Filing Chapter 13 After Receiving a Chapter 7 Discharge

I received an email today from a potential client asking about the rules for filing a Chapter 13 after a Chapter 7 that has been discharged.

Section 1328 of the Code says that a Chapter 13 debtor my not be granted a discharge if he received a discharge in a Chapter 7, 11 or 12 filed within four years of the filing of the pending Chapter 13 case.

Interestingly, this Code section does not appear to bar the filing of a Chapter 13 case within four years of a Chapter 7 discharge, but a case filed within this four year period would not result in a discharge. My colleague, Scott Riddle, has written in his Georgia Bankruptcy Law blog about two Southern District cases where the Judge found the debtors to be eligible for Chapter 13, despite their ineligibility for a discharge. One of the factors in the two cases Scott writes about is the proposed 100% dividend to unsecured creditors.

What does this mean? Would cases that propose less than a 100% dividend face more judicial scrutiny? Does it mean that a plan that proposes a 10% dividend to unsecureds would pay the 10% dividend in the plan, but not discharge the remaining 90%, which would survive the bankruptcy? What about a 100% dividend plan – would accruing interest survive the close of the Chapter 13 estate? I suspect that we will find out the answers to these questions within the next few years.

Now, what about the percentage dividend to unsecureds in a Chapter 13 filed after a Chapter 7 discharge? I have always used the “best efforts” and “good faith” requirements of the Kitchens case (In re Kitchens, 702 F .2d 885 (11th Cir . 1983).

The Kitchens case sets out a list of factors to be considered in determining good faith:

(1) the amount of the debtor’s income from all sources;

(2) the living expenses of the debtor and his dependents 411 U .S .C . §1325(x)

(3) the amount of attorney’s fees

(4) the probable or expected duration of the debtor’s chapter 13 plan

(5) the motivations of the debtor and his sincerity in seeking relief under the provisions of chapter 13

(6) the debtor’s degree of effort

(7) the debtor’s ability to earn and the likelihood of fluctuation in his earnings

(8) special circumstances such as inordinate medical expense

(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act and its predecessors

(10) the circumstances under which the debtor has contracted his debts and his demonstrated bona fides, or lack of same, in dealings with his creditors

(11) the burden which the plan’s administration would place on the trustee

It is my position that the Kitchens case is still good law in the 11th Circuit (includes Georgia Bankruptcy Courts). So, as a rule, I do not think that Chapter 13 debtors who have recently received a Chapter 7 discharge must pay back their unsecureds at 100% but I will warn them that the Chapter 13 trustee is more likely to demand a higher dividend to unsecureds in one of these cases than in a first case.