National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

confirmation

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Does Equitable Mootness Prevent Debtors from Appealing Confirmed Chapter 13 Plans?

The Fourth Circuit is set to decide a significant issue in Cook v. Gorman, a case that could determine whether the doctrine of equitable mootness prevents debtors from appealing the confirmation of a Chapter 13 repayment plan. At the heart of the case is whether equitable mootness—commonly used to dismiss appeals in complex Chapter 11 reorganizations—should apply to a straightforward Chapter 13 consumer bankruptcy case.

Background

Christopher M. Cook, a Chapter 13 debtor, appealed the confirmation of an amended repayment plan that he objected to, arguing that his originally proposed plan complied with bankruptcy law and should have been confirmed instead. However, rather than addressing the merits of Cook’s appeal, the district court dismissed the case on the grounds of equitable mootness, a controversial doctrine that allows courts to decline hearing bankruptcy appeals when the relief sought is deemed impractical due to changes in circumstances.

Cook, represented by bankruptcy counsel, argued that equitable mootness is not applicable to consumer Chapter 13 cases, as these cases lack the complexity of Chapter 11 corporate restructurings. He has now taken his appeal to the Fourth Circuit.

The Issues at Stake

The Fourth Circuit must decide whether equitable mootness should be extended to Chapter 13 cases or if the district court improperly avoided ruling on the appeal’s merits. Cook and his supporters argue that:

  • Equitable mootness was designed for complex Chapter 11 reorganizations where unraveling transactions could harm third-party investors and creditors. It should not apply to a simple Chapter 13 case with only four unsecured creditors.
  • The district court’s ruling denies consumer debtors their statutory right to appellate review by effectively insulating Chapter 13 confirmation orders from challenge.
  • The concept of a “fresh start” in bankruptcy is undermined if debtors are prevented from appealing adverse rulings on procedural grounds rather than legal merit.

NACBA and NCBRC’s Role

Recognizing the broad implications of this case, the National Association of Consumer Bankruptcy Attorneys (NACBA) and the National Consumer Bankruptcy Rights Center (NCBRC) filed an amicus brief in support of Cook. The amicus brief was authored by Richard Cook of Richard P. Cook, PLLC, who provided a thorough analysis of the dangers of extending equitable mootness to Chapter 13 cases. The brief emphasizes that consumer bankruptcy cases involve different considerations from corporate reorganizations and that courts should not use equitable mootness as a tool to sidestep legitimate legal questions.

Potential Impact

If the Fourth Circuit rules in Cook’s favor, it could set an important precedent ensuring that Chapter 13 debtors maintain their right to appeal confirmation orders. A decision restricting the use of equitable mootness in consumer bankruptcy cases would reinforce the fundamental protections of the Bankruptcy Code and uphold the principle that debtors should have access to meaningful judicial review.

This case will be closely watched by consumer bankruptcy attorneys and debtors’ advocates, as its outcome could shape appellate rights in Chapter 13 cases nationwide.

Stay tuned for updates as the Fourth Circuit deliberates on this crucial issue.

NCBRC/NACBA Amici Brief

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Eleventh Circuit to Decide Key Issues in Post-Confirmation Plan Modifications

Facts

In In re Conte, the Eleventh Circuit is reviewing a decision from the District Court for the Southern District of Alabama that upheld a bankruptcy court’s denial of a Chapter 13 trustee’s motion to modify confirmed plans based on debtors’ post-confirmation personal injury settlements.

The cases involve two Chapter 13 debtors: Lisa Boutwell, who received $19,685.61 from a settlement after being injured at a Dollar General store, and Peggy Proffitt, who received $7,685.39 from a similar settlement after falling at Walmart. The trustee, Christopher Conte, moved to modify both plans to apply these nonexempt settlement proceeds to increase the percentage paid to unsecured creditors. Under the original confirmed plans, Boutwell was paying a 40.25% dividend, and Proffitt was paying a 62.19% dividend to unsecured creditors. The trustee’s modifications sought to raise these percentages to 77.07% and 76.86%, respectively.

The bankruptcy court ruled that the settlement proceeds were part of the bankruptcy estate under 11 U.S.C. § 1306(a) but held that they were not “projected disposable income” under § 1325(b) and could not be used to modify the plans. The court also found that the settlements were not part of the “liquidation test” under § 1325(a)(4) because post-petition personal injury proceeds would not be included in a hypothetical Chapter 7 case. The district court affirmed, and the trustee appealed.

Issues on Appeal

The appeal raises critical questions about the treatment of post-confirmation assets in Chapter 13 cases:

  1. Liquidation Test Application: Should post-confirmation assets, like personal injury settlements, be included in the hypothetical liquidation analysis under § 1325(a)(4) when a plan modification is proposed?
  2. Projected Disposable Income: Can post-confirmation settlements be considered “disposable income” under § 1325(b) for purposes of plan modification?
  3. Discretion in Plan Modifications: To what extent does the bankruptcy court have discretion to deny plan modifications based on new assets, even when creditors’ recovery could increase?

Amici Support

The National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amici curiae brief supporting the debtors. They argue that:

  • § 1325(b)’s disposable income test does not apply to plan modifications, as it is limited to plan confirmation.
  • Post-confirmation assets, like personal injury settlements, should not reset the liquidation value under § 1325(a)(4).
  • Bankruptcy courts have broad discretion under § 1329 to determine whether a debtor’s ability to pay has changed.

Implications

This appeal has significant implications for Chapter 13 debtors and trustees. If the trustee prevails, post-confirmation assets could routinely increase payments to unsecured creditors, discouraging debtors from filing Chapter 13. Conversely, affirming the lower courts’ decisions would solidify protections for post-confirmation assets, limiting modifications that could strain debtors’ financial stability.

Conclusion

The Eleventh Circuit’s decision will address how courts balance creditors’ interests with debtors’ post-confirmation financial realities. Oral arguments are expected in early 2025.

In re Conte Amici Brief

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Debtor’s Right to Propose Chapter 13 Plans Affirmed by Fourth Circuit: Flexibility Over Local Form Defaults

Holding

The Fourth Circuit Court of Appeals reversed the district court’s decision, holding that Sheila Ann Trantham had standing to appeal the bankruptcy court’s ruling and that the bankruptcy court erred in denying confirmation of her Chapter 13 plan based on a local form’s vesting provision. The court affirmed that a debtor has the right to propose a Chapter 13 plan with provisions that may deviate from local form defaults, provided they comply with the Bankruptcy Code.

Facts

Sheila Ann Trantham filed for Chapter 13 bankruptcy and proposed a plan that included a provision for the property of the estate to vest in her upon plan confirmation. The bankruptcy court, however, required adherence to the local form plan, which mandated that property vest only upon the entry of the final decree. Trantham’s plan was rejected by both the bankruptcy court and the district court, leading to her appeal.

Analysis

The Fourth Circuit first addressed the issue of standing, analyzing whether Trantham had the constitutional standing to appeal. The court found that Trantham suffered an injury in fact because the bankruptcy court’s requirement to adhere to the local form plan increased her procedural burdens and restricted her control over her property. Specifically, under the local form, her property remained encumbered by creditor claims and required court approval for certain actions, such as selling property, which resulted in tangible harms including the potential for increased costs and procedural delays. The court further held that Trantham was not required to meet the “person aggrieved” standard of prudential standing, as she was the party directly involved and affected by the bankruptcy court’s decision.

The court then focused on the debtor’s right to propose a Chapter 13 plan. The Fourth Circuit emphasized that the Bankruptcy Code grants debtors significant flexibility in designing their repayment plans, including the timing of when property vests in the debtor. The court criticized the bankruptcy court’s mandatory application of the local form’s vesting provision, arguing that it improperly constrained the debtor’s substantive right under the Bankruptcy Code to propose a plan. The court underscored that while local forms can promote efficiency, they must not abridge, modify, or enlarge the substantive rights provided by the Bankruptcy Code. The court ruled that Trantham’s plan, which called for vesting at confirmation, was permissible under the Code and should not have been rejected solely because it deviated from the local form’s default provision. The court concluded that the bankruptcy court’s decision to require adherence to the local form’s vesting schedule without considering the specifics of Trantham’s plan violated her rights under the Bankruptcy Code.

Conclusion

The Fourth Circuit reversed the district court’s ruling and remanded the case for further proceedings, instructing that Trantham’s plan should be assessed based on its compliance with the Bankruptcy Code, rather than on adherence to the local form’s default provisions.

NACBA and NCBRC submitted an amicus brief authored by Richard Cook, who also participated in the oral arguments. Additionally, NCBRC conducted a moot court session to prepare Appellant and Amici’s counsel for the oral arguments.

Trantham v. Tate 4th Cir Opinion rev dist court

Trantham Appellant’s Brief

Trantham Amici Brief – NACBA-NCBRC

Trantham Appellee’s Brief

Trantham Appellant’s Reply Brief

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The Fourth Circuit Examines Whether a Local Rule Can Mandate The Timing When Property Vests in Chapter 13 Cases

UPDATE: The Fourth Circuit has since decided this case. Click here to read our article discussing their ruling.

The Fourth Circuit is considering the issue whether a local bankruptcy rule can dictate the timing of vesting of estate property in chapter 13 cases.  This is an appeal from the United States District Court in Trantham v. Tate, 647 B.R. 139 (W.D.N.C. 2022).

The Bankruptcy Court for the Western District of North Carolina mandates the use of a local form chapter 13 plan.  This plan includes a provision that the property of the estate will not vest in the debtor until the final decree in the case.  The Debtor filed a plan that strikes through this language and included a nonstandard provision that property vests in the debtor upon confirmation.  The bankruptcy court sustained the trustee’s objection to this language and was affirmed by the district court.

The argument on appeal is that the determination of the date when property vests is controlled by the debtor pursuant to 11 U.S.C. § 1322(b)(9) which states “the plan may — provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.”  Since 1322(b) contains discretionary provisions for the debtor to choose from, a local rule that mandates the timing of vesting therefore modifies the debtor’s right to choose.  This is in violation of 28 U.S. Code § 2075 which states in pertinent part that “[s]uch rules shall not abridge, enlarge, or modify any substantive right.”

The District Court held “The Bankruptcy Court has determined that all chapter 13 plans should include the standard provision that property of the estate vests in the estate until the final decree is entered. An attempt to include a nonstandard provision in a plan filed in the Western District of North Carolina, that contradicts this standard provision, is inappropriate, and a plan that includes such a contradicting nonstandard provision cannot be confirmed.”  Trantham v. Tate, 647 B.R. 139, 145 (W.D.N.C. 2022).

NCBRC and NACBA submitted an amici curiae brief in support of the debtor.  The brief was written and submitted by NACBA member Richard P. Cook of Richard P. Cook, PLLC in Wilmington, North Carolina.  The Debtor/Appellant is represented by NACBA member Todd Mosley of the Mosley Law Firm, P.C. in Asheville, North Carolina.

The briefing, in this case, is complete and an order-setting oral argument is expected shortly.

Amici Curiae brief of NACBA and NCBRC

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Ex-Wife’s Interest in Home Not Property of Debtor’s Bankruptcy Estate

Under Colorado law,  spouses in dissolution proceedings own marital property as co-owners. Therefore the debtor’s ex-wife had a vested equitable interest in an up-front sum plus 50% of the proceeds from the sale of their marital residence as ordered by the divorce court, and that interest did not enter the debtor’s chapter 13 estate. Williams v. Goodman (In re Williams), No. 22-1067 (10th Cir. Dec. 13, 2022) (non-precedential).

The debtor and his wife, Ms. Williams, lived with their children in a home titled only in the debtor’s name. When they divorced, they agreed to sell the home. Ms. Williams was to receive $24,800 from the proceeds and the remaining proceeds were to be divided evenly between the two of them. Instead of selling the home, though, the debtor filed for Chapter 13 bankruptcy.

The debtor’s confirmed plan listed general unsecured creditors as “class four,” with their payments to be made on a pro-rata basis after all prior classes of debts were fully paid. Beyond describing class four claims as allowed and timely filed, the plan did not address any individual unsecured claims.

Ms. Williams filed an adversary complaint seeking a ruling that her interest in the house did not become part of the bankruptcy estate under section 541(a) and seeking an order of nondischargeability of other claims under section 523(a). The debtor filed counterclaims including a request for attorney’s fees under section 523(d). The bankruptcy court ruled in favor of Ms. Williams on the section 541(a) claim and against her on the section 523 claims. The court ruled against the debtor on his counterclaims. It failed to address his claim under section 523.

The debtor moved for reconsideration based on the court’s failure to address the attorney’s fee claim, and at the same time, appealed the court’s decision in favor of Ms. Williams to the Tenth Circuit BAP. The bankruptcy court denied the motion for reconsideration, expressly rejecting his section 523 claim for attorney’s fees at that time. The debtor did not amend his BAP appeal to include the reconsideration order.

In the meantime, the trustee asked the court what she should do with the distributions earmarked for Ms. Williams. If Ms. William’s interest in the house was determined on appeal to be estate property she would be entitled to her pro rata share of the distributions representing only a fraction of the claim. But if it was outside the estate, she would be entitled to the entire amount as ordered by the divorce court. The bankruptcy court ordered the trustee to retain Ms. Williams’ share in a separate trust to await a ruling by the BAP as to the legal question. The debtor appealed that order to the BAP.

In two separate orders, the BAP affirmed the orders of the bankruptcy court. It did not consider the debtor’s arguments related to the bankruptcy court’s order denying reconsideration because the debtor failed to file a notice of appeal of that order.

The debtor appealed both decisions to the Tenth Circuit and that court consolidated the appeals.

The court began with the debtor’s argument that the bankruptcy court’s distribution order contravened the terms of the confirmed plan. The court disagreed, finding that the provision in the plan and the confirmation order concerning class four claims was general in its applicability. The court held that where neither the plan nor the confirmation order addressed the timing of distributions or whether specific claims like Ms. Williams’ were allowed, “the confirmation order did not have preclusive effect regarding the allowance of that claim or the timing of distributions based on that claim.” Therefore, the trustee was not required to adhere to the plan’s treatment of her claim in the event her interest in the house was determined not to be part of the bankruptcy estate. The court also rejected the debtor’s argument that the trustee’s motion for an order of distribution was merely an untimely appeal of the confirmation order.

The court next affirmed the BAP’s refusal to address the debtor’s motion for reconsideration. The court found that when a judgment or order under appeal is amended or added to while the appeal is pending, the appellant must file a new appeal or amend the pending appeal to encompass the new judgment or order. The debtor failed to do so.

The court then turned to the issue of whether Ms. Williams’ equitable interest in the house was not part of the bankruptcy estate under section 541. Section 541(d) states, “[p]roperty in which the debtor holds . . . only legal title and not an equitable interest, . . . becomes property of the estate . . . only to the extent of the debtor’s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.”

Looking to state law to determine the nature of Ms. Williams’ property interest, the court reasoned that at the time of the bankruptcy petition, Ms. Williams “had a vested interest in the house protected by ‘an encumbrance of record,’ created via ‘filing the lis pendens.’” Based on this finding, the circuit court agreed that Ms. Williams had an equitable interest in the property valued at 50% plus $24,800, that the debtor did not hold. Therefore, that interest did not become part of the debtor’s estate.

In answer to the debtor’s argument that Ms. Williams’ interest was not in the home itself, but in a sum of money representing a divorce settlement, the court turned again to state law. Colorado law states that upon filing a dissolution of marriage, marital property “the wife has an interest in the marital property like a co-owner, rather than as a mere creditor of her husband,” and that interest vests automatically.

The court concluded that Ms. Williams’ equitable interest in the property did not enter the debtor’s bankruptcy estate and affirmed the decisions of the BAP.

Williams 10th Cir Dec 2022

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Creditor Estopped from Objecting to Amended Plan

A mortgage creditor who accepted the debtor’s plan could not late object to confirmation of an amended plan that contained the same terms with respect to that creditor. In re Ritter, No. 22-40120 (Bankr. S.D. Ill. Feb. 2, 2023).

The debtor filed a chapter 13 petition listing his mortgagee’s claim at $116,819.95. The debtor proposed a plan to pay the claim at 0% interest and $0 monthly payments. Within minutes of filing that plan, he filed a second “original” plan proposing to make monthly payments to the mortgagee in the amount of $1,200.00 for 60 months, to pay $43,000.00 in arrearages, and to make a Limbo payment of $2,400.00. The creditor, Shellpoint Mortgage, filed an objection to the first original plan but withdrew it three days later stating that the second original plan provided sufficient treatment of its claim. Shellpoint then filed a proof of claim listing the outstanding principle as $119,308.66 and the arrearage as $35,247.86. It later added to its claim $2,125.00, in fees, expenses, and charges. Neither the debtor nor the trustee objected to Shellpoint’s claim.

The trustee objected to various aspects of the second original plan and, in response, the debtor filed a first amended plan, which mooted those objections. The amended plan also changed the payments to Shellpoint to a monthly payment of $763.72, the Limbo payment of $1,527.44, the pre-petition delinquency as $35,247.86, and the post-petition fees of $2,125.00. Shellpoint did not object to the amended plan, and the trustee objected only with respect to certain discrepancies which the debtor corrected in a second amended plan. Shellpoint objected to that plan raising for the first time the argument that the debtor could not cure arrearages because the property had been sold in a pre-petition foreclosure sale, though that sale had not yet been confirmed by the state court.

The debtor filed a third amended plan to correct certain issues raised by the trustee but did not change its treatment of the Shellpoint’s claim. Shellpoint reasserted its objections as to the third amended plan.

The court found Shellpoint’s objections were barred by the judicial estoppel and by certain provisions of the Bankruptcy Code.

As to judicial estoppel, the court found Shellpoint’s objections were inconsistent with its statement with respect to the second original plan that the plan “provides sufficient treatment as to Creditor.” At that time, Shellpoint’s asserted bases for its objection were not that the property had been sold, but were that the mortgage would not mature during the course of the plan and that the arrearage amount to be cured under the plan was $35,247.86. When the debtor amended his plan to conform to Shellpoint’s position, Shellpoint did not object or withdraw its claim.

In reliance on Shellpoint’s stated position, the court allowed Shellpoint to withdraw its objections and the trustee made monthly payments to Shellpoint totaling more than $10,000. The court found that if Shellpoint prevailed on its objections and were permitted to retain the payments as requested, it would give Shellpoint an unfair advantage over other creditors and harm the debtor.

The court also found sections 1325 and 1323 precluded the result Shellpoint sought. Section 1325(a)(5)(A) provides that the court shall confirm a plan if each secured creditor has accepted it. The court found Shellpoint’s withdrawal of its objection constituted such acceptance. Under section 1323, once it accepted the plan, Shellpoint could not later object to an amended plan containing the same terms.

The court overruled Shellpoint’s objections and confirmed the debtor’s plan.

Ritter Bankr SD Ill Feb 2023

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Who Would Win in a Fight, Allowed Claim or Confirmed Plan?

The winner? Confirmed plan. Where the mortgagee had notice and opportunity to object to confirmation of the debtor’s Chapter 13 plan providing for mortgage arrears in the amount of approximately half the mortgagee’s allowed proof of claim, the mortgagee could not be heard, at the debtors’ successful completion of their plan, to complain that the debtors still owed pre-petition arrears. In re Edelstein, No. 17-11461 (Bankr. N.D. Ill. Nov. 7, 2022). [Read more…] about Who Would Win in a Fight, Allowed Claim or Confirmed Plan?

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Ovation Denied Keys to the Candy Store

A bankruptcy court rejected the tax lender’s challenge to the district’s Mandatory Form Chapter 13 Plan where it found the lender, whose claim would be fully paid through that plan, simply did “not want this Court’s oversight in approving claims for reimbursement for any post-petition expense charges.” In re Martin, No. 22-30148 (Bankr. S.D. Tex. Nov. 14, 2022). [Read more…] about Ovation Denied Keys to the Candy Store

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Pawn Contract Disavowing Bankruptcy Intent Is Enforceable

A pawn agreement requiring the borrower to affirm that she was not in bankruptcy and did not intend to file for bankruptcy was not unenforceable as against public policy because the agreement did not commit the borrower to an agreement not to file for bankruptcy at a later date. TitleMax v. Roby, No. 21-630 (M.D. Ala. Sept. 19, 2022). [Read more…] about Pawn Contract Disavowing Bankruptcy Intent Is Enforceable

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3% Change In Debtor’s Income Not Enough for Modification

The bankruptcy court abused its discretion when it granted the trustee’s motion to modify the debtor’s chapter 13 plan to capture the $300.00/month the debtor saved when he refinanced his home loan where the change in the debtor’s financial circumstances was not “substantial” as a matter of law. Martinez v. Gorman (In re Martinez), No. 21-1077 (E.D. Va. June 16, 2022). [Read more…] about 3% Change In Debtor’s Income Not Enough for Modification