Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BABCPA”), a debtor was eligible to receive a Chapter 13 discharge upon completion of the Chapter 13 plan regardless of whether the debtor had received a discharge in a prior case.  BAPCPA added section 1328(f) of the Bankruptcy code which provided that a court shall not grant a discharge to a debtor under Chapter 13 if the debtor had filed a previous case within 4 years.  This is assuming the debtor received a discharge in the previous case.  Even though a debtor would not be eligible to receive a Chapter 13 discharge within 4 years of filing a previous case, section 1328(f) does not restrict a debtor from being able to actually file for Chapter 13 protection.

“Chapter 20” cases (where a debtor’s prior Chapter 7 discharge bars a Chapter 13 discharge) can still offer substantial relief from creditors.  The most significant of which would be in the case of a struggling homeowner who has fallen behind on his mortgage payments.   Filing for Chapter 13 would allow that debtor to spread out the missed payments over the course of the Chapter 13 plan.  He would be eligible for this relief even if he has already filed and received a discharge in a prior Chapter 7 case.

One of the most attractive features of normal Chapter 13 cases is the ability for a homeowner to “strip” the second mortgage on his home.  If a homeowner owes more on his primary mortgage than the value of the home, than a second mortgage’s claim is considered wholly unsecured.  The lien is “stripped-off” and is treated the as regular unsecured debt such as credit card.  Upon completion of the Chapter 13 plan, the second mortgage is discharged along with the other unsecured debt.

Courts have been split about whether a Chapter 13 debtor who is ineligible for a discharge due to a prior filing could still strip a second mortgage .   A recent Florida case, however, answered this question in the negative.  In a recent decision in the Southern District of Florida, the bankruptcy judge ruled that Chapter 13 debtors who received a prior Chapter 7 discharge and were, accordingly, ineligible for Chapter 13 discharge could not use Chapter 13 to strip wholly unsecured junior mortgages.

See In Re Quiros-Amy, 23 Fla. L. Weekly Fed. B125 (Bankr. S.D. Fla. 2011)

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.