Dismissal of a Chapter 13 bankruptcy can have very damaging consequences for a debtor. The automatic stay, which protects a debtor from all collection activity while the bankruptcy is active, is terminated by the dismissal of the case. This leaves a debtor open to any collection activity permissible under state law, including repossession and foreclosure.
In the case going to the Supreme Court, the debtor had proposed a “hybrid” plan, because the property was underwater and so had both a secured component tied to the current market value of the property and an unsecured portion that represented the underwater amount of the loan.
The creditor objected and the bankruptcy court agreed, ordering the debtor to file an amended Chapter 13 plan or have his case dismissed. The First Circuit Court of Appeals rejected the appeal, because the circuit does not recognize a denial of plan confirmation as a “final” order, and therefore appealable.
Courts of appeal only want to hear cases that are “final,” so they do not waste judicial resources by attempting to deal with issues in a piecemeal fashion. There is a split among the circuit courts of appeal on this issue, which is likely why the Supreme Court accepted the case.
Finality is a complex concept, and for a decision to be appealable, “it must finally dispose of all the issues pertaining to a discrete dispute within the larger proceeding.” Here the court of appeals found that it did not dispose of a “discrete dispute” because his case had not been dismissed and he could file an amended plan.
Next time, we will look the courts rationale.
Courthousenews.com, “High Court to Consider Bankruptcy Plan Denial,” Dan Mccue, December 15, 2015