule, and made repayment of 401(k) or other pension

loans an expense that is properly deducted in calculating disposable income.

h. Executory Contracts.

If the Debtor(s) have an executory contract, such as a car lease, the Plan should

state whether the Debtor(s) are assuming or rejecting that executory contract.
 Under BAPCPA, If the lease of personal property is not assumed in the Chapter 13

Plan, at the conclusion of the hearing on confirmation, the lease is deemed rejected and the

stay and the codebtor stay are terminated as to the property. See, Section 365(p)(3).

i. Selling Real Estate Or Other Property.

If the Plan calls for the sale of real estate, or other property, to either pay off secured

loans or to fund the Chapter 13 Plan, the Chapter 13 Plan must state a date certain for

completion of the sale. The reason for this rule is that too many Chapter 13’s have lingered

on without consummation of the sales promised in the Plan.

BAPCPA uses mandatory language in the Means Test, which appears intended to remove

much of the bankruptcy court’s discretion in allowing expenses. However, the statute is so

poorly drafted, it is difficult to determine what is mandatorily required. In practice, in the

Western Division, both Bankruptcy Judges look at actual current income in determinining the

required minimum Plan payments.

The Judges do take different approaches to the Means Test. Judge Speer views the Means

Test as primarily a tool for determining how long the Chapter 13 Plan must run – either the

minimum of 36 months for below median debtors, or 60 months for above-median debtors.

Judge Whipple has held that the Means Test is important in determining the minimum payments

that need to be made into the Chapter 13 Plan to meet the “disposable income” requirement.

a. Other Tests A Chapter 13 Plan Must Meet.

Section 1325 provides certain additional tests that must be met for a Chapter 13 Plan to

be confirmed. Specifically, the most commonly contested requirements are of good faith

[§1325(a)(3)]; the best interest of creditors/a.k.a. liquidation test [§1325(a)(4)](are the

creditors receiving as much or more than they would receive in a Chapter 7 case?); and
feasibility [§1325(a)(6)] - usually an issue of whether the Debtor(s) can make the required

payments.

The “good faith” requirement has been expanded by BAPCPA (to conform with the case

law). Section 1328(a)(7) permits confirmation of the Chapter 13 Plan only if “the action of the

debtor in filing the petition was in good faith”. Section §1328(a)(3) has always required that the

Plan have been proposed in good faith, and court decisions have held that the filing must have

been in good faith as well – but now the Code specifically supports that case law rule.

The best interest of creditors test – also called the “liquidation test” – requires Chapter 13

debtors to pay their unsecured creditors at least as much as they would get in a hypothetical

Chapter 7. Accordingly, if the debtor has valuable assets that are owned free and clear, provision

will have to be made to pay at least the non-exempt value of those assets (perhaps with some

allowance for cost of sale) regardless of the amount of disposable income the debtor has.

Feasibility is often referred to as the easiest Chapter 13 test to meet – but if the Plan is

patently unfeasible, it is not going to be confirmed. Moreover, the failure to make payments

prior to the Hearing on Confirmation is evidence that the Plan is not, in fact, feasible.

2. The Length Of The Chapter 13 Plan Under BAPCPA.

Chapter 13 Plan must provide for payment of all of the debtors’ projected disposable

income for the ‘applicable commitment period’. See, §1325(b). This period must be at least

Three (3) years if the debtor(s) are under the state median income level. The length of the

Chapter Plan for above state median income level debtors must be Five (5) years.
 3. Treatment Of Secured Creditors.

a. Equal Monthly Payments And The Release Of Liens On Personal

Property.

There are also some new requirements for secured creditors implemented by BAPCPA.

First, under Section 1325(a)(5), the treatment of secured creditors has changed.

Under Section 1325(a)(5)(B)(i), the formerly common practice of Chapter 13 Plans

calling for the release of the secured creditor’s lien upon completion of the payment of just the

secured portion of the claim, is now statutorily prohibited.

If a secured creditor seeks to enforce its rights to equal monthly payments,

§1325(a)(5)(B)(iii) requires that the Chapter 13 Trustees pay secured creditors in equal monthly

payments when their post-petition obligations are paid through the Chapter 13 Plan. In other

words, if the Chapter 13 debtor is going to retain the personal property that serves as collateral,

and the payment is going to be made by the Chapter 13 Trustee, then the amount of the payments

to that creditor have to be equal monthly payments, and sufficient to provide adequate protection

to the creditor. However, there are problems with “equal monthly payments” – if the estimate of

the monthly payment necessary to pay off the secured claim is too low, the Plan will not be

feasible. On the other hand, “pro-rata payments” allow the Trustee to pay off the interest bearing

claim early, saving interest charges, and there are less Plan feasibility problems. So, we prefer

that Plan use “pro-rata” language for motor vehicle loans being paid through the Plan by the

Trustee.

If you are going to use equal monthly payments: 1) guess high, so if a bigger-than-

expected claim comes in, it can be paid over the life of the Plan; and 2) because the requirement

for the amount of the adequate protection payment (see below) and the requirement for the equal

monthly payment are essentially based on the same test, if you are doing equal monthly
payments, you should propose using the same dollar amounts for the adequate protection

payments (paid directly by the debtor to the creditor), and the equal monthly payments paid by

the Chapter 13 Trustee after confirmation of the Plan.

b. Adequate Protection Payments.

BAPCPA now requires the payment of adequate protection payments to certain secured

creditors prior to the confirmation of the Chapter 13 Plan. See, Section 1326(a)

Under this provision, a Chapter 13 debtor must commence direct payments to certain

secured creditors within 30 days after the filing of the petition. The amount to be paid must be

sufficient to provide the secured creditor with adequate protection of their security interest.

Some jurisdictions have presumptive formulas for calculating how much needs to be paid as and

for adequate protection. The Western Division of the Northern District of Ohio does not have

such a formula.

The amounts paid as adequate protection are deducted from the amount paid to the

Trustee. This is illustrated in the Chapter 13 Plan example that is attached.

Say the Plan proposes to pay the Chapter 13 Trustee $500 per month, with the debtor’s vehicle

being paid inside the Plan. Prior to confirmation, the debtor proposes (in the Plan) to pay $200

per month directly to Ford Motor Credit as adequate protection on a 2000 Ford F-150 pick up.

The payments to the Chapter 13 Trustee prior to confirmation should be $300 per month until the

Plan is confirmed – then the payments to the Chapter 13 Trustee will go to $500 per month, the

direct payment for adequate protection will cease, and the Trustee will pay Ford Motor Credit.

Proof of the adequate protection payments made directly to the secured creditor are required to

be provided to the Chapter 13 Trustee. See, Section 1326(a)(1)(C). This information is needed

for the Trustee to reconcile what has been paid to the creditor with the proof of claim.
 In some jurisdictions, the Chapter 13 Trustee makes the pre-Petition adequate protection

payments: In the Western Division, we DO NOT. Payments are to be made directly by the

debtor(s) to the holder of the purchase money security interest in personal property, where the

secured creditor’s claim is going to be paid through the Plan. See, §1326(a)(1)(C).

c. Creditors Who Are Deemed To Be Fully Secured.

After the BAPCPA, the Code prevents bifurcation of debts owed to creditors with loans

secured by certain personal property. Specifically, loans made within 910 days of filing that are

secured by motor vehicles acquired for the personal use of the debtor are entitled to treatment as

if they were fully secured (regardless of how underwater the loan may be), as are loans secured

by other personal property where the loan was made within one year of the bankruptcy.

Section 1325(a)(the “hanging paragraph” at the end of that subsection), states:

For purposes of paragraph (5), section 506 shall not apply to a claim described
in that paragraph if the creditor has a purchase money security interest
securing the debt that is the subject of the claim, the debt was incurred within
the 910-day preceding the date of the filing of the petition, and the collateral
for that debt consists of a motor vehicle (as defined in section 30102 of title
49) acquired for the personal use of the debtor, or if collateral for that debt
consists of any other thing of value, if the debt was incurred during the 1-year
period preceding that filing.

The two most common choices for payment of loans secured by motor vehicles in

Chapter 13 are: 1) current payments "outside the Plan”, with any arrearages in the Plan; or, 2)

100% "inside the Plan” (the entire obligation paid by the Trustee).

Prior to BAPCPA, motor vehicles loans that were “inside the Plan” were typically paid

the fair market value of the vehicle as a secured claim (with interest), and the balance was paid

as unsecured an unsecured claim (without interest). BAPCPA eliminated the ability to force

creditors to accept this option where the purchase money debt secured by a motor vehicle was

incurred within 910 days of filing, and the vehicle was for the personal (not business) use of the
debtor. Thus, these “910 car loans” can no longer be bifurcated into secured and unsecured

claims over a creditor’s objection.

However, if the creditor does not object to a Chapter 13 Plan proposing pre-BAPCPA

bifurcation, courts may deem that to be “acceptance” by the creditor of the treatment proposed in

the Plan.

In addition, it should be noted that the “910” restriction is much less sweeping than the

prohibition that prevents Chapter 13 debtors from modifying secured claims that are secured

only by an interest in the debtors primary residence. It appears that there are still two ways that

“910 car loans” can be modified, even over a creditor’s objection: 1) the car payments can be

stretched out over the five year life of the Plan; and 2) the interest rate can be modified under

Till. See, In re Jordan, 2008 U.S. App. LEXIS 5334, Case No. 07-40265 (5th Cir. March 12,

2008); In re Robinson, 338 B.R. 70 (Bankr. W.D. Mo. 2006)(BAPCPA did not overrule Till).

To the extent that secured motor vehicle claims (or personal property) can be bifurcated,

BAPCPA now requires that the value of the motor vehicle/personal property securing the allowed

claim must be determined based upon the property’s “replacement value”, as of the date of the

filing of the petition, without deduction for the expenses of marketing the property, or the cost of

sale. Section 506(a)(2).

However, as discussed above, the old practice of having a Chapter 13 Plan provide that

the secured creditor’s lien would be released upon the completion of payments on the secured

portion of the claim is no longer permitted over a creditor’s objection. A Chapter 13 Plan must

provide that a secured creditor retain its lien until the payment of the entire debt, or entry of the

discharge. Section 1325(a)(5)(B)(i).

 Finally, many bankruptcy courts have held that motor vehicles subject to “910 loans” can

be surrendered in full satisfaction. The Sixth Circuit has recently ruled on this issue, and held

that surrender in full satisfaction is not permitted over the secured creditor’s objection. See, In re

Long, 2008 U.S. App. LEXIS 4549, Case No. 06-6252 (6th Cir. March 4, 2008). So far, all of the

other circuit court decisions have also prohibited surrender in full satisfaction: Capital One Auto

Financing v. Osborn, 515 F.3d 817 (8th Cir. 2008); In re Wright, 492 F.3d 829, 832 (7th Cir.

2007).

D. HOW TO COMPUTE A CHAPTER 13 PLAN.

First, make sure the Schedules and Statement of Financial Affairs (and the Means

Test, if applicable) have been completed accurately.

You will need to know the mortgage arrearages, or else have enough information to

make a “worst case” estimate of the mortgage arrearages. In most Chapter 13 cases in the

Western Division, the regular mortgage payments are paid directly by the debtor(s), and

any arrearages are paid by the Chapter 13 Trustee.

Next, if one or more cars are going to be paid through the Plan, the amount of the

secured claim, and the interest rate, need to be made part of your calculations.

If there are adequate protection payments to be made, or fixed payments after

confirmation, those should also be included.

Priority creditors are almost always paid through the Plan. The most common

priority claims are for income taxes and domestic support arrearages. Priority claims must

be paid in full in a Chapter 13 case.

All unsecured creditors must be paid through the Plan. Unsecured creditors

generally get paid after administrative expenses, mortgage arrearages, secured claims, and

priority claims.
CALCULATING THE FIGURES IN A CHAPTER 13 PLAN:

As prepared by Trustee’s Case Analyst Debbie Lilja:

Secured Creditors: (each secured creditor’s treatment as set forth in Plan)

1st Mortgageholder – arrears $ 5,000.00

2nd Mortgageholder – arrears 2,500.00
Ford Motor Credit – 06 Mustang 25,000.00 + 10%
5,000.00 int
Adequate protection pmt by Debtor – $500.00/mon
Fixed pays by Trustee after confirmation - $600.00/mon
Household Bank – 2006 Coleman
Camper 7,000.00 + 10%
1,400.00 int = (7000.00 x 10% = 700.00 x 2*)
*this is a rough estimate of simple interest to be paid on claim.

Priority Creditors: (usually paid through the Plan)

IRS - 3,400.00
City of Toledo 158.00

Unsecured Creditors: (must be paid through Plan)

100% 35,000.00
**Student loans are unsecured, non-priority debts that are non-dischargeable. They are not
priority debts – and are the only unsecured debts may, under certain circumstances, be paid
directly by the Debtor(s), provided that treatment is not discriminatory. In this ‘case’ the
student loans are in deferment and will not be included in calculations, but will be included
in the total unsecured debt.

SUBTOTAL: 79,958.00

Trustee fees: 7,995.80

*Trustee fees for the purpose of the 341 hearing are always calculated at 10% (the
maximum the Trustee may receive) Actual Trustee fees are determined on an annual basis
and also may be modified for short periods of time during the fiscal year, as dictated by the
United States Trustee.

TOTAL 87,953.80

(Divide by the number of months the Chapter 13 Plan is to run)

Need: $1,467.00 per month. ($1,467.00 x 60 = $88,020.00)

(If your client’s disposable income will not support that kind of payment, you need to
recalculate. Multiply the total amount of unsecured debt by a percentage, and then divide
the result by 60 months ( or 36 months). Or, divide the unsecured debt by the number of
months in the Plan, and then add that monthly payment to what is needed to pay the
secured and priority claims in full.)

***Always assume that the mortgageholders will tack on fees and costs (escrow shortages,
foreclosure costs, NSF penalties) It is a good idea to estimate ‘high’ as to the arrearage
figure to make sure that these possible legitimate conditions are covered.

Priority - $3,558.00
Secured - $147,000.00
Unsecured - $50,000.00

--If you intend to set fixed monthly payments for some or all of your secured creditors,

make sure that the final monthly Plan payment is not less than the total of the fixed

payments, plus 10% for the trustee fees. The Chapter 13 Trustee cannot make a

distribution to creditors without taking the statutory fee – so, for example, if you propose to

pay $500 per month to the Trustee, and your Plan calls for fixed payments on two cars of

$200 per month and $300 per month, the Plan does not work because there is no money

available to pay the Chapter 13 Trustee’s fees.

E. Meeting Of Creditors.

The first meeting of creditors is usually scheduled somewhere around 30 to 50 days after

the filing of the Chapter 13 case. There is a strong preference for the first meeting to be

scheduled at least 25 days after the date the Chapter 13 Plan was served on creditors. For cases

assigned to Judge Whipple, the first date set for the first meeting of creditors is also the deadline

for filing Objections to Confirmation of the Chapter 13 Plan.

For Chapter 13 cases, the first meetings are scheduled for 15 minutes. The questioning

generally is directed to whether the Chapter 13 Plan complies with the requirements for

Confirmation, whether the debtor’s real estate is insured, any discrepancies in the filed
documents, and whether the Plan has given the Chapter 13 Trustee specific directions on the

payment of each secured creditor and each class of unsecured creditors.

1. What The Debtors Need To Bring To The First Meeting.

Debtors need to bring a government issued ID – preferably a driver’s license or a state ID

card. If the debtor’s identification card does not include their social security number, they need

to provide proof of their social security number – in those circumstances, our strong preference is

for the debtors to bring their social security card with them to the first meeting of creditors.

Most of the documents that need to be filed in a Chapter 13 (described more fully above)

are required to be filed BEFORE the first meeting of creditors. Of course, it is necessary for the

Office of the Chapter 13 Trustee to receive those documents within the statutory time limits – the

only way that we can conduct a thorough 341 examination within the allotted time period is

through comprehensive pre-hearing preparation.

One item of information that the Chapter 13 Trustee often needs, which is not required to

be provided prior to the first meeting of creditors, is the telephone number of the person or

persons to whom the debtor owes a domestic support obligation(s) (a “DSO” claimant).

BAPCPA imposes new duties on trustees to formally notify domestic support obligation creditors

(and the state child support agency) of the bankruptcy, and one of the statutorily required pieces

of information is the telephone number of the domestic support obligation creditor. We also need

the proper spelling of the DSO claimant’s name, and a proper address – but in most situations,

that address should have been included in the debtor’s Schedules, usually on Schedule E.

Counsel needs to bring the original signed Petition, Schedules, and Statement of Affairs,

Means Test and Plan with them to the first meeting so that the debtors can identify, under oath,

their “wet signatures”.

F. The Confirmation Process

1. Procedural Matters – Notice To Creditors Re: The Chapter 13 Plan.

Federal Rule of Bankruptcy Procedure 2002(b) states in relevant part:

(b) Twenty-five-day notices to parties in interest.

Except as provided in subdivision (1) of this rule, the clerk, or some other person as the
court may direct, shall give the debtor, the trustee, all creditors and indenture trustees not
less than 25 days notice by mail of * * * * and (2) the time fixed for filing objections and
the hearing to consider confirmation of a chapter 9, chapter 11, or chapter 13 plan.

A similar 20 day notice period will apply to all substantive changes to a Chapter 13 Plan

that might adversely affect a creditor or creditors. See, Federal Rule of Bankruptcy Procedure

2002(a)(5). However, this notice period will not apply to changes that would only benefit

creditors, or would be essentially neutral. For example, while an increase of $100 per month in

Plan payments and a corresponding 10% increase in the percentage paid to unsecured creditors is

a substantial change in the terms of a Chapter 13, it would not require 25 days notice to creditors

because the only effect of the change is to benefits unsecured creditors. On the other hand, if an

Amended Plan proposed reduction in the Plan payment, a reduction in the percentage, or a

change in the treatment of a secured claim, 25 days notice would be required.

While some courts do not hold confirmation hearings on the confirmation of uncontested

Chapter 13 Plans, both bankruptcy Judges in the Western Division of the Northern District of

Ohio do hold confirmation hearings on all Chapter 13 cases. However, attendance is not always

required by counsel or the debtor(s) if there is no objection filed to confirmation of the Chapter

13 Plan.

The two judges have slightly different rules for attendance at uncontested (i.e., no

objection filed) confirmation hearings. For United States Bankruptcy Judge Richard L. Speer,

debtors and their counsel are not required to attend if the Plan proposes to pay 70% or more of
the allowed unsecured claims. For cases where the percentage is under 70% debtors and their

counsel are required to appear, unless specifically excused by the Chapter 13 Trustee based on

some type of hardship (usually a medical condition).

For United States Bankruptcy Judge Mary Ann Whipple, attendance is generally not

required if no objection has been filed (regardless of the percentage) unless the Chapter 13

Trustee suggests attendance to address an issue. If attendance is required, Judge Whipple

permits telephonic attendance by counsel at the first confirmation hearing, provided counsel calls

her office to make arrangements for telephonic appearance well before the time set for the

hearing (at least an hour beforehand). Where there is an objection filed, the debtor(s) are not

usually required to attend if the basis for the objection is just legal, not factual, and the issue can

be adequately addressed by counsel.

2. Objections To Confirmation.

A party in interest, usually a creditor or the Chapter 13 Trustee, may file an objection to

confirmation of the Chapter 13 Plan. Any objection to the confirmation of a Chapter 13 Plan

filed in a case assigned to Judge Whipple should be filed on (or before) same day as the first

meeting of creditors. For cases assigned to Judge Speer - where the Confirmation Hearing is

usually held the same day as the first meeting of creditors - the objection should be filed before

the hearing, but if that is not possible, Judge Speer will usually hear objections to confirmation

made (even just orally) at the time of the hearing.

There are numerous reasons for objecting to confirmation of a Chapter 13 Plan: 1) the

Plan may not comply with one or more of the requirements of Section 1325, or Section 1322; 2)

the treatment of a secured creditor may be improper under the Bankruptcy Code; 3) there may be
an issue regarding the good faith of the debtor; or, 4) the payments being made to the Trustee

will not be adequate to pay the actual amount of the mortgage arrearage.

One basis for objecting to a Chapter 13 Plan that has arisen recently comes from a

decision that was issued by Judge Baxter, a Bankruptcy Judge in Cleveland. In In re Thaxton,

335 B.R. 372 (Bankr. N.D. Ohio 2005), Judge Baxter held that the confirmation of a properly

noticed Chapter 13 Plan, which included language setting the amount of an arrearage, prevailed

over a subsequently filed proof of claim. While the Western Division has always used a “proof

of claims prevail over amounts in the Plan” rule – there is nothing in writing (a local rule, or a

judicial order) that sets that custom in stone. Accordingly, creditors have been filing protective

objections to confirmation, to prevent the binding effect of the Chapter 13 Plan from sticking

them with an artificially low deficiency claim. Of course, this concern is only valid where the

Chapter 13 Plan actually attempts to set the amount of the deficiency. Debtors’ counsel are

encouraged NOT to put specific arrearage figures in their Chapter 13 Plans. In the Western

Division, the amount of the arrearage should be dealt with through the claims objection process,

not through the binding effect of the Plan.

G. Amendment Or Modification Of The Plan.

Prior to confirmation of a Chapter 13 Plan, changes to the Plan can be made by filing an

Amended Plan (or a Second Amended Chapter 13 Plan, or a Third Amended Chapter 13 Plan).

After confirmation, debtor’s counsel needs to file a Motion to Modify Confirmed Chapter 13

Plan. Service of the Amended Plan, or Motion to Modify, should generally be made on all

creditors by debtor’s counsel. A certification of service of each Amended Plan must be filed with

the Bankruptcy Court. Good service is necessary if the confirmation order is going to serve to

bind on all creditors to the terms of the proposed Plan.

 The other technique used to amend Chapter 13 Plans prior to confirmation is the use of a

form Stipulation prepared by the Chapter 13 Trustee at the first meeting of creditors. This

Stipulation form is most often used to increase the amount of the payments being made to the

Trustee, or increase a Plan’s percentage to unsecured creditors, or change the length of the Plan.

Because the change is not detrimental to any creditor, these types of Stipulations can be done

without notice.

H. Motion Practice.

1. Motions For Relief From Stay.

Relief from stay is generally more difficult for a creditor to obtain in Chapter 13 than it is

in a Chapter 7 because in most cases, Chapter 13 creditors will have to overcome the debtor’s

position that the collateral is “necessary for an effective reorganization”. See, Section 362(d)(2).

When the property in question is the debtor’s residence or car, it usually is going to be necessary.

Accordingly, relief from stay in Chapter 13s is most often obtained based upon a lack of

adequate protection under Section 362(d)(1).

The filing fee for a motion for relief from stay is currently $150. Motions for relief from

stay are required [by local General Order 99-1] to comply with a standard format, and are also

required to include a completed form “Worksheet” - showing financial information, value

information, etc – which should be attached as “Exhibit C” to any motion for relief from stay.

The Northern District of Ohio relief from stay forms are available at:

http://www.ohnb.uscourts.gov/

To get to these forms, highlight “Judges’ Information” and then click on “General

Orders”. Next, scroll down to “General Order 99-1 Standardized Forms” and click on
“Standardized Forms”. This will provide you with a list of the standardized forms for motions

for relief from stay, under both Chapters 7 and 13, in WordPerfect and PDF formats.

The requirement that lessors and creditors with purchase money security interests in

personal property be paid “adequate protection payments” provides those creditors with a more

concrete statutory basis for claiming that they are not adequately protected when the required

post-filing payments are not made to the creditor by the Chapter 13 debtor.

2. Motions To Dismiss Or Convert.

Under 11 U.S.C. §1307(a), the debtor may convert a Chapter 13 case to a Chapter 7 at

any time. Under 11 U.S.C. §1307(b), the debtor has the right, if the Chapter 13 case had not

been converted from another Chapter, to the dismissal of the case at any time, subject to some

case law limitations. See, Marrama v. Citizens Bank , ___ U.S. ___, 127 S. Ct. 1105, 166 L. Ed.

2d 956 (2007).

Section 348(b) provides that upon conversion, the date of the “order for relief” becomes

the date of conversion. While it is commonplace to talk about “pre-petition” and “post-petition”

debts, the Bankruptcy Code actually speaks in terms of debts that arise before or after the order

for relief. See, §727(b). So, by changing the date of the order for relief, post-petition debts

incurred during the Chapter 13 can be discharged when the case is converted to a Chapter 7.

Of course, if the debtor wishes to convert from Chapter 7 to Chapter 13, the debtor must

meet the eligibility requirements of §109(e) - limiting the amount of unsecured and secured debt

that a debtor can have and still seek relief under Chapter 13. See, §706(d); In re Hansen, 316

B.R. 505 (Bankr. N.D. Ill. 2004).

 The courts have generally rejected objections to allowing a case to convert from Chapter

7 to Chapter 13 under Section 706(a) just because the broader discharge of Chapter 13 would

benefit the debtor. See, In re Young, 237 F.3d 1168 (10th Cir. 2001).

The Chapter 13 Trustee reviews each case to be sure it complies with the eligibility

requirements of Section 109(e), and will move to dismiss if the debtor exceeds either the secured

debt limit [currently $1,010,650] or the unsecured Chapter 13 debt limit [currently $336,900].

During the Chapter, debtors’ payments to the Chapter 13 Trustee are monitored, and the

Trustee will file a motion to dismiss [or affidavit of default] if a debtor falls behind on payments.

If the payment problem is temporary, that fact should be promptly communicated to the Office of

the Chapter 13 Trustee to prevent the filing of an unnecessary motion to dismiss.

3. Other Motions.

Debtors are usually required to file motions to incur debt, or to lift the Court’s injunction,

when they wish to borrow more than a $1,000 (most often for a car), or liquidate an assets that

the Court has enjoined them from using (cash assets) or selling (other property).

Although it is not a “motion”, one of the most common pleadings filed in Chapter 13s are

objections to claims. Since the Western Division looks to proofs of claim as controlling, it is the

job of debtors counsel to object to proofs of claim that the Chapter 13 debtor legitimately

disputes as to the amount owed, or his or her liability on the debt.

I. DISCHARGEABILITY ISSUES.

The old Chapter 13 “Super Discharge” is now only a “pretty good discharge” after the

October 17, 2005 BAPCPA amendments.

 Previously, the Chapter 13 discharge provided Debtors who complete their plans with a

discharge that was far superior to a Chapter 7 discharge. The Chapter 13 discharge was broader

than the Chapter 7 discharge, and discharged many types of debt that would not be dischargeable

in a Chapter 7.

Perhaps the best way to see the changes is to compare the old Chapter 13 discharge with

the one a successful Debtor would receive in a case filed today. A comparison of the old Chapter

13 discharge provision, and the new one, shows the incredibly shrinking discharge:

Section 1328(a) previously provided:

(a) As soon as practicable after completion by the debtor of all payments under the plan,
unless the court approves a written waiver of discharge executed by the debtor after the
order for relief under this chapter, the court shall grant the debtor a discharge of all debts
provided for by the plan or disallowed under section 502 of this title, except any debt—

(1) provided for under section 1322 (b)(5) of this title;

(2) of the kind specified in paragraph (5), (8), or (9) of section 523 (a) of this
title; or

(3) for restitution, or a criminal fine, included in a sentence on the debtor’s

conviction of a crime.

After the BAPCPA amendments, the same provsion (Section 1328(a) now reads:

(a) Subject to subsection (d), as soon as practicable after completion by the debtor
of all payments under the plan, and in the case of a debtor who is required by a judicial or
administrative order, or by statute, to pay a domestic support obligation, after such debtor
certifies that all amounts payable under such order or such statute that are due on or
before the date of the certification (including amounts due before the petition was filed,
but only to the extent provided for by the plan) have been paid, unless the court approves
a written waiver of discharge executed by the debtor after the order for relief under this
chapter, the court shall grant the debtor a discharge of all debts provided for by the plan
or disallowed under section of this title, except any debt—

(1) provided for under section 1322(b)(5);

(2) of the kind specified in section 507(a)(8(C) or in paragraph (1)(B), (1)(C),

(2), (3), (4), (5), (8), or (9) of section 523(a);
 (3) for restitution, or a criminal fine, included in a sentence on the debtor's
conviction of a crime; or

(4) for restitution, or damages, awarded in a civil action against the debtor as a
result of willful or malicious injury by the debtor that caused personal injury to an
individual or the death of an individual.

The initial reference to “subject to subsection (d)” does not appear to make any

substantive change in the statute. Section 1328(d) remains unchanged by BAPCPA, preventing

the discharge of debts incurred post-petition without the permission of the Chapter 13 trustee, if

getting permission was “practicable and was not obtained.”

The requirement that the debtor certify that all DSO payments have been made – pre-

petition paid to the extent provided by the Plan, and post-petition have been paid in full - is new.

Non-payment of post-petition DSO obligations is now grounds for denying Chapter 13 debtors

their discharge.

The changes in the Chapter 13 discharge are primarily found in Section 1328(a)(2). The

amendments make claims under Section 507(a)(8)(C) non-dischargeable in Chapter 13. Section

507(a)(8)(C) sets the priority for trust fund taxes – taxes that are “required to be collected or

withheld and for which the debtor is liable in whatever capacity”. It appears that the effect of

§507(a)(8)(C) being referenced, and not Section 523(a)(1)(A), is that taxes incurred during the

“gap period” of an involuntary bankruptcy case are not non-dischargeable, as they are in Chapter

7 cases. Perhaps this distinction was made because involuntary cases cannot be filed against

Chapter 13 debtors, or it is to encourage individuals who have an involuntary filed against them

under Chapter 7, to convert to Chapter 13.

Similarly, claims under Section 523(a)(1)(B) and (C) are now non-dischargeable. Section

523(a)(1)(B) deals with debts where a tax return has not been filed, or was filed within two years

of the filing of the bankruptcy. Thus, taxes non-dischargeable under what is commonly referred
to as the “two year rule” are not discharged in a Chapter 13. Nor are taxes associated with a

fraudulent return, or where the debtor has willfully attempted in any manner to evade or defeat a

tax.

What do these tax provision mean?

Prior to October 17, 2005, priority tax debts were generally dischargeable in a Chapter

13. However, there was a limitation. Section 1322(a)(2) required that the Chapter 13 Plan must

provide for full payment of all priority tax claims (actually all priority claims under Section

507). What this meant was that tax claims – even priority tax claims - did not have to be paid

interest. See, In re Smith, 196 B.R.565 (Bankr. M.D. Fla. 1996). Pursuant to Section 1322(a)(2),

the Plan had to provide that the priority tax claim be paid in full, but unlike claims that are non-

dischargeable in Chapter 13s – such as a student loan, or a claim for child support - interest was

not only not required to be paid in the Plan, it was also discharged under Section 1328(a).

Under this new amendment, for trust fund taxes, taxes non-dischargeable under the two

year rule (late tax returns filed within 2 years of the bankruptcy) , and situations where the debtor

attempted to willfully attempt in any manner to evade or defeat a tax, interest will be required

to paid, or those interest obligations will continue to be owed by the Debtor, even after

repayment of 100% of these tax claims.

Under BAPCPA, interest on tax claims are to calculated at “nonbankruptcy law” rates.

Section 511(a). Where interest is to be paid under a confirmed Plan, the interest rate is to be

fixed at the rate in place the month the Plan is confirmed. Section 511(b). The payment of

interest on non-dischargeable debts accruing after the date of filing is permitted to be paid under

a Chapter 13 Plan only where the debtor has disposable income available to pay such interest

after making provision for full payment of all allowed claims. Section 1322(b)(10).
 There will also be no discharge of debts that are non-dischargeable under Sections

523(a)(2) (fraud); (a)(3) (unscheduled debts); and (a)(4) (embezzlement, larceny, or defalcation

in a fiduciary capacity. Unlike the non-dischargeable tax debts, these are not priority claims.

Thus, it appears that they will generally have to be paid pro rata with other dischargeable

unsecured debts.

Again, note that interest on non-dischargeable debts is also nondischargeable, even if the

debt is paid 100% (without interest) under the Chapter 13 plan. See, Leeper v. PHEAA, 49 F.3d

98 (3d Cir. 1995); In re Burns, 887 F.2d 1541, 1543 (11th Cir. 1989); In re Hanna, 872 F.2d 829,

830-31 (8th Cir. 1989); In re Wagner, 200 B.R. 160 (Bankr. N.D. Ohio 1996); In re Crable, 174

B.R. 62 (Bankr. W.D. Ky. 1994); In re Quick, 152 B.R.. 902, 906-08 (Bankr. W.D. Va. 1992).

However, this does not mean that interest must be paid on either priority or non-priority non-

dischargeable claims in the Plan. It just means the interest is not discharged at the end of the

case.

Section 1328(a)(4) makes non-dischargeable civil claims for willful or malicious injury

by the debtor that caused personal injury to an individual or the death of an individual. This

provision is more limited than Section 523(a)(6), which makes damages to property interests (for

example from the tort of conversion) non-dischargeable.

Other dischargeability limitations remain essentially unchanged. Section 1322(b)(5)

deals with secured debts that extend, by their terms, beyond the length of the Chapter 13 Plan,

and which are not paid in full in the Chapter 13 Plan. For example, the balance of a mortgage

debt that is only seven years into a 30 year mortgage cannot be discharged in a Chapter 13.

Note that recent pre-BAPCPA case law holds that the specific classes of non-

dischargeable debts listed in §1328(a) cannot be “discharged by declaration”. Meaning, the

specific provisions of §1328(a) cannot be overridden by simply declaring the non-dischargeable

debt to be discharged in the Chapter 13 Plan, and putting the burden on the creditor to object to

Confirmation. See, In re Ruehle, 307 B.R. 28 (6th Cir. BAP 2004).

Debts that are of the type that are usually non-dischargeable under §523(a)(7), are non-

dischargeable in Chapter 13 pursuant to §1328(a)(3). See, In re Bova, 326 F.3d 319 (1st Cir.

2003)(judgment arising from criminal restitution order was nondischargeable in Chapter 13

proceeding).

If a Chapter 13 Plan is not completed as proposed, the debtor may still, under some

circumstances, obtain what is called a ”hardship discharge” under Section 1328(b):

(b) Subject to subsection (d), at any time after the confirmation of the plan and after
notice and a hearing, the court may grant a discharge to a debtor that has not
completed payments under the plan only if--
(1) the debtor’s failure to complete such payments is due to circumstances
for which the debtor should not justly be held accountable;
(2) the value, as of the effective date of the plan, of property actually
distributed under the plan on account of each allowed unsecured claim is not
less than the amount that would have been paid on such claim if the estate of
the debtor had been liquidated under chapter 7 of this title on such date; and
(3) modification of the plan under section 1329 of this title is not
practicable.
(c) A discharge granted under subsection (b) of this section discharges the debtor
from all unsecured debts provided for by the plan or disallowed under section 502
of this title, except any debt--
(1) provided for under section 1322(b)(5) of this title; or
(2) of a kind specified in section 523(a) of this title.

In order to qualify for a hardship discharge, the failure to complete the Plan payments
must not be the fault of the Chapter 13 debtor, and the “best interest of creditors” (a.k.a. the
“liquidation test”) must be met based upon the monies actually distributed to unsecured creditors.
A hardship discharge is almost identical to a Chapter 7 discharge, except that the personal
liability of the Chapter 13 debtor for long term debts not scheduled to be paid during the
pendency of the Chapter 13 Plan – like a home mortgage – are not discharged by a hardship
discharge.
 On of the consequences of the dilution of the “super discharge”, there is now much less
of a difference between the discharge granted upon the successful completion of a Chapter 13,
and a hardship discharge.
1. New Time Limits For Chapter 13 Debtors Receiving A Discharge.
BAPCAP implemented longer time periods before a debtor is eligible for a discharge
where the debtor received a discharge in a prior Chapter 13, or Chapter 7. Section 1328(f) states:
(f) Notwithstanding subsections (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.

These provisions do not appear to prevent the FILING of a Chapter 13 bankruptcy, but

they do prevent the entry of a DISCHARGE. Thus, in a typical “Chapter 20” case, where the

only debt is a mortgage arrearage, Chapter 13 will remain an effective solution to the problem of

catching up the mortgage.

However, where there are unsecured debts, the absence of eligibility for a Chapter 13

discharge may raise difficult issues regarding unsecured creditor’s entitlement to interest and late

charges. Those additional charges are discharged in a typical Chapter 13, and therefore do not

have to be otherwise dealt with. Under the new restrictions on the granting of a Chapter 13

discharge, it is possible that the holder of, for example, a credit card debt, could come back on

the debtor after the Chapter 13 is completed (and the automatic stay terminates) and demand

their contractual interest and late charges, even if the Plan paid unsecured creditors “100%”.

It remains to be seen how many creditors would actually take such a position.
J. POST-CONFIRMATION DEFAULT.

A default in direct payments to a secured creditor (or the failure to maintain insurance,

for example, on a vehicle) will generally result in a motion for relief from stay being filed by the

creditor. In some instances, a missed post-petition mortgage payment or car loan payment can be

rolled into the Chapter 13 Plan. Other times, that is not going to be a solution that either the

creditor will accept, or the bankruptcy court will impose. Defaults on post-petition direct

payments to creditors are going to be covered in Section III – Automatic Stay Litigation.

A post-confirmation default on payments to the Chapter 13 Trustee can be handled

several ways. First, prompt communication with the Chapter 13 Trustee’s Office, for a minor

problem, can often times result in an agreement as to when the next payment will be made, an

agreed schedule of payments allowing the debtor to catch up, or the like. If an agreement is

reached, the Chapter 13 Trustee will not take action, but a secured creditor who is being paid

through the Plan, and who doesn’t get a monthly check, may seek relief from stay on their own.

If a debtor is going to miss more than one payment, or at the most two, debtor’s counsel

should file a motion to modify the Plan. In many instances, all the creditors do not file timely

claims in a case, and the motion to modify could simply ask that the debtor be permitted to skip

three payments, resume payments on a specific date, and that the Plan will still complete within

(for example) 60 months at 100%. This type of motion to modify is almost always granted.

In cases where there are more severe and/or long lasting payment problems, the motion to

modify the Chapter 13 Plan may need to seek to reduce the percentage paid to unsecured

creditors, or propose increased payments in the future to make up for the missed payments, or

that additional monies will come to the trustee from tax refunds, or a refinance or the sale of

property.
 At some point – determined on a case-by-case basis – the Chapter 13 Trustee will move

to dismiss Chapter 13 cases where there has been a post-petition default. After confirmation,

both judges set those motions to dismiss for hearing. Those hearings have become much better

attended since the enactment of BAPCPA, because dismissal of a Chapter 13 now has additional

serious consequences, including the provision that limits the automatic stay to a period of 30

days, unless the debtor successfully moves to extend it.

In resolving a post-petition default that has resulted in a motion to dismiss, the Chapter

13 Trustee will usually seek a “drop dead” provision in the Order denying or withdrawing the

motion to dismiss. The “drop dead” will typically provide that upon the debtor missing any

further payments, the Chapter 13 case can be dismissed without further notice or hearing, upon

the filing of a notice by the Trustee’s Office that the debtor has missed another Chapter 13 Plan

payment.

Finally, in some cases where the debtor is unable to continue to make payments – like in

cases where there is a catastrophic health problem – counsel can move for a hardship discharge

(discussed previously in this outline) if the debtor qualifies for that relief. (In particular, the best

interest of creditors test must still be met for the debtor to qualify to receive a hardship

discharge.)

K. DISMISSAL AND CONVERSION ISSUES

1. Conversion From Chapter 13 To Chapter 7, And Vice Versa.

Under 11 U.S.C. §1307(a), the debtor may convert a Chapter 13 case to a Chapter 7 at

any time. Under 11 U.S.C. §1307(b), the debtor has the right, if the Chapter 13 case had not

been converted from another Chapter, to the dismissal of the case at any time, subject to some

case law limitations.

 Section 348(d) specifically states that where a case is converted under 1112, 1208 or

1307, almost all claims against the estate or the debtor shall be treated as if such claim had arisen

immediately prior to the filing of the petition. Accordingly, post-petition debts incurred during

the Chapter 13 can be discharged when the case is converted to Chapter 7. See, In re Weinstock,

43 Collier Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12,

1999)(quoting Weinstock II)(“The most relevant exception is contained in subsection (d) which

directly addresses the effect of conversion on the status of creditors' claims. This subsection

instructs that following a conversion under §§ 1112, 1208, or 1307, claims arising prior to

conversion should be treated as if they arose before the case was filed. Conspicuously absent

from the subsection, however, is any reference to a conversion under § 706, i.e., from Chapter 7

to Chapter 13, as occurred in the present case. The latter type of conversion therefore continues

to be governed by the general rule in which the petition filing date remains unchanged.”).

Section 348(d) does NOT include any reference to conversion under Section 706, which

would govern a conversion from a Chapter 7 to a Chapter 13. See, In re Weinstock, 43 Collier

Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12, 1999)(“section

348(d) may recharacterize post-petition preconversion debts as pre-petition claims. In re Bottone,

226 B.R. 290, 294 (Bankr. D. Mass. 1998). "However, section 348(d) does not apply to claims

arising in Chapter 7 cases subsequently converted to another chapter, pursuant to § 706(a)." Id.;

accord In re Toms, 229 B.R. 646, 656 n.10 (Bankr. E.D. Pa. 1999) ("Section 348(d) only applies

when bankruptcy cases are converted to chapter 7, not from chapter 7."); see also Masterson v.

Berkeley Federal Bank & Trust (In re Masterson), 189 B.R. 250, 252 (Bankr. D.R.I.

1995)(finding that automatic stay, which was lifted in debtor's prior Chapter 7 case to enable

creditor to foreclose, was not renewed upon conversion of case to Chapter 13).”).
 Accordingly, upon conversion from a Chapter 7 to a Chapter 13, there is no right to

include post-Petition debts (incurred after the filing of the Chapter 7) in a Chapter 13 case. In re

Weinstock, 1999 Bankr. LEXIS 453 (Bankr. E.D. Pa. April 27, 1999), aff’d, In re Weinstock, 43

Collier Bankr. Cas. 2d (MB) 573, 1999 U.S. Dist. LEXIS 18480 (E.D. Pa. November 12, 1999).

There is a split of authority as to a debtor's right to dismiss when faced with a motion to

convert. Some courts have held that a Chapter 13 debtor's right to voluntary dismissal under

§1307(b) is absolute. See, In re Molitor, 76 F.3d 218, 220 (8th Cir. 1996)(citing cases). Other

courts have held that §1307(c) (authorizing conversion for cause) curtails a right to voluntary

dismissal. The District Court decision in In re McCraney, 172 B.R. 868 (N.D. Ohio 1993)

upheld the Bankruptcy Court’s decision vacating the debtor’s voluntary dismissal, and reopening

the case for cause. Accordingly, it appears that the Northern District of Ohio has not followed

the “absolute right” line of cases. And this approach appears to be consistent with the recent

Supreme Court decision in Marrama v. Citizens Bank, ___ U.S. ___, 127 S. Ct. 1105; 166 L. Ed.

2d 956 (2007).

Where there has been bad faith, some courts have held that the court has the power to

convert the Chapter 13 case to a Chapter 7, even though the debtor was not eligible for Chapter

13 under Section 109(e). See, Rudd v. Laughlin, 866 F.2d 1040 (8th Cir. 1989).

In In re Copper, 426 F.3d 810 (6th Cir. 2005), the Sixth Circuit Court of Appeals held that

the debtor was properly denied the right to convert his bankruptcy filing from a Chapter 7 to a

Chapter 13 pursuant to §706(a), where it was clear from the record that the debtor acted with a

lack of good faith to avoid a determination of nondischargeability, rather than to meet the

statutory purpose of paying his debts. See also, In re Bejarano, 302 B.R. 559 (Bankr. N.D. Ohio

2003)(conversion to Chapter 7 was not in bad faith). Courts in other jurisdictions have held the
right to convert to be “absolute”. In re Croston, 313 B.R. 447 (9th Cir. BAP 2004); In re

Carrow, 315 B.R. 8 (Bankr. N.D.N.Y. 2004). However, in order to be able to obtain the full

benefits of the Chapter 7 after conversion, the debtor must be eligible to receive a Chapter 7

discharge. See, In re Hiatt, 312 B.R. 150 (Bankr. S.D. Ohio 2004)(prior Chapter 7 discharge

rendered debtor inelligible for discharge in case converted from Chapter 13 to Chapter 7, where

the filing of the Chapter 13 was within 6 years [now 8 years] of the previous Chapter 7 case).

Of course, if debtors wish to convert from Chapter 7 to Chapter 13, they must meet the

eligibility requirements of §109(e), limiting the amount of unsecured and secured debt that a

debtor can have and still seek relief under Chapter 13. See, §706(d), In re Hansen, 316 B.R. 505

(Bankr. N.D. Ill. 2004). The Supreme Court also held that a bankruptcy court may deny

conversion where there is fraud or other evidence of bad faith. Marrama v. Citizens Bank, ___

U.S. ___, 127 S. Ct. 1105; 166 L. Ed. 2d 956 (2007).

The courts have rejected attempts to create some type of rule that conversion from

Chapter 7 to Chapter 13 under Section 706(a) should be prevented just because the broader

discharge of Chapter 13 would benefit the debtor. See, In re Young, 237 F.3d 1168 (10th Cir.

2001

2. Dismissal Issues For Chapter 13’s and Chapter 7’s.

The debtor does not have a statutory right to dismiss a Chapter 7 case.

A voluntary dismissal of a Chapter 7 case is governed by Section 707(a), which states as

follows: "The court may dismiss a case under this chapter only after notice and hearing and only

for cause, including . . . ." This section, with the use of the limiting word "only" and the

discretionary word "may", is clearly different from the dismissal provision governing Chapter 13
cases, Section 1307, which provides that the court "shall" dismiss a case on the request of a

debtor at any time.

Section 707 provides three instances when a debtor's actions would lead to dismissal.

Because of the use of the word "including", these three instances are not the exclusive grounds

for dismissal. However, it should be noted that the three instances set forth in the Bankruptcy

Code all deal with situations where the debtor's actions would permit dismissal on a motion by a

creditor. See, In re McCullough, 229 B.R. 374, 376 (Bankr. E.D. Va. 1999). Section 707(a)

provides no examples of what would be adequate grounds for debtors to obtain dismissal of their

own cases.

To the extent that a debtor can seek voluntary dismissal of a Chapter 7 case, it is the

debtors' burden to make the showing of cause, "and the Court should deny the motion if there is

any showing of prejudice to creditors." In re Haney, 241 B.R. 430, 432 (Bankr. E.D. Ark.

1999)(citing cases).

In reviewing motions to dismiss Chapter 7 cases, numerous cases have placed substantial

barriers in the way of a Chapter 7 debtor desiring to dismiss his or her proceeding. In re Banks,

35 B.R. 59, 60 (Bankr. D. Md. 1983). The debtors must show cause why they wish to dismiss,

and "obviously the dismissal should not work any prejudice to any creditor." Id., at 60-61. The

barriers to dismissal are so substantial that: "The fact that no creditor appears at the hearing on

the motion for dismissal is inconclusive." Id., at 61.

Recent cases include: In re Hull, 339 B.R. 304 (Bankr. E.D.N.Y. 2006)(Pro se first-time

debtor was permitted to voluntarily dismiss her Chapter 7 case under Section 707(a), where debtor

claimed she did not understand that the proceeds of her personal injury case would go to creditors).
A contrary holding is found in In re Fulton, 339 B.R. 698 (Bankr. N.D. Iowa 2006)(Chapter 7

debtor could not voluntarily dismiss case under “for cause” dismissal provision of Section 707(a).)

There do appear to be more opportunities for Chapter 7 debtors to take advantage of

provisions of the BAPCPA that require “automatic dismissal” of cases based upon the failure to

file various documents.

Chapter 13 debtors have a right to dismiss their cases. There have been some successful

attacks on attempts to dismiss cases in “bad faith”, but the general rule is clearly that the debtors

may dismiss at any time.

The problem is, if the debtors voluntarily dismiss, they may run afoul of 11 U.S.C.

§109(g)(2), which prevents the debtor from filing a new Chapter 13 case for 180 days if the case

is voluntarily dismissed after a motion for relief from stay is filed. The key word in the statute is

“voluntarily”. A case dismissed on the Chapter 13 Trustee’s motion, or a creditor’s motion, or

the Court’s own motion, is not “voluntarily” dismissed. So, in cases where a motion for relief

from stay has been filed, debtors will often suspend payments, and wait for the Chapter 13

Trustee to move to dismiss their case.

The Chapter 13 Trustee reviews each case to be sure it complies with the eligibility

requirements of Section 109(e), and will move to dismiss if the debtor exceeds the secured or

unsecured Chapter 13 debt limits.

Debtors’ payments to the Chapter 13 Trustee are also monitored, and motions to dismiss

are filed if a debtor falls behind on payments. If the payment problem is temporary, that fact

should be communicated to the Office of the Chapter 13 Trustee as soon as possible to prevent

the filing of an unnecessary motion to dismiss.