By John P. Gustafson, Chapter 13 Trustee, Northern District of Ohio, Western Division
A. Section 1328(f) – Eligibility For A Discharge In A Chapter 13 Filed
After A Previous Chapter 7 or 13.
BAPCAP implemented new “look back periods” – time that must pass before a debtor is eligible to receive a discharge if the debtor had filed a prior Chapter 13 or Chapter 7 case and received a discharge. 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.
1. Section 1328(f) Does Not Prevent The Filing Of A Chapter 13.
Section 1328(f) does not prevent the FILING of a Chapter 13 bankruptcy (or other relief provided by Chapter 13), but it does prevent the entry of a DISCHARGE. See e.g., In re Bateman, 515 F.3d 272 (4th Cir. 2008); In re Pollard, Case No. 10-17396PM, 2011 Bankr. LEXIS 595, n.2 (Bankr. D. Md. Feb. 9, 2011); In re Sours, 350 B.R. 261, 267 n.3 (Bankr. E.D. Va. 2006); In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006); 8 Collier on Bankruptcy, ¶1328.06[1] at 1328-36 (15th Ed. Rev. 2008); Hon. William Houston Brown, Taking Exception to Debtor’s Discharge: The 2005 Bankruptcy Amendments Make It Easier, 79 Am. Bankr. L. J. 419, 448-49 (Spring, 2005).
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 – a bankruptcy discharge isn’t needed. Cure under Code Section 1322(b)(3) and (5) is typically the primary goal, provided the debtors have not incurred additional unsecured debts between the filing of the Chapter 7 and the filing of the Chapter 13.
However, where there are unsecured debts, the absence of eligibility for a Chapter 13 discharge creates problems regarding unsecured creditors’ entitlement to interest and late charges after the Chapter 13 case is completed. Those additional charges are discharged at the conclusion of 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 demand their contractual interest and late charges, even if the Plan proposed to pay unsecured creditors “100%”.
It remains to be seen how many creditors would actually take such a position after a Chapter 13 Plan is completed.
i. No Lien Stripping In A 13 Without A Discharge?
It appears that a majority of recent decisions hold that stripping a junior mortgage is prohibited in a Chapter 13 where the debtor is not eligible for a discharge. See, In re Picht, 428 B.R. 885, 890 (10th Cir. BAP 2010), reversing, In re Picht, 396 B.R. 76, 79 (Bankr. D. Kan. 2008)(bankruptcy court had allowed mortgage to be stripped) which had previously been reversed solely on procedural grounds in, Bank of the Prairie v. Picht (In re Picht), 403 B.R. 707 (10th Cir. BAP 2009); In re Gerardin, Case No. 10-16511-RAM, 2011 Bankr. LEXIS 514 (Bankr. S.D. Fla. Feb. 17, 2011); In re Gomez, Case No. 6:09-bk-13656-ABB, 2010 Bankr. LEXIS 4501 (Bankr. M.D. Fla. Dec. 7, 2010); In re Trujillo, Case No. 6:10-bk-02615-ABB,2010 Bankr. LEXIS 3834 (Bankr. M.D. Fla. Nov. 10, 2010); In re Fenn, 428 B.R. 494 (Bankr. N.D. Ill. 2010)(lien could not be avoided under bankruptcy debtors’ plan since §1325(a)(5) required retention of lien until payment or discharge for which debtors were ineligible); In re Casey, 428 B.R. 519 (Bankr. S.D. Cal. 2010)(without a discharge, any relief granted would be ineffective); In re Mendoza, Bankruptcy Case No. 09-22395 HRT, 2010 Bankr. LEXIS 664, 2010 WL 736834 (Bankr. D. Colo. January 21, 2010); In re Winitzky, Case No: 1:08-bk-19337-MT, 2009 Bankr. LEXIS 2430 (Bankr. C.D. Cal. May 7, 2009); Blosser v. KLC Fin., Inc. (In re Blosser), Case No. 07-28223-svk, Adversary No. 08-2353, 2009 Bankr. LEXIS 1049 (Bankr. E.D. Wis. April 15, 2009); In re Jarvis, 390 B.R. 600 (Bankr. C.D. Ill. 2008)(Chapter 13 Plan proposing to strip off junior mortgage, previously discharged in prior Chapter 7, could not be confirmed where debtor was not eligible for a Chapter 13 discharge).
While there was a brief period of at least near unanimity after Picht was reversed, several courts subsequently held that wholly unsecured liens were not holders of a secured claim for purposes of Section 1325(a)(5)(B), and therefore the lien could be stripped in a Chapter 13 case where the debtor was not entitled to a discharge. See, In re Tran, 431 B.R. 230 (Bankr. N.D. Cal. 2010); In re Frazier, Case No. 09-48595-E-13L, 2011 Bankr. LEXIS 78 (Bankr. E.D. Cal. Jan. 11, 2011); In re Grignon, No. 10-34196-tmb13, Bankr. L. Rep. (CCH) P81,896, 2010 Bankr. LEXIS 4279, 2010 WL 5067440 (Bankr. D. Or. Dec. 7, 2010); In re Hill, 440 B.R. 176 (Bankr. S.D. Cal. 2010); In re Jazo, No. 09-16609-JM13, 2010 Bankr. LEXIS 3534, 2010 WL 3947303 (Bankr. S.D. Cal. Sept. 28, 2010).
2. Majority View: The Two And Four Year Waiting Periods Are
Measured Filing To Filing.
A very solid majority of cases hold that the two year (discharged Chapter 13 to Chapter 13) and four year (discharged Chapter 7 to Chapter 13) waiting periods are measured “filing-to-filing”. In other words, where a Chapter 13 debtor has received a discharge in a case filed more than two years ago, s/he is eligible for a discharge in a subsequent Chapter 13 case. See, In re Gagne, 394 B.R. 219 (1st Cir. BAP 2008). Of course, that means that the two-year waiting period of §1328(f)(2) almost never applies, since Chapter 13 requires a minimum three year commitment period in cases where unsecured creditors receive less than 100%.
Since the enactment of the BAPCPA, the Chapter 7 to Chapter 13 waiting period of §1328(f)(1) has been held to be properly measured “filing-to-filing” by a clear majority of courts, including the Sixth Circuit Court of Appeals. See, In re Sanders, 551 F.3d 397 (6th Cir. 2008); In re Bateman, 515 F.3d 272, 272 (4th Cir. 2008); In re Gomez, Case No. 6:09-bk-13656-ABB, 2010 Bankr. LEXIS 4501 (Bankr. M.D. Fla. Dec. 7, 2010); In re Trujillo, Case No. 6:10-bk-02615-ABB,2010 Bankr. LEXIS 3834 (Bankr. M.D. Fla. Nov. 10, 2010); In re Colbourne, Case No. 6:10-bk-00983, 22 Fla. L. Weekly Fed. B 620, 2010 Bankr. LEXIS 3813 (Bankr. M.D. Fla. Nov. 8, 2010); In re Hieter, 414 B.R. 665, 667-668 (Bankr. D. Idaho 2009); In re McGhee, 342 B.R. 256 (Bankr. W.D. Ky. 2006); In re West, 352 B.R. 482 (Bankr E.D. Ark. 2006); In re Grydzuk, 353 B.R. 564, 568 (Bankr. N.D. Ind. 2006); In re Knighton, 355 B.R. 922, 926 (Bankr. M.D. Ga. 2006)(“The Court now turns to the Bank’s alternative argument-that the look back period starts running on the date of discharge in the prior case rather than the date of filing in the prior case. Nothing in the language of §1328(f)(1) supports such an interpretation. The statute bars discharge in the pending case if the debtor received a prior discharge in a case “filed under chapter 7 … during the 4-year period preceding the date of the order for relief” in the pending case. Because the order for relief arises on the date of filing, a plain reading of §1328(f)(1) indicates that the lookback period runs from the filing date of the prior case to the filing date of the current case.”); In re Grice, 373 B.R. 886 (Bankr. E.D. Wis. 2007)(in unconverted cases, the measure is filing-to-filing, where the prior case was a Chapter 7 or a Chapter 13).
Other cases, while not explicitly stating a rule about how the “look back” period should be measured, simply use the filing-to-filing dates in determining whether or not the required time that has passed. See e.g., In re Ybarra, 359 B.R. 702, 703 & 709 (Bankr. S.D. Ill. 2007)(court used February 3, 2003, the date of the filing of the prior case to measure the applicable look back period).
i. When A Case Converts, Which Look back Period
Applies?
Several published opinions address the question of which chapters’ look back period will apply when the prior case was converted from a Chapter 13 to a Chapter 7. Typically, the debtor wants the look back period to be based on the chapter the case was filed under – Chapter 13. Creditors would prefer that the look back period be based on the chapter in which the debtor received a discharge – Chapter 7.
To date, most bankruptcy courts have held that the relevant “look back” period is determined by the chapter under which the discharge in the prior case was received (Chapter 7), and not by the chapter under which the petition was originally filed (Chapter 13): See, In re Capers, 347 B.R. 169, 171 (Bankr. D.S.C. 2006); In re Sours, 350 B.R. 261, 262-263 (Bankr. E.D. Va. 2006)(Section 1328(f) cannot be read in a vacuum; it must be read in conjunction with §348(a), which “mandates that a case which has been converted [from Chapter 13 to Chapter 7] … is deemed to be ‘filed under’ Chapter 7 on the date on which the Chapter 13 was filed.); In re Grydzuk, 353 B.R. 564, 568 (Bankr. N.D. Ind. 2006); In re Knighton, 355 B.R. 922, 924-925 (Bankr. M.D. Ga. 2006); In re Ybarra, 359 B.R. 702, 706-709 (Bankr. S.D. Ill. 2007); In re Grice, 373 B.R. 886, 889 (Bankr. E.D. Wis. 2007)(“This court joins with Capers, Sours, Grydzuk, Knighton, and Ybarra and holds that the 4-year waiting period contained in §1328(f)(1) applies to the case at bar.”); In re Dalton, 63 Collier Bankr. Cas. 2d (MB) 543, 2010 Bankr. LEXIS 51 (Bankr. M.D.N.C. Jan. 7, 2010)(rejecting Hamilton).
There is one case that goes the other way in a situation where a Chapter 13 was converted to a Chapter 7. In re Hamilton, 383 B.R. 469 (Bankr. W.D. Ark. 2008) held that where the debtor filed a Chapter 13 petition, and then converted to a Chapter 7, the shorter two year Chapter 13 look back period applied. The bankruptcy court relied on its interpretation of §348 in holding that the look back was based on the Chapter the case was originally filed under, and conversion of the case from a Chapter 13 to a Chapter 7 did not change the look back period under §1328(f)(1).
ii. Enforcing §1328(f) – What Do You File?
Actions seeking to prevent the debtor’s discharge under §1328(f) are being filed as motions, as adversary complaints, and as objections to confirmation. Compare, In re Capers, 347 B.R. 169, 171 (Bankr. D.S.C. 2006)(adversary); In re Grice, 373 B.R. 886 (Bankr. E.D. Wis. 2007)(adversary decided on motion for judgment on the pleadings); In re Hamilton, 383 B.R. 469 (Bankr. W.D. Ark. 2008)(adversary); with, In re Grydzuk, 353 B.R. 564 (Bankr. N.D. Ind. 2006)(motion); In re Ybarra, 359 B.R. 702, 706-709 (Bankr. S.D. Ill. 2007)(motion), with, In re Knighton, 355 B.R. 922 (Bankr. M.D. Ga. 2006)(on objection to confirmation); In re Sanders, 368 B.R. 634 (Bankr. E.D. Mich. 2007), rev’d, In re Sanders, 551 F.3d 397 (6th Cir. 2008) (ineligibility for discharge raised in objection to confirmation in bankruptcy court, not discussed as a defect on appeal). The issue of the propriety of denying a discharge by motion was raised in In re Gagne, 394 B.R. 219 (1st Cir. BAP 2008), but was denied as moot.
To date, no decision appears to have directly addressed whether or not an adversary complaint is necessary to litigate this issue. It appears that the Office of the U.S. Trustee generally uses an adversary complaint when litigating a debtor’s eligibility for discharge based on §1328(f).
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John Gustafson
John was appointed Standing Chapter 13 Trustee for the Northern District of Ohio, Western Division on October 1, 2007. |
