In re Profit, BAP No. NV-01-1526-MaNRy.

• Decision Date: 17 September 2002
• Docket Number: BAP No. NV-01-1526-MaNRy.,Bankruptcy No. 96-30871.
• Parties: In re Andrew M. PROFIT; Marilyn Profit, Debtors. Andrew M. Profit; Marilyn Profit, Appellants, v. Anabelle Savage, Chapter 13 Trustee, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

283 B.R. 567

In re Andrew M. PROFIT; Marilyn Profit, Debtors.

Andrew M. Profit; Marilyn Profit, Appellants, v. Anabelle Savage, Chapter 13 Trustee, Appellee.

BAP No. NV-01-1526-MaNRy.

Bankruptcy No. 96-30871.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on July 25, 2002.

Filed September 17, 2002.

COPYRIGHT MATERIAL OMITTED

Christopher P. Burke, Reno, NV, for Andrew and Marilyn Profit.

Michael Lehners, Reno, NV, for Anabelle Savage, Ch. 13 Trustee.

Before MARLAR, NAUGLE¹ and RYAN, Bankruptcy Judges.

OPINION

MARLAR, Bankruptcy Judge.

INTRODUCTION

After the chapter 13² trustee ("Trustee") learned that Andrew and Marilyn Profit ("Debtors") had acquired, postconfirmation, potentially nonexempt residential real property, she filed a motion to compel them to amend their schedules and modify their confirmed plan to pay 100% of all allowed unsecured claims. The motion was filed in the plan's 54th month. The motion contained neither new plan provisions nor a method for recouping the asset's cash value, which had been transmuted into another alleged homestead.³

Notwithstanding these problems, the bankruptcy court granted Trustee's motion and issued its order after the 60-month plan duration had expired and all payments had been completed. Its decision was published at In re Profit, 269 B.R. 51 (Bankr.D.Nev.2001).

We conclude that plan modification contravened the requirements of §§ 1322(a) and 1329(c), which require certain plan content and prohibit a modified plan from exceeding 60 months in duration, and we REVERSE. Debtors are entitled to a discharge.

FACTS

The Chapter 13 Plan

Debtors filed a chapter 13 petition on May 9, 1996. They claimed a $125,000 homestead exemption in their Reno, Nevada home.

On May 16, 1996, Debtors filed a proposed 60-month plan in which they agreed to make a total of $26,000 in monthly plan payments. Debtors estimated the liquidation value of their bankruptcy estate as $4,000. The unsecured creditors, with listed debts totaling about $84,500, would receive approximately 4% of their allowed claims under chapter 7 liquidation. Thus, the plan amount exceeded the liquidation value, thereby meeting the "best interests of creditors" test, encoded in § 1325(a)(4).⁴

The chapter 13 plan was confirmed on October 22, 1996. The confirmation order provided that Debtors were to turn over their tax refunds to Trustee, in addition to making the disposable income plan payments.

Postconfirmation Events

From August, 1998 to July, 1999, Debtors lived in Palm Springs, California, where Mr. Profit worked for Mr. Gene Whitworth ("Whitworth"). Whitworth owned a house through a trust, which he controlled. Debtors lived in that house and were purchasing it by making payments to the trust pursuant to a personal note. Debtors neither sought nor obtained the bankruptcy court's approval to incur such debt.

When Whitworth died, his estate forgave Debtors' $150,000 indebtedness and transferred title of the house to them in October, 1999.⁵ However, Debtors neither amended their bankruptcy schedules, nor did they, at that time, inform Trustee about the debt forgiveness or the Palm Springs house.

Debtors then sold the Palm Springs house in June, 2000, for about $168,000, and moved to North Carolina where, in August, 2000, they used some of the sale proceeds (the "Proceeds") to purchase another house. Debtors also used some of the Proceeds to pay off their chapter 13 plan payments. On October 9, 2000, Debtors' attorney finally informed Trustee of the Proceeds in a letter, which stated, in pertinent part: "[T]he Debtors are requesting a payoff amount on their Chapter 13 Bankruptcy. They would like to pay the bankruptcy off with some inheritance money⁶ they have received." (Letter from Kimberly Wilson, October 9, 2000.)

Trustee took no immediate action, other than accepting Debtors' lump sum plan payment in the amount of $8,850 on November 16, 2000. The projected plan payments of $26,000 were thereby completed, except that Debtors had not turned over an income tax refund for 1998.⁷

The Motion to Modify

On December 13, 2000, in the 54th month of the chapter 13 plan, Trustee filed a motion to modify the plan and to compel Debtors to amend their schedules to include the value of the debt forgiveness, which they had acquired postpetition. Trustee also alleged that Debtors received a tax refund for 1998, which had not been turned over.

Trustee did not include new plan provisions with the motion, but merely stated that the purpose of the modification was to enable the unsecured creditors to receive the value of the acquired asset.

Debtors objected to the motion to modify, asserting, among many arguments, that the motion was untimely, as plan payments had been completed, and that the outstanding tax refund was not a plan payment. They also argued that the debt forgiveness, represented by the Proceeds, was not property of the estate, but that if it was property of the estate, it was non-disposable income, which was not required in order to fulfill the plan. They also argued that the Proceeds, traced to the North Carolina property, were exempt under either Nevada or federal law.

On January 19, 2001, Debtors remitted the 1998 tax refund, which Trustee accepted without reservation. Debtors also amended their schedules to reflect their interest in the North Carolina property, in the amount of $140,000, and concurrently declared a $125,000 homestead exemption under Nevada law, but apparently they did not clarify the record by releasing their homestead exemption in the Reno house. Trustee objected to the claimed exemption, and separate proceedings were pending on that matter.

Following several hearings, the bankruptcy court entered its order on October 9, 2001.⁸ Among the court's relevant findings and conclusions was its determination that the motion to modify was timely because all payments, including the tax refund, had not been made at the time the motion was filed. The court also determined that the "forgiveness of debt, as represented by the [Proceeds] of the Palm Springs property," was non-income property of the estate, which must be considered when confirming the modified plan. Profit, 269 B.R. at 59. Therefore, the court determined that § 1329(b)(1) required the application of the "best interests of creditors" test to be applied as of the effective date of plan modification. Under that test, the liquidation value of the estate, including the Proceeds, exceeded the amount of scheduled payments under the original plan. Therefore, the court concluded that, unless the Proceeds were exempt property, they must be turned over to Trustee for distribution to the unsecured creditors.

The court "conditionally granted" the motion to modify, subject to resolution of the objection to the claimed exemption in a future proceeding. Id. at 59.

Debtors timely appealed the court's order, and the BAP motions panel then granted Debtors' motion for leave to appeal.

ISSUES

1. Whether leave to appeal this interlocutory order is appropriate.

2. Whether Trustee's motion to modify the chapter 13 plan was timely filed before all plan payments had been completed, pursuant to § 1329(a).

3. Whether the motion to modify failed to comply with the requirements for plan contents and duration, pursuant to §§ 1322(a) and 1329(c), thereby rendering the remaining substantive issues moot.

4. Whether the Proceeds were distributable property of the chapter 13 bankruptcy estate.

5. Whether the "best interests of creditors" test of a modified plan was correctly calculated at the time of plan modification, rather than as of the effective date of the original plan.

STANDARDS OF REVIEW

We review findings of fact for clear error and conclusions of law de novo. United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108, 1110 (9th Cir.1998). Chapter 13 plan confirmation issues requiring only statutory interpretation are reviewed de novo. Moen v. Hull (In re Hull), 251 B.R. 726, 730 (9th Cir. BAP 2000).

The confirmation of a modified plan is reviewed for an abuse of discretion. Max Recovery, Inc. v. Than (In re Than), 215 B.R. 430, 433 (9th Cir. BAP 1997). Under this standard, we will not reverse unless we have a definite and firm conviction that the court committed a clear error of judgment in the conclusion it reached upon weighing the relevant factors. Id.

DISCUSSION

A. Our Jurisdiction

We determine, sua sponte, our proper jurisdiction. Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 126 n. 1, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995). A final order is necessary to establish appellate jurisdiction. 28 U.S.C. § 158(d). Ordinarily, a chapter 13 plan confirmation order, whether or not a modification, is a final order. See Than, 215 B.R. at 435; 11 U.S.C. § 1327(a).

"A disposition is final if it contains `a complete act of adjudication,' that is, a full adjudication of the issues at bar, and clearly evidences the judge's intention that it be the court's final act in the matter." Slimick v. Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir.1990) (citations omitted) (emphasis in original).

In approving plan modification, the bankruptcy court determined that the Proceeds were property of the estate and also applied the "best interest of creditors" test under § 1325(a)(4). However, the Proceeds had already been reinvested in real property in North Carolina, and the Debtors then claimed a homestead exemption in that property. Trustee's objection to this exemption claim was pending at the time of these proceedings. Thus, the bankruptcy court approved the plan modification on the condition that the Proceeds/real property would be determined to be nonexempt property.

The exemption issue was material to the § 1325(a)(4) analysis. See McDonald v. Burgie (In re Burgie), 239 B.R. 406, 411 n. 8 (9th Cir. BAP 1999) (stating that exempt property is not included in the § 1325(a)(4) calculation). The bankruptcy court...