Paul Klaas v.
858 F.3d 820
| 3rd Cir. | 2017Background
- Paul and Beth Klaas filed Chapter 13 in 2009; their confirmed plan required 60 monthly payments (5 years) and was later increased mid-term to reflect higher mortgage costs.
- After 60 months the debtors had paid slightly more than the projected plan base, but the trustee discovered a $1,123 shortfall in month 61 (largely from an unexpected trustee fee increase).
- The trustee filed a motion to dismiss under 11 U.S.C. § 1307(c); debtors cured the shortfall 16 days after the motion was filed and before the hearing, and the trustee withdrew her motion.
- Creditor Shovlin objected, arguing the Bankruptcy Code’s five-year limit precluded any post-term cure and required dismissal/no completion discharge; bankruptcy court denied dismissal and later granted a completion discharge.
- The District Court affirmed both the denial of dismissal and the grant of summary judgment/discharge; the Third Circuit reviewed whether bankruptcy courts have discretion to allow a brief grace period to cure arrearages after the five-year term and what factors govern that discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether courts may permit a post-60‑month curative payment and still grant a §1328(a) completion discharge | Shovlin: five-year cap bars any payments after term; failure to complete within 60 months mandates dismissal/no completion discharge | Klaas/Trustee: §§1307 and 1328 permit courts to deny dismissal and grant discharge if debtor cures shortly after term | Court: Bankruptcy courts have discretion to allow a reasonable grace period for cure; if payment made, §1328(a) completion discharge may follow |
| Whether allowing a cure is an unlawful modification extending plan beyond 5 years under §1329(c) | Shovlin: post-term cure is an informal modification prohibited by §1329(c) | Klaas: post-term cure completes obligations under the confirmed plan rather than modifying its term | Court: Cure is not a plan modification; it completes payments "under the plan," so §1329(c) does not bar a curative payment |
| What factors govern whether to allow a grace period to cure | Shovlin: (implicit) strict enforcement of term cap; dismissal appropriate | Klaas/Trustee: equitable factors should guide discretion | Court: Non-exhaustive factors include substantial compliance/diligence; feasibility of cure; creditor prejudice; debtor culpability/excuse; availability/ equities of alternatives |
Key Cases Cited
- Germeraad v. Powers, 826 F.3d 962 (7th Cir. 2016) (assumed without deciding that courts may allow post‑term cure; distinguished modification vs. cure)
- In re Hechinger Inv. Co. of Del., Inc., 335 F.3d 243 (3d Cir. 2003) (interpreting "under a plan confirmed" to mean payments made pursuant to plan authority)
- In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (discussing abuse of discretion standard when legal error underlies discretionary rulings)
- In re Mintze, 434 F.3d 222 (3d Cir. 2006) (court must determine whether any discretion exists before reviewing for abuse)
- Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (finality principles and limits on interlocutory review)
- In re Brown, 296 B.R. 20 (Bankr. N.D. Cal. 2003) (identifies factors courts use to decide whether to allow post‑term cure)