In re Wood, 543 B.R. 915

Background

Debtor Virgil Wood filed a joint Chapter 13 with his spouse in 2013; a second amended plan was confirmed requiring $1,737/month payments for five years.
Post-confirmation the Woods acquired a 2008 Dodge Durango with Trustee’s conditional approval and later obtained a mortgage loan modification that reduced home payments.
The couple separated in early 2015; Peggy Wood bifurcated her case and converted to Chapter 7, and Virgil filed amended Schedules I & J reflecting lower income and expenses.
Virgil withdrew an earlier plan-modification motion but began paying a reduced $1,075/month, creating arrears; Trustee moved to dismiss for material default.
Debtor then filed a new Motion to Modify to reduce plan payments to $1,075 plus $230/month to cure arrears; Trustee objected, arguing estoppel, excessive/unreasonable expenses, and lack of good faith because secured payments are for luxury items (boat, tractor).

Issues

Issue	Plaintiff's Argument (Trustee)	Defendant's Argument (Wood)	Held
1) Whether dismissal under §1307(c) is warranted for Debtor’s unilateral payment reduction	Default under confirmed plan is material cause to dismiss	Debtor had changed circumstances (separation, loss of spouse’s income) and seeks modification	Court declined to dismiss in its discretion to allow Debtor to seek realistic relief; dismissal denied for now
2) Whether Trustee is equitably estopped from opposing modification because she conditioned approval of Durango purchase on no reduction in plan/mortgage payments	Trustee relied on Debtor’s assent to condition; should bar modification	Debtor never agreed to Trustee’s handwritten condition; Trustee did not enforce condition (did not oppose mortgage modification)	Court rejects estoppel defense: Trustee did not prove required elements; condition not binding
3) Whether §1325(b) disposable-income rules constrain §1329 plan modifications (i.e., whether secured/luxury payments must be treated as in confirmation)	§1325(b) should apply to modifications so disposable income and secured payments are constrained	Debtor relies on Welsh and other authority limiting inquiry into secured payments at confirmation	Court follows Sunahara/Hall reasoning: §1329 does not incorporate §1325(b); Welsh (a confirmation case) does not control modification context; court may assess reasonableness of secured payments when evaluating good faith in a §1329 modification
4) Whether the proposed modification was filed in good faith given Debtor’s budget and retention of boat and tractor	Expenses are excessive (exceed IRS allowances); paying secured claims for luxury items harms unsecured creditors; not in good faith	Debtor reduced his payment based on actual changed income/expenses and seeks to retain items	Court finds Debtor’s listed expenses unreasonable and retention/payment for the boat and tractor not justified; Modification fails the §1325(a)(3) good-faith test and is denied

Key Cases Cited

Chinichian v. Campolongo, 784 F.2d 1440 (9th Cir. 1986) (good-faith test examines debtor’s intent and effect of the plan in light of Chapter 13 purposes)
In re Welsh, 711 F.3d 1120 (9th Cir. 2013) (on confirmation, courts may not consider secured payments when assessing good faith under §1325(a))
In re Sunahara, 326 B.R. 768 (9th Cir. BAP 2005) (§1329 does not incorporate §1325(b); disposable-income rules do not automatically apply to modifications)
In re Ellsworth, 455 B.R. 904 (9th Cir. BAP 2011) (dismissal of a Chapter 13 case is reviewed for abuse of discretion)