What Is Cause To Convert A Chapter 11 Bankruptcy Case To Chapter 7 Bankruptcy Case

By Ryan C. Wood

The short answer is whatever the Bankruptcy Judge assigned to your case thinks “cause” is because what “cause” is, is within the Bankruptcy Judge’s broad “discretion.”  Woo doggy.  Scary stuff.  Of wait, your Bankruptcy Judge went through a rigorous confirmation process to find out they are impartial and will treat you fairly and never ever have any type of bias for favoritism towards any party.  You may get hosed for any number of reasons that have nothing to do with your case or the law.  It all comes down to Money Money Money and not always your money.  Sometimes the money issues go your way.  Sometimes they do not. 

Money Money Money

So, you want to force the conversion of a voluntary Chapter 11 reorganization petition filed to now seek relief voluntarily in Chapter 7 and liquidate all not protected assets of the bankruptcy filer.  That means instead of the debtor, the bankruptcy filer, being in possession of the debtor’s assets, and trying to reorganize those assets for the benefit of all parties, you now want the case to be voluntarily, at your request, converted to a Chapter 7 liquidation and whatever assets cannot be protected are sold off by the Chapter 7 Trustee assigned to the case for the benefit of all parties.  If all parties are not benefiting from the voluntary conversion what is the point?  Creditors are supposed to benefit from the bankruptcy filing.  So, will creditors get more in a Chapter 7 liquidation versus and Chapter 11 reorganization?  Many Chapter 11 reorganizations are nothing more than Chapter 7 liquidations.  A Chapter 11 Plan of liquidation is proposed and the Chapter 11 Plan not a Plan of Reorganization in which the debtor, company/corporation/LLC continues to do business. 

Why File A Chapter 11 Liquidation Plan Versus Filing A Chapter 7 Bankruptcy

There are all kinds of reasons.  One of the most common reasons is because the officers and directors of the insolvent debtor may have fraudulently transferred assets or money prior to the bankruptcy filing.  Or the corporation debtor or LLC debtor is a closely held corporation or LLC and commingling of assets took place raising questions about limited liability the shareholders/owners of the entity.  See these legal entities were created to allow humans to do things to other humans that humans are not allowed to do to other humans on an individualized basis.  The human gets put in jail.  No corporation or LLC can be put in jail.  They are fined money.  Money Money Money

So You Think You Will Get More In A Chapter 7 Liquidation Now

Okay, what does the Money Money Money look like?  As part of the Chapter 11 Plan there will be a liquidation analysis attached to the Chapter 11 Plan providing what the debtor, their bankruptcy attorneys, believe creditors will get in a hypothetical Chapter 7 liquidation of assets.   So, the Chapter 11 Plan liquidation analysis should always provide more Money Money Money for creditors in the Chapter 11 Plan or it would not be proposed to begin with. 

The Law and Voluntary Bankruptcy Case Conversion

Discretion and more discretion is the key to “cause” and voluntarily converting a bankruptcy case to another Chapter of the Bankruptcy Code.  More less “cause” can be anything then if a Bankruptcy Judge says so.

If the lower Bankruptcy Judge’s decision is appealed and challenged, the Ninth Circuit Bankruptcy Appellate Panel or Ninth Circuit Court of Appeals will apply the following standards.   The decision to convert a bankruptcy case to Chapter 7 is within the bankruptcy court’s discretion.  See Pioneer, 264 F.3d at 806.   An appellate court will reverse the bankruptcy court only if the lower Bankruptcy Judge’s decision was “based on an erroneous conclusion of law or when the record contains no evidence on which the Bankruptcy Court rationally could have based its decision.” See Pioneer at 806–07, quoting Benedor Corp. v. Conejo Enters., Inc. (In re Conejo Enters., Inc.), 96 F.3d 346, 351 (9th Cir. 1996)). The standard for converting a Chapter 11 bankruptcy case to Chapter 7 is set out in 11 U.S.C. § 1112. This statute provides that the bankruptcy court “shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause.” 11 U.S.C. § 1112(b)(1). However, even if cause is established, Section 1112(b)(2) prohibits a bankruptcy court from granting relief under Section 1112(b)(1) if the bankruptcy “court finds and specifically identifies unusual circumstances establishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes one of two enumerated circumstances].  What does this mean?  It means depending on the arguments advanced by the various parties in the bankruptcy case, there are three primary questions: (1) whether cause exists for granting relief under Section 1112(b)(1); (2) whether granting relief is in the creditors’ and the estate’s best interests; and (3) if so, which form of relief best serves the creditors’ and the estate’s interests.

Sidenote: Good Faith Bad Faith = No Faith In Chapter 7 Conversion to Chapter 13

What we are talking about here is Chapter 11 reorganization and filing a motion requesting the Bankruptcy Court to voluntarily convert the bankruptcy case to Chapter 7 liquidation.  As a sidenote let us briefly discuss voluntarily converting a Chapter 7 liquidation case to a Chapter 13 reorganization case.  The difference between Chapter 13 and Chapter 11 is a Chapter 13 reorganization is for individual humans and not corporations or limited liability companies.  I will cut to the chase here.  While the Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and legislative history all provide bankruptcy filers have the right to choose their destiny and voluntarily convert to Chapter 13 reorganization if they do not like how the Chapter 7 liquidation is progressing, humans not elected to Congress created an entirely new Bankruptcy Code through judicial interpretation of the Bankruptcy Code.  Your Supreme Court of the United States of America and the Ninth Circuit Court of Appeals repeatedly and consistently hold Section 105(a) of the Bankruptcy Code cannot be used to create new law that is exactly what has happened regarding converting from Chapter 7 to Chapter 13 reorganization. 

See the problem is some bankruptcy filers committed fraud when filing Chapter 7 and then when things fall apart of the Chapter 7 liquidation bankruptcy case the bankruptcy filer seeks a better deal by converting to Chapter 13 reorganization.  What the Bankruptcy Code does not address is the time and money spent by the Chapter 7 Trustee investigating the finances of the bankruptcy filer prior to seeking conversion.  How does the Chapter 7 Trustee get paid for their time for doing their job in a voluntarily filed Chapter 7 case?  They do not get paid if the case is converted to Chapter 13, normally.  So what did the human Chapter 7 Trustees do along with Bankruptcy Court’s throughout the United States of America?  They made their own law and created a bar to conversion if the debtor/bankruptcy filer acted to bad faith in the filing of their Chapter 7 petition, honesty in listing and valuing assets, or issues with anything the debtor/bankruptcy filer does.  So a debtor/bankruptcy filer amending their bankruptcy petition became bad faith as if a debtor does not have every right to amend their bankruptcy petition.  The law says yes and humans say no.  Any type of mistake is said to be “bad faith” and Chapter 7 Trustee’s and Bankruptcy Court’s decided we will punish humans for these alleged bad acts in filing the Chapter 7 bankruptcy petition.  Well, the problem is the words “bad faith” do not even exist in Chapter 7 of the Bankruptcy Code.  It is made up entirely.  One Chapter 7 Trustee went so far as to take away a bankruptcy filers right to protect the bankruptcy filers assets under state law.  A Chapter 7 Trustee nor Bankruptcy Court has a right to change any state law exemption to protect a bankruptcy filer’s assets.  The bankruptcy filers, if eligible, has a right to that state law exemption period.  The Supreme Court of the United States of America had to say no, this is wrong, no Chapter 7 Bankruptcy Trustee or Bankruptcy Court can create punishments for bankruptcy filers that do not exist in the Bankruptcy Code.

The problem is these professionals become biased or were always jaded against humans that seek protection under our Bankruptcy Code here in the United States of America.  It seems like many Americans  can no longer follow things that made and make the United States of America the greatest nation humans kind has ever known to date.  One is our insolvency laws and throwing yourself on the mercy of the Bankruptcy Code to orderly sift through the financial mess. 

But no one likes to work for free and no human should have to.  The remedy is changing the Bankruptcy Code and not creating law and procedures that do not exist pursuant to Section 105(a) of the Bankruptcy Code. 

Chapter 11 Conversion to Chapter 7

Back to the law and procedure regarding conversion and whether or not to grant conversion.  If the Chapter 11 reorganization is not working out or slowed down due to litigation it may make sense to seek conversion to Chapter 7.  Your bankruptcy attorney and you are more or less throwing in the towel and allowing a Chapter 7 Trustee to takeover all assets of the bankruptcy filer and sell or settlement regarding the assets for the benefit all creditors.  You originally filed a reorganization case so you would be in control of your assets or the assets of the business that filed for bankruptcy protection.  In theory cause exists for the conversion because conversion is in the best interest of all parties.

How To Waive Credit Counseling Course To File Bankruptcy

By Ryan C. Wood

Since 2005 a credit counseling course from an approved provider must be completed before a bankruptcy petition is filed. For over ten years I have watched debtor after debtor representing themselves request the Court waive the credit counseling course requirement for exigent circumstances. First, the credit counseling course can cost as little as $8.75, total, or free if you qualify, and will take about two hours to complete online. So, I do not know how any human, even if bankrupt, cannot pay $8.75 or seek waiver of the fee, for the course and spend two hours answering question that have no right or wrong answers.

Second, no bankruptcy attorney that knows what they are doing will recommend seeking waiver of the credit counseling course. They will say the credit counseling course is simple, quick and nothing to get your bankruptcy case dismissed over, so just do it.

Who does recommend or provide information to seek waiver of the credit counseling course? A non-attorney or petition preparer are illegally giving out legal advice and providing forms to seek waiver of the credit counseling course. Each one I have ever read is deficient and again, I know why. The non-attorney or petition preparer do not actually want your bankruptcy case to continue and be successful. They want to charge you fees that are not legal (more than the limit of $150.00 total in California for a non-attorney petition preparer) and want your case to be dismissed quickly so it never comes up they ripped off the bankruptcy filer. So the non-attorney gets paid more than they should and you get around 14 – 20 days of relief before the case is filed for being dead on arrival….. Then hopefully you call me and I tell you the truth for free. Or hopefully you are reading this right now and do not give a single penny to a non-attorney and please call an experienced bankruptcy attorney in your jurisdictions.

I CAN DO THIS FOR EVERY PART OF YOUR LIFE IF YOU LET ME – FOR NOW HERE IS THE MAGIC REGARDING THIS PARTICULAR ISSUE OF LIFE………

SEEK WAIVER OF THE FEE TO COMPLETE THE CREDIT COUNSELING COURSE — DO NOT WAIVER OF THE REQUIREMENT TO COMPLETE THE COURSE BASED UPON EXIGENT CIRCUMSTANCES

See, I care about you and do not even know you. Here it is. Your circumstances are not exigent; there will be no waiver of the credit counseling course requirement. If you are reading this, you probably do not want to spend any money on a bankruptcy attorney. Let me tell you again, your circumstances are not exigent. The Court will deny your request waiver the credit counseling course requirement due to: “certification unsatisfactory under Section 109(h)(3).” I know which halfwits are out there spewing misinformation. But truth will make you less money and capitalism rules all. I just want to be equal to how the Court, chapter 7 trustees, chapter 13 trustees, their attorneys treat my clients as to money. No, no, only they can ignore the law to put your money in their pocket……. I digress but it is true.

File Certification of Exigent Circumstances Pursuant to Section 109(h)(3)

So, first off you need exigent circumstances. What are exigent circumstances? NOT MANY CIRCUMSTANCES. Just waiting to the very last minute to file the bankruptcy petition to immediately obtain the automatic stay is NOT an exigent circumstance. Even though your house is getting foreclosed on does not mean you cannot the credit counseling course. Since I am not your bankruptcy attorney though you may allege some sort of impossibility.

An exigent circumstance is something outside of your control not allowing you to timely complete the credit counseling course.

HERE IS MORE MAGIC: Now bankruptcy judges are clueless as to the credit counseling course, the costs, the time it takes to complete. They have never had to be a social worker/psychologist/ and do some attorney work for clients. What they do know is a human represented by a bankruptcy lawyer always properly completes the credit counseling course before every bankruptcy case is filed versus you filing your own case. Bankruptcy judges only see requests for waiver of the credit counseling course under Section 109 when humans represent themself. That is the common denominator and there is nothing exigent about not hiring an attorney. So, there are exigent circumstance only in cases that do not include an attorney? Hm no, no that makes no sense.

You will pay over $1,000.00 for a cellphone yet not take the time or spend between $1,000.00 and $2,000.00 to make sure your bankruptcy is done right.

YOU NEED TO REQUEST TEMPORARY WAIVER OF THE REQUIREMENT TO COMPLETE THE CREDIT COUNSELING COURSE – DO NOT REQUEST TO NEVER COMPLETE THE CREDIT COUNSELING COURSE

OMG, why are you requesting a complete waiver of the requirement, a requirement created by Congress, signed into law by your President of the United States to seek bankruptcy protection. Do not seek complete waiver but TEMPORARY WAIVER. Why are you not being told this. Well, here is it for free. I can do this for your entire life if you let me. You tell me what you want and I will tell you what must happen for you to get want you want. The problem is you cannot do it day in and day out. I read about this human man that bought a yearly pass for an amusement park to because the yearly pass came with free lunch I believe. The pass included some food anyway and the human man ate there everyday for free for over seven years with the yearly $150.00 pass. That is the sacrifice and discipline you do not have that is necessary to get it done.

So here is the trifecta of death for your self-filed bankruptcy case.

  1. Filing of skeleton petition; no statement of social security or creditor list;
  2. Request for waiver of court filing fee and no initial payment of filing fee; and
  3. Request for waiver of credit counseling course requirement

Also, the halfwit you overpaid to give you horrible legal advice also advised you to file a skeleton bankruptcy petition. If you want some love from the bankruptcy court file a complete and accurate petition while requesting TEMPORARY waiver of the credit counseling course and you will get what you want. Skeleton petitions filed by human beings in their own behalf rarely are complete and mandatorily dismissed within 14 days of filing the incomplete skeleton petition.

Now Section 109(h)(4) Is What Gets It Done – NO HUMAN WANTS THIS THOUGH

Section 109(h)(4) does provide for waiver of the requirement to complete the credit counseling course under certain horrible circumstances. After notice and a hearing, the court may waiver the requirement due to incapacity, disability or active military duty in a combat zone. You do not want to be determined to be mentally deficient so that you cannot complete the course due to impairment. No human want this. Disability is about being so physically impaired you cannot, after reasonable effort, participate in an in person, telephone or internet briefing course.

Where Does State of California Lottery Money Go?

By Ryan C. Wood

Howdy humans.  Let us discuss the California State Lottery and answer questions like where does all the California Lottery money go?  How much revenue is there each month and how is it spent?  Who are the winners and losers regarding the California State Lottery?  Can we get rid of the California State Lottery at this point?  Can the State of California live without a lottery?  If no, what does that say?  Does playing the lottery lead to filing bankruptcy, lol?

California State Lottery gross revenue is about $550 million a month.  As a percentage of gross revenue only about $116 million goes to education on a monthly basis or 21% of the total gross revenue.  Is this what you voted for?

For 2020-2021 the State of California lottery had total revenue of approximately $7.120 billion.  The California Department of Education estimates $1.5 billion will go to education.  During the last 35 years, 1985 – 2020, only about $1.07 billion a year of State of California lottery revenue went to K-12 education.  As of 2022, that represents 0.0088% (less than a percent of the total) of the total yearly budget for the State of California for K-12.     

For perspective if your gross income is $75,000 a year; 0.0088% equals a paltry $660.00.

For perspective if your gross income is $75,000 a year; 1.24% equals a paltry $930.00.

Now education receives about $1.5 billion from the State of California lottery or 1.24% of the total California education budget. 

Gaming costs are about $575 million with pure administrative expenses such as salaries are about $215 million each year.  So approximately $800 million goes to operating expenses each year while about $1.5 billion goes to education each year. 

If the total revenue was $7.2 billion for 2020-2021 and 87% or $6.264 billion

In 2020 about 66% of gross revenue was paid in the form of prizes/awards to the public.

Who Gets the California State Lottery Money?

Prior to 2010 only 50% of the money brought in by the California State Lottery had to be returned, or redistributed, to the public in the form of winnings/prizes.  A law was passed changing the payouts to 87 (of net revenue, not gross) percent to the public in the form of prizes and contributions to education and cap of 13 percent for California Lottery operating expenses. 

Prior to 2010 the money was redistributed as follows: 50 percent to public in prizes, 34 percent to public education, and no more than 16 percent to administrative expenses. 

So here you go.  Below is how lottery revenue was distributed between 1985 and 2020.

Entity                                                                                           Amount Allocated in Millions

K-12                                                                                             $1,194,705,385

Community Colleges                                                                $218,861,585

California State University                                                      $60,423,474

University of California                                                            $42,667,362

Hastings College of the Law                                                    $144,161

Department of Education – State Special Schools               $116,496

Juvenile Justice                                                                         $49,381

Department of Developmental Services                              $41,669

Total                                                                                           $1,517,009,513

Employees and Offices of the California State Lottery

In 2020 the California Lottery Commission employed 909 humans in nine district offices and two distribution centers.     

Distribution to Education 1985 – 2020

K-12 Education received about $30 billion over 35 years.  For perspective the State of California budget for 2022 is $119 billion – $124 billion.  According to the California Department of Education the total budget for 2021-2022 for K-12 programs is $124.3 billion.  Per pupil spending is up from $16,881 in 2020-2021 to $23,089 for 2021-2022.  So let us talk about $121 billion and how much money that is and where does it go.

Does Playing California State Lottery Lead to Bankruptcy?

No, I am just joking about this.  As a bankruptcy attorney in the Bay Area I regularly encourage my bankruptcy clients to buy one ticket each week or when the jackpots get huge.  Hopefully they will crack off a piece of that cheese for me.  I cannot ethically treat humans in the requisite way our system requires to obtain/earn/steal millions of dollars.  I could never sell my services as a bankruptcy attorney at 10 times the amount other bankruptcy attorneys charge regardless of how superior the services are.  This is not true of cellphones.  Apple can markup a cellphone to $1,200.00 and we all call it capitalism versus some other manufacturers cellphone selling for $100.00.  As an attorney that would be unethical even if the client chose to pay over 10 times more.  I, like most humans, will have to have blind luck to get that amount of money and that is where the California State Lottery comes in.  Do not fool yourself.  The only way to get rich is at the expense of many other human beings one way or another.  It is to capitalize. 

What Does Bankruptcy Do To Your Life?

By Ryan C. Wood

What does bankruptcy do to your life? It helps your life and will give you your life back without the stress of not affordable monthly payments on your debts.  Bankruptcy will allow you to live in peace and harmony without the stress of not being able to eat and live.  Bankruptcy is the law, written by your Congress and signed into law and enforced by your President.   

Generally, credit card debts, medical debts, other general unsecured debts are discharged [no legal obligation to pay anymore by Federal Court order] and your life is left with expenses like rent, food, cellphone and other reasonable living expenses.  The entire point of seeking relief under the Bankruptcy Code is to improve your life and it does or no one would ever choose to file for bankruptcy protection.  What bankruptcy does to your life is making your life enjoyable again and obtain a fresh start.  This is why bankruptcy laws exist.  To help you have a better life and consequently improve society as a whole.  We need everyone happy. 

How Does Bankruptcy Give You Your Life Back?

First, the consequences of not filing for bankruptcy can be significant.  Bankruptcy gives you your life back by giving you the ability to get ahead in life again.  You will no longer be held back by debt your cannot pay back based upon your circumstances. 

Once you stop paying on time each month the phone calls and letters seeking collection start.  At some point one or more of the creditors will sue you and obtain a judgment given there is rarely a defense to simply not paying anymore.  That is a breach of the credit card contract.  Once a judgment is obtained the judgment can be enforced by garnishing your wages, levying on your bank accounts, and recording the judgment so the judgment attaches to your real property or real property you purchase later.  You just went from being able to file a more or less anonymous bankruptcy case to handle your debt problems to your employer, your bank and the county you live in finding out you stopped paying your bills and a judgment was entered against you.  Now that is a significant consequence.  Considering your credit score is already low given the missed payments and/or late payments your credit score will not go lower when filing bankruptcy.  The damage is done.  Considering very few, if any, humans will know you ever filed for bankruptcy how is filing a significant bad consequence as “they” want you to believe?  The truth is there is nothing wrong with following the law when filing for bankruptcy protection and discharging your eligible debts.

Very Few Bankruptcy Filers Ever Lose Property

This is again fake news and a myth passed on from human to human that is not a bankruptcy attorney and should not be giving out advice.  This is especially true in California given California has generous exemptions to protect or exempt your property from the bankruptcy estate.  In California the CCP 703 exemptions includes a Wild Card Exemption totaling over $30,000.00.  If your circumstances are right, yes, you can have $30,000.00 in cold hard cash and discharge all your eligible debts and keep the $30,000.00 in cold hard cash.  Under the 704 exemptions the California Homestead Exemption to protect equity in your home is up to $600,000.00 depending upon the median sale price of homes in your county in the prior calendar year. 

Bankruptcy Will Generally Not Ruin Your Credit

This is a myth like skin color matters.  These myths are passed down from generation to generation poisoning minds and limiting futures.  Skin color does not matter; money matters.  Just ask Will Smith.  See, if you have enough money, you can go around slapping anyone you like without consequence.      

Every now and then I run into a potential client that has not missed a payment yet but unfortunately knows bad things are coming.  When the bad things come, they will no longer be able to pay the credit card bills each month.  The vast majority, say 90 percent or more, already have month after month of negative history on their credit report when they seek the advice of a bankruptcy attorney.  The credit score is already as low as it will ever go.  Bankruptcy can only help that situation getting rid of all the debt so the debit to income ratio skyrockets and no more negative history is recorded in their credit report.  Thank you, bankruptcy law.

You CAN Buy A House Within A Reasonable Amount of Time After Your Bankruptcy Case

This is another myth.  Just Google it.  You become eligible for every form of mortgage loan 18 – 24 months after your bankruptcy case is over.  Bankruptcy never prevents or bars someone from buying a home.  Qualifying for the loan and coming up with a down payment are what prevent humans from purchasing homes.  Not a bankruptcy on a credit report.  That is nonsense. 

Why cure the debt cancer for ever when businesses, corporations can make billions merely treating the debt cancer?  No wonder “they” want you to believe bankruptcy is bad.  They are making money off you struggling each month and care nothing about your personal well-being. 

You Do Not Have To Immediately Dismiss A State Court Lawsuit If The Defendant Files Bankruptcy

By Ryan C. Wood

This issue comes up all the time.  What I always hope is the creditor or plaintiff just dismisses the state court lawsuit without prejudice upon the filing of the bankruptcy petition.  The automatic stay goes into effect stopping any and all collection activity including lawsuits.  It just saves time and money for all parties.  Of course it is not that simple and I will discuss this issue in more detail below.  The important part is continuing status conferences or just maintaining the status quo and not dismissing the state court lawsuit once the defendant files for bankruptcy protection is not a willful violation of the bankruptcy automatic stay.  A recent Ninth Circuit Bankruptcy Appellate Panel decision addressed this issue.  See Jerome E. Perryman v. Karen Dal Pogetto, BAP No. NC-21-1036-BFS, Bk. No. 19-10253 (9th Cir. BAP 2021)

“Continuances like these keep the matter against the debtor ‘on hold’ consistent with the stay; they do not advance the matter in the creditor’s favor.”

See In re Welsch, 602 B.R. 682, 686 (Bankr. N.D. Ill. 2019) (holding that continuances in a prepetition domestic relations proceeding did not violate the automatic stay)

See In re Cobb, 88 B.R119, 120 (Bankr. W.D. Tex. 1988) (holding that a status hearing does not violate the automatic stay because it does not move the case forward to a judicial determination).

Just Maintaining The Status Quo In The State Court Lawsuit Not Willful Violation of The Automatic Stay

I really do not see the utility in continuing to have status conferences in a state court case that is dead or soon to be dead.  Each status conference requires a pre-conference statement be filed and then only thing to be communicated is the state court lawsuit is stayed until further notice.  It would make sense to then order the plaintiff to only schedule a status conference in the event there is no longer a stay in the bankruptcy case.  For some reason this does not always happen.  The only reason I can come up with is the plaintiff’s attorney wants to incur the time and bill their client.  The thing is more often not an attorney for the plaintiff has no interest in saving time and money.  The state court attorney that filed the lawsuit just got the rug pulled out from under them.  They may very well want to continue to appear for status conferences and have to file preconference statements before every conference.  They want to bill their client for that so …….

It Does Unnecessarily Increase Expenses

It is difficult enough for most bankruptcy attorneys to get paid for their time without complications.  So anything that increases the time I have to spend to get the job done is not good.  This is one of those issues.  I quote a client a fee for their case with the hope certain things play out as I plan and the amount I quoted is an amount I can make money on.  That is the deal.  When a creditor and/or their attorney choose to not dismiss the pre-bankruptcy state court lawsuit I have to spend additional time dealing with and explaining to my client what is going on and why, why a status conference statement continues to be filed in the state court case or why there continue to be status conferences.  It is just so much simpler and cheaper for the plaintiff to dismiss the state court lawsuit without prejudice.  If the defendant bankruptcy filer does not receive a discharge in their bankruptcy case the plaintiff/creditor can file the lawsuit again.  Or even better file a notice of stay of proceedings.  In California this is judicial council form CM-180.  If a defendant/debtor has made an appearance in the state court litigation under California law the defendant/debtor has the duty to file the notice of stay of proceeding.  Plaintiffs rarely if ever file a notice of stay of proceedings in the state court case. 

So in the Chapter 7 case upon entry of the order of discharge the state court lawsuit must be timely dismissed given the underlying claim is in fact legally discharged.

In a Chapter 13 case things get more complicated given a discharge is not received until after completion of the Chapter 13 Plan.  That could be as long as five years after the case is filed.  So in theory for five years a plaintiff could request the state court keep scheduling status conferences until the Chapter 13 Plan is complete and a discharged entered.  This is a common practice for foreclosure sale dates.  Upon the filing of a bankruptcy case a pending foreclosure sale of real property is stayed or stopped. 

Chapter 7 Case Versus Chapter 13 Case

As I began to discuss above there are differences whether the bankruptcy case filed is Chapter 7 or Chapter 13.  In Chapter 7 bankruptcy the debtor will most likely receive their discharge in 3 to 4 months after the petition is filed.  So the state court case can only be an issue for this short period of time even if not dismissed.  So one status conference is held or continued while the Chapter 7 case is still pending.  No big deal and this does not substantially increase bankruptcy attorneys time and expenses.  If the state court law is not dismissed upon entry of the debtor/defendant’s discharge then at some point it has to be a willful violation of the automatic stay.  In a Chapter 13 bankruptcy filing the Chapter 13 Plan is usually either 36 months or the maximum 60 months.  There can be five years for status conferences and status conference statements to deal with?  Potentially yes when the state court lawsuit is not dismissed.  Even of the notice of stay of proceeding is filed the state court could still choose to have periodic status conferences.  The entire point is to be ready to go in state court if for some reason the Chapter 13 case is dismissed.   Some Chapter 13 cases are filed to stop foreclosures or state court lawsuits temporarily with no intent to actually confirm a Chapter 13 Plan of Reorganization.  These case usually use the minimum documents, or a skeletal petition, to get the case started.  If a skeletal petition is filed then it is unclear whether the case will continue and the petition completed.  In this case it is perfectly reasonable to not dismiss the state court lawsuit unless the petition is completed and then a Chapter 13 Plan is confirmed or approved by the Court.  In a Chapter 13 case the end of the rode for creditors should be when a Chapter 13 Plan is confirmed or approved.  After that the debtor/defendant need only complete the plan to receive their discharge so why not dismiss the state court lawsuit at this point?  Well, the debtor/defendant has not completed the Chapter 13 Plan and received their discharge.  This is the, “So you say’ in I got a chance” syndrome.   At the off chance that the Chapter 13 case is dismissed the state court lawsuit is still there to be continued.