Chapter 13 Requires Income

Chapter 13 Bankruptcy

Mar 02

We file a lot of Chapter 13 cases. One of the basic elements or requirements of Chapter 13 is that debtors must have regular income that enables them to pay debts and living expenses. In fact, the heading to the Chapter is titled “Adjustment of Debts of an Individual with Regular Income.”

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Not long ago the 7th Circuit was confronted with a debtor who was seeking the benefits of Chapter 13 in order to prevent the foreclosure sale of her home. This is a common use of Chapter 13 and it can be very effective for this purpose. 

In this particular instance, the debtor, Marzie Bastani, appealed the lower court’s decision not to continue the stay blocking the State Court foreclosing proceedings. She appealed to the 7th Circuit Court and requested that her filing fee be waived. This is known as “informa paupuris,” the Latin term meaning “in the manner of a pauper.” This legal theory is used to allow indigent people to bring suit without paying fees. 

The problem for Marzie was that Chapter 13 is designed for people who can pay some or all of their debts. It is an adjustment of debts rather than a complete liquidation.

The 7th Circuit saw right through Marzie’s ploy and found her filing to be in actual bad faith. She told the Bankruptcy Court that she qualified for Chapter 13, and then appealed, telling the Appellate Court that she had received less than $200 in total income during the previous 12 months.  Adding to her problems, she claimed in her appeal that she did not own any real property, while what she was appealing was a denial by the Bankruptcy judge to stay a foreclosure action.

Not surprisingly, the 7th Circuit denied her appeal.  See Bastani v. Wells Fargo Bank,  960 F3rd 976
(7th Cir. 2020).

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