Filing Chapter 13 After Chapter 7 Discharge
By Jay Fleischman, New York Bankruptcy Attorney on Feb 15, 2007 in Discharge, What Can and Cannot Be Forgiven, New York, Venue and Qualifications
I read an article today on the Florida Bankruptcy Law Blog, written by Jonathan Alper. I usually agree entirely with Mr. Alper, but in this case I believe that he is only partially correct.
In his post, Mr. Alper says:
Under the new bankruptcy law, once you complete a Chapter 7 bankruptcy you are not allowed to seek relief under a new Chapter 13 bankruptcy for several years regardless of whether your current problems, in this instance a mortgage foreclosure, arose after the Chapter 7. More particularly, you cannot file a Chapter 13 case if you received a discharge in a prior Chapter 7 that was filed within the past four years.
This is incorrect. A person is permitted to file a Chapter 13 bankruptcy case whenever that person wants; assuming that there was not a previous bankruptcy case that was dismissed within the year preceding the filing of the case, the automatic stay will be in effect without further action. During the new Chapter 13 case, the debtor will be able to propose a Plan to repay the mortgage arrears in full and stop the foreclosure.
Mr. Alper confuses the question of eligibility to file for bankruptcy and the ability to obtain a discharge at the end of the case. Mr. Alper’s potential client was looking for the ability to stop the foreclosure and catch up on payments, not to discharge any obligations. Therefore, Chapter 13 would have been a valid option.
As to whether a debtor may obtain a discharge in Chapter 13 after a Chapter 7 discharge? Well, a debtor is not eligible to receive a discharge if that debtor has received a discharge in a Chapter 7 case that was commenced within 8 years of the date of filing of the new case. That’s in section 727(a)(8) of the U.S. Bankruptcy Code.
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Stephen Otto, Attorney at Law | Feb 15, 2007 | Reply
This is an excellent point. Most courts which have encountered this issue have permitted Chapter 13 Plans to proceed even when the Debtor will not be eligible for a discharge at the conclusion of the Plan. In this way, the Debtor gets the benefit of the Automatic Stay. For example, it is not an infrequent occurrence that a Debtor will file a Chapter 7 case and obtain a discharge, only to fall behind in the mortgage payments sometime during the pendency of the Chapter 7. Once the Chapter 7 case is closed, the Debtor will receive foreclosure notices. What can the Debtor do to prevent the foreclosure? A Chapter 13 case can be filed and a Plan can be proposed which will pay back the arrears claimed on the mortgage account.