573 B.R. 219
9th Cir. BAP2017Background
- Five Chapter 13 debtors in the San Jose Division filed Model Plans modified to (a) treat the plan length as an "estimated" duration or (b) terminate the plan once secured and priority claims were paid, resulting in a $0 dividend to unsecured creditors. Counsel were from two firms; Trustee did not file formal §1325(b) objections.
- The local Chapter 13 Trustee provided a "draft objection" process to permit debtors’ counsel to revise plans outside court, avoiding a formal objection that would trigger the applicable commitment period (ACP) under §1325(b).
- The bankruptcy court placed the cases on the Trustee’s Pending List, held evidentiary hearings, and denied confirmation, ruling the additional provisions violated §§1328 and 1329 and that plans were not proposed in good faith.
- Debtors appealed, arguing (inter alia) the court’s confirmation procedure violated §1324(b) and that nothing in §§1322/1325 required a fixed plan duration absent a §1325(b) objection.
- The BAP (panel) affirmed: the modified Model Plan provisions were invalid because they permitted early completion/discharge without complying with the modification procedure of §1329/Rule 3015(g), undermining creditors’ right to seek increased payments if the debtor’s circumstances improved; plans also lacked good faith.
Issues
| Issue | Debtors' Argument | Trustee/BAP/Bankruptcy Court Argument | Held |
|---|---|---|---|
| Whether the court’s confirmation procedure (multiple hearings; TPL) violated §1324(b) or created an unlawful de facto local rule | §1324(b) requires a substantive confirmation within 45 days; multiple hearings and TPL procedure abridged substantive rights | §1324(b) requires a hearing but not a substantive/conclusive decision within 45 days; the court may use TPL to ensure compliance with the Code | The procedure did not violate §1324(b) or create an unlawful de facto rule; affirmed |
| Whether additional provisions allowing early completion/termination (5.02(a), 5.03) are consistent with the Bankruptcy Code (esp. §§1328, 1329) | Silence in §§1322/1325(a) permits estimated durations or termination once secured/priority claims paid; footnote in Flores supports flexibility | §§1328/1329 permit modification after confirmation by trustee or unsecured creditors; permitting unilateral early completion nullifies §1329 and denies notice and modification rights | Provisions violated §§1328 and 1329 (and thus §1325(a)(1)); debtors may not unilaterally shorten/terminate plan without §1329 procedure; affirmed |
| Whether the Trustee’s practice (not objecting under §1325(b); providing draft objections) was permissible | Trustee argued she would avoid triggering Flores/ACP and that creditors should police their own interests | Trustee has statutory duty to "appear and be heard" and may object to protect creditors; using draft objections to avoid triggering §1325(b) is improper | The Trustee’s decline to raise §1325(b) objections was questionable and inconsistent with duties, though the court did not directly award relief against the Trustee here |
| Whether plans were proposed in good faith under §1325(a)(3) | Estimated length / early termination provisions are permissible and consistent with good faith precedents that consider "probable or expected duration" | Provisions were an unfair manipulation of the Code, designed to deprive unsecured creditors of potential post-confirmation recovery; inconsistent with BAPCPA’s aim to maximize payments to creditors | The bankruptcy court’s finding of lack of good faith was not clearly erroneous; affirmed |
Key Cases Cited
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (U.S. 2011) (BAPCPA’s purpose: ensure debtors repay creditors the maximum they can afford)
- 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 to preserve §1329 modification rights)
- Fridley v. Forsyth (In re Fridley), 380 B.R. 538 (9th Cir. BAP 2007) ("completion" of payments includes completion of plan’s requisite time period; early payoff requires §1329 modification)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (U.S. 2010) (bankruptcy court must independently determine statutory requirements for discharge/confirmation even if creditor does not object)
- Anderson v. Satterlee (In re Anderson), 21 F.3d 355 (9th Cir. 1994) (self-modifying plans/unauthorized unilateral modifications are not permitted)
- Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (9th Cir. BAP 2005) (modification shortening plan under 36 months requires good faith analysis)
- Estus (In re Estus), 695 F.2d 311 (8th Cir. 1982) ("probable or expected duration" is a factor in good faith analysis)
- Keller (In re Keller), 329 B.R. 697 (Bankr. E.D. Cal. 2005) (early lump-sum payoff can preempt trustee/creditors’ modification rights)