We all get sucked in, at some time, to trying to rescue a Chapter 13 bankruptcy case gone bad. Dismiss and refile is often an appealing strategy.
But, make sure that you don’t let a bad situation get worse.
Get your arms around Bankruptcy Code §109(g).
When only a do-over will do, don’t wait around.
No payments for months
The debtor came to me for help when the trustee moved for dismissal of a long confirmed plan for feasibility issues.
The goal of the Chapter 13 had been to save his house. It seemed clear from the outset of our discussions that dismissal and refiling was the only solution to reach that goal.
As we talked, it came out that he’d made no post petition mortgage payments for close to two years.
While I can’t explain why the secured creditor had taken no action, I was certain we couldn’t count on that continuing.
It became a post-petition race to the courthouse. The debtor carried a motion to dismiss; the secured creditor , a motion for relief from stay.
If the secured creditor got there first, §109(g) would bar a new filing quickly enough to prevent foreclosure.
Preventing serial bankruptcy cases
Here’s the troublesome text:
(g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if—
….
(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.
If the mortgage lender brought a motion for relief from stay before we filed our request to dismiss, my new client would have been locked out of bankruptcy for 6 months.
One can understand the drafters: serial filing would be rampant if a debtor who lost a motion for relief could just dismiss and refile, getting a new stay.
There is some case law that allows a refiled case on equitable grounds where the debtor can show there was no causal connection between the motion for relief and the request to dismiss. Still, I don’t care to be arguing for equitable relief, if I can help it.
Bankruptcy do over
We may still have difficulties in getting the stay extended in a second case. We’ll need a good explanation about how the situation could have gotten so out of hand in the course of the prior Chapter 13.
Moral of the story: Once you’ve identified a dismissal and refiling as the solution to a troubled case, make sure you assess the risk of an intervening motion for relief from the stay.
Time may not be your friend.
More
Analyzing The Floundering Chapter 13
Is The House Worth Saving From Foreclosure?
Image courtesy of Flickr and Miwalker.
Wouldn’t letting the trustee dismiss solve the 109(g) problem?
Not necessarily. The bank might request in rem relief that might be binding in the refiled case.
But you could at least oppose the in rem request. You’d essentially have to prove up the good faith of the anticipated next case, but I think one could prevail.