In Re Nott
ORDER ON TRUSTEE’S MOTION TO DISMISS CHAPTER 13 CASE
THIS CASE came before the Court for hearing to consider the Motion to Dismiss Chapter 13 Case filed by the Chapter 13 Trustee. In the Motion, the Trustee asserts that the Debtor, Sally Jo Nott, received an inheritance during the pendency of her chapter 13 case, and that the inheritance is property of the estate pursuant to § 1306 of the Bankruptcy Code. The Trustee contends that “the debtor’s receipt of an inheritance after the initial confirmation of a chapter 13 plan may be captured for the benefit of creditors at confirmation of a modified plan under § 1329.” (Trustee’s Supplemental Authority, p. 1).
In response, the Debtor asserts that the inheritance is not property of the estate because it was received after the Debtor’s chapter 13 plan had been confirmed, and that the inheritance therefore vested in the Debtor, and not the estate, pursuant to § 1327 of the Bankruptcy Code. The Debt- or contends that she should be permitted to accelerate her payments under the existing, confirmed plan and conclude her case. (Post-Trial Brief by the Debtor, p. 4).
Background
The Debtor filed her petition under chapter 13 of the Bankruptcy Code on May 30, 1997. On the same date, she also filed a chapter 13 plan. On March 4, 1998, an Order Confirming Plan was entered. The Order Confirming Plan provided for the Debtor to make payments to the Trustee in the amount of $315 per month for a period of forty-eight months, or until unsecured creditors had received twenty percent (20%) of the allowed amount of their claims. The total amount of unsecured claims filed in the case equaled $82,111.12.
The Debtor’s mother passed away on March 6, 1999, approximately one year after the Order Confirming Plan was entered. As a result of her mother’s death, the Debtor received an inheritance in an amount ranging from $270,000 to $300,000. (PosL-Trial Brief by the Debtor, p. 1). The Debtor purchased a home and an automobile with a portion of the amount inherited.
The Debtor has not filed a Motion to Modify Confirmed Plan, and has not submitted any portion of the inheritance to the Trustee.
Upon learning of the inheritance, the Trustee filed the Motion to Dismiss currently under consideration.
Discussion
I. Section 1329 — modification of plan after confirmation.
Section 1329 of the Bankruptcy Code provides for the modification of chapter 13 plans after they have been confirmed by the Bankruptcy Court.
11 U.S.C. § 1329 . Modification of plan after confirmation
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may bemodified, upon the request of the debt- or, 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; or
(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. (b)(1) Sections 1322(a), 1322(b), and 1323(c) of this title and the requirements of section 1325(a) of this title apply to any modification under subsection (a) of this section.
(2) The plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.
A party making a request under
The policy underlying
Section 1329 is intended to promote the ability-to-pay standard to allow upward or downward adjustment of plan payments in response to changes in a debt- or’s circumstances which substantially affect the ability to make future payments. (Citation omitted). Accordingly, post-confirmation plan modification is usually sought by a debtor when there has been an unanticipated and substantial decrease in income (e.'g., unemployment) or by an unsecured creditor or the trustee when the debtor experiences an increase or windfall (e.g., an inheritance or lottery winning).
In re Trumbas,
Some courts require the moving party to justify a proposed modification by establishing a substantial, unanticipated change of circumstances. See, for example,
In re Collier,
Other courts, however, require only that the proposed modification satisfy one of the three purposes specified in
The court in
In re Trumbas,
As a practical matter, a party requesting modification of a post-confirmation chapter 13 plan must have a legitimate reason for doing so, and the party must strictly conform to the three limited circumstances set forth in the statute.
In re Trumbas,
In this case, the Court need not determine whether there is a threshold standard for modification of a Chapter 13 plan, or consider the differing viewpoints or the effect of differing practices or circum
Neither the Trustee nor the Debtor, however, has proposed a specific modified plan for consideration by the Court. Instead, the Trustee asserts only that the inheritance received by the Debtor “may be captured for the benefit of creditors at confirmation of a modified plan under
The Court finds that the Trustee should be permitted to seek modification of the Debtor’s chapter 13 plan pursuant to
II. Section 1325(a)(4)—the effective date of the modified plan.
Once it is determined that modification of a confirmed plan may be permitted under
Sections 1322(a) and 1322(b) specify mandatory and permissive requirements for the contents of a plan. Section 1323(c) addresses positions of secured creditors. Section 1325(a) provides certain requirements for confirmation of a plan. “When a plan is modified under
Section 1325(a)(4) provides:
11 U.S.C. § 1325 . Confirmation of plan
(a) Except as provided in subsection (b), the court shall confirm a plan if—
(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date.
When applying the test to the modification of a confirmed plan, the Court concludes that the “effective date of the plan” should be the effective date of the modified plan, rather than the effective date of the initial plan. This conclusion is based in part on the legislative history to
In applying the standards of proposed11 U.S.C. § 1325(a)(4) to the confirmation of a modified plan, “the plan” as used in the section will be the plan as modified under this section, by virtue of the incorporation by reference into this section of proposed11 U.S.C. § 1323(b) . Thus, the application of the liquidation value test must be redetermined at the time of the confirmation of the modified plan. H.R.Rep. No. 595, 95th Cong., 1st Sess. 431 (1977) U.S.Code Cong. & Admin.News pp. 5787, 6386, 6387.
In re Barbosa,
The better interpretation is that “the effective date of the plan” is the effective date of the plan as modified. This interpretation gives effect to§ 1329(b)(2) and recognizes that the passage of time between confirmation of the original plan and confirmation of the modified plan does change the facts and circumstances of a Chapter 13 case. Those changes may benefit the debtor or benefit creditors, but the tests for confirmation in §§ 1322 and 1325 that are applied at confirmation of a modified plan under§ 1329(b)(1) should be applied to the facts as they appear at the time of confirmation of the modified plan.
Keith M. Lundin, Chapter 13 Bankruptcy, § 6.44 at p. 6-133 (2nd ed.1994 & Supp. 1996) (quoted in
In re Barbosa,
The Court in both
Barbosa
and
Walker
concluded that “the best interest or liquidation value test of
When considering confirmation of a modified plan, the Court finds that
III. Sections 1306 and 541 — the amount that would be paid if the estate were liquidated under chapter 7.
As set forth above,
Generally, in a chapter 7 liquidation, unsecured creditors receive a value equal to the net nonexempt assets of the estate, less any costs of administration of the chapter 7 case.
The best-interests test undersection 1325(a)(4) requires that the property offered the holder of each allowed unsecured claim have a present value, as of the effective date of the plan, not less than the amount that would be paid if the debtor’s estate were liquidated under chapter 7. The language of the statute plainly means that the court is to ascribe a liquidation value to all nonexempt property of the estate, as that term is defined under section 511.
8 Collier on Bankruptcy, ¶ 1325.05[2][d] (15th ed.)(Emphasis supplied).
“Property of the estate” is defined broadly in § 541(a) of the Bankruptcy Code to include “all legal or equitable interests of the debtor in property as of the commencement of the case.”
11 U.S.C. § 1306 . Property of the estate
(a) Property of the estate includes, in addition to the property specified insection 541 if this title:
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.
(Emphasis supplied.) The legislative history to
Where a chapter 13 debtor receives settlement proceeds arising from a postpetition cause of action, for example, the proceeds are property of the estate pursuant to
In this case, however, the Debtor contends that her inheritance should not be included as property of her chapter 13 estate for purposes of applying the “best interest of creditors” test, because she obtained the inheritance after her plan had been confirmed. Consequently, the Debt- or contends that the inheritance is her individual property, and not property of the estate, by virtue of § 1327 of the Bankruptcy Code. Section 1327(b) provides:
11 U.S.C. § 1327 . Effect of confirmation
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
The concept of “vesting” is not defined in the Bankruptcy Code, and Courts have taken various approaches to the meaning of
Courts have reached various interpretations of
“ Sections 1306(a) and 1327(b) are difficult to reconcile.” In re Rangel,233 B.R. 191 , 194 (Bankr.D.Mass.1999). On one hand,§ 1306(a) says that the estate continues to collect property until the is closed, converted, or dismissed. On the other hand,§ 1327(b)(2) seems to call for the termination of the estate upon plan confirmation. We, along with other courts, have struggled with the interplay between these statutes.
In re Holden,
This Court finds that property of a chapter 13 estate that is in existence and disclosed as of the date of confirmation vests in the Debtor pursuant to
[U]pon confirmation of a Chapter 13 plan, all property of the estate is emptied from the estate and revested in the Debtors under§ 1327(b) . Such property is no longer property of the estate. Immediately after confirmation, the estate begins to be refilled by property acquired by Debtors post-confirmation. That property is protected by the automatic stay and remains so until the case is closed, converted, or dismissed.
According to the Court in
Holden,
this interpretation is the only approach that gives full effect to the plain meaning of both statutes.
In re Holden,
This interpretation also was adopted by the Court in
In re Rangel,
In an effort to reconcile both§§ 1306(a) and 1327(b), the court [in In re Fisher,203 B.R. 958 (N.D.Ill.1997) ] concluded that the property of the estate which vests in a debtor at confirmation is that which is property of the estate as of the date of confirmation. Id. at 962.Section 1306(a) then operates to replenish the estate post-confirmation until the case is closed converted or dismissed. Id.
This approach does reconcile§§ 1306(a) and 1327(b). Furthermore, it gives meaning to the language in §§ 347, 349, 704(9), 1302, 1305 and 1329.
See also
In re Guentert,
Finally, the statute clearly states that property of a Chapter 13 estate includes “all property of the kind specified in [
In this case, the Debtor’s mother passed away and the Debtor obtained the inheritance after confirmation of the Debtor’s chapter 13 plan. Since it was acquired postconfirmation but before the case has been closed, dismissed, or converted, the Court finds that the inheritance is property of the estate pursuant to
Conclusion
A chapter 13 plan may be modified after confirmation pursuant to
Further, as the Court in Barbosa, supra, stated:
Overriding all other concerns is the issue of good faith. In view of congress’s intent in enacting chapter 13 to encourage debtors to repay their debts to the best of their ability, it would be anomalous for this Court to determine that the Debtors can retain the excess proceeds from the sale of the Property without satisfying their unsecured claims.
In re Barbosa,
No modified plan has been proposed in this case.
Accordingly:
IT IS ORDERED as follows:
1. Within 20 days of the date of this order, the Debtor, the Chapter 13 Trustee, or the holder of an allowed unsecured claim may file a motion to modify the Debtor’s chapter 13 plan.
2. If no motion to modify the Debtor’s chapter 13 plan is filed, the Court will set a further hearing to determine if there is cause to dismiss the case.
Notes
. Two of the leading cases concluding that the confirmation order has no res judicata effect were determined in jurisdictions where the Chapter 13 plans were "percentage plans” that were confirmed prior to the bar date for filing claims. See
In re Witkowski,