Change in Circumstances Not Required for Plan Modification

Posted by NCBRC - October 16, 2020

A change in circumstances is not a pre-condition to modification of a confirmed chapter 13 plan under section 1329(a). Whaley v. Guillen (In re Guillen), No. 17-13899 (11th Cir. Aug. 25, 2020).

When the debtor filed for chapter 13 bankruptcy, she listed two creditors with security interests in her home. Her proposed plan included payments toward her bankruptcy attorney’s fee of $4,900, as well as a challenge to Wells Fargo’s junior lien. She then initiated an adversary proceeding seeking to avoid that lien. The debtor and Wells Fargo eventually settled the adversary complaint with Wells Fargo agreeing to be treated as an unsecured creditor. Finding that it met the statutory requirements, including section 1325’s “best interest of creditors” test, the bankruptcy court confirmed her plan.

Ms. Guillen then sought to modify the plan to take into account increased debt to her bankruptcy attorney based on his $8,295 fee for litigation of the adversary proceeding. The proposed modification decreased the total pool of funds available to creditors from $20,172 to $11,877. The bankruptcy court confirmed the modification over the trustee’s objection.

The trustee appealed, arguing that the bankruptcy court should have required the debtor to show a change in circumstance to justify the modification. The bankruptcy court sua sponte certified the appeal to the Eleventh Circuit. Noting a split in the circuit courts on the issue, the Eleventh Circuit accepted the appeal to determine whether section 1329 carries an implicit change-in-circumstance requirement.

The court began with a look at the relevant statutory provisions. Section 1329(a)(1) permits a debtor, trustee, or unsecured creditor to modify a plan “to increase or reduce the amount of payments on claims of a particular class provided for by the plan.” The provision does not state a requirement that the moving party show a change in circumstances. Section 1329 creates an exception to section 1327(a), which provides that confirmation of a plan binds the debtor and all creditors, whether provided for in the plan or not, to the terms of the plan.

The court found the plain text of section 1329 dispositive; the statute does not require a showing of change in circumstance and, therefore, no such requirement exists. The court cited several instances elsewhere in the Code where Congress imposed a “circumstances” requirement on an action, indicating that when Congress wanted that requirement, it knew how to include it. The court noted specifically, that in chapter 11, section 1127(b), a debtor that is an organization must show that circumstances warrant modification, while in section 1129(e), relating to individual debtors, that requirement is absent.

The First, Fifth and Seventh Circuits have all come to the same conclusion as the Eleventh Circuit here. The one outlier is the Fourth Circuit. In In re Arnold, 869 F.2d 240, 243 (4th Cir. 1989), that court found that res judicata bars modification unless there has been an unanticipated, substantial change in the debtor’s financial condition. There, the court found that the creditor successfully showed an unanticipated change in circumstance when the debtor received a pay increase during the course of the plan. The Fourth Circuit reasoned that requiring a party to show a change in circumstance serves judicial economy, supports the finality of confirmation orders, and forestalls a barrage of modification motions.

The Guillen court disagreed, reasoning that policy considerations such as those cited by the Arnold court could not overcome the plain language of the statute. Also, it found the Fourth Circuit’s concern about “willy nilly” modification motions to be overstated. Congress included safeguards against frivolous filings by authorizing only a limited pool of actors to seek modification, limiting the purposes for which modification may be made, and requiring the modified plan to satisfy the requirements of sections 1325 and 1322. Finally, even if all these hurdles are overcome, the bankruptcy retains discretion to allow or disallow the modification.

The court acknowledged that in In re Hoggle, 12 F.3d 1008, 1011–12 (11th Cir. 1994), it referred to section 1329 as permitting a modification in the event of a change of circumstances, but stated that the case did not hinge on that language. The court declined to “convert a sufficient condition into a necessary one.”

The court affirmed the decision of the bankruptcy court.

Guillen 11th Cir Aug 2020



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