By Ryan C. Wood
If you are owed money and just received a notice of meeting of creditors and deadlines in the mail time is of the essence. Once a bankruptcy case is filed it sets in motion a number of deadlines that are extremely important to creditors. If you are a creditor then mostly likely you may have an interest is trying to get the Chapter 13 bankruptcy case dismissed in its entirety to prevent the discharge of the debt owed to you. So how can a chapter 13 case be dismissed prior to approval or confirmation of the Chapter 13 Plan?
Review the Filed Petition and Attend the Meeting of Creditors
Once the case is filed there is a limited amount of time to review the bankruptcy petition and chapter 13 plan. The meeting of the creditors is scheduled about 30 days after the case is filed. In most jurisdictions objections to approval or confirmation of the chapter 13 plan must be filed on or before the first scheduled meeting of the creditors. Depending upon the type of debt you are owed (secured, priority or general unsecured) the plan will provide how the different types of debts will be treated in the plan. If you have a secured claim or priority claim then generally the plan should provide for full payment over the life of the plan. If you have a general unsecured claim then you will receive a percentage of what you are owed. In the majority of Chapter 13 cases general unsecured creditors receive less than 10% of their claim or less. If the debtor is not treating your claim properly or is not committing all of their monthly disposable income to the chapter 13 plan your bankruptcy attorney may have grounds to file an objection to confirmation or approval of the chapter 13 plan on your behalf.
Objection to Confirmation of the Chapter 13 Plan
The most basic procedure to try and dismiss a chapter 13 case is to object to the confirmation of the chapter 13 plan. To object to the plan you need to have the proper grounds though. Section 1325 of the Bankruptcy Code provides the requirements to confirm a chapter 13 plan. If the proposed plan does not meet the requirements of Section 1325 you can object to approval of the plan. If the plan does not treat your claim properly under state law or the bankruptcy code you may object to confirmation of the plan. Generally the bankruptcy filer’s bankruptcy lawyers will try and work out the problem so that you will withdraw the objection to confirmation of the plan. If no solution can be agreed upon then a confirmation hearing will have to take place for the judge assigned to the case to decide who is right and whether the chapter 13 plan can be confirmed over the objection. If the court agrees and sustains your objection to confirmation of the chapter 13 plan, then the court may allow the debtor to amend the plan again. Eventually the court will seek dismissal of the chapter 13 case if a confirmable plan cannot be submitted within a reasonable amount of time.
Seek Dismissal Pursuant to Section 1307 of the Bankruptcy Code
If the chapter 13 case is just dragging on and on with little to no progress, then a party-in-interest, creditor or trustee may file a motion with the court to request a hearing and dismissal for unreasonable delay. A recent Ninth Circuit Bankruptcy Appellate Panel case discussed this process and procedure. The case, In re Debra Sue Phillips, BAP No. NV-14-1359-JuKuD, the debtor, Debra Sue Phillips, appeals the bankruptcy court’s dismissal of her chapter 13 case pursuant to Section 1307(c) of the Bankruptcy Code.
Section 1307(c) provides that a bankruptcy court may either dismiss or convert a chapter 13 case for cause, whichever is in the best interest of creditors.
– Section 1307(c)(1) provides dismissal or conversion for unreasonable delay that is prejudicial to creditors. In reality the Chapter 13 Trustee’s office will seek dismissal under 1307(c)(1) if the case is dragging on without confirming a chapter 13 plan. § 1307(c)(1). “A debtor’s unjustified failure to expeditiously accomplish any task required either to propose or confirm a chapter 13 plan may constitute cause for dismissal under § 1307(c)(1).” Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 915 (9th Cir. BAP 2011)
– Section 1307(c)(2) provides for dismissal or conversion for nonpayment of any fees and charges required under chapter 123 of title 28.
– Section 1307(c)(3) provides for dismissal or conversion for failure to file a plan tmely under section 1321 of this title. Rule 3015 provides that a plan is untimely unless it is filed within fourteen days of the petition date. Subsequent plans required by the court are also subject to § 1307(c)(3). Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. at 916.
– Section 1307(c)(4) provides dismissal or conversion for failure to commence making timely payments under section 1326 of this title.
– Section 1307(c)(5) provides for dismissal or conversion upon the denial of confirmation of a plan under Section 1325 of this title and denial of a request made for additional time for filing another plan or modification of a plan.
– Section 1307(c)(6) provides for dismissal or conversion upon a material default by the debtor with respect to a term of a confirmed plan.
If the court finds there is sufficient cause and proper additional grounds then the court must choose conversion to chapter 7 or dismissal of the case entirely. Okay, well, what is cause then? Cause is not specifically defined in the Bankruptcy Code in Section 101 (Definitions). In the Phillips case Section 1307(c)(5) was the section cited to request dismissal. Under Section 1307(c)(5) the first element for there to be cause is denial of confirmation of the Chapter 13 plan and denial of leave to amend and file a new plan. Nelson v. Meyer (In re Nelson), 343 B.R. 671, 674-75 (9th Cir. BAP 2006) In the Phillips case at the time of the hearing on the motion to dismiss the Phillip’s bankruptcy attorneys did not have a current plan on file and the court had denied confirmation of the prior seven proposed chapter 13 plans. The court in Phillips also gave Phillips ten weeks to file an eighth amended plan for consideration, but Phillips did not file an eighth amended chapter 13 plan. The bankruptcy court found cause under Sections 1307(c)(1) and (c)(3) to dismiss the case.
The court must also consider the best interests of creditors when deciding whether to dismiss or convert a case to Chapter 7. In the Phillips case neither the trustee’s motion or the debtor requested or considered conversion to Chapter 7. Accordingly, the 9th Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s granting of the trustee’s motion to dismiss the case.