As A Matter Of First Impression, The Seventh Circuit Holds That Chapter 13 Debtors Cannot Obtain In Forma Pauperis Filing Fee Waivers Absent “Extraordinary Circumstances”

In a case litigated by the authors, the United States Court of Appeals for the Seventh Circuit held in In re Marzieh Bastanipour, Case No. 20-1373 (7th Cir. June 10, 2020) that Chapter 13 debtors are not permitted in forma pauperis fee waivers absent a showing of extraordinary circumstances.

In 2018, the Debtor, Marzieh Bastanipour, filed a Chapter 13 bankruptcy petition in the U.S. Bankruptcy Court for the Northern District of Illinois.  This was the third Chapter 13 petition filed by the Debtor since 2013.

On July 29, 2019, the Bankruptcy Court dismissed Debtor’s 2018 bankruptcy petition for her failure to confirm a bankruptcy plan.  Thereafter, Debtor appealed the Bankruptcy Court’s dismissal order to the U.S. District Court for the Northern District of Illinois.  During the pendency of her appeal, Debtor filed a motion for stay pending appeal seeking to delay the foreclosure auction sale of real property.  The District Court denied Debtor’s motion for stay pending appeal on the grounds that Debtor’s motion was premised on issues that should have been raised in either the Bankruptcy Court or in her state court foreclosure matter.  Debtor then sought to appeal the District Court’s denial order to the Seventh Circuit.  At the same time, Debtor filed an in forma pauperis application pursuant to 28 U.S.C. §§ 1915 and 1930(f)(1), seeking to waive the $298 appellate filing fee.

The District Court denied Debtor’s application stating that Section 1930(f)(1), which governs fees in bankruptcy cases, does not provide for fee waivers for Chapter 13 debtors.  Subsequently, Debtor renewed her application with the Seventh Circuit.  The creditor opposed Debtor’s application on the basis that Chapter 13 debtors, such as Debtor, were not entitled to fee waivers based on the plain language of 28 U.S.C. § 1930(f)(1), which only references individual Chapter 7 debtors.

On June 10, 2020, the Seventh Circuit issued its opinion denying Debtor’s application.  In reaching its decision, the Seventh Circuit found that while Chapter 13 debtors cannot rely upon 28 U.S.C. § 1930(f)(1) based on the plain language of the statute, Chapter 13 debtors could still look to 28 U.S.C. § 1915.  Nonetheless, the Seventh Circuit observed that “Chapter 13 is designed for people who can pay most if not all of their debts,” and that “[t]o 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.”  (Id., p. 2).  Accordingly, it concluded that:

It is hard to see how someone eligible for relief under Chapter 13 could be unable to pay filing fees.  To put this differently, a person who tells the bankruptcy court that she qualifies under Chapter 13 cannot persuade a court of appeals that she lacks money for judicial fees.  This leads us 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 forsee.

(Id. at p. 3).

The Seventh Circuit then analyzed the substance of Debtor’s application and concluded that it was submitted in bad faith because Debtor stated in it that she had not received more than $200 in total income during the last 12 months, she did not own personal property worth $1,000 or more, and she did not own any real property.  (Id.)  The Seventh Circuit remarked that “[i]t is hard to take [her statements] seriously, when her goal is to block proceedings to foreclose on her home”  and rhetorically questioned, “[i]f she lacks income, how could the Chapter 13 filing be in good faith?”  (Id.)  Concluding that it could not be in good faith, the Seventh Circuit found that “[s]he is talking out of both sides of her mouth, and we will not be bamboozled.”  (Id.)

The decision is of great importance to secured creditors because, for the first time, there is case law that expressly curtails Chapter 13 debtors’ ability to obtain waivers of filing fees on appeals arising out of their bankruptcy petitions.  Such a precedential decision will help creditors curb serial-filers’ attempts to delay proceedings through bad faith appeals.