WHY FILE FOR CHAPTER 13 BANKRUPTCY, Terry Bankert Flint Bankruptcy Attorney 235-1970

One of the most common reasons a debtor chooses to file a Chapter 13 case is to prevent the foreclosure of the debtor’s residence by the mortgage company. Therefore, an important deadline for filing a Chapter 13 case is before the foreclosure sale. There are numerous deadlines to be concerned with, and most are far more subtle than the foreclosure sale. The following should be considered:

1. Repossession. The automatic stay provided by 11 USC 362(a)will stop repossession from occurring; furthermore, filing the Chapter 13 petition before the sale of the vehicle by the secured claim holder will stop the sale as well, even if the debtor is not in possession of the vehicle at the time the petition is filed.
2. Means test. The applicable commitment period (three to five years) of the Chapter 13 plan is determined by a calculation requiring the determination of current monthly income. 11 USC 1325(b)(4). Current monthly income in a Chapter 13 case is defined as “the average monthly income from all sources that the debtor [and the debtor’s spouse] receives …, derived during the 6-month period ending on the last day of the calendar month immediately preceding the date of the commencement of the case.” See 11 USC 101(10A)(A);1322(d). The length of the debtor’s plan may vary, depending on when the case is filed. See 11 USC 1325(b).
3. Credit counseling. 11 USC 109(h) requires the debtor to receive a “briefing … that outlined the opportunities for available credit counseling” during the 180 days preceding the filing of the petition. If possible, the debtor should wait to file the petition until the day after the briefing was received.
4. Residential lease. If possible, the debtor should file his or her Chapter 13 case before the entry of a judgment of possession by a residential lessor. The automatic stay may expire 30 days after the petition is filed if a judgment of possession was obtained prepetition. See 11 USC 362(b)(22).
5. Eligibility based on debt limits under 11 USC 109(e). Since contingent, unliquidated debt does not count towards the debt limits set forth in 11 USC 109(e), the debtor may need to file his or her petition before a debt becomes noncontingent or liquidated.
6. Eligibility under 11 USC 109(g) based on earlier filings. A debtor is ineligible for bankruptcy relief under 11 USC 109(g) if he or she had a case pending within the 180 days before filing the petition and that case was dismissed “for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case” or the debtor voluntarily dismissed his or her case after a motion for relief from the automatic stay was filed.
7. Discharge under other chapters of the Code. If a debtor has received a Chapter 7, 11, or 12 discharge in a case filed during the four years before filing the present case, or a Chapter 13 discharge in a case filed during the two years before filing the present case, he or she is not eligible for a discharge. 11 USC 1328(f). The debtor may file the case and obtain the protection of the automatic stay; however, the debtor will not receive a discharge. This potentially results in a debtor’s successfully completing a Chapter 13 plan and subsequently having to pay his or her prepetition debt.
8. Taxes. 11 USC 507(a)(8) establishes the time frame for priority treatment of income taxes. Because priority claims must be paid in full (see 11 USC 1322(a)(2)), the debtor may be able to delay filing the Chapter 13 case until the tax claims become unsecured nonpriority claims and therefore subject to payment with all other general unsecured creditors.
9. Extension or imposition of the automatic stay. If the debtor has had one or more cases pending within the one year preceding the filing of the present case, but dismissed, the automatic stay may expire 30 days after the case is filed or not even come into effect. 11 USC 362(c)(3) and (4).

A debtor’s prepetition domicile may have an impact on venue and exemptions. See 11 USC 522(b)(3)(A).

current to 1/10/13

Handling Consumer and Small Business Bankruptcies in Michigan ch 2 (Richardo I. Kilpatrick et al eds, ICLE 2009), at http://www.icle.org/modules/books/chapter.aspx?lib=bankruptcy&book=2009550820&chapter=02 (last updated 12/28/2012).