John H. Germeraad v. Myrick J. Powers
826 F.3d 962
| 7th Cir. | 2016Background
- Debtors filed Chapter 13 (May 2010); plan confirmed (Mar 2011) requiring specified monthly payments and resulting in ~$22,000 distribution to unsecured creditors.
- In 2013 the Chapter 13 trustee learned debtors’ 2012 tax return showed a roughly $50,000 income increase and moved under 11 U.S.C. § 1329 to increase monthly payments from $670 to $1,416 for the remaining 23 months to raise ~ $15,000 more for unsecured creditors.
- Debtor objected, arguing the Code does not permit modification based solely on postconfirmation income increases and, alternatively, that increased expenses defeated any claim of ability to pay more.
- Bankruptcy court denied the trustee’s motion on two independent grounds: (1) as a matter of law § 1329 does not authorize modification for the trustee’s reasons; (2) on the merits the trustee failed to show facts warranting modification. District court affirmed on the first ground only.
- Trustee appealed to the Seventh Circuit, challenging the legal ruling about § 1329; debtor argued lack of appellate jurisdiction (finality and mootness) and that the bankruptcy court actually denied relief for lack of good faith.
- Seventh Circuit vacated the district-court judgment, held the bankruptcy court erred as a matter of law in treating § 1329 as forbidding modification based on postconfirmation income increases, and remanded for further proceedings (so district court can consider the bankruptcy court’s alternative factual/ discretionary holding).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction — finality of denial of trustee’s §1329 motion | Trustee: order is final and appealable. | Owens‑Powers: denial is not a final order under 28 U.S.C. §158 because trustee could file another motion; analogous to plan-confirmation denials in Bullard. | Seventh Circuit: denial was final here because the bankruptcy court rejected the request on the merits (not a curable defect), resolving a discrete controversy; appellate jurisdiction exists. |
| Mootness — five-year limit and completion of payments | Trustee: appeal not moot; modification (filed earlier) would have become effective when filed and could have consequences (deemed default, loss of discharge, dismissal/conversion) even though five years elapsed. | Owens‑Powers: §1329(c) and completion of payments bar modification now, so appeal is moot. | Seventh Circuit: appeal not moot. §1329(b)(2) makes the modification effective as of filing (subject to disapproval); potential consequences mean a live controversy remains. |
| Statutory authority — may trustee seek modification to increase payments because debtor’s income rose postconfirmation? | Trustee: §1329 permits trustee (and unsecured creditors) to move to increase payments when postconfirmation income increases ability to pay; courts have long allowed such discretion. | Owens‑Powers / bankruptcy court: §1329(b)(1) incorporates certain Code provisions and no specific Code provision authorizes equity-based increases; Witkowski interpreted to limit modification to grounds in §1329(b)(1). | Seventh Circuit: §1329 allows such modifications in the bankruptcy court’s discretion; Witkowski does not limit §1329 modifications only to items expressly listed in §1329(b)(1). Courts may approve increases when changed financial circumstances make higher payments affordable. |
| Role of good‑faith (§1325(a)(3)) | Owens‑Powers: any increase may be allowed only if required by good faith; bankruptcy court in substance denied because good faith not shown. | Trustee: good‑faith requirement applies to proponent but does not set the standard for when trustee/unsecured creditor may obtain an upward modification. | Seventh Circuit: rejected debtor’s contention; §1325(a)(3) applies but does not mean increases are permitted only when good faith “requires” them; trustee’s motion need not show that good faith compels the increase. |
| Review of bankruptcy court’s alternative factual/discretionary denial | Trustee: bankruptcy court made clearly erroneous factual/math findings and abused discretion; asks appellate review. | Owens‑Powers: defends factual findings and discretion. | Seventh Circuit: remanded—vacated district judgment and instructed district court to consider the bankruptcy court’s alternative holding in the first instance. |
Key Cases Cited
- Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (finality in bankruptcy: plan-confirmation denials not final unless case dismissed)
- Schaumburg Bank & Trust Co. v. Alsterda, 815 F.3d 306 (7th Cir. 2016) (discussion of finality and appeals in bankruptcy context)
- Witkowski v. C.H. Boring Co., 16 F.3d 739 (7th Cir. 1994) (section 1329 is discretionary; does not confine modifications solely to §1329(b)(1) grounds)
- Barbosa v. Solomon, 235 F.3d 31 (1st Cir. 2000) (courts may modify confirmed Chapter 13 plans upward or downward in response to postconfirmation changes in debtor’s finances)
- Arnold v. Gill, 869 F.2d 240 (4th Cir. 1989) (substantial change in debtor’s financial condition may justify modifying payment levels)
- Meza v. [In re Meza], 467 F.3d 874 (5th Cir. 2006) (a modification filed before completion of original payments can be considered even if payments finish before court rules)