25 Apr Follow The Rules in Chapter 13, Even If They’re Inconvenient
Being in Chapter 13 bankruptcy can be annoying. It’s like a bad wedding reception for your sister, you’d rather be anywhere but here…and you have to be here. But like your sister’s wedding, you should behave yourself and follow the rules.
Every district in the country seems to have their own little local procedures for applying Chapter 13. Judge Barry Schermer in St. Louis calls it “home cooking.” In most places it’s a ban on borrowing money without permission. Sometimes you have to turn in part of a tax refund, or send tax returns to the trustee, or file new budgets or reports regularly. Everybody cooks 13 Gumbo their own way.
And if you want or need the ultimate benefits of Chapter 13, you have to eat what the chef makes. Or use his silverware. Or something. (The cooking metaphor gets old quickly.) If you don’t, bad things can happen and sometimes your lawyer can’t fix it for you.
Most simply, if you don’t play by the rules while in Ch. 13, your case can be thrown out. You end up with a bankruptcy on your credit report, probably a bit poorer, and no real benefit to show for it.
But interestingly, things can actually get worse if you convert the case to Chapter 7 instead. If you knowingly disobeyed court orders in the Chapter 13 phase of your case, then you run the risk of being denied a discharge outright. Section 727(a)(6)(A) allows the court to refuse to give you a discharge if you disobeyed a “lawful order of court.”
So, for example, if the court orders you to file periodic reports if you run or start a business and requires you to turn in your tax returns each year, and you fail to do so, as happened in a recent case from the Tenth Circuit Court of Appeals, then you leave yourself open to objections when you convert to Chapter 7.
The simple reality is that the way to cope with the rules is to live with them. Or take them head-on and ask the judge to waive them for you. He probably won’t. But if you have a really good reason, you never know. And it is his job, not yours, to say which apply to you and which do not. So let the man run his own kitchen.
Photo Credit: Federal Highway Admin.
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