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7th Cir. Confirms Chapter 13 Debtor Cannot Proceed ‘In Forma Pauperis’ on Appeal

mortgage foreclosureThe U.S. Court of Appeals for the Seventh Circuit recently held that absent unforeseen extraordinary circumstances, debtors in Chapter 13 cases cannot proceed on appeal in forma pauperis.

A copy of the opinion in Bastanipour v. Wells Fargo Bank, N.A. is available at:  Link to Opinion.

A debtor filed a second Chapter 13 bankruptcy less than a year after her first bankruptcy was dismissed. As you may recall, the bankruptcy code treats this timing as creating a presumption that the new filing is not in good faith, and thus, the automatic stay ends 30 days after the new proceeding begins.

The debtor then sought to stay foreclosure proceedings then pending in state court. The debtor’s request was denied by a bankruptcy judge and then by the trial court.

The debtor appealed, seeking to block the ongoing state proceedings. However, the debtor did not pay the filing fee for an appeal but sought leave to proceed in forma pauperis under 28 U.S.C. § 1915.

As you may recall, in forma pauperis allows qualified debtors to proceed without payment of filing fees and other costs.

One of the debtor’s creditors opposed the motion, contending that 28 U.S.C. § 1930 forbids in forma pauperis status in Chapter 13 appeals because § 1930 specifies fees for filing bankruptcy cases, and limits the circumstances under which appellate fees may be excused for Chapter 7 debtors, but provides no such circumstances for Chapter 13 debtors.

The Seventh Circuit began its analysis noting Chapter 13 is designed for people who can pay most if not all of their debts and “to qualify for relief under Chapter 13, a person must have an income that enables her to pay most debts within five years and still have something left for living expenses.”

The Court noted “it is hard to see how someone eligible for relief under Chapter 13 could be unable to pay filing fees.”  This led the Seventh Circuit to conclude that “debtors in Chapter 13 cases cannot proceed on appeal in forma pauperis under § 1915, in the absence of extraordinary circumstances that we do not foresee.”

Furthermore, the Seventh Circuit opined that seeking to proceed in forma pauperis under 28 U.S.C. § 1915 in a Chapter 13 filing “was not just in presumptive bad faith under 362(c)(3)(C)(i)(II) but in actual bad faith,” as the debtor is talking out of both sides of her mouth by telling the court that she is destitute by in forma pauperis status but also somehow would have enough income or assets to qualify for a Chapter 13 bankruptcy.

Accordingly, the motion for leave to proceed on appeal in forma pauperis was denied, and the ruling of the trial court was affirmed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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