Carey Macon
This Chapter 13 case has been pending since July 30, 2009—over fifteen years. Almost 12 years ago, on October 16, 2013, the Debtor, Carey Macon, received his discharge after completing payments under his confirmed plan. Now before the
The Chapter 13 Trustee does not oppose the gross settlement but instead seeks sufficient funds—about $40,306.00—to pay unsecured creditors in full. On October 11, 2024, the Debtor filed the Motion to Exclude Malpractice Claim now before the Court. After a November 13, 2024 hearing, the Court approved the gross settlement, took the motion under advisement, and directed the Debtor‘s bankruptcy counsel to hold in trust $41,000.00 pending resolution of this dispute.
Both parties have briefed the matter. The Trustee contends that the malpractice claim was merely a continuation of, or a substitute for, the underlying personal injury claim, which arose after confirmation of the Debtor‘s Chapter 13 plan and therefore was indisputably property of the estate under Waldron v. Brown (In re Waldron), 536 F.3d 1239 (11th Cir. 2008). Because the 2010 personal injury
Having considered the matter, the Court holds that the Trustee‘s claim to a portion of the malpractice claim settlement funds fails, for three reasons. First,
This Court has subject matter jurisdiction pursuant to
II. Findings of Fact
The facts in this case are undisputed. The Court held hearings relevant to this matter on September 11, 2024, on November 13, 2024, and on February 26, 2025. Transcripts of the first two hearings appear on the docket; the third was limited to oral argument by counsel.1 (Dckt. 170, 172). Only one witness, Noble L. Boykin, Jr., testified, and he did so at the November 13, 2024 hearing. (11/13/2024 Tr., at pp. 34-43). No exhibits were offered or admitted into evidence. Under
The Debtor, a dockworker, filed a Chapter 13 petition on July 30, 2009.2 (Dckt. 1). In his plan, he proposed to pay the Chapter 13 Trustee $198.00 per month for a minimum of 36 months. (Dckt. 6, p. 1, paragraph 1). The $198.00 plan payment equalеd the amount of his monthly net income disclosed in his Schedule J. (Dckt. 1, p. 21, ¶ 20(c)). He proposed an applicable commitment period of 36 months—the minimum permitted under the Bankruptcy Code3—because his income was below-median, as set forth in his Chapter 13 Statement of Currently Monthly Income and Calculation of Commitment Period and Disposable Income. (Dckt. 1, pp. 37-38).
Creditors filed claims in the case totaling $207,155.04, comprising one $167,156.08 secured claim (the Debtor‘s mortgage)4 and $39,998.96 in unsecured claims (mostly medical debts).5 The Debtor‘s plan provided for the general
Four months after confirmation, on August 31, 2010, the Debtor was injured by a crane while working at the Port of Savannah, giving rise to a personal injury claim against the Georgia Ports Authority (the “2010 Claim“).8 (11/13/2024 Tr., pp.
Then, on July 8, 2013, the Debtor for the first time amended his Schedule B to list the 2010 Claim, identifying Lorberbaum as counsel and stating that the claim‘s value was contingent and unknown.10 (Dckt. 102, pp. 2-3, ¶ 21). In that amendment,
B. The Debtor‘s Completion of Plan Payments and Case Closing
In the face of this newly discovered asset, the Trustee did not seek to modify the Debtor‘s plan under
Dear Sir/Madam,
Our records indicate that you have paid sufficient funds to complete your case. The final disbursement has been mailed to your creditors. To close your case, we are notifying the Clerk of the Bankruptcy Court that you have completed the payments required by your plan.
In order for the court to close your case, you must complete and submit the enclosed certificate regarding
Domestic Support obligations within ten (10) days of the date of this letter . . . . A release of wages has been issued to your employer (if applicable). This order directs your employer to stop deducting from your pay. Upon completion of our final audit, we will mail you a check (if you are due a refund) for all excess funds on hand at this time. Please cash the check as soon as possible.
After all disbursement checks issued in your case have cleared our account, we will submit our final report and accounting to the Court showing the total funds received and disbursed on your behalf with copies to you and your attorney. This closing process may take as much as 180 days.
(Dckt. 109). Three days later, on September 12, 2013, the Debtor filed his domestic support obligation (“DSO“) certificate, as well as his financial management course certificate, both prerequisites for obtaining a discharge under
A month later, on November 25, 2013, the Trustee filed a final report and account under
The trustee certifies that, pursuant to Federal Rule of Bankruptcy Procedure 5009, the estate has been fully administered, the foregoing summary is true and complete, and all administrative matters for which the trustee is responsible have been completed. The trustee requests a final decree be entered that discharges the trustee and grants such other relief as may be just and proper.
(Dckt. 116, p. 3, ¶ 12). No party in interest objected to the Trustee‘s final report and account. Despite the Trustee‘s request, however, the Clerk did not immediately enter a final decree. After the Trustee filed his final report and account, no docket entries were made for seven months. Then, on June 26, 2014, the Clerk entered a note in the Court‘s private docket stating that the case was not to be closed due to the pending 2010 Claim. (11/13/2024 Tr., p. 9).
On December 18, 2014—over a year after the Debtor received his discharge—he sustained a second injury at the Port of Savannah when a vehicle ran over a piece of sheet metal he was standing on, “causing the sheet metal to flip up under [the Debtor‘s] foot and causing him to be jolted and, in turn, causing injury to his back, left hip[,] and left knee.” (Dckt. 133, p. 1; 9/11/2024 Tr., p. 7). That accident gave
Three years after the discharge was entered, on August 1, 2017, the Clerk entered a final decree stating that the case was fully administered, discharging the Trustee,14 and closing the case. (Dckt. 117). The Court is unable to determine why the case was closed at that time. No party in interest requested closure, and the 2010 Claim remained pending. (11/13/2024 Tr., pp. 8-9). Whatever the reason, the case was closed.15
C. The Reopening of the Case
Nine months after the case was closed, on May 8, 2018, the Debtor moved to reopen the case under
At a June 22, 2018 hearing on the motion to reopen, Debtor‘s counsel represented that he sought reopening to disclose the 2014 Claim to prevent that claim from being dismissed in state court on grounds of judicial estoppel.17 Mr. Boykin appeared at that hearing and stated that he represented the Debtor in both the 2010
IT IS HEREBY ORDERED that the foregoing case is reopened for the limited purpose of listing additional claims arising out of an accident occurring in 2010 and an additional claim for personal injuries arising from a work accident on December 18, 2014.
. . .
The case shall remain open until the claims are resolved. Any settlement shall be approved by the Court, and any non-exempt proceeds shall be submitted to the Chapter 13 Trustee for the benefit of unsecured creditors.
(Dckt. 123, p. 1) (emphasis added). Both counsel for the Chapter 13 Trustee and Debtor‘s counsel signed that consent order. (Dckt. 123, p. 2). Once the case was reopened, the Debtor moved on June 29, 2018, to have the Court approve Mr. Boykin‘s employment as special counsel to prosecute the 2014 Claim, and the Court granted that application that same day. (Dckt. 125, 127).
D. The Settlement of the 2014 Claim
Mr. Boykin timely filed suit against the Georgia Ports Authority as to the 2010 Claim and presumably as to the 2014 Claim, as well.18 (11/13/2024 Tr., pp. 15, 36). In the personal injury case arising from the 2010 Claim, depositions were taken, and the Debtor‘s medical records were provided to defense counsel. (11/13/2024 Tr., p.
The Debtor‘s motion to settle the 2014 Claim was scheduled for hearing on September 11, 2024. (Dckt. 134, 145). In attendance at that hearing were Debtor‘s bankruptcy counsel, counsel for the Chapter 13 Trustee, and Mr. Boykin. Debtor‘s counsel and the Trustee‘s counsel agreed that the 2014 Claim was not property of the bankruptcy estate.19 (9/11/2024 Tr., pp. 5-6, 12). When questioned by the Court, the Debtor stated that he was satisfied with the $140,000.00 gross settlement of the 2014 Claim, and the Court approved the settlement. (9/11/2024 Tr., p. 11). The Court later entered a written order approving the settlement. (Dckt. 149).
The issue presented by this case was first revealed by the Debtor‘s July 12, 2024 amendment to his Schedule A/B disclosing a claim, which the Debtor described as contingent and of unknown value, against Mr. Boykin for legal malpractice (the “Malpractice Claim“).20 (Dckt. 143, p. 5, ¶ 33). A discussion of that claim ensued at the September 11, 2024 hearing on the 2014 Claim settlement. At that hearing, Mr. Boykin explained to the Court that the 2010 Claim was administratively dismissed by operation of Georgia law, which requires automatic dismissal of a case in which no order is entered within five years.21 (11/13/2024 Tr., pp. 15-16). The parties agree that the Debtor‘s 2010 Claim against the Georgia Ports Authority expired, with no possibility of revival, sometime in January 2024 and that the Malpractice Claim against Mr. Boykin accrued at that time.22
F. The Debtor‘s Motion to Exclude the Malpractice Claim from the Estate
On October 11, 2024, the Debtor filed the Motion to Exclude Malpractice Claim that is now before the Court. (Dckt. 151). In that motion, the Debtor argues that the Malpractice Claim against Mr. Boykin arose on January 13, 2024, which was “10 years, 2 months, [and] 28 days” after the Debtor received his discharge in this Chapter 13 bankruptcy case. (Dckt. 151, pp. 1-2, ¶¶ 6-7). Because the Malpractice Claim arose so long after the discharge, the Debtor argued that it was not property of the bankruptcy estate. (Dckt. 151, p. 2, ¶ 8). He requested an order “adjudging [that] the [Malpractice Claim] is not property of the estate” or, in the alternative, “an order approving the settlement” and directing the disbursement of
The Motion to Exclude Malpractice Claim came on for hearing on November 13, 2024. (Dckt. 152). At that hearing, Mr. Boykin explained that the Malpractice Claim had been settled but that his E&O carrier requested that the amount of that settlement remain confidential. (11/13/2024 Tr., pp. 22-24, 25-26, 28, 34-35). The Court took testimony from Mr. Boykin regarding the 2010 Claim‘s dismissal under Georgia‘s five-year rule, and at the Court‘s insistence Mr. Boykin stated on the record that the Malpractice Claim settlement amount was $600,000.00. (11/13/2024 Tr., p. 40). Counsel for the Chapter 13 Trustee stated that only $40,306.00 would be required to pay unsecured claims in full. (11/13/2024 Tr., p. 27). The parties therefore agreed that the Court could approve the $600,000.00 gross settlement and direct Debtor‘s counsel to hold in trust sufficient funds to pay a 100% dividend on unsecured claims pending the Court‘s determination of whether the Malpractice Claim was property of the bankruptcy estate (and thus whether creditors would be entitled to any settlement proceeds). (11/13/2024 Tr., pp. 24-27, 29-31). The Debtor
Consistent with the procedure discussed at the hearing, on December 2, 2024, the Court entered an interim order approving the settlement of the Malpractice Claim. (Dckt. 159). That order, which both Debtor‘s counsel and counsel for the Trustee signed, recited that “the amount of the settlement proceeds of the [Malpractice] Claim are in excess of the amount necessary to pay a dividend in the Debtor‘s bankruptcy at 100% to unsecured creditors with allowed claims[.]”24 (Dckt. 159, p. 2). The order then set forth the following procedure:
1) Forty-One thousand ($41,000.00) dollars shall be remitted to [Debtor‘s counsel] John E. Pytte, P.C. to be held in Trust pending further order of the Court;
2) The balance of the settlement proceeds shall be issued to Debtor Carey Macon;
3) If the Debtor intends to pursue the remainder of the settlement proceeds held in trust, Debtor‘s counsel will contact the Court[room] Deputy by email, with a copy to the Trustee, within thirty (30) days of the date of entry of this Order, requesting a hearing on the remaining issue regarding whether the [Malpractice Claim] is property of the bankruptcy estate;
4) Should the Debtor decide not to pursue the remaining settlement proceed[s] held in trust and wish to have the bankruptcy case paid at 100% dividend, the parties may submit a Consent Order for disbursement of the settlement
proceeds from Mr. Pytte‘s trust account in the amount of Forty-One Thousand ($41,000.00) dollars to the Trustee for disbursement pursuant to Debtor‘s confirmed bankruptcy plan.
(Dckt. 159, pp. 2-3). Because the interim order was entered on December 2, 2024, by its terms the Debtor had until January 2, 2025, to contact the Courtroom Deputy to request a hearing. When that deadline came and went, the Court sua sponte scheduled a February 26, 2025 continued hearing on the Motion to Exclude Malpractice Claim. (Dckt. 161). Through counsel, the Debtor then communicated to the Clerk his intention to pursue the $41,000.00 held in counsel‘s trust account rather than to settle with the Trustee. Before the continued hearing took place, both the Debtor and the Chapter 13 Trustee briefed the matter. (Dckt. 164, 167). At the continued hearing, the Court heard oral argument from the parties and took under advisement the Motion to Exclude Malpractice Claim.
III. Conclusions of Law
As can be gleaned from the foregoing, the procedural posture of this case is complex and unusual in that it has spanned, so far, over fifteen years. Unraveling the dispute between the Debtor and the Trustee will require a close look at several aspects of Chapter 13 of the Bankruptcy Code. In essence, Chapter 13 is a bargain between a debtor and his creditors. On one hand, the debtor “must propose a plan to use future income to repay a portion (or in the rare case all) of his debts over the next three to five years.” Bullard v. Blue Hills Bank, 575 U.S. 496, 498 (2015). On the
Two key aspects of Chapter 13 warrant special emphasis. The first is that the debtor must commit his income to fund the plan. “Payments under a Chapter 13 plan are usuаlly made from a debtor‘s ‘future earnings or other future income.‘” Id. (quoting
The second is that the Bankruptcy Code imposes on a debtor‘s Chapter 13 plan certain temporal limitations, referred to as the applicable commitment period.
Here, the Debtor committed his disposable income of $198.00 per month to his plan. The Court confirmed his plan, making it binding on the Debtor and on all creditors. See
A. Courts Struggle to Reconcile §§ 1306(a) and 1327(b) of the Bankruptcy Code
The commencement of a bankruptcy case “creates an estate” that includes “virtually all the debtor‘s assets.”
In a Chapter 7 case,
Chapter 13, however, is more complicated. In a Chapter 13 case,
To receive a discharge, as mentioned, a Chapter 13 debtor must propose and obtain court confirmation of a plan committing his future income to repaying his debts. Bullard, 575 U.S. at 498. “A proposed bankruptcy plan becomes effective upon confirmation[.]” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 264 (2010). And the Bankruptcy Code provides in
Courts and commentators alike have pointed out the tension between
B. Under Binding Eleventh Circuit Precedent, the 2010 Claim was Estate Property
The Eleventh Circuit has conclusively reconciled
On appeal, thе Eleventh Circuit panel rejected the debtor‘s contention that his mortgage payments were estate property. In doing so, the court noted the apparent conflict between
Rejecting both “extremes,” the Eleventh Circuit instead adopted the “estate transformation approach, which regards only that property necessary for the execution of the plan as remaining property of the estate after confirmation.” Id. In other words, “while the filing of the petition for bankruptcy places all the property of the debtor in the control of the bankruptcy court, the plan upon confirmation returns so much of that property to the debtor‘s control as is not necessary to the fulfillment of the plan[.]” Id. (quoting Black v. United States Postal Service (Matter of Heath), 115 F.3d 521, 524 (7th Cir. 1997)). Because the debtor in Telfair paid his mortgage creditor outside the plan, the court held, the mortgage payments were not necessary to fulfill the plan. The payments thus ceased to be property of the
Eight years after Telfair, the Eleventh Circuit took a different tack in Waldron v. Brown (In re Waldron), 536 F.3d 1239 (11th Cir. 2008). In Waldron, the Chapter 13 debtors attained confirmation of their plan. Six months after confirmation, the husband-debtor sustained personal injuries in a car accident. The husband sought and received bankruptcy court approval of his settlement with the other driver. But when the husband moved for permission to settle his claims for underinsured motorist benefits without further court аpproval, the bankruptcy court ruled, first, that the underinsured motorist claims were property of the bankruptcy estate and,
On appeal, the debtors relied on Telfair, arguing that under
Instead of applying Telfair‘s estate transformation approach, the Eleventh Circuit adopted what is sometimes called the “estate replenishment,” or the “modified estate preservation,” approach. Under that approach, “some property of the estate is vested in the debtor at confirmation, under section 1327(b), but property
While the case is pending, the post-petition property . . . [is] added to the estate until confirmation, the event that triggers [§] 1327(b) and “vests” the property of the estate in the debtor. That is, the property interests comprising the pre-confirmation estate property are transferred to the debtor at confirmation, and this “vesting” is free and clear of the claims or interests of creditors provided for by the plan, [§] 1327(b), (c). Finally, the . . . estate once again accumulates property by operation of [§] 1306(a) until the case is “closed, dismissed, or converted.”
Id. (quoting City of Chicago v. Fisher (In re Fisher), 203 B.R. 958, 962 (N.D. Ill. 1997)).44 Applying this estate replenishment approach, the court held that the husband‘s underinsured motorist claims were property of the bankruptcy estate because they were new assets acquired post-confirmation.45 Id.
Waldron remains binding precedent in the Eleventh Circuit. And under Waldron, the Debtor‘s 2010 Claim in this case is indisputably property of the bankruptcy estate. The court confirmed the Debtor‘s plan on April 20, 2010, and the Debtor sustained the injury giving rise to the 2010 Claim less than four months later, on August 31, 2010. Thus, the 2010 Claim, like the underinsured motorist claims in
C. The Operation of § 1306(a)(1) Terminated when this Case was Closed
In the Debtor‘s view, the question before the Court turns on state law. Recall that, although federal law governs whether property belongs to the debtor or to the bankruptcy estate, property interests themselves are “created and definеd by state law.” Butner, 440 U.S. at 55. The bankruptcy estate can “take no greater rights than the debtor himself had” under state law. Witko v. Menotte (In re Witko), 374 F.3d 1040, 1042-43 (11th Cir. 2004) (quoting S. Rep. No. 95-989, at 82 (1978); H. R. Rep. No. 95-595, at 367-68 (1977)). Relying on these principles, the Debtor argues that the Malpractice Claim came into being under Georgia law only after his bankruptcy estate ceased to exist and therefore never became estate property: “Debtor could not have brought the [Malpractice Claim] at a time [when] his Chapter 13 estate was in existence[;] the [Malpractice Claim] did not exist until after his estate had closed.” (Dckt. 167, p. 4). The Debtor‘s argument thus has two premises:
Starting with the second premise, the Debtor correctly observes that the Malpractice Claim‘s elements accrued, if at all, long after he received his discharge and his bankruptcy case was closed. Under Georgia law, the plaintiff in a legal malpractice action “must establish three elements: (1) employment of the defendant attorney, (2) failure of the attorney to exercise ordinary care, skill and diligence, and (3) that such negligence was the proximate cause of damage to the plaintiff.” Lalonde v. Taylor English Duma, LLP, 349 Ga. App. 853, 855 (2019) (quoting Allen v. Lefkoff, Duncan, Grimes & Dermer, P. C., 265 Ga. 374, 375 (1995)).
Here, the third element was satisfied no sooner than January 2024, when Mr. Boykin mistakenly allowed the 2010 Claim to be dismissed, without possibility of revival, by operation of
But the Debtor‘s first premise—that the bankruptcy estate no longer existed when the Malpractice Claim arose—is less clear-cut. When did the estate terminate, if it terminated at all? Was it on October 16, 2013, when the Debtor received his discharge? Or was it on August 1, 2017, when the Court closed the case? Or does the estate remain in existence to this day becausе the case was reopened on June 26, 2018? More to the point, for how long does property acquired by a debtor continue to accumulate in the bankruptcy estate by operation of
According to the Debtor, the bankruptcy estate “ends at discharge or dismissal and doesn‘t extend to the date the case is administratively closed.” (Dckt. 167, p. 5). Although the Debtor does not elaborate on this theory, he must mean that the estate in this case terminated upon discharge—rather than closure—because the case was not dismissed.50 The Court finds this argument unpersuasive and the lone case he
D. Reopening the Case Did Not Revive the Operation of § 1306(a)
Had this case remained closed, it would be clear that the operation of
No. Under the Bankruptcy Code, the court “shall close” a case “[a]fter an estate has been fully administered and the court has discharged the trustee[.]”
Regrettably, the Bankruptcy Code fails to explain in any detail the effect of reopening a closed case. Some courts view reopening as “a purely ministerial task53
The reopening of a case is of no independent legal significance or consequence . . . . The effect of [§ 350(b)] is merely to resurrect the court file from the stacks of the closed cases, or even from the archives, to enable it to receive a new request for relief. The legislative history on the provision is sparse, but it certainly does not contradict [this] benign interpretation . . . . [T]he purpose for reopеning a case is to allow the court to act on a substantive request for relief, and . . . the mere reopening, by itself, accords no independent relief.
In re Barrett, No. 05-36825, 2006 WL 2587978 (Bankr. N.D. In. Sept. 8, 2006). Other courts disagree. See DeVore v. Marshack (In re Devore), 223 B.R. 193, 198 (B.A.P. 9th Cir. 1998) (noting that some “courts have held that reopening a bankruptcy case puts the bankruptcy estate back into the process of administration and revives the original case“); Figlio v. Am. Mgmt. Servs., Inc. (In re Figlio), 193
Without delving into all the precise consequences of reopening generally, the Court finds that the reopening of this case did not bring
Nor does any language in the reopening order warrant breathing new life into
E. Segal v. Rochelle‘s “Sufficiently Rooted” Test Does Not Apply Here
Without necessarily disagreeing with the above analysis, the Chapter 13 Trustee advances a theory that, if the Court accepts it, could capture the Malpractice Claim for the bankruptcy estate in spite of
First, to the extent the Trustee asserts that the Malpractice Claim is simply a “continuation” of the 2010 Claim, that assertion is incorrect on its face. As the Debtor points out, those were two different claims against two different defendants.
The Trustee disputes none of this—because he can‘t—but nevertheless argues that the settlement proceeds of the Malpractice Claim belong to the bankruptcy estate under an esoteric doctrine of federal bankruptcy law. In a Chapter 7 case, as
Segal, of course, did not involve a claim for legal malpractice. But several lower courts applying the “sufficiently rooted” test have determined that a post-petition legal malpractice claim belonged to the bankruptcy estate. One such case was Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. v. Alvarez (In re Alvarez), 224 F.3d 1273 (11th Cir. 2000). In Alvarez, the Chapter 7 debtor filed a malpractice
On appeal, the Eleventh Circuit ruled in favor of the law firm, holding that the malpractice claims were property of the bankruptcy estate, for two reasons. First, the court held that the elements of legal malpractice accrued “at the moment of bankruptcy filing.” Id. at 1277-78. Because
Whatever the precedential value of Alvarez, other courts have also found post-petition legal malpractice claims to be estate property under Segal‘s “sufficiently rooted” test. See, e.g., O‘Dowd v. Trueger (In re O‘Dowd), 233 F.3d 197 (3d Cir. 2000)58; Winick & Rich, P.C. v. Strada Design Associates, Inc. (In re Strada DesignAssociates, Inc.), 326 B.R. 229 (Bankr. S.D.N.Y. 2005)59; In re Tomaiolo, 205 B.R. 10 (Bankr. D. Mass. 1997).60 In other cases, courts applying the Segal test have found that malpractice claims lacked pre-petition roots. See, e.g. Witko, 374 F.3d at 104461; In re de Hertogh, 412 B.R. 24 (Bankr. D. Conn. 2009)62; Casey v. Grasso (In re Riccitelli), 320 B.R. 483 (Bankr. D. Mass. 2005).63
These cases provide some support for the Trustee‘s theory. But not much. The Court rejects the Trustee‘s reliance on the Segal test for two reasons. First, unlike a debtor whose malpractice claim accrues post-petition, the debtors in Segal “had an interest under applicable law when the case began[.]” Holstein v. Knopfler (In re Holstein), 321 B.R. 229, 238 (Bankr. N.D. Ill. 2005) (emphasis added). Because they “had both prior net income and a net loss when their petitions were filed,” the Segal debtors “apparently would have deserved an immediate refund had their tax year
Second, and more importantly, none of the cases applying the Segal test to legal malpractice claims arose in the context of Chapter 13. All were Chapter 7 cases, or cases filed under Chapter 11 that were later converted to Chapter 7, in which the legal malpractice claims at issue arose post-petition but had pre-petition roots. In a Chapter 7 case, the only question is whether a malpractice claim accrued pre-petition or post-petition. The petition “effects a definite cleavage in time, so that property of the debtor owned on that date becomes property of the bankruptcy estate and after-acquired assets, with certain exceptions, become the debtor‘s personal property, free of all claims that are discharged in the bankruptcy case.” In re Powell, 511 B.R. 107, 111 (Bankr. C.D. Ill. 2014) (citing White v. Stump, 266 U.S. 310, 313 (1924)). A Chapter 13 case, especially in a jurisdiction following the estate replenishment theory expounded in Waldron, is considerably more complicated due to the operation of
Here, the Malpractice Claim arose not just post-petition, not just post-confirmation, but post-discharge and post-closure. In essence, the Trustee argues that the Court should graft the Segal test onto Waldron, such that the Chapter 13 bankruptcy estate could swallow an asset (i.e. the Malpractice Claim) acquired over a decade after a debtor receives his discharge and over six years after closure, as long as the trustee can show that the asset had “sufficient roots” in post-confirmation estate property (i.e. the 2010 Claim). Nothing in the Bankruptcy Code or the case law warrants such a dramatic expansion of Segal‘s “sufficiently rooted” test, even assuming the test remains good law as to a post-petition malpractice claim in a Chapter 7 case. The Malpractice Claim did not become estate property by virtue of the Segal test—its roots do not go that deep.
F. The Debtor‘s Plan Can No Longer be Modified under § 1329
Even if the Court accepted the Trustee‘s theory and declared the Malpractice Claim property of the bankruptcy estate, the Trustee would still face an insurmountable obstacle preventing the settlement proceeds from being distributed to unsecured creditors. Strangely, neither party directly addressed this issue in their briefs, but the Court finds it dispositive. As mentioned, Waldron teaches that the purpose of requiring Chapter 13 debtors to disclosе substantial assets acquired post-
Modification of a confirmed Chapter 13 plan is governed by
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to—
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments;
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or
(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor . . . .
Two provisions of
Here, the Debtor completed his plan payments 12 years ago, in 2013. The Trustee acknowledged that fact when he filed his September 9, 2013 notice of completion of plan payments, which informed the Debtor that “you have paid sufficient funds to comрlete your case.”67 (Dckt. 109). And on October 16, 2013, the Debtor received a discharge, which necessarily means that his plan payments were complete:
Here, the Debtor‘s applicable commitment period was 36 months, or three years, a function of his below-median income. He evidently fell behind on pre-confirmation payments,70 because the Trustee‘s motion to confirm plan as amended stated that payments would be increased, or the plan term extended, “to cure [and] to pay [the] plan as proposed.” (Dckt. 36, p. 1). The Order Confirming Plan stated that “[p]ayments are hereby approved for a period not to exceed five years.” (Dckt. 61, p. 1, ¶ 1). The Trustee‘s Report of Confirmation reiterated that the plan was confirmed with monthly payments “for a minimum period of 36 months.”71 (Dckt. 71, p. 1). According to the Trustee‘s Final Report and Account, filed after discharge was entered, the Trustee “filed action[s] to remedy default by the [D]ebtor in performance under the plan” three times while the case was pending. (Dckt. 116, p. 1, ¶ 4). Those delinquencies meant that 47 months elapsed from filing to the last payment, and at the time the Final Report and Account was filed, the case had been pending for 52 months.72 (Dckt. 116, p. 1, ¶¶ 4, 6-7).
Courts disagree as to whether the language “the time that the first payment under the original confirmed plan was due” in
Whatever the correct view, the outcome here is the same. It is not evident from the record when exactly the first payment was due, but given the April 20, 2010 confirmation date, it‘s indisputable that more than five years have passed since the first plan payment was due.74 In fact, it‘s been over 15 years. To allow the Trustee
Inadequate supervision of debtors attempting to perform under wage earner plans have made them a way of life for certain debtors. Extensions on plans, new cases, and newly incurred debts put some debtors under court supervised repayment plans for seven to ten years. This has become the closest thing there is to indentured servitude; it lasts for an [un]identifiable period and does not provide the relief and fresh start for the debtor that is the essence of modern bankruptcy law.
H. R. Rep. No. 95-595, at 117.76 Adhering to the text of
G. The Debtor Has Not Consented to Distribution of Malpractice Settlement Funds
With plan modification forever foreclosed, the only way for the Trustee to distribute the settlement proceeds would be with the Debtor‘s consent. This is not necessarily plan modification in the strictest sense but may nevertheless allow creditors to share in settlement proceeds. Here, the Trustee, framing the issue as a matter of judicial estoppel,77 argues that the Debtor already gave his consent when
In another case, the Court assumed, without deciding, that the trustee, in seeking to modify a confirmed plan, may circumvent the
Again assuming without deciding that the Debtor‘s consent would allow the Trustee to skip plan modification—and thereby get around
In sum, whether the Malpractice Claim settlement proceeds are estate property under the Segal test, or under some other theory, is immaterial. The plan can no longer be modified, and the Debtor has not consented to turn over the proceeds. The Trustee therefore has no means of administering that asset, and the Debtor is at liberty to put the disputed $41,000.00 toward his fresh start.80
Unless a Chapter 13 debtor receives a new post-confirmation asset under
The Court recognizes that this rule is rigid. Consider, for example, a Chapter 13 debtor who obtains a cause of action in the 59th month of a 60-month plan. Under Waldron, that cause of action is property of the estate. But litigation may take years before producing a settlement, at which time the trustee would no longer be able to administer that asset through plan modification due to the time limits of
Fortunately, the Court need not confront here the dilemma posed by such an unscrupulous debtor. At bottom, this case is about a debtor who fulfilled his end of the Chapter 13 bargain. He committed all his disposable income to repaying his creditors, completed all promised plan payments, and received his discharge. The Court will not now deprive him of the benefit of his bargain by allowing creditors to
Dated at Savannah, Georgia, this 2nd day of May, 2025.
Edward J. Coleman, III, Judge
United States Bankruptcy Court
Southern District of Georgia