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.
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.
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.
Sorry, Can’t Confirm Plan If You’re Dead
A debtor who has shuffled off this mortal coil cannot confirm a chapter 13 plan where he has no ability to fund it with future income and no need for the fresh start offered by bankruptcy discharge. In re Carrasco, No. 21-51420 (Bankr. W.D. Tex. July 19, 2022).
In this case, the debtor died after the meeting of the creditors, but before his proposed chapter 13 plan had been confirmed. The debtor’s counsel lobbied to substitute the debtor’s son to confirm the plan notwithstanding the fact that the debtor himself had ridden the carriage into immortality. The trustee objected to confirmation. [Read more…] about Sorry, Can’t Confirm Plan If You’re Dead
Creditor Could Not Object to Modification that Did Not Change Treatment of its Loan
A creditor that fails to object to treatment of its loan in the debtor’s proposed chapter 13 plan cannot object to modification of that plan where the modification did not change treatment of its loan. In re Powell, No. 21-3069 (Bankr. D.S.C May 16, 2022). [Read more…] about Creditor Could Not Object to Modification that Did Not Change Treatment of its Loan
Provision for Balloon Payment after Sale Precludes Confirmation
In a consolidated opinion, the Bankruptcy Court for the District of Massachusetts held that the “equal payment provision of § 1325(a)(5)(B)(iii) is best read to prohibit confirmation of a sale plan, over the objection of a secured creditor holding a mortgage of a principal residence, that contemplates periodic payments followed by a lump-sum payment.” In re Materne, No. 20-40027, and In re Gnaman, No. 19-40930 (Bankr. D. Mass. April 7, 2022). [Read more…] about Provision for Balloon Payment after Sale Precludes Confirmation
Mortgage May Be Bifurcated Under Section 1322(c)
The Bankruptcy Court for the Eastern District of Wisconsin joined the majority of courts in finding that section 1322(c)(2) “authorizes modification of a principal residence loan through bifurcation, when the last payment on the original payment schedule is due before the final plan payment is due.” In re Harris, No. 21-26280 (Bankr. E.D. Wisc. March 16, 2022).
The debtor filed her chapter 13 petition shortly after the final balloon payment was due on her home mortgage. At the time of her petition, she owed $78,009.00 on the mortgage and she valued the residence at $45,000.00. In her plan, she proposed to bifurcate the claim and pay the entire secured portion and none of the unsecured portion. The mortgage creditor objected to confirmation on three grounds only one of which was addressed in this order. That issue was whether section 1322(b)(2) precluded the debtor from modifying the treatment of the mortgage beyond altering the terms of the repayment schedule. [Read more…] about Mortgage May Be Bifurcated Under Section 1322(c)
Debtor’s Post-Discharge Pre-Closure Motion to Convert Denied
The debtor was not permitted to convert from chapter 7 to chapter 13 post-discharge but prior to administrative closure of his case where the court found the attempted conversion to be an abuse of process and his conduct in his chapter 7 case to indicate bad faith. In re Chamoun, No. 20-5069 (C.D. Cal. Dec. 2, 2020). [Read more…] about Debtor’s Post-Discharge Pre-Closure Motion to Convert Denied