In re Tucker
MEMORANDUM OPINION AND ORDER DENYING THE MOTION TO MODIFY CHAPTER 13 PLAN
This matter came on for hearing on September 26, 2013 (the “Hearing”) on the Motion to Modify Plan (the “Motion to Modify”) (Dkt. 18) filed by Tracy D. Tucker (the “Debtor”), the Response of Shreveport Federal Credit Union to Debtor’s Motion to Modify Plan (the “Shreveport FCU Response”) (Dkt. 20) filed by Shreveport Federal Credit Union (“Shreveport FCU”), and the Trustee’s Response to Motion to Modify Chapter 13 Plan (the “Trustee Response”) (Dkt. 23) filed by Locke D. Barkley, the chapter 13 trustee (the “Trustee”) in the above-styled bankruptcy case (the “Bankruptcy Case”). At the Hearing, Chris F. Powell represented the Debtor, Brittan Webb Robinson represented Shreveport FCU, and G. Adam Sanford represented the Trustee. After hearing arguments, the Court took the matter under advisement. The Court, being fully advised in the premises, finds that the Motion to Modify should be denied for the reasons that follow.
Jurisdiction
The Court has jurisdiction over the parties to and the subject matter of this case pursuant to
Facts
1. On August 29, 2012, the Debtor voluntarily filed the petition for relief (Dk. 1) under chapter 13 of the U.S. Bankruptcy Code and the proposed Chapter 13 Plan (the “Plan”) (Dkt. 5).
2. In the Plan, the Debtor listed a “2011 Chevy Camaro” (the “Camaro”) as collateral to Shreveport FCU’s secured claim valued at $37,246.00. Id. at 2. The Plan required the Debtor to pay Shreveport FCU the amount of the secured claim in full. Id.
3. On November 16, 2012, the Court entered the Order Confirming the Debt- or’s Plan, Awarding a Fee to the Debtor’s Attorney and Related Orders (the “Confirmation Order”) (Dkt. 16) confirming the Plan. The confirmed Plan provided for a one hundred percent (100%) pro rata distribution to timely filed and allowed general unsecured claims. The Confirmation Order provided that “[t]he debtor shall be responsible for the preservation and protection of all property of the estate not transferred to the trustee.” Id., ¶ 4.
5. In the Shreveport FCU Response, filed on July 26, 2013, Shreveport FCU argues that the Camaro and any insurance proceeds may be surrendered, but any remaining balance due should remain as a secured claim pursuant to the Confirmation Order and Chrysler Financial Corp. v. Nolan (In re Nolan),
6. In the Trustee Response, filed on July 26, 2013, the Trustee does not object to any modification of the Plan so long as all allowed general unsecured claims are paid in full in the amount of $2,032.55, a slightly higher amount than what the Debtor claimed as the balance owed.
7. At the Hearing, the Debtor stated that the insurance on the Camaro had lapsed at the time it was damaged by the fire. Shreveport FCU did not oppose the surrender of the Camaro, but argued that there is a good faith requirement for post-confirmation modifications to reclassify claims, which the Debtor did not meet because of her failure to maintain insurance on the Camaro. The Debtor argued that in the interest of fairness, the Motion to Modify should be granted because it was Shreveport FCU’s responsibility to make sure the Debtor had insurance. The Debtor did not dispute the Trustee’s limitation to the Motion to Modify regarding the $2,032.55 of general unsecured claims.
Discussion
A confirmed chapter 13 plan is binding on all parties who were involved in the confirmation process.
I. Existing Authority on Post-confirmation Modification to Surrender Collateral
There is a split among courts regarding a debtor’s ability to modify a plan to surrender collateral and treat any deficiency as an unsecured claim. The Sixth Circuit Court of Appeals is the only circuit court that has addressed the issue. In Nolan,
A. In Re Nolan
In Nolan, a chapter 13 debtor attempted to modify her confirmed plan by surrendering her vehicle and treating the resulting deficiency as an unsecured claim.
B. Departing From Nolan
A large number of courts, including one Mississippi bankruptcy court, have departed from Nolan and have held that there is not a per se bar against post-confirmation modification to surrender collateral when the modified plan treats any deficiency as an unsecured claim. See In re Davis,
When relying on the language of
When relying on § 502(j), the courts have concluded that a court’s power to reconsider a claim enables a debtor to modify his or her confirmed plan under
II. Motion to Modify
A. Bankruptcy Code Allows Post-confirmation Modification to Surrender Collateral
Having reviewed the case law and the relevant provisions of the Bankruptcy Code, the Court is not persuaded by Nolan’s narrow reading of § 1329(a) and rejects Nolan’s categorical bar on post-confirmation modifications that surrender collateral and reclassify any deficiency as an unsecured claim. First, the Court finds that a modification to surrender collateral is expressly authorized in § 1329(a)(1) & (3). With respect to § 1329(a)(1), courts generally consider each secured claim to be in a separate class by itself. Sellers,
Second, the Court finds that irrespective of the express language in § 1329(a)(1) and (3), a post-confirmation modification to surrender collateral under § 1329 is allowed pursuant to the Court’s power to reconsider a claim under § 502(j). Nolan held that once a plan is confirmed, the treatment of a secured claim is fixed and cannot be modified under § 1329. Nolan,
Third, the Court rejects the Sixth Circuit’s view that a post-confirmation modification to surrender collateral unfairly shifts the risk of depreciation to creditors. Nolan,
Moreover, as a practical matter, a per se denial of modifications that surrender collateral and reclassify any deficiency as unsecured contravenes the congressional intent behind § 1329, which was to promote greater success of completing chapter 13 plan payments. H.R. Rep. No. 95-595, at 125 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6086. If the Court imposed a rule that unequivocally denied debtors from modifying confirmed plans
In summary, the Court finds that there should not be a per se bar on post-confirmation modifications to surrender collateral when the modified plan treats the deficiency as an unsecured claim. Such a rigid rule is unnecessary in light of the statutory safeguards that protect creditors’ interests regarding plan modifications under § 1329 and reconsideration of claims under § 502(j). A debtor may modify a confirmed plan to surrender collateral and reclassify any deficiency as an unsecured claim provided the modification is consistent with the requirements of § 1325(a) and § 502(j).
B. Motion to Modify to Surrender the Camaro and Reclassify the Deficiency Does Not Satisfy § 1325(a)(3)
While the Debtor is not prohibited per se from modifying the Plan by surrendering the Camaro, the Debtor is nevertheless precluded from modifying the Plan because she fails to satisfy § 1325(a)(3). As mentioned previously, § 1325(a)(3), which is applied to post-confirmation modification through § 1329(b)(1), requires any plan (or in this case, any modification) to be proposed in good faith. Because the Court finds that the Debtor’s proposed modification lacks good faith, it is unnecessary for the Court to determine whether the Debtor’s proposed modification to surrender collateral also complies with the § 502(j) requirements of cause and a consideration of the equities of the case.
The court in Knappen,
In the Bankruptcy Case, the Debtor failed to maintain insurance on the Cama-ro, despite the Confirmation Order’s requirement that the Debtor be “responsible for the preservation and protection of all property of the estate not transferred to the trustee.” In addition, her failure to maintain insurance violated the loan agreement between the Debtor and Shreveport FCU (the “Loan Agreement”) (POC # 5). While it is true secured creditors generally bear the risk of depreciating collateral, the Court must protect secured creditors’ interests when there is severe and unexpect
Conclusion
For the above and foregoing reasons, the Court concludes that the Motion to Modify should be denied. The Court holds that a debtor may modify a confirmed plan by surrendering collateral and having any deficiency treated as an unsecured claim, provided the modification complies with the requirements of § 1325(a)(3) and § 502(j). In the Bankruptcy Case, the Debtor’s attempt to modify the plan by surrendering the Camaro to Shreveport FCU after failing to comply with the Confirmation Order and the Loan Agreement by not maintaining insurance on the Cama-ro constituted a lack of good faith. As a result, the Motion to Modify should be denied for failing to satisfy § 1325(a)(3), which is applied to post-confirmation modification through § 1329(b)(1). Consequently, because the Debtor’s attempt to reclassify Shreveport FCU’s claim is rejected, the remaining part of the Motion to Modify should be rendered moot.
IT IS, THEREFORE, ORDERED that the Motion to Modify in order to surrender the Camaro and treat any deficiency as an unsecured claim is hereby denied.
IT IS FURTHER ORDER that the remaining part of the Motion to Modify is hereby denied as moot.
SO ORDERED.
Notes
. Hereinafter, all code sections refer to the United States Bankruptcy Code found at Title 11 of the United States Code unless otherwise noted.