660 B.R. 676
Bankr. S.D. Ill.2024Background
- Debtor Susan Halwachs filed for Chapter 13 bankruptcy in April 2019 as a below-median income debtor, initially proposing a five-year plan with $690/month payments and 100% repayment to unsecured creditors.
- The Trustee objected to the plan duration, leading to a sequence of modified plans, each reducing the duration but still providing less in monthly payments than the calculated disposable income, while promising full repayment to unsecured creditors.
- Subsequent income fluctuations (job loss, unemployment, retirement, new employment, eventual retirement) led the Debtor to propose a Fifth Amended Plan drastically lowering payments and eliminating any repayment to unsecured creditors.
- At all times, Halwachs failed to pay her full disposable income into the plan as required, but earlier plans met the 100% payment alternative for unsecured creditors.
- The central dispute arose when the Debtor, facing hardship, sought to modify the plan to pay neither 100% of unsecured claims nor all available disposable income.
Issues
| Issue | Debtor's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Do post-confirmation plan modifications under § 1329 have to comply with § 1325(b)? | Only § 1329 controls; plan is in good faith and reflects current inability to pay. | § 1325(b) applies via reference in § 1325(a); debtor must pay all disposable income or unsecureds in full. | § 1325(b) applies; debtor must pay disposable income or unsecureds in full. |
| Has the Debtor paid all required projected disposable income or 100% of unsecured creditor claims? | Circumstances changed after plan confirmation; current negative income supports modification. | Debtor has never paid all disposable income and now proposes to pay unsecured creditors $0. | Debtor did not pay all disposable income nor unsecureds in full; plan modification denied. |
| Are the amended schedules and testimony credibly reflective of income/expenses? | Testified to fluctuations justifying reduced payments. | Testimony/admissions show disposable income was higher for much of the plan's duration. | Court finds Debtor had sufficient disposable income earlier; modification still fails. |
| Can good faith under § 1329 justify eliminating payments to general unsecured creditors? | Plan is filed in good faith, given changed circumstances. | Good faith is insufficient if statutory requirements are not met. | Compliance with § 1325(b) is required regardless of good faith. |
Key Cases Cited
- Hamilton v. Lanning, 560 U.S. 505 (Supreme Court interpreted "projected disposable income" under § 1325(b) as requiring payments based on actual expected income)
- In re King, 439 B.R. 129 (Bankr. S.D. Ill. 2010) (held § 1325(b) requirements apply to post-confirmation modifications under § 1329)
- In re Eubanks, 581 B.R. 583 (Bankr. S.D. Ill. 2018) (addressed requirements for disposable income under Chapter 13 confirmation)
- In re Heideker, 455 B.R. 263 (Bankr. M.D. Fla. 2011) (held § 1325(b) implicitly incorporated into § 1329 modifications)
- In re Cormier, 478 B.R. 88 (Bankr. D. Mass. 2012) (adopted view that § 1325(b) applies to post-confirmation modifications)