District Court Certifies Appeal of 100% Plan Language Restricting Right to Modify

Posted by NCBRC - January 31, 2019

In Brown v. Viegelahn, No.18-282  the District Court for the Western District of Texas, on its own motion, certified an appeal to the Fifth Circuit to resolve a dispute among lower courts concerning the so-called Molina language in which a chapter 13 debtor paying less that his entire disposable income to his 100% plan, is required to agree that he will not later modify the plan to pay less than 100% to unsecured creditors. (appeal certified, Jan. 22, 2019). 

The Bankruptcy Court conditioned confirmation of Freddie Brown’s plan on his inclusion of the following language:

“The Plan as currently proposed pays a 100% dividend to unsecured claims. The
Debtor shall not seek modification of this Plan unless said modification also pays
a 100% dividend to unsecured claims. Additionally, should this Plan ever fail to
pay 100% dividend to unsecured claims, the Debtor will modify the Plan to
continue paying a 100% dividend. If the Plan fails to pay all allowed claims in
full, the Debtor will not receive a discharge in this case.”

On Mr. Brown’s appeal to the district court, the trustee argued that section 105(a) gave the bankruptcy court the power to require such language in order to protect unsecured creditors from the potential failure of the debtor’s plan. The debtor countered that, where his plan satisfied section 1325(b)(1), the court had no power to impose further conditions, and that the Molina [Molina v. Langehennig, No. SA-14-CA-926, 2015 WL 8494012 (W.D. Tex. Dec. 10, 2015)] language deprived him of his statutory right to modify as contemplated by section 1329.

In sending the case to the Fifth Circuit, the district court reasoned that the appeal involved an issue of law for which there was no controlling opinion, and for which there were conflicting lower court opinions. Martinez v. Viegelahn, 581 B.R. 486 (W.D. Tex. 2017) (finding Molina language contravenes the debtor’s right to modify); In re McCarthy, 554 B.R. 388, 393 (Bankr. W.D. Tex. 2016) (noting question as to bankruptcy court’s power to impose non-statutory conditions, but permitting use of Molina language).

The court noted that, in prior cases, the trustee has opted not to appeal district court decisions disallowing the Molina language, thereby causing the issue to recur without final resolution. 

Brown WD Tex Jan 2019

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