600 B.R. 570
Bankr. S.D. Tex.2019Background
- Katie Smith filed Chapter 13 in Feb 2016 and confirmed a plan in Apr 2016 that required her to make direct postpetition payments to Americredit on a car loan (contract rate 15.5%).
- Smith defaulted on postpetition payments; Americredit moved for relief from stay and the parties entered an Agreed Order requiring cure or a plan modification (including option to add 6.0% interest on arrearage).
- Smith filed a sequence of plan modifications (Sept–Nov 2018) culminating in a Second Modification (filed Nov 26, 2018) that (a) shifted disbursements to the Chapter 13 Trustee, (b) proposed payment of Americredit’s remaining secured claim at 6.0% over 25 months, and (c) cured arrears through the Trustee.
- Americredit objected, arguing (i) res judicata/respect for confirmed plan bars changing the contract interest rate or disbursing agent, (ii) §1329(a) does not permit changing interest post-confirmation, and (iii) local rule BLR 4001-1(e)(6) entitles it to an adequate-protection lump sum for missed direct payments.
- The Court overruled Americredit’s objection, directed supplemental briefing on when a modification becomes effective, and later (after briefing) approved the Second Modification, holding it was retroactive to the filing date and requiring a $1,400 lump-sum adequate-protection payment under local rule.
Issues
| Issue | Plaintiff's Argument (Smith) | Defendant's Argument (Americredit) | Held |
|---|---|---|---|
| Whether §1329 permits post-confirmation reduction of interest on a secured claim and change in payment/disbursing agent | §1329(a) allows increasing or reducing the amount of payments on a claim; modification may alter payment stream and disbursing agent so long as §1325(a) requirements (including Till rate) are met | §1329 only contemplates changing monthly payment amount by extending/reducing time, not altering contract interest rate or disbursing agent; confirmed plan is binding | Court: §1329(a)(1) plainly permits increasing or reducing payments; modification may change interest rate and disbursing agent if modification satisfies §1325(a) (including Till) and §1322 requirements |
| Whether res judicata/preclusion bars debtor from changing terms of confirmed plan post-confirmation | Res judicata does not bar modifications authorized by §1329; debtor may seek modification to adapt to changed circumstances | Confirmed plan should be binding; creditor prejudiced if debtor can unilaterally change terms after confirmation | Court: res judicata gives way to the express statutory modification mechanism in §1329; debtor may modify if statutory confirmation standards are met; creditor not entitled to propose modifications under §1329 |
| Whether changing disbursing agent from debtor to trustee is allowed after confirmation | Trustee can serve as disbursing agent; courts have discretion to change when debtor defaults on direct payments | Confirmed plan terms bind parties and Wruck-type precedents suggest such a change may be impermissible or prejudicial | Court: change is permissible and within court’s discretion; debtor lost privilege to be disbursing agent by default, so Trustee disbursement is appropriate |
| When does an approved §1329 modification take effect? | Modification equitable; should be effective as of filing date (Nov 26, 2018) | If allowed, modification should take effect at filing (or Americredit proposed filing date as appropriate cut-off) | Court: follows Fifth Circuit and prior district decisions — a modification becomes effective retroactive to the date it was filed unless disapproved after notice and hearing |
Key Cases Cited
- Meza v. Truman, 467 F.3d 874 (5th Cir.) (post-confirmation modification principles and standard for allowing modifications)
- Mendoza, In re, 111 F.3d 1264 (5th Cir.) (trustee duties and modification to include postpetition arrearages)
- Ron Pair Enterprises v. Travelers, 489 U.S. 235 (statutory interpretation, plain-meaning canon)
- Foster v. Community Nat’l Bank, 670 F.2d 478 (5th Cir.) (debtor as disbursing agent is discretionary and conditional)
- Wagner, In re, 36 F.3d 723 (8th Cir.) (debtors may act as disbursing agents in appropriate circumstances)