Court Exceeded Power with Plan Provision Re: After-Acquired Property

Posted by NCBRC - January 2, 2019

A bankruptcy court lacks the power to require a chapter 13 debtor to include a plan provision pledging to pay into the plan the cash equivalent of any non-cash property obtained post-confirmation. Roseberry v. U.S. Trustee, No. 18-1039 (S.D. Ill. Dec. 18, 2018).

Ed and Vernica Roseberry challenged the following language required by the bankruptcy court for plan confirmation:

“Interests in property acquired or received after the commencement of the case: Should the debtor(s) acquire or receive any interest in property of more than nominal value, even if such value is unknown/undetermined/unliquidated (for example, lawsuit settlement, class action settlement, worker’s compensation claim, inheritance, life insurance proceeds, etc.), debtor(s) shall immediately file the appropriate amended schedule(s) to disclose the acquisition or receipt of the same. Absent further Order of this Court, such property, whether or not disclosed on amended schedules or otherwise, shall constitute disposable income, the value of which must be paid into the debtor(s)’ plan as a payment under the plan for the benefit of allowed general unsecured claims.”

The district court agreed that the bankruptcy court exceeded its power by requiring the challenged provision. Section 1325 mandates that the bankruptcy court shall confirm a plan that complies with the requirements of section 1322 and other Code provisions. Section 1325’s mandatory language “limits the universe” of what the bankruptcy court may require for plan confirmation. In this case, the district court found that the locally-required plan language would essentially require a debtor to sell newly-acquired property to convert it to cash, and that this requirement would inevitably lead to litigation over disputes concerning certain property, including property that a debtor may seek to exempt. The plan provision therefore went beyond mere menial reporting requirements. Furthermore, there were no “exceptional circumstances” which might have justified its inclusion in all plans confirmed by that court.

The court reversed the bankruptcy court’s order of confirmation.

Roseberry SD Ill Dec 2018

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