National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

§ 1325 – Confirmation of plan

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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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9th Circuit to Address Whether a Debtor May Deduct Voluntary Retirement Deductions to Determine Disposable Income

The Ninth Circuit Court of Appeals has agreed to hear an appeal whether the bankruptcy court erred in ruling that a Chapter 13 debtor, in calculating projected disposable income, is not permitted to deduct the amount of voluntary retirement plan contributions even where the debtor was making the contributions prepetition. The debtor’s appeal from adverse decisions below.

APPELLANTS OPENING BRIEF

BRIEF OF AMICI CURIAE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS AND NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER

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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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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