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A friend filed Chapter 13 so he can keep his house (on which he was underwater and had trouble making payments, etc.).
Has been making regular payments to the trustee via the plan. All is well, right?
The RE market in the area has rebounded to the point where he can sell, pay off the mortgage and a other secured debt, and walk away with some equity.
The attorney for the trustee says the very next day after selling the house, he should file Chapter 7 so the unsecured creditors can't swoop in and take the remaining proceeds.
Let's put aside for a moment the 'moral' aspects of this.
Am I wrong for thinking it's strange for the bkrptcy attoorney to be giving this advice?
Can a one-day flip into Chapter 7 really hold off the other creditors?
Does Chapter 13 not have any provisions speaking to sale of an asset like a house...where the proceeds can go?
There's not enough information here to really answer, but remember this: a person can always file a Chapter 7 case every 8 years (I think that's the right number). At that point, it's up to the bankruptcy court as to how it all plays out.
Moral aspect aside. If the bankruptcy attorney's goal is to allow his client to keep as much of his money as possible, then it's appropriate for him/her to give that advice.
His chapter 13 case would have to be dismissed before he could file chapter 7 you can't have two cases pending simultaneously but yes when he files chapter 7, creditors would be stayed from taking any action (outside of the bankruptcy court) to obtain the sale proceeds.
He must have had a plan approved in his chapter 13 case which governs which debts would be paid and how much and how often they would be paid. As long as that plan was followed (or if the plan was completed and he received a discharge), his chapter 13 shouldn't have a bearing on the sale proceeds from the house.
Moral aspect aside. If the bankruptcy attorney's goal is to allow his client to keep as much of his money as possible, then it's appropriate for him/her to give that advice.
there is no room for morals in law every lawyer knows this
His chapter 13 case would have to be dismissed before he could file chapter 7 you can't have two cases pending simultaneously but yes when he files chapter 7, creditors would be stayed from taking any action (outside of the bankruptcy court) to obtain the sale proceeds.
No. A BK debtor can convert from a 13 to a 7 at any time (11 USC 1307, I believe) unless the debtor has received a chapter 7 discharge within the prior 8 years. This assumes that the debtor would qualify under the income testing required for filing a 7.
Why would this benefit the debtor? The vast majority of individual chapter 7s are "no asset" cases, meaning the trustee won't have anything to sell. Even if the debtor's house is worth more in the open market than the mortgage + seller's closing costs, its value to a bankruptcy trustee is considerably less. The trustee doesn't want to take real estate unless there's enough equity to make a quick sale profitable. (S)he doesn't want to sit around with real estate inventory. It may be that your friend is in that situation, or can sell before the stay lifts. That's just one possibility; there are others, and I'm a little rusty.
When I practiced (creditor-side) BK law, it was fairly popular to go the other way-- file a 7 and get that discharge, then convert to a 13 before the case closed in order to take advantage of the greater scope of the discharge, catch up on delinquent mortgage payments under a 13 plan, or some other reason.
And as for "morality" in debtor/creditor relationships, they're about contracts, not morality.
And as for "morality" in debtor/creditor relationships, they're about contracts, not morality.
I always laugh when people begin conflating law or contracts with morality or justice. I picture the first-year law prof upon the outraged young student's 'But there's no justice in that!': "Would someone please kindly help this poor lost young lady. She was evidently taking a course in justice, and by mistake, has wandered into a course in the law." 'There's no justice in that' is my second favorite derisive-snort-generator behind 'They can't do that!'
Morality and justice are things that happen between people who don't really need contracts in order to do what's right thing. For everyone else, there are contracts and law.
Morality and justice are things that happen between people who don't really need contracts in order to do what's right thing. For everyone else, there are contracts and law.
Lol I like this. It reminds me of what I always said which is "some people don't need to believe in Heaven or Hell to be good but I am sure glad they exist for those who do need to believe in them".
Not sure what good it would do; if he files chapter 7 the court will distribute the remaining proceeds to the creditors anyway.
Maybe not, depending on the applicable exemptions. As I've said, there's not enough information here.
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