Opinion
No. 03-71986
August 18, 2003
OPINION
The issue before the Court is whether the Debtors may file a Chapter 13 petition while their Chapter 7 case is still open.
The material facts are not in dispute. The Debtors, Bryan and Cristy Pingleton, filed a petition pursuant. to Chapter 7 of the Bankruptcy Code on February 5, 2003. GMAC, which has a security interest in a 2002 GMC Envoy, filed a motion to lift the automatic stay. On April 17, 2003, the Court entered an Order lifting the automatic stay so that GMAC could enforce its rights against the Envoy. The Debtors received their discharge on May 7, 2003. However, the Chapter 7 case remains open while the Chapter 7 Trustee attempts to set aside a mortgage filed post-petition by Mortgage Electronic Registration Systems/GMAC Mortgage Corporation.
The Debtors filed the instant petition pursuant to Chapter 13 of the Bankruptcy Code on April 21, 1002. GMAC objects to confirmation of the Debtors' Chapter 13 Plan on a number of grounds, including the Debtor's right to file a Chapter 13 case while their Chapter 7 case is still pending.
A Chapter 7 case followed by a Chapter 13 case is what is known in bankruptcy parlance as a "Chapter 20". The purpose of a "Chapter 20" is to discharge unsecured debt in the Chapter 7 and then to use the Chapter 13 to deal with mortgage liens or nondischargeable claims that survive the Chapter 7 discharge. There are two types of "Chapter 20" filings:. "simultaneous" and "serial" or "sequential". In a "serial" or "sequential Chapter 20" case, the Chapter 13 case is filed after the Chapter 7 case is closed. This is a viable strategy pursuant to the Supreme Court's decision in Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150 (1991). In a "simultaneous Chapter 20", the Chapter 13 is filed while the Chapter 7 case is still pending. The majority rule is that a Chapter 13 petition filed by debtors while their Chapter 7 case is still open should be dismissed. In re Lord, 295 B.R. 16, 18 (Bankr.E.D.N.Y. 2003); In re Standfield, 152 B.R. 528, 538-39 (Bankr.N.D.Ill. 1993). This Court agrees with the majority view.
The rationale for the majority rule is set forth in In re Turner, 207 B.R. 373, 378, 379 (2d Cir. BAP 1997) as follows:
While the majority view may be viewed as an absolutist position, the minority view does run the risk of making available" an easy avenue for abuse of the bankruptcy system" that would allow debtors to file multiple cases if they do not achieve their intended goal in the particular case.
. . . .
The existence of multiple cases may indicate an exploitation of the bankruptcy process and an attempt at reimposing the automatic stay after it had been previously lifted. In the case of simultaneous filings, this is especially likely since a debtor in most instances has an absolute right of conversion during the pendency of the case, obviating the need for a second filing. The only rationale for not converting an open case and filing a new petition is the creation of a new automatic stay. Consequently, by initiating a new case, the [debtor] effectively frustrated the stay relief. . . ."
Many courts have "voiced concerns regarding the potential for abuse of the Bankruptcy Code in permitting `simultaneous Chapter 20' filings, particularly where the stay has been lifted. . . ." In re Lord, supra, 295 B.R. at 19 (collecting cases). This case is an example of that kind of abuse. The stay was lifted on April 17, 2003, and the Chapter 13 petition was filed on April 21, 2003, just four days after the stay was lifted and more than two weeks before the discharge was issued. The Debtors were clearly trying to gain the benefit of a new automatic stay, something they could not have done if they had converted their Chapter 7 case to a Chapter 13 case. In re Lord, supra, 295 B.R. at 20.
The Debtors suggest that they should be allowed to remain in their Chapter 13 case because the discharge has issued in the Chapter 7 case. It is not determinative that the discharge has issued; the important factor is that the Chapter 7 case is still open. This is because there should only be one bankruptcy case pending at a time for a debtor. In re Lord, supra, 295 B.R. at 18.
For the foregoing reasons, the Debtors' Chapter 13 case is dismissed.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the Debtors' Chapter 13 case be and is hereby dismissed.