I discharged my unsecured debt in chapter 7. Can I now file chapter 13 to deal with secured debt?

A chapter 13 case following-on a chapter 7 case where the debtor received a discharge is called a “chapter 20”. To be eligible for the second half of the chapter 20, i.e, the chapter 13 case, you have to come within the chapter 13 secured and unsecured debt limits, currently $1,184,200 secured and $417,275 unsecured. Bankruptcy Code section 109(e).

In bankruptcy, claims are considered “secured” only to the extent of the value of the collateral which secures them. Bankruptcy Code section 506(a). Let’s say you have previously filed a chapter 7, got your discharge and own property worth $2 million with a value of $1 million. The Bankruptcy Court will consider your secured claim to be $1 million, well within the $1,184,200 secured debt limit. But what about the other million?

In some bankruptcy courts, you qualify for chapter 13 because of your chapter 7 discharge. The other million is not treated as “unsecured” because your personal liability on that debt has been wiped out by the discharge. If you are in Connecticut, in the 9th Circuit, and some areas of the 5th Circuit, you’re fine.

In at least the Poughkeepsie Division of the Southern District of New York (and probably in all of the Southern District), you don’t qualify for chapter 13 relief because the other million is considered unsecured and blows the unsecured debt limit. In re Wimmer, 512 B.R. 498 (Bankr. S.D.N.Y. 2014) (Morris, C.J.). In the Southern District, therefore, your reorganization option is through a chapter 11 case. (And if the debtor is an individual, plan confirmation can be a huge challenge. That’s a story for another time.)

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