507 B.R. 736
Bankr. D. Kan.2014Background
- Debtors Timmy Ramsey and Rhonda Stelter filed a joint Chapter 13 petition and plan in Dec 2008, with above-median income and a five-year commitment period.
- They scheduled tax withholdings of about $975/month at filing and included these figures in Form B22C and Schedule I/J; the IRS filed sizeable prepetition priority tax claims.
- Their confirmed plan proposed paying the unsecured creditors at least $30,016.20 and paying the ongoing mortgage through the trustee, funded by approximately $2,000 monthly plan payments.
- In 2011 and 2012, the IRS amended its claim to include post-petition taxes; by 2013 the debtor’s plan was in default and the trustees asked for dismissal; the debtors moved to modify in July 2013 to divert funds to cover post-petition taxes rather than pay unsecured creditors.
- The modification would extend beyond the original five-year term and would not cure current plan defaults, and the court found the plan unfeasible to pay the added priority tax claims in full; the court ultimately denied the modification and granted dismissal, with a 14-day stay to convert to Chapter 7.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed modification to pay post-petition tax claims is feasible within five-year limit | Ramsey/Stelter contend modification is allowed to pay post-petition taxes | Trustee argues modification fails feasibility and five-year cap | Modification denied; plan feasibility and five-year cap bar modification |
| Whether the modification cures the current delinquency and preserves discharge | Modification would cure delinquencies by reallocating funds | Cure not addressed; delinquency remains and discharge jeopardized | Modification denied; cure not shown and discharge at risk |
| Whether the debtors acted in good faith under Flygare factors | Debtors acted in good faith to meet tax obligations | Pattern of nonpayment and mismanagement undermine good faith | Modification denied; good faith not established |
| Whether the plan can be extended beyond five years to accommodate tax priorities | Extension permitted to address priority tax claims | Five-year limit cannot be extended; §1329(c) constrains duration | Plan modification beyond five years not allowed; dismissal likely under §1307(c)(6) |
Key Cases Cited
- Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) (Flygare factors guide good-faith analysis in modification of confirmed plan)
- In re Profit, 283 B.R. 567 (9th Cir. BAP 2002) (plan could not be modified post-term expiry to extend duration; five-year limit applies)
- In re Grutsch, 453 B.R. 420 (Bankr.D. Kan. 2011) (changed circumstances and pre-petition/post-petition tax treatment considerations in modification)