Austin v. BankowskiAustin v. Bankowski
MEMORANDUM AND ORDER
I. INTRODUCTION
Beth A. Austin (“Austin”), a Chapter 13 debtor, appeals from an order of the Bankruptcy Court for the District of Massachusetts (“Bankruptcy Court”) sustaining Chapter 13 Trustee Carolyn Bankowski’s (the “Trustee”) objection to the confirmation of Austin’s proposed Chapter 13 plan (“Proposed Plan”) pursuant to 11 U.S.C. § 1325(a)(6) (“Section 1325(a)(6)”).
The crux of this appeal is whether a Chapter 13 plan is “feasible” where it is contingent upon the achievement of a loan modification. In the proсeedings before the Bankruptcy Court, Austin alleged that the secured creditor who had made the loan in question had accepted the Proposed Plan and, on that basis, to deny confirmation would be unfair to the other creditors. Tr. Hr’g Trustee’s Objection Confirmation Plan (“Bankr. Tr.”) 4:17-24, Aug. 8, 2013, ECF No. 11. The Bankruptcy Court disagreed, concluding that under these circumstances it was not appropriate to confirm Austin’s Proposed Plan. On appeal, Austin argues that the Bankruptcy Cоurt erred when it sustained the Trustee’s objection to confirmation and ruled that it would be premature to confirm a plan which is contingent upon a pending loan modification. Bankr.Tr. 5:7.
On August 23, 2013, Austin filed a motion for leave to appeal the decision sustaining the Trustee’s objection to the United States District Court for the District of Massachusetts, Mot. Leave Appeal, ECF No. 1, and on October 8, 2013, this motion was granted. Elec. Order, Oct. 8, 2013, ECF No. 5. Both parties subsequently filed supporting briеfs. Br. Appellant Beth A. Austin (“Austin’s Br.”), ECF No. 10; Appellee Carolyn A. Bankowski’s Br. (“Trustee’s Br.”), ECF No. 14; Reply Br. Appellant Beth A. Austin (“Reply”), ECF No. 16. This Court heard the case on March 25, 2014, and took the matter under advisement. Elec. Clerk’s Notes, Mar. 25, 2014, ECF No. 23.
B. Summary of Undisputed Facts
1. Background
The underlying facts of this matter are undisputed. On March 28, 2012, Austin voluntarily petitioned for bankruptcy relief under Chapter 13 of the United States Bankruptcy Code (the “Code”) and, pursuant to 11 U.S.C. section 1321, submitted a Chapter 13 Reorganization Plan. U.S. Bankr.Ct. Dist. Mass. (Bos.) Bankr.Pet. # : 12-12571 (“Bankr.Ct. Docket”) 1:1, 2:4, ECF No. 2. Nationstar Mortgage L.L.C., the servicing agent for First Horizon Home Loans (the “Mortgagee”), successfully objected to the confirmation of both this plan, see id. at 5:48, and a subsequent, amended Chapter 13 plan (the “Amended Plan”) filed by Austin. Id. at 8:79. The Mortgagee also filed for, and obtained, relief from the 11 U.S.C. section 362 automatic stay. Id. at 7:67, 8:80. Despite granting the Mortgagee’s motion for relief from stay, and sustaining its objection to the confirmation of the Amended Plan, on March 21, 2013, the Bankruptcy Court permitted Austin to file a further amended Chapter 13 plan. Id. at 8:82. Prior to drafting this further amended Chapter 13 plan (the “Proposed Plan”), Austin sought and retained specialist legal counsel to assist her in negotiating a loan modification with the Mortgagee. Austin’s Br. 4; Bankr.Ct. Docket 8:73. Subsequently, on May 6, 2013, Austin filed both the Proposed Plan and a motion for its approval. Bankr.Ct. Docket 9:91-92.
2. Proposed Plan
The Proposed Plan was for a term of sixteen and a half months, though as of May 6, 2013 — the date оf filing — only four and a half remained. Bankruptcy Ct. Docket Record (“Bankr.Ct. Record”) 13, ECF No. 15-1. Under the Proposed Plan, Austin was required to make monthly payments of $523.00 to the Trustee for distribution to her unsecured creditors.
On May 14, 2013, Austin filed a certificate of service in the Bаnkruptcy Court, indicating that all relevant creditors and parties, including the Mortgagee, had been properly notified of the terms of the Proposed Plan. Bankr.Ct. Record 19-21. The Trustee filed an objection to confirmation of the Proposed Plan on June 6, 2013. Id. at 22. The Mortgagee, however, did not file an objection.
On August 8, 2013, the Bankruptcy Court conducted a hearing to consider the Trustee’s objection to confirmation of the Proposed Plan. See Bankr.Ct. Docket 10:102. At the hearing, the Trustee argued that the Bankruptcy Court must sustain her objection to confirmation, because at the time of hearing, the status of a loan modification was still pending and there was no sign it would be approved prior to the end of the Plan’s term, which was, at that time, within the month. Bankr.Tr. 5:22-6:1.
In response, Austin argued that the Mortgagee’s failure to object constituted an acceptance of the terms of the Plan. Id. at 6:20-7:1. Because the Plan proposed that no payments be made to the Mortgagee whilе the loan modification was under consideration, “[djenial of confirmation in this situation is unfair to other creditors.” Id. at 4:17-18. At the conclusion of the confirmation hearing, the Bankruptcy Court sustained the Trustee’s objection and denied confirmation of the Plan. Id. at 5:14. The Bankruptcy Court did, however, permit Austin to file a further amended plan. Id. at 5:9-11; Bankr.Ct. Docket 10:102. The Bankruptcy Court explained that “[t]o confirm a plan which requires a modification when you haven’t got the mоdification is probably doing a vain thing.” Id. at 5:5-7.
Subsequently, on August 23, 2013, Austin filed a motion for leave to appeal the Bankruptcy Court’s order sustaining the Trustee’s objection to confirmation and denying confirmation of the Plan. Mot. Leave Appeal.
The issue before this Court is whether the Bankruptcy Court erred in sustaining the Trustee’s objection to confirmation of the Proposed Plan and denying confirmation of Austin’s Proposed Plan under Section 1325(a)(6) of the United States Bankruptcy Cоde when the Mortgagee did not object to the treatment of its secured claims under the Plan.
II. ANALYSIS
A. Jurisdiction and Standard of Review
This Court has jurisdiction to hear bankruptcy court appeals “with leave of the [District Cjourt, from ... interlocutory orders and decrees,” 28 U.S.C. § 158(a)(3), and “may affirm, modify, or reverse [a bankruptcy court’s order] or remand with instructions for further proceedings.” Fed. R. Bankr.P. 8013. “An order denying confirmation of a chapter 13 plan is interlocutory where the debtor may propose anоther plan.” Hamilton v. Wells Fargo Bank, N.A. (In re Hamilton),
When reviewing an appeal from a Bankruptcy Court’s order, this Court reviews questions of fact for clear error and questions of law de novo. Palmacci v. Umpierrez,
B. Legal Framework
Section 1325(a) of chapter 11 of the United States Code (“Section 1325(a)”) governs the confirmation of a Chapter 13 plan, and in relevant part provides that:
[T]he court shall confirm a plan if:
(1) The plan complies with the provisions of this chapter and with the other applicable provisions of the title; ...
(5) with respect to each allowed secured claim provided for by the plan
(A) the holder of such claim has accepted the plan ...
(6) the debtor will be able to make all payments under the plan and to comply with the plan.
11 U.S.C. § 1325(a).
To obtain confirmation under Section 1325(a), the burden is on the debt- or to prove that each of the statutory criteria for confirmation is met. See In re Haque,
On appeal, Austin makes two arguments. First, Austin contends that the Trustee lacks standing to object to the Proposed Plan in the absence of an objection by an otherwise interested party. Austin’s Br. 7. In the alternative, she contends that even if the Trustee has standing, the Bankruptcy Court erred in denying confirmation of the Proposed Plan because the Proposed Plan was still “feasible.” Id. at 6 (arguing that “even the most impecunious of debtors has the ability to make no payments to creditor”).
C. Standing
Despite objecting to the confirmation of both of Austin’s previous proposed Chapter 13 plans, the Mortgagee did not object to the confirmation of the Proposed Plan. Id. at 4. The issue before the Court is whether, given this lack of an objection by the secured creditor, the Trustee has standing to object to the confirmation of the Proposed Plan.
Before considering this issue, however, it is first necessary to consider what effect the non-objection of the Mortgagee has on the potential confirmation of the plan&emdash; specifically, whether it can be considered acceptance of the Proposed Plan and the proposed treatment of its claim therein as required by 11 U.S.C. section 1325(a)(5) (“Section 1325(a)(5)”).
Pursuant to Section 1325(a)(5) “the court shall confirm a plan if ... [inter alia ] with respect to each allowed secured claim provided for by the plan” one of the following three events has occurred: (1) the affected secured claim holder has accepted the plan pursuant to Section 1325(a)(5)(A); (2) the plan meets the requirements of Section 1325(a)(5)(B) (the “cram-down” requirements); or (3) the debtor surrenders its property secured by such claim tо the secured claim holder pursuant to Section 1325(a)(5)(C). 11 U.S.C. § 1325(a)(5); Flynn v. Bankowski (In re Flynn),
Though Section 1325(a)(5) provides that a proposed Chapter 13 plan may be confirmed where the holder of an allowed secured claim аccepts the proposed treatment of its claim, neither the United States Bankruptcy Rules nor the Code provides any guidance on what constitutes “acceptance.” In re Flynn,
The Bankruptcy Appellate Pаnel of the First Circuit (the “Bankruptcy Appellate Panel”) has adopted the reasoning of the Third Circuit, namely that the failure to object may be deemed to be acceptance of a proposed Chapter 13 plan. See In re Flynn,
Here, the record undisputedly demonstrates that the Mortgagee received prop
2. Trustee has Standing to Object to the Confirmation of the Proрosed Plan
Given this Court’s conclusion that the Mortgagee has, by implication, accepted the Proposed Plan and its treatment of its claim for the purposes of confirmation, see 11 U.S.C. § 1325(a)(5), the issue at bar is thus whether the Trustee then has standing to object to the confirmation of the Proposed Plan.
“[T]he primary purpose of the Chapter 13 trustee is ... to serve the interests of all creditors,” Andrews v. Loheit (In re Andrews),
Turning to the instant matter, this Court is not required to address this question because the Trustee did not object to the confirmation of the Proposed Plan under Sеction 1325(a)(5) — the only part of Section 1325(a) for which creditor acceptance is relevant. As the Trustee made clear, both before the Bankruptcy Court and in her subsequent brief, she did not object to the Proposed Plan’s treatment of the Mortgagee’s claims under Section 1325(a)(5). Bankr.Tr. 5:8-16; Trustee’s Br. 4. Instead, the Trustee argued that the Proposed Plan should not be confirmed because Austin’s failure to obtain a loan modification rendered it unfeasible, nоting that because the Proposed Plan expired on September 15, 2013, Austin’s unpaid pre-petition arrears and outstanding mortgage principal would not be entitled to discharge under 11 U.S.C. section 1328(a). March 25, 2014 Transcript at 6:6-17. On this basis, this Court concludes that the Trustee had standing to object under Section 1325(a)(6).
D. Feasibility
The Trustee objected to the confirmation of the Proposed Plan under Section 1325(a)(6), alleging that the Proposed Plan as filed failed to meet the feasibility requirement necessary for confirmation. Trustee’s Br. 4.
The determination of the feasibility of a Chapter 13 plan — a matter to which this Court will shortly turn — is a factual determination of the Bankruptcy Court and thus its conclusion shall not be over
In order for the Bankruptcy Court to confirm a Chapter 13 plan, it must satisfy itself that the debtor has met all the confirmation requirements of Section 1325(a). See 11 U.S.C. § 1325(a)(1); In re Hamilton,
This Court affirms the Bankruptсy Court’s order denying confirmation of Austin’s Proposed Plan. The fact that the loan modification had not been obtained so close to the end of the Proposed Plan’s term weighs heavily against a holding that the Proposed Plan is feasible. This is particularly true given that, as argued before this Court, a failure to obtain the modification before the end of the Proposed Plan means that Austin would either get a discharge without having resolved her mortgage debt or would simply not get a discharge at all, either of which would run afoul of the purpose of Chapter 13. See March 25, 2014 Transcript at 6:6-17.
Austin has failed to demonstrate that there was a “reasonable likelihood” that the loan modification would have been approved before the Proposed Plan expired. In re Fantasia,
Moreover, in discharging its duties under Section 1325(a) the Bankruptcy Court was required to satisfy itself “that [Austin] ha[d], not only the present ability, but [also] the future ability to comply with the [Proposed [P]lan.” In re Hockaday,
E. Austin’s Reliance on In re May-berry is Misplaced
In making her argument that the Bankruptcy Court must confirm the Proposed Plan, despite the pending nature of the loan modification and the continuing non-objection by the Mortgagee in regards to the plan, Austin relies upon the decision in In re Mayberry,
In Mayberry, the debtor filed a Chapter 13 plan which bears some similarities to the one at bar. That plan proposed for payments to be made to unsecured creditors via the Chapter 13 trustee, and, like in the instant matter, its proposed treatment of the seсured creditor’s claim was contingent on a yet to be attained loan modification. Id. at 45. Again, similar to the facts in this matter, the secured creditor did not object to the proposed treatment, but an objection was filed by the Chapter 13 trustee who sought to dismiss the debtor’s case on the ground, inter alia, that a modification had not been obtained, and if one was not achieved, the debtor would face foreclosure. See id. This, the Chapter 13 trustee argued, was “antithеtical to the concept of the [d]ebtor’s fresh start.” Id. The Bankruptcy Court denied the trustee’s motion, concluding that “a decision predicated on [the] possibility [that a modification would not be achieved] would be premature.” Id. at 46 (emphasis added). Mayberry is distinguishable from this case, however, because its analysis on this point went to the issue of the bad faith of the debtor rather than the objective feasibility of the plan absent approval of the loan modifiсation. See id. at 46-47. Additionally, the court’s conclusion in Mayberry cannot be divorced from its factual matrix — unlike the instant matter, the conclusion of the plan was not imminent. Accordingly, the Bankruptcy Court indicated that a motion to dismiss would be more
III. CONCLUSION
Although Austin has successfully argued thаt the Mortgagee accepted the Proposed Plan, in order to have the Proposed Plan confirmed, she also needed to demonstrate to the Bankruptcy .Court that all other confirmation requirements had been met. Austin failed to do this and thus, for the foregoing reasons, this Court AFFIRMS the Bankruptcy Court’s order.
AFFIRMED.
Notes
. As of the date of filing the Proposed Plan, all payments were up to date. Bankr.Ct. Record 13.
. At the motion hearing on March 25, 2014, the Trustee reiteratеd her objection to confirmation and stated that the arrearage owed was $73,000. Tr., March 27, 2014, 6:2, ECF
. Austin claims that she has "completed all of her payments to the trustee, sufficient to pay all allowed claims 100%,” Reply 4, however, neither party has placed anything on the record which supports this assertion.