In re: Steven Patrick Schlegel Joanne Marie Schlegel
SC-14-1132-KiKuJu
| 9th Cir. BAP | Feb 25, 2015Background
- Debtors Steven and Joanne Schlegel filed Chapter 13 (Dec. 31, 2008) as above‑median income wage earners; plan proposed monthly payments and a 48% dividend to unsecured creditors.
- CitiMortgage held a junior lien on the residence; it did not file a proof of claim by the initial claims bar date but later filed a proof of claim after the court orally granted debtors’ lien‑avoidance motion; the court entered a Valuation Order rendering CitiMortgage wholly unsecured.
- The bankruptcy court confirmed the amended plan (May 5, 2010) treating CitiMortgage as an unsecured creditor; Trustee’s Notice of Claims shortly thereafter showed CitiMortgage’s allowed unsecured claim and total unsecured claims used to calculate the dividend.
- Debtors made nearly all monthly payments (about $48,391; ~58.5 months of payments) but, because CitiMortgage’s allowed claim increased the unsecured pool, the promised 48% dividend could not be paid within 60 months — requiring ~96 additional months to finish.
- Debtors sought a hardship discharge on month 60; Trustee moved to dismiss under 11 U.S.C. § 1307(c)(6) for failure to complete plan payments within five years. The court denied hardship discharge and granted dismissal. Debtors appealed only the dismissal order.
Issues
| Issue | Schlegel's Argument | Trustee's Argument | Held |
|---|---|---|---|
| May a confirmed Chapter 13 plan be dismissed under §1307(c)(6) where debtors made the monthly payments but failed to pay the promised percentage dividend within the 5‑year commitment period? | Making all monthly payments for 60 months satisfies §1328(a); dismissal improper. | Failure to pay promised percentage dividend is a material default of a plan term, justifying dismissal. | Court affirmed dismissal: failure to pay the promised dividend within 5 years is a material default under §1307(c)(6). |
| Does completion of the dollar monthly payments alone equal completion of plan payments under §1328(a)? | Yes — completion of the stated monthly payments constitutes completion even if creditors didn’t receive the dividend. | No — plan completion requires satisfying all plan terms, including percentage dividends. | Court rejected Schlegel’s reliance on Fridley; completion requires satisfaction of all plan terms, not merely months of payments. |
| Was CitiMortgage’s claim properly allowed and payable under the plan despite being filed after the original claims bar date? | Schlegel argued CitiMortgage’s late/ post‑valuation claim unfairly altered the plan and undermined performance. | Rule 3002(c)(3) allowed filing within 30 days after lien‑avoidance order; CitiMortgage’s claim was timely and unobjected to, thus allowed. | Court held CitiMortgage’s claim was timely under Rule 3002(c)(3), deemed allowed under §502(a), and Trustee properly paid it. |
| Could the Motion to Dismiss be treated as uncontested because debtors didn’t file written opposition? | Debtors argued they were contesting dismissal by pursuing hardship discharge and oral argument. | Local rules permit deeming lack of written opposition as consent; dismissal meritorious in any event. | Court found no prejudice: local rule application was within discretion and dismissal was meritorious. |
Key Cases Cited
- Roberts v. Boyajian (In re Roberts), 279 B.R. 396 (1st Cir. BAP 2000) (failure to pay promised percentage dividend constitutes material default warranting dismissal)
- Rivera v. [Unspecified] (In re Rivera), 177 B.R. 332 (Bankr. C.D. Cal. 1995) (percentage dividend obligation can control over stated monthly payment term; failure defeats discharge)
- Hill v. [Unspecified] (In re Hill), 374 B.R. 745 (Bankr. S.D. Cal. 2007) (material default for not completing payment term may warrant dismissal, though equitable factors can affect relief)
- Fridley v. Forsythe (In re Fridley), 380 B.R. 538 (9th Cir. BAP 2007) (prepayment/early lump‑sum relief requires compliance with modification procedures; does not stand for allowing completion by months alone)
- Prestige Ltd. P’ship–Concord v. E. Bay Car Wash Partners (In re Prestige Ltd. P’ship–Concord), 234 F.3d 1108 (9th Cir. 2000) (Rule 3002(c)(3) permits timely filing of an unsecured claim after lien‑avoidance judgment)
- Grant v. [Unspecified] (In re Grant), 428 B.R. 504 (Bankr. N.D. Ill. 2010) (failure to complete plan within five years where modification is infeasible constitutes cause for dismissal)