In re: DENNIS MICHAEL ESCARCEGA NANETTE MARIE SISK, Dba About Face Skin Care EUGENE EDWARD VICK MARK IRVIN CANDALLA JERI LYLE SALDU
NC-16-1333-JuFB NC-16-1334-JuFB NC-16-1335-JuFB NC-16-1336-JuFB NC-16-1358-JuFB
9th Cir. BAPSep 6, 2017Background
- Five chapter 13 debtors in the San Jose Division filed plans using the court's mandatory Model Plan but attached additional provisions (5.02(a) and 5.03) that (a) characterized the stated plan length as "estimated" or (b) terminated the plan early once secured and priority claims were paid, and proposed 0% dividends to unsecured creditors.
- Debtors' counsel (two firms) argued the Model Plan's requirement of a fixed term was impracticable and that early-completion/estimate language preserved debtor flexibility; no unsecured creditor objected at confirmation.
- The chapter 13 trustee declined to file formal objections under §1325(b) and instead provided a "draft objection" to debtor counsel to be resolved informally, expressly to avoid triggering the applicable commitment period under Flores.
- The bankruptcy court placed the cases on a contested track, held evidentiary hearings, and denied confirmation, finding the added provisions inconsistent with §§1328 and 1329 and that the plans were not filed in good faith because they improperly foreclosed modification rights of the trustee and unsecured creditors.
- The debtors timely appealed; the BAP affirmed, rejecting challenges to the court’s confirmation procedure, criticizing the trustee’s informal practice, and holding plan duration must be fixed (or formally modified) so trustees/creditors may seek §1329 modifications.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court's use of multiple hearings and TPL procedure was a de facto local rule violating §1324(b) | G&H: multiple/substantive hearings after 45 days violated §1324(b) and abridged debtor rights | Court/Trustee: hearings complied with §1324(b) (statute requires a hearing but not a conclusive hearing within 45 days); court must ensure plan compliance | Held: Procedure did not create an unlawful de facto rule or violate §1324(b) |
| Whether debtors may include early-termination/estimated-duration provisions in initial plans so plans can complete before the stated term without §1329 modification | Counsel: §§1322 and 1325(a) do not require a fixed term absent a §1325(b) objection; Flores’ footnote shows §1325(b) triggers only on objection; customary practice accepts probable/estimated durations | Court/Trustee: §§1328 and 1329 imply a temporal requirement tied to plan duration; allowing unilateral early completion nullifies §1329 and prevents trustees/creditors from seeking modification when debtor income rises | Held: Additional provisions 5.02(a) and 5.03 violated §§1328/1329 and made plans unconfirmable; plans must state definite term or follow §1329 modification procedures to shorten duration |
| Whether the plans were proposed in good faith under §1325(a)(3) | Counsel: estimating duration or allowing early completion is consistent with good-faith factors (probable duration) | Court/Trustee: provisions were deliberately designed to deprive unsecured creditors of potential dividends and to avoid statutory modification protections enacted by BAPCPA | Held: Plans not proposed in good faith; modifications were improper manipulation of the Code and inconsistent with BAPCPA’s purpose of maximizing payments to creditors |
Key Cases Cited
- Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (2011) (BAPCPA’s aim is to maximize debtor payments to creditors)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) (bankruptcy court must independently ensure plan complies with the Code even if creditors do not object)
- Danielson v. Flores (In re Flores), 735 F.3d 855 (9th Cir. 2013) (plan duration must be at least the applicable commitment period when §1325(b) is triggered; minimum duration important to §1329 modification process)
- Anderson v. Satterlee (In re Anderson), 21 F.3d 355 (9th Cir. 1994) (debtors may not adopt self-modifying plans inconsistent with the Code)
- Fridley v. Forsyth (In re Fridley), 380 B.R. 538 (9th Cir. BAP 2007) (confirmed plan’s duration controls “completion”; early payoff requires §1329 modification and notice)
- Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (9th Cir. BAP 2005) (courts should scrutinize good faith when shortening plan to under 36 months)
- Goeb v. Heid (In re Goeb), 675 F.2d 1386 (9th Cir. 1982) (good-faith test: misrepresentation, unfair manipulation, or inequitable proposal)