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CHAPTER 20 OR 26 (MULTIPLE BANKRUPTCY CASES)
IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.
WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.
Debtor can file a chapter 13 following a chapter 7.
In re Aleli Hernandez 9th Cir. BAP No. 16-1228, (2/25/19) Asset Management Holdings (AMH) appeals the decision of the Bankruptcy Appellate Panel (BAP) affirming the bankruptcy court’s denial of AMH’s motion to dismiss Debtor’s Chapter 13 petition on eligibility grounds. “1. AMH argues that the bankruptcy court erred by not counting AMH’s lien against Debtor for the purposes of determining eligibility under 11 U.S.C. § 109(e). AMH is mistaken.”
“2. AMH also argues that the bankruptcy court erred in concluding that Debtor filed her petition in good faith. AMH is wrong.”
You can file a Chapter 13 while a Chapter 7 is pending in the 9th Circuit, so long as the Chapter 13 is in good faith and does not adversely impact the administration of the Chapter 7 estate.
In re Blendheim, 803 F.3d 477 (2015) faith. The Blendheims received their Chapter 7 discharge in January 2009 and filed their Chapter 13 petition the following day; their Chapter 7 case was not closed until November 2010. Contrary to HSBC’s contention that the Blendheims sought Chapter 13 relief solely to avert foreclosure, the bankruptcy court found that the Blendheims sought Chapter 13 protection for additional, valid reasons. The Blendheims filed their Chapter 13 case to deal with fraud claims and other issues surrounding the first-position lien, to repay secured debt owed to their homeowners association, and to clarify how post-petition debts would be paid. According to the court, the Blendheims “do not appear to be serial ‘repeat filers’ [who are] systematically and regularly abusing the bankruptcy system.” And with respect to the automatic stay, the court stated: “Although the Chapter 13 filing appears to be motivated by Debtors’ wish to avoid the foreclosure sale of their Residence, the Court does not find that filing for Chapter 13 bankruptcy under those circumstances necessarily constitutes bad faith.” It explained, “[m]any Chapter 13 debtors file for bankruptcy on the eve of foreclosure sale as a last resort.” The bankruptcy court did not clearly err in concluding that the Blendheims filed their Chapter 13 petition in good faith on these facts.
V. CONCLUSION We conclude that the bankruptcy court properly voided HSBC’s lien under § 506(d), confirmed the Blendheims’ Chapter 13 plan offering permanent voidance of HSBC’s lien upon successful plan completion, and found no due process violation or bad faith purpose in filing the Chapter 13 petition. Accordingly, we affirm the bankruptcy court’s lien-voidance order, plan confirmation order, and plan implementation order.
FILING POC IN 13 AFTER DISCHARGED IN 7 “CHAPTER 20”
In re Washington, BAP NO. CC-18-1206-LKuF (July 30, 2019) Debtor Gwendolyn Washington obtained a chapter 7 discharge, which extinguished her personal liability on the debt secured by a junior lien on her residence. About five years later, she filed a chapter 13 case; she obtained an order valuing at zero the junior lien held by Option One Mortgage Corporation, serviced by Real Time Resolutions, Inc. (“RTR”). RTR filed an unsecured claim in the full amount of the debt it believed it was owed; Ms. Washington objected on the ground that her personal liability had been discharged. The bankruptcy court overruled the objection, concluding that the discharge did not fully eliminate the claim and that the plain language of § 506(a) required the allowance of RTR’s unsecured claim in the amount of $307,049.79. We REVERSE. BAP finds that a debtor may employ so-called chapter 20 to strip off an underwater subordinate mortgage while simultaneously avoiding personal liability for the debt.
In re Boukatch, Az-14-1483 (9th Cir BAP, 7/9/15) Chapter 13 debtors, Serge M. Boukatch and Lori J. Boukatch (“Debtors”), appeal an order denying their motion to avoid a lien on their principal residence. The bankruptcy court determined that, as a matter of law, a “chapter 20” debtor is not entitled to avoid a wholly unsecured junior lien under §§ 506(a) and 1322(b)(2) against the debtor’s principal residence when no discharge will be entered in the pending chapter 13 case. On this issue of first impression, we REVERSE and REMAND. (Good discussion on Nobelman and anti-modification provisions.)
We conclude that § 1328(f)(1) does not prevent Debtors’ ability to strip off MidFirst’s wholly unsecured junior lien in their chapter 13 plan, because nothing in the Bankruptcy Code prevents chapter 20 debtors from stripping such liens off their principal residence under §§ 506(a)(1) and 1322(b)(2). We further conclude that plan completion is the appropriate end to Debtors’ chapter 20 case. Unlike a typical chapter 13 case, the lien avoidance will become permanent not upon a discharge, but rather upon completion of all payments as required under the plan. In re Davis, 716 F.3d at 338; In re Frazier, 469 B.R. at 900; In re Blendheim, 2011 WL 6779709, at *6; In re Okosisi, 451 B.R. at 99-10 100; In re Frazier, 448 B.R. at 810; In re Tran, 431 B.R. at 235.
These cases hold that a debtor can convert to 13 after a 7 discharge. In re Oblinger, 288 BR 781 (Bkrtcy. N.D. Ohio, 2003); In re Carter, 285 BR 61 (Bkrtcy. N.D.Ga. 2002); In re Mosby, 244 BR 79 (Bkrtcy.E.D.Va. 2000). In one attorney’s opinion it shouldn’t be necessary to vacate the chapter 7 discharge. But others don’t agree.
The typical chapter 20 case works like this: The consumer first files under chapter 7 to extinguish personal liability on a subordinate, underwater home mortgage. Later, sometimes the day after receiving a chapter 7 discharge, the consumer files a separate chapter 13 case to strip off the mortgage lien that survived chapter 7 as an in rem liability solely against the real property (Dewsnup v. Timm, 502 U.S. 410 (1992).
The Ninth Circuit Bankruptcy Appellate Panel has validated chapter 20, at least when the debtor receives a discharge in chapter 13. See Washington v. Real Time Resolution Inc. (In re Washington), 602 B.R. 710 (B.A.P. 9th Cir. July 30, 2019).
When chapter 20 works, the debtor emerges from the subsequent chapter 13 case with the underwater mortgage stripped off and no personal liability on the subordinate mortgage debt.
