By: Mark Haut, PRACTICAL GUIDANCE BANKRUPTCY TEAM with assistance from Emony Robertson, LEXISNEXIS RULE OF LAW FOUNDATION FELLOW
This chart details the differences between Chapters 7 and 13 of the Bankruptcy Code and can be used to guide attorneys in understanding the differences between these chapters.
Practical Guidance supports the efforts to advance what’s possible in the world by strengthening the rule of law, illustrating transparency in the law, and providing equitable access to legal remedies. In connection therewith, this checklist contains a short list of questions practitioners should pose when counseling consumer clients to file for Chapter 7, or alternatively, Chapter 13. For more information, see Advancing the Rule of Law in Consumer Bankruptcies below.
Overview of Chapters 7 and 13
Chapter 7 of the Bankruptcy Code is utilized by individual
and business debtors to liquidate assets. Chapter 7 cases are designed to give (1) an individual debtor a fresh start in the form of discharge of his or her debts and (2) a business debtor relief from its debts through an orderly dissolution process. In exchange for the fresh start or business relief, the debtor submits its assets to the control of a Chapter 7 trustee. If the Chapter 7 trustee discovers value in the debtor’s assets, the trustee is required to sell those assets and distribute the proceeds to the debtor’s creditors. Chapter 13 is for individuals (other than stockbrokers or commodity brokers) residing (or with a domicile or place of business) in the United States with regular income sufficiently stable to make payments under a Chapter 13 plan. After the debtor completes plan payments, a discharge issues for the remainder of the debt not paid through the Chapter 13 plan, giving the debtor his or her fresh start.
Eligible Debtors |
Chapter 7 |
Chapter 13 |
For All Chapters: An individual cannot file under any chapter if, during the preceding 180 days, the individual previously filed a bankruptcy petition that was dismissed (1) by the court because the individual disobeyed orders or failed to appear to prosecute the case or (2) on the individual debtor’s motion after a request for relief from stay had been filed. 11 U.S.C.S. §§ 109(g), 362(d), and (e). Subject to certain exceptions, an individual also may not be a debtor under any chapter unless he or she received credit counseling from an approved credit counseling agency in an individual or a group briefing within 180 days before filing. 11 U.S.C.S. §§ 109(h), 111.
Relevant Bankruptcy Code Sections / Bankruptcy Rules: 11 U.S.C.S. §§ 101, 109(g) , 362, 707
Related Content: • Chapter 7 Liquidation • Chapter 13 Bankruptcy
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Individuals, stockbrokers, commodity brokers, corporations, and certain other business entities may file for relief under Chapter 7. 11 U.S.C.S. §§ 101(13) and (41), 109(b). Railroads and domestic and foreign insurance companies, banks, and credit unions are not eligible for relief under Chapter 7. 11 U.S.C.S. § 109(b).
The amount of the debtor’s debt does not impact an individual or business debtor’s ability to seek relief under Chapter 7. The individual or business debtor simply must owe debts. However, an individual debtor’s income level may impact the ability to seek relief under Chapter 7. The means test may force individual debtors into Chapter 13 if they want to obtain a discharge of their debts (described later in this chart).
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Only individuals may be debtors under Chapter 13. To qualify, the individual, as of the petition date, must have regular income and:
- Owe noncontingent, liquidated,
unsecured debts of less than $419,275 and noncontingent, liquidated, secured debts of less than $1,257,850 –or–
- The individual and a spouse
(except a stockbroker or a commodity broker) must be below the same debt limits 11 U.S.C.S. § 109(e).
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Filing for Bankruptcy |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules: 11 U.S.C.S. §§ 301, 303
Related Content:
- Chapter 7 Liquidation
- Chapter 13 Bankruptcy
- Involuntary Bankruptcy Cases
- Preparing for a Bankruptcy Filing Checklist
- Voluntary Petition (Official Form 201)
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The debtor may commence a Chapter 7 case by filing a voluntary petition. 11 U.S.C.S. § 301. Creditors can commence an involuntary case by filing an involuntary petition against the debtor. 11 U.S.C.S. § 303(b).
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A Chapter 13 case may only be commenced by the debtor filing a voluntary bankruptcy petition. 11 U.S.C.S. §§ 301, 303(a).
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Trustees |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules: 11 U.S.C.S. §§ 521, 701, 702, 703, 704, 707, 1106, 1302, 1322, 1326
Fed. R. Bankr. P. 2015
Related Content:
- Chapter 7 Trustee Duties
- Chapter 7 Trustee Duties
Checklist
- Chapter 13 Trustee Duties
- Section 341 Meeting
Preparation (Consumers)
- Reaffirmation Agreements
in Chapter 7
- Converting a Bankruptcy
Case Checklist
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Upon the filing of a Chapter 7 petition, the U.S. Trustee will appoint a panel member to serve for that particular case. 11 U.S.C.S. § 701. At the Section 341 meeting of creditors, creditors may request an election be held to appoint a permanent trustee. 11 U.S.C.S. § 702. If no such request is received and no election is held, the interim trustee becomes the permanent trustee in the case. 11 U.S.C.S. § 702(d).
The Chapter 7 trustee must perform certain duties pursuant to Section 704 of the Bankruptcy Code including the following:
- Collect property of the estate. 11 U.S.C.S. § 704(a)(1).
- Be accountable for all property received by the
trustee. 11 U.S.C.S. § 704(a)(2); see also Bankruptcy Rule 2015.
- Ensure the debtor files a statement of intentions
and performs the intentions as stated. 11 U.S.C. § 704(3).
- Investigate the debtor’s financial affairs. 11 U.S.C.S.
§ 704(a)(4).
- Examine and, if appropriate, object to claims.
11 U.S.C.S. § 704(a)(5).
- Object to discharge (if appropriate). 11 U.S.C.S.
§ 704(a)(6).
- Provide requesting creditors information concerning
the case. 11 U.S.C.S. § 704(a)(7).
- File periodic reports and summaries with the court.
11 U.S.C.S. § 704(a)(8).
- File a final report and accounting with the court and
the U.S. Trustee. 11 U.S.C.S. § 704(a)(9).
- Provide certain notices with regard to domestic
support claims. 11 U.S.C.S. § 704(a)(10)
- Continue the administration of any employee
benefit plan held by a business in a Chapter 7 case. 11 U.S.C.S. § 704(a)(11).
- Use all reasonable and best efforts to transfer
patients from a closing healthcare business in a Chapter 7 case to another appropriate healthcare business. 11 U.S.C.S. § 704(a)(12).
A Chapter 7 trustee must also fulfill the obligations outlined in the U.S. Trustee’s Handbook For Chapter 7 Trustees (Handbook). These obligations consist of, among other things, reviewing debtor documents to ensure adequacy and timeliness, including the following documents:
- Chapter 7 petition
- Credit counseling certificate
- Social security statement
- Schedules and statement of financial affairs
- Statement of exemptions
- Statement of debtor’s attorney’s fees
- Review for bankruptcy preparers
- Pay advices
- Tax returns
According to the Handbook, if the debtor is a business, the Chapter 7 trustee must also perform the following duties promptly after the petition date:
- Review the books and records of the debtor.
- Preserve business assets.
- Determine whether the employment of any professionals is necessary.
The Chapter 7 trustee has additional duties, including:
- Discuss the effect of reaffirming debts with the debtor prior to examining
him or her at the Section 341(a) meeting of creditors
- Preside over the Section 341 meeting of creditors
- Advise and examine the debtor at the Section 341 meeting of the effects
of commencing a Chapter 7 case
- Review the debtor’s filings and testimony for compliance (11 U.S.C.S.
§ 521) and any evidence of substantial abuse that provides a basis for a motion to dismiss (or convert) pursuant to Section 707(b)
- Notify the U.S. Trustee if, after reviewing the material listed above, the
trustee determines that such evidence exists
- Report suspected criminal activity to the U.S. Trustee
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Chapter 13 debtors retain possession of their assets and are permitted to continue business operations (to the extent applicable) during the bankruptcy. In Chapter 13, a bankruptcy trustee is appointed at the commencement of the case. 11 U.S.C.S. § 1302(a). The Chapter 13 Trustee must perform some of the same tasks as a Chapter 7 trustee and certain additional tasks, including the tasks listed below:
- Be accountable for all property
received by the trustee. 11 U.S.C.S. §§ 1302(b)(1), 704(a)(2); see also Bankruptcy Rule 2015(c) (expands on the requirements for Chapter 13 trustees).
- Ensure the debtor files a
statement of intentions and performs the intentions as stated. 11 U.S.C.S. §§ 1302(b) (1), 704(3). Note that this requirement may be a drafting error. See Collier on Bankruptcy P 1302.03.
- Investigate the debtor’s
financial affairs. 11 U.S.C.S. §§ 1302(b)(1), 704(4).
- Examine and, if appropriate,
object to claims. 11 U.S.C.S. §§ 1302(b)(1), 704(5).
- Object to discharge (if
appropriate). 11 U.S.C.S. §§ 1302(b)(1), 704(6).
- Provide requesting creditors
information concerning the case. 11 U.S.C.S. §§ 1302(b)(1), 704(7).
- File a final report and accounting with the
court and the U.S. Trustee. 11 U.S.C.S. §§ 1302(b)(1), 704(9).
- Appear and be heard at a hearing on the value
of property subject to a lien, confirmation hearing, and plan modifications. 11 U.S.C.S. § 1302(b)(2).
- Advise and assist the debtor in performance
under the plan. 11 U.S.C.S. § 1302(b)(4).
- Ensure the debtor makes timely payments
under the plan. 11 U.S.C.S. § 1302(b)(5).
- Provide notices to domestic support
claimholders and related parties. 11 U.S.C.S. § 1302(b)(6).
- If the debtor is engaged in business, the
Chapter 13 trustee has certain additional obligations. 11 U.S.C.S. §§ 1302(c), 1106(a)(3), 1106(a)(4).
- Collect plan payments and make distributions
to creditors in accordance with the debtor’s plan. 11 U.S.C.S. §§ 1322(a)(1), 1326.
The Chapter 13 trustee has additional duties, including:
- Preside over the Section 341 meeting of
creditors
- Advise and examine the debtor at the Section
341 meeting of the effects of commencing a Chapter 13 case
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Means Test |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules: 11 U.S.C.S §§ 101(10A), 101(39A), 707, 1325
Fed. R. Bankr. P. 1007
Related Content:
- Chapter 7 Liquidation
- Chapter 13 Bankruptcy
Means Test
- Chapter 13 Bankruptcy
- Census Bureau, IRS data and
Administrative Expenses Multipliers
- Chapter 7 Statement of Your
Current Monthly Income
- Chapter 13 Statement
of Your Current Monthly Income and Calculation of Commitment Period
- Chapter 7 Means Test
Calculation
- Chapter 13 Calculation of
Disposable Income
- Statement of Exemption
from Presumption of Abuse Under § 707(b)(2)
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The means test identifies Chapter 7 individual debtors who can repay some of their debts and forces them into Chapter 13 if they want to obtain a discharge of their debts. The means test calculates an individual debtor’s disposable income and estimates the debtor’s ability to repay general unsecured debts. The means test is used to determine whether a Chapter 7 case is presumed abusive for purposes of dismissal. 11 U.S.C.S. § 707(b).
Statement of Current Monthly Income
The Chapter 7 statement of current monthly income (CMI) is the first part of the Chapter 7 means test and is divided into two parts. 11 U.S.C.S. § 101(10A). Part 1 requires the debtor to calculate his or her CMI. This part is the same under Chapters 7 and 13. Part 2 compares the debtor’s CMI to the applicable median income for the debtor’s state of residency to determine whether the Chapter 7 case is presumed abusive. Each state has its own median family income which can be found on the U.S. Department of Justice website.
If the debtor’s CMI is below the applicable median income, then no further action with regard to the means test is needed. If the debtor’s CMI is above the applicable median income, the Chapter 7 means test calculation form must be filled out.
Calculation of Income
The Chapter 7 means test is the second part of the Chapter 7 means test. It calculates the debtor's income and is divided into four parts.
Part 1 of the Chapter 7 means test adjusts the debtor's CMI by subtracting any portion of the debtor's spouse's income not regularly used to pay household expenses (marital deduction).
Part 2 of the Chapter 7 means test calculates the debtor's monthly disposable income by deducting certain living expenses and debt payments from the debtor's CMI. The U.S. Department of Justice posts links to the allowed expense data for bankruptcy practitioners.
Part 3 of the Chapter 7 means test determines whether a presumption of abuse exists by multiplying the debtor's disposable income by 60 months. The presumption of abuse arises if the individual debtor's five-year disposable income is greater than $13,650. Alternatively, the presumption of abuse arises if the individual debtor's five-year disposable income is at least $8,175 but not more than $13,650 and enough to pay 25% of the total general unsecured debt.
Part 4 of the Chapter 7 means test permits the debtor to list any special circumstances that justify additional deductions or adjustments to the debtor's disposable income. To claim special circumstances, a debtor must itemize each and provide documentation of the additional expense/adjustment claimed. Note that special circumstances are rarely allowed.
Statement of Exemption
Certain Chapter 7 individual debtors may claim an exemption from a presumption of abuse if the debtor is one or more of the following:
- A business debtor with primarily nonconsumer debts
- A disabled veteran whose debts were mostly incurred while
on active duty or performing a homeland defense activity
- A reservist or member of the National Guard under certain
circumstances
If any of the above applies, the debtor may claim the exemption and is not required to fill out the remainder of the Chapter 7 means test.
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In Chapter 13 cases, the means test determines the applicable commitment period for the Chapter 13 plan and the debtor’s disposable income necessary for inclusion in the plan. 11 U.S.C.S. § 1325.
Statement of Current Monthly Income
The Chapter 13 statement of current monthly income (CMI) is the first part of the Chapter 13 means test and is divided into three parts.
Part 1 requires the debtor to calculate his or her CMI. This part is the same under Chapters 7 and 13. Part 2 of the Chapter 13 means test (1) adjusts the debtor’s CMI by subtracting any portion of the debtor’s spouse’s income not regularly used to pay household expenses (marital adjustment) and (2) compares the debtor’s adjusted CMI to the applicable median income for the debtor’s state of residency. Each state has its own median family income which can be found on the U.S. Department of Justice website.
Part 3 of the Chapter 13 means test calculates the applicable commitment period. If the debtor’s current monthly income is less than the median family income applicable to the debtor, then (1) the commitment period for the Chapter 13 plan is three years, and (2) no further action with regard to the means test is needed. If the debtor’s current monthly income is above the median family income applicable to the debtor, then (1) the commitment period for the Chapter 13 plan must be five years, and (2) the Chapter 13 disposable income calculation form must be filled out.
Calculation of Income
The Chapter 13 calculation of disposable income is the second part of the Chapter 13 means test and is divided into three parts.
Part 1 of the Chapter 13 calculation of disposable income adjusts the debtor’s CMI by deducting certain living expenses and debt payments from the debtor’s CMI. The U.S. Department of Justice posts links to the allowed expense data for bankruptcy practitioners.
Part 2 of the Chapter 13 calculation of disposable income (1) permits the deduction of certain additional expenses from the debtor’s CMI and (2) calculates the debtor’s disposable monthly income. This is the amount required to be paid monthly to unsecured creditors through the Chapter 13 plan under Section 1325(b). Monthly disposable income multiplied by 60 represents the minimum amount that the debtor must pay to general unsecured creditors.
Part 3 of the Chapter 13 means test permits the debtor to list any special circumstances that justify additional deductions or adjustments to the debtor’s disposable income. To claim special circumstances, a debtor must itemize each and provide documentation of the additional expense/adjustment claimed. Note that special circumstances are rarely allowed.
Statement of Exemption
There is no exemption from completing the Chapter 13 means test. All Chapter 13 debtors must complete both the Chapter 13 Statement of Income and Chapter 13 Calculation of Disposable Income forms.
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Tax Returns |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. §§ 521, 1308
Fed. R. Bankr. P. 4002
Related Content:
- Chapter 7 Liquidation
- Chapter 13 Bankruptcy
- Individual Chapter 7
Timeline
- Chapter 13 Timeline
- Section 341 Meeting
Preparation (Consumers)
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Chapter 7 debtors must provide the Chapter 7 trustee with their most recent federal income tax return no later than seven days prior to the date first set for the Section 341(a) meeting of creditors. 11 U.S.C.S. § 521(e)(2); Fed. R. Bankr. P. 4002(b)(3).
If the debtor does not submit and file the requisite tax returns and fails to show that circumstances beyond the debtor’s control prevented the submission, the bankruptcy court will dismiss the case. See 11 U.S.C.S. § 521(e) (2)(B).
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Chapter 13 debtors must provide the Chapter 13 trustee with their most recent federal income tax return no later than seven days prior to the date first set for the Section 341(a) meeting of creditors. 11 U.S.C.S. § 521(e)(2); Fed. R. Bankr. P. 4002(b)(3). If the debtor does not submit and file the requisite tax returns and fails to show that circumstances beyond the debtor’s control prevented the submission, the bankruptcy court will dismiss the case. See 11 U.S.C.S. § 521(e)(2)(B).
Chapter 13 debtors must also ensure that all tax returns required to be filed within the four-year period preceding the filing of the Chapter 13 case have been filed with the appropriate taxing authority. 11 U.S.C.S. § 1308.
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Professionals |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. § 327. Fed. R. Bankr. P. 2014.
Related Content:
- Approval of the Debtor’s
Chapter 11 Professionals
- Chapter 13 Retainer
Agreement
- Trustee’s Application
for Interim Allowance of Compensation and Disbursements
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A Chapter 7 trustee must retain professionals pursuant to Section 327(a) of the Bankruptcy Code and Bankruptcy Rule 2014.
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A Chapter 13 trustee must retain professionals pursuant to Section 327(a) of the Bankruptcy Code and Bankruptcy Rule 2014.
A Chapter 13 debtor does not need court approval to retain professionals. However, in certain instances, a Chapter 13 debtor should request court approval to retain professionals. For example, a Chapter 13 debtor may need to engage outside counsel to pursue a personal injury claim. If employment is not approved by the bankruptcy court, the professional may not be able to collect any fees.
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Statement of Intentions |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. § 524
Fed. R. Bankr. P. 4004, 4008
Related Content:
- Reaffirmation Agreements
in Chapter 7
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An individual Chapter 7 debtor must file a statement of intentions with regard to debts secured by property of the estate. 11 U.S.C.S. § 521(a)(2)(A); Fed. R. Bankr. P. 1007(b)(2). The statement must indicate whether the debtor intends to reaffirm, redeem, or surrender such property and, if applicable, must state whether the property is claimed as exempt. The debtor must file the statement within 30 days after the petition date or on or before the date of the meeting of creditors, whichever is earlier.
The debtor must perform his or her intention (as set forth on the statement) within 30 days of the first set date for the Section 341(a) meeting of creditors. 11 U.S.C.S. § 521(a)(2)(B).
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A statement of intentions is not required in a Chapter 13 bankruptcy case. Chapter 13 debtors specify their intentions in a Chapter 13 plan (discussed below).
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Reaffirmation Agreement |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. § 327 Fed. R. Bankr. P. 2014
Related Content:
- Approval of the Debtor’s
Chapter 11 Professionals
- Chapter 13 Retainer
Agreement
- Trustee’s Application
for Interim Allowance of Compensation and Disbursements
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A reaffirmation agreement is a voluntary contract between the debtor and a creditor to establish the validity of a particular debt and except the debt from a Chapter 7 discharge. In some instances, a debtor may desire to continue paying on a specific debt even though the debt could be discharged in the bankruptcy case. In those instances, a reaffirmation agreement may be utilized to except the debt from discharge and contractually bind the debtor to the repayment. Reaffirmation agreements are usually reserved for secured debts where the debtor wants to keep the property that secures the debt. Section 524 of the Bankruptcy Code sets forth the requirements for an enforceable reaffirmation agreement.
A reaffirmation agreement must be filed no later than 60 days after the date first set for the Section 341(a) meeting of creditors. Fed. R. Bankr. P. 4008(a).
The court has discretion to enlarge the time to file a reaffirmation agreement. Id. A debtor can make a motion to defer entry of the discharge if they need additional time to negotiate reaffirmation agreements. Fed. R. Bankr. P. 4004(c)(2)
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Reaffirmation agreements are not relevant in Chapter 13 cases. The Chapter 13 plan details the treatment of claims and property in Chapter 13 cases.
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Redemption |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules:
11 U.S.C.S. § 722 Fed. R. Bankr. P. 6008
Related Content:
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Redemption is the process through which an individual Chapter 7 debtor may retain certain personal property by making a lump-sum payment to the secured creditor of the fair market value of the property or the amount of claim. Redemption only applies to exempt or abandoned, tangible, personal property that is used primarily for personal, family, or household use and is subject to a lien securing a dischargeable consumer debt.
Redemption may be voluntary through an agreement between the debtor and the creditor. If the creditor does not consent, however, the debtor may file a motion under Bankruptcy Rule 6008 for court authorization of the redemption.
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Redemption is not utilized in Chapter 13 cases. The Chapter 13 plan details the treatment of claims and property in Chapter 13 cases.
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Automatic Stay |
Chapter 7 |
Chapter 13 |
Individual Debtors: The automatic stay is limited where the individual debtor has filed one prior case under Chapter 7, Chapter 11, or Chapter 13, dismissed within one year of the current pending case. 11 U.S.C.S. § 362(c). Where the individual debtor has filed two or more prior cases under Chapter 7, Chapter 11, or Chapter 13, the automatic stay is unavailable in the pending case. 11 U.S.C.S.§ 362(c)(4)(A).
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. §§ 101, 362, 521, 1301
Related Content:
- Automatic Stay
- Automatic Stay: When the Debtor
Is an Individual
- Co-debtor Stay
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Collection efforts against non-debtor co-obligors, guarantors, codefendants, partners, and sureties are not automatically stayed. 11 U.S.C.S. § 362(a).
In an individual debtor’s bankruptcy case, the automatic stay terminates with respect to personal property if the debtor fails to timely comply with the requirement in Section 521(a)(2) that the debtor file a statement of intention and perform such intention for such property. 11 U.S.C.S.§ 362(h)(1).
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Subject to certain exceptions, the automatic stay applies to stay collection efforts against co-obligors for consumer debt. 11 U.S.C.S.§ 1301; see also 11 U.S.C.S. § 101(8) (for the definition of consumer debt).
Section 362(h) only applies in Chapter 7 and not an individual debtor’s case under Chapter 13 even though the statute does not limit its applicability to Chapter 7. The reason is that Section 362(h) requires compliance with Section 521(a)(2), which only applies to Chapter 7 cases (and both sections only apply to individual cases).
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Proof of Claims |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
Fed. R. Bankr. P. 2002, 3002
Related Content:
- Proofs of Claim in an
Individual Bankruptcy
- Proofs of Claim in
Bankruptcy
- Proofs of Claim Categories
and Calculations
- Chapter 7 Liquidation
- Proof of Claim (US
Bankruptcy Court Official Form 410)
- Addendum to Proof of Claim
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In a Chapter 7 case, a proof of claim is timely filed if it is filed not later than 70 days after the petition date or the date of conversion to the chapter (and 90 days after the order for relief in an involuntary case). Fed. R. Bankr. P. 3002(c).
Governmental units generally have 180 days after entry of the order for relief to file proofs of claim. Fed. R. Bankr. P. 3002(c)(1).
The exception to these deadlines is when the trustee files and serves a notice of insufficient assets to pay a dividend. Fed. R. Bankr. P. 2002(e). In most cases, a Chapter 7 debtor has no assets to distribute to creditors. Such cases are known as no asset cases. The trustee will send a notice to unsecured creditors that they do not need to file proofs of claim because there will not be a distribution.
If the Chapter 7 trustee later determines that the debtor has assets that can be liquidated for distribution to unsecured creditors, the trustee will notify unsecured creditors to file proofs of claim so that they may participate in the distribution. The notice must provide at least 90 days’ notice by mail to creditors of the date for filing proofs of claim.
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In a Chapter 13 case, a proof of claim is timely filed if it is filed not later than 70 days after the petition date or the date of conversion to the chapter (and 90 days after the order for relief in an involuntary case). Fed. R. Bankr. P. 3002(c).
Governmental units generally have 180 days after entry of the order for relief to file proofs of claim. Fed. R. Bankr. P. 3002(c)(1).
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Convert or Dismiss |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections or Rules:
11 U.S.C.S. §§ 706, 1307 Fed. R. Bankr. P. 1017, 9013, 9014
Related Content:
- Conversion and Dismissal Resource Kit
- Converting a Bankruptcy Case Checklist
- Debtor’s Motion to Convert (Chapter 7
to Chapter 13)
- Non-debtor’s Motion to Dismiss or
Convert (Chapter 7 to Chapter 13 Case)
- Voluntary Conversion Order (Chapter 7
to Chapter 12 or 13)
- Voluntary Conversion Order (Chapter 7
to Chapter 11)
- Involuntary Conversion Order (Chapter
7 to Chapter 11)
- Notice of Conversion (Chapter 13 to
Chapter 7)
- Non-debtor Motion to Dismiss or
Convert (Chapter 13 to Chapter 7)
- Conversion Order (Chapter 13 to
Chapter 7)
- Involuntary Conversion Order (Chapter
7 to Chapter 13)
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A Chapter 7 debtor may voluntarily convert to a Chapter 11, 12, or 13 case, at any time, if (1) he or she is eligible under the rules for those chapters and (2) the Chapter 7 case was not previously converted from a Chapter 11, 12, or 13 case. 11 U.S.C.S. § 706(a). The debtor must file a motion to convert under Section 706(a) and serve the motion in accordance with Bankruptcy Rule 9013.
Fed. R. Bankr. P. 1017(f)(2).
The court considers whether (1) the case has been previously converted, (2) the debtor is eligible for the chapter he or she seeks to convert to, and (3) the conversion is sought in bad faith prior to entering an order on a motion to convert a Chapter 7 case. Any waiver of the right to convert under Section 706(a) is unenforceable.
Section 706(c) provides that a Chapter 7 case may not be converted to a Chapter 12 or Chapter 13 case unless the debtor consents to (or requests) such conversion. 11 U.S.C.S. § 706(c). However, the court may convert a Chapter 7 case to a Chapter 11 case on the request of a party in interest at any time after notice and a hearing. 11 U.S.C.S.§ 706(b). An involuntary conversion from a Chapter 7 case to Chapter 11 only occurs in corporate (not an individual) cases.
The court may dismiss a Chapter 7 case, upon notice and a hearing, for cause including:
- Unreasonable delay by the debtor that is prejudicial
to creditors
- Nonpayment of any fees –and–
- For a U.S. Trustee motion, failure of the debtor to file
the information required under Section 521(1)
11 U.S.C.S .§ 707(a). The factors listed in Section 707(a) are non-exhaustive and the bankruptcy court may dismiss a Chapter 7 case on other grounds if the court finds sufficient cause.
The court may also dismiss a Chapter 7 case if the debtor’s debts are mainly consumer and if granting a discharge would be an abuse of Chapter 7 based upon:
- The outcome of the means test
- Bad faith –or–
- The totality of the circumstances
11 U.S.C.S. § 707(b)(1)–(b)(3)
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The debtor has an absolute right to convert a Chapter 13 case to a case under Chapter 7. 11 U.S.C.S. § 1307(a); Fed. R. Bankr. P. 1017. The debtor must file a notice of conversion to convert the case. Fed. R. Bankr. P. 1017(f)(3). The debtor also has an absolute right to dismiss a Chapter 13 unless the case was previously converted from a Chapter 7, 11, or 12 case. 11 U.S.C.S. § 1307(b); Fed. R. Bankr. P. 1017(f).
The court may convert a Chapter 13 case to a Chapter 11 or 12 case prior to confirmation of a Chapter 13 plan, after notice and a hearing. 11 U.S.C.S. § 1307(d). The court may also grant a party’s motion to convert to Chapter 7 or dismiss the Chapter 13 case where there is cause justifying conversion or dismissal of the case. Section 1307(c) currently lists 11 nonexclusive examples of cause:
- Unreasonable delay that is prejudicial to creditors
- Failure to pay statutory fees or charges
- Failure to file a plan within the time fixed by the Bankruptcy
Code or the court
- Failure to make timely payments under a plan
- Denial of an order confirming a plan and request for time to refile
or modify a plan
- Material default by the debtor with respect to a confirmed plan
- Revocation and denial of an order confirming a plan
- Termination of a confirmed plan based on the occurrence of a
condition set forth in the plan
- Failure to timely file schedules and statement of financial affairs
(on request by the trustee)
- Failure to file a statement of intention with respect to property
subject to liens (on request by the trustee)
- The debtor’s failure to pay post-petition domestic support
obligations
11 U.S.C.S. § 1307(c).
Section 1307(e) requires the bankruptcy court to convert a Chapter 13 case to Chapter 7 (or dismiss the Chapter 13 case) upon request by a party in interest if the debtor fails to file a tax return as required under Section 1308 of the Bankruptcy Code. 11 U.S.C. § 1307(e)
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Plan/Confirmation |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules:
11 U.S.C.S. §§ 1307, 1321, 1322, 1324, 1325, 1326
Fed. R. Bankr. P. 3015
Related Content:
- Chapter 13 Bankruptcy
- Chapter 13 Timeline
- Official Form B113, Chapter 13 Plan
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There is no plan in Chapter 7 bankruptcy cases.
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A Chapter 13 debtor must file a Chapter 13 plan with the petition or within 14 days thereof, unless the court extends the time for filing. 11 U.S.C.S. § 1321; Fed. R. Bankr. P. 3015(b). Most jurisdictions require the use of a standardized form Chapter 13 plan. See Official Form B113, Chapter 13 Plan. Section 1322 of the Bankruptcy Code sets forth the mandatory and optional provisions for Chapter 13 plans. 11 U.S.C.S. § 1322. A Chapter 13 debtor must make his or her first plan payment within 30 days after the filing of the petition. 11 U.S.C.S. § 1326(a)(1). The failure to file a plan is grounds for dismissal. 11 U.S.C.S. § 1307(c)(3).
Section 1325 sets forth the confirmation requirements for Chapter 13 plans. There is no right to vote on a plan. Rather, parties in interest have the right to object to the plan (does not meet confirmation standards or other general grounds). 11 U.S.C.S. § 1324; see also Fed. R. Bankr. P. 3015.The confirmation hearing must be held between 20 and 45 days after the Section 341 meeting of creditors but could be held earlier if in the best interests of creditors and there is no objection. 11 U.S.C.S. § 1324(b).
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Financial Management Training |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules:
11 U.S.C.S. §§ 727, 1328 Fed. R. Bankr. P. 1007, 4004
Related Content:
- Individual Chapter 7 Timeline
- Chapter 13 Timeline
- Official Form B423, Certification
About a Financial Management Course
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Individual Chapter 7 debtors must complete a financial management course to obtain a discharge. 11 U.S.C.S. § 727(a)(11); Fed. R. Bankr. P. 1007(b)(7)(A), 4004(c)(1)(H). The debtor must complete the course and file a certification with the court within 60 days of the first date set for the Section 341 meeting of creditors. Fed. R. Bankr. P. 1007(c).
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Individual Chapter 13 debtors must complete a financial management course to obtain a discharge. 11 U.S.C.S. § 1328(g); Fed. R. Bankr. P. 1007(b)(7)(A), 4004(c)(4). The debtor must complete the course and file a certification with the court before making the last payment under the plan or before filing a motion for a hardship discharge (discussed below) under Section 1328(b) of the Bankruptcy Code. Fed. R. Bankr. P. 1007(c).
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Discharge |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules:
11 U.S.C.S. §§ 522, 523, 524, 727, 1328
Fed. R. Bankr. P. 4004
Related Content: • Chapter 7 Liquidation • Chapter 13 Bankruptcy
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A Chapter 7 discharge is only available in individual cases. Corporate Chapter 7 debtors are not eligible to receive a discharge. 11 U.S.C.S. § 727(a)(1). A Chapter 7 discharge is typically entered after 60 days after the date first set for the Section 341 meeting of creditors as set forth in Bankruptcy Rule 4004.
Section 727(a) lists the grounds which serve as a basis for denial of a general Chapter 7 discharge, which include:
- Transferring or concealing property of the
debtor with the intent to hinder, delay, or defraud within one year before the petition date (11 U.S.C.S. § 727(a)(2)(A))
- Transferring or concealing property of the
estate with the intent to hinder, delay, or defraud after the petition date (11 U.S.C.S. § 727(a)(2)(A))
- Failing to preserve financial records
(11 U.S.C.S. § 727(a)(3))
- Knowingly making a false oath or account
(11 U.S.C.S. § 727(a)(4)(A))
- Knowingly presenting a false claim
(11 U.S.C.S. § 727(a)(4)(B))
- Knowingly and fraudulently gave money for
an action (11 U.S.C.S. § 727(a)(4)(C))
- Knowingly and fraudulently withheld
information from the court or the trustee (11 U.S.C.S. § 727(a)(4)(D))
- Failing to explain any loss of assets
(11 U.S.C.S. § 727(a)(5))
- Refusing to obey any lawful order of the
court (11 U.S.C.S. § 727(a)(6)(A))
- Refusing to respond to a court approved
question or testify (subject to certain exceptions) (11 U.S.C.S. § 727(a)(6)(B), (C)
- Committing any of the previously listed
acts in any prior bankruptcy case pending within one year of the current bankruptcy case (11 U.S.C.S. § 727(a)(7))
- Receiving a prior Chapter 7 or 11 discharge within eight
years of the petition date (11 U.S.C.S. § 727(a)(8))
- Receiving a Chapter 12 or Chapter 13 discharge within six
years of the petition date unless the payments in such cases totaled (1) 100% of the allowed unsecured claims or (2) 70% of the total unsecured claims and the plan was proposed in good faith and represented the debtor’s best effort (11 U.S.C.S. § 727(a)(9))
- Executing a waiver of discharge and obtaining court
approval of such waiver (11 U.S.C.S. § 727(a)(10))
- Failing to complete a personal finance management course
(subject to certain exceptions) (11 U.S.C.S. § 727(a)(11))
- Finding by the court that there is reasonable cause to
believe that Section 522(q) applies to the debtor and there is a proceeding where the debtor may be guilty of a felony specified in Section 522(q)(1)(A) or liable for a debt of the kind described in Section 522(q)(1)(B) (11 U.S.C.S. § 727(a) (12))
If one of these grounds exists and is timely asserted, the debtor is denied a discharge of all debts.
Even if an individual debtor receives a general discharge, certain debts may be excepted from the discharge. These excepted debts remain due and owing as personal liabilities of the debtor as if no bankruptcy occurred. Section 523(a) enumerates the debts excepted from discharge and includes:
Certain taxes
- Debts based on false pretenses, false representations, actual
fraud, and false financial statements
- Debts not scheduled by the debtor
- Debts based on fraud as a fiduciary, larceny, or
embezzlement
- Debts based on fraud or defalcation while acting as a
fiduciary
- Domestic support obligations
- Debts as a result of a willful or malicious injury
If one of these grounds exists and is timely asserted, the debtor is denied a discharge of that particular debt.
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In most cases, once the Chapter 13 debtor completes the payments under the payment plan, the debtor receives a discharge. 11 U.S.C.S. § 1328(a).
A discharge in Chapter 13 includes some debts that cannot be discharged in a Chapter 7, including:
- Long-term debts cured and maintained under Section
1322(b)(5)
- Debts to pay some nondischargeable tax obligations
- Debts for restitution or criminal
fines
- Debts from malicious and willful tortious acts by the
debtor that caused personal injury to an individual or the death of an individual
- Certain post-petition debts under Section 1305(a)(2)
11 U.S.C.S. § 1328. A discharge will not be granted if the debtor previously received a discharge:
- In a case filed under Chapter 7, 11, or 12 of the Bankruptcy
Code within the four-year period preceding the petition date
- In a case filed under Chapter 13 Bankruptcy Code within the
two-year period preceding the petition date
11 U.S.C.S. § 1328(f). A motion objecting to discharge under Section 1328(f) must be filed no later than 60 days after the first date set for the Section 341 meeting of creditors. Fed. R. Bankr. P. 4004(a).
The debtor can qualify for a hardship discharge if:
- The failure to make payments is due to circumstances for
which the debtor should not justly be held accountable.
- The value of property actually distributed on account of
each allowed unsecured claim is not less than the amount that would have been paid in a Chapter 7.
- Modification of the plan is not practicable.
11 U.S.C.S. § 1328(b).
A debtor will be denied a discharge upon a finding by the court that there is reasonable cause to believe that Section 522(q) applies to the debtor and there is a proceeding where the debtor may be guilty of a felony specified in Section 522(q)(1) (A) or liable for a debt of the kind described in Section 522(q) (1)(B). 11 U.S.C.S. § 1328(h).
The debtor will not receive a discharge if the debtor has not filed the financial management certification. Fed. R. Bankr. P. 4004(c)(4).
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Revocation of Discharge |
Chapter 7 |
Chapter 13 |
Relevant Bankruptcy Code Sections / Bankruptcy Rules:
11 U.S.C.S. §§ 727, 1328
Fed. R. Bankr. P. 9024
Related Content:
- Chapter 7 Liquidation
- Chapter 13 Bankruptcy
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The Chapter 7 trustee, the U.S. Trustee, or a creditor may seek to revoke the discharge by commencing an adversary proceeding on the following grounds:
- The individual debtor obtained the
discharge through fraud and the requesting party did not know of the fraud until after the discharge was granted.
- The individual debtor acquired property of
the estate or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to the property or to deliver or surrender the property to the Chapter 7 trustee.
- The individual debtor committed an
act specified in Section 727(a)(6) of the Bankruptcy Code (generally, failing to obey a court order or answer certain questions).
- The individual debtor failed to explain a
material misstatement in a bankruptcy audit or failed to make available all necessary papers or property that was requested in a bankruptcy audit.
11 U.S.C.S. § 727(d). The complaint to revoke the discharge must be filed within one year after granting of the discharge if the plaintiff is asserting the ground that the individual debtor obtained a discharge was through fraud under Section 727(d)(1). 11 U.S.C.S. § 727(e)(1).
The plaintiff must seek revocation within one year after granting of the discharge or by the date the case is closed, whichever is later, if the revocation is based on the individual debtor fraudulently failing to report or deliver property under Section 727(d)(2) or that the individual debtor committed an act specified in Section 727(a)(6). 11 U.S.C.S. § 727(e)(2).
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On request of a party in interest before one year after a discharge is granted, and after notice and a hearing, the court may revoke the discharge if:
- The discharge was obtained by
fraud.
- The requesting party did not
know of such fraud until after the discharge was granted.
11 U.S.C.S. § 1328(e).
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Advancing the Rule of Law in Consumer Bankruptcies
In counseling clients on the proper chapter to file for consumer bankruptcy, and in an effort to advance the rule of law, the transparency of law, and equitable access to legal remedies, attorneys should consider the following:
- Have you effectively communicated the advantages and disadvantages of Chapter 7 and Chapter 13 petitions? More specifically, is that chapter choice aligned with your client’s long term goals of debt relief?
- Do your client’s current priorities (i.e., saving their home, etc.) conflict with his or her long term goals of debt relief? If so, have you communicated this conflict to your client?
- Would you make the same recommendations to this client if they had a different racial background?
For more information, see Chapter 7 Liquidation and Chapter 13 Bankruptcy. For additional resources, see Consumer Bankruptcy Resource Kit.
Mark Haut is a Content Manager for Practical Guidance. Prior to joining Practical Guidance, he was counsel at Norton Rose Fulbright, where he advised clients on a variety of bankruptcy matters. Previously, he was an associate in the Bankruptcy and Reorganization Practice Group at Morgan, Lewis & Bockius, LLP. Prior to joining Morgan Lewis, he clerked for Judge Stuart M. Bernstein in the United States Bankruptcy Court for the Southern District of New York.
Emony M. Robertson is a third year law student at Howard University School of Law. Her time as a Robert S. Strauss Diversity & Inclusion Scholar at Akin Gump Strauss Hauer & Feld LLP, along with her participation in the Annual Duberstein Bankruptcy Competition, helped to clarify her interest in bankruptcy litigation. Emony’s LexisNexis Rule of Law Foundation Fellowship focused on reducing racial bias in consumer bankruptcy practices. Emony currently serves as the Captain of the Charles Hamilton Houston National Moot Court Team and a Student Attorney in the Investor Justice Education Clinic. After graduation in May 2022, she will clerk for Judge Craig Goldblatt in the United States Bankruptcy Court for the District of Delaware.
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RESEARCH PATH: Bankruptcy > Commencing a Bankruptcy Proceeding > Bankruptcy Fundamentals