by In Conte v. Hill, No. 24-10264, the U.S. Court of Appeals for the Eleventh Circuit affirmed a bankruptcy court’s order denying a Chapter 13 trustee’s motion to modify two confirmed plans to require turnover of post-confirmation personal injury settlement proceeds. The injuries in both cases occurred post-petition. The Eleventh Circuit affirmed that plan modification remains a discretionary determination for the bankruptcy court.
The Case Below
In each of the consolidated cases, the debtor received modest personal injury settlements—$7,685 in Proffitt and $19,685 in Hill/Boutwell—after their Chapter 13 plans had been confirmed. Chapter 13 Trustee Christopher Conte moved to modify the confirmed plans under 11 U.S.C. § 1329(a), seeking to require the debtors to turn over the settlement proceeds to increase payments to unsecured creditors.
After an evidentiary hearing, the bankruptcy court found that both debtors were contributing all their disposable income to the plan and that the insurance proceeds were needed to meet immediate family needs, including vehicle replacement and medical-related expenses. The court denied the motions to modify, finding that (1) the Bankruptcy Code did not require the court to modify the debtors’ bankruptcy plans to account for the post-petition personal-injury net settlement proceeds, and 2) the settlement proceeds did not increase the debtors’ ability to pay their unsecured creditors’ claims. Thus, the bankruptcy court found “no legitimate reason for the modification requested by the trustee” and denied the motions, invoking its discretionary authority.
The district court affirmed, and the trustee appealed to the Eleventh Circuit.
Appellant Trustee’s Position
Trustee Conte argued that the receipt of post-confirmation personal injury proceeds increased the debtors’ ability to pay and triggered a mandatory obligation to increase payments to unsecured creditors. Among several other arguments, the trustee alleged the following errors.
- The bankruptcy court erred in concluding that non-exempt settlement proceeds received from post-petition personal injury claims are not “income” within the meaning of “disposable income” under Code § 1325(b).
- The bankruptcy court erred in concluding that the settlement proceeds were not “new assets” that increased the Debtors’ ability to pay because the Debtors gave “consideration” for the post-petition personal injury settlement proceeds in the form of their injury, pain, and suffering.
Debtors’ Position
The debtors argued that modification is discretionary under § 1329 and that the trustee had not demonstrated a sufficient change in financial condition warranting increased payments. The debtors in these cases were represented by NACBA member Lacy S. Robertson of Padgett & Robertson in Mobile, Alabama.
They emphasized that:
- Under § 1329 the court is not required to approve a plan modification even where both the disposable income and liquidation tests can only be met by payment of settlement proceeds to the unsecured creditors as an additional payment.
- The settlement proceeds are not income, but are assets, and therefore § 1325(b) does not apply.
- The Bankruptcy Code does not mandate that § 1325(b)’s means test or § 1325(a)(4)’s liquidation test be reapplied at modification.
- The bankruptcy court is not required to allow a modification under § 1329 and may use its discretion.
NCBRC and NACBA Position
In their amici brief, NCBRC and NACBA urged the Eleventh Circuit to affirm the district and bankruptcy courts and to reject the trustee’s attempt to impose mandatory reapplication of confirmation tests at modification. The amicus brief was filed by NCBRC and NACBA and prepared by Thomas Moers Mayer of HSF Kramer LLP. Tom also participated in the oral argument.
The amici argued that:
- The Chapter 13 plan may be modified based on an increase or decrease in ability to pay as determined in the discretion of the bankruptcy court.
- Section 1325(a)(4) does not reset the liquidation value at modification.
- Section 1325(b) does not apply to plan modifications.
- The bankruptcy court had discretion to deny modification under § 1329.
- The trustee did not carry his burden of proof in connection with the motions to modify the chapter 13 plans.
Outcome
The Eleventh Circuit affirmed. The court side-stepped the issue of whether § 1329 mandates that either the best interests of creditors test or the means test be reapplied at plan modification. Instead, it found that the bankruptcy court did not abuse its discretion in denying the trustee’s motions because the settlement proceeds did not increase the debtors’ ability to pay their unsecured creditors in a way sufficient to justify approval of the trustee’s proposed modification.
“The trustee disagrees and asserts that the bankruptcy court erred in its judgment because the settlement proceeds increased the debtors’ ability to pay their unsecured creditors. We have explained, however, that while “an unforeseen change in circumstances is a good reason to permit a modification that … satisfies § 1329,” modification is not required: “[n]othing prevents a bankruptcy court from refusing to confirm a modified plan put before it.” Guillen, 972 F.3d at 1229 (emphasis added).”
The decision preserves a flexible, debtor-protective approach to post-confirmation modifications and underscores the discretion of bankruptcy courts to evaluate proposed changes holistically under § 1329.
Briefs and Opinion