In Matter of Johnson, 07-10937.

• Decision Date: 04 March 2009
• Docket Number: No. 07-10937.,07-10937.
• Citation: 402 B.R. 851
• Parties: In the Matter of David Allen JOHNSON, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

402 B.R. 851

In the Matter of David Allen JOHNSON, Debtor.

No. 07-10937.

United States Bankruptcy Court, N.D. Indiana, Fort Wayne Division.

March 4, 2009.

Daniel J. Skekloff, Scot T. Skekloff, Sarah Mustard Heil, Skekloff, Adelsperger & Kleven, LLP, Fort Wayne, IN, for Debtors.

Ellen L. Triebold, Office of the U.S. Trustee, South Bend, IN, for U.S. Trustee.

DECISION

ROBERT E. GRANT, Bankruptcy Judge.

The bankruptcy reforms of 2005 changed many things. Some of those changes make an individual debtor's Chapter 11 case look a lot more like Chapter 13. Property of the estate is not limited to the debtor's interests in property as of the date of the petition. 11 U.S.C. § 541. It now includes property the debtor acquires after the commencement of the case and the debtor's post-petition earnings. Compare, 11 U.S.C. § 1115 with 11 U.S.C. § 1306. To the extent necessary, the debtor's post-petition earnings and future income must be used to fund a plan. Compare, 11 U.S.C. § 1123(a)(8) with 11 U.S.C. § 1322(a)(1). An individual debtor's plan does not need to satisfy the absolute priority rule, 11 U.S.C. 1129(b)(2)(B), and, even though unsecured creditors will not be paid in full, can be confirmed over their objection so long as the plan satisfies the disposable income test of § 1325(b)(2). 11 U.S.C. § 1129(a)(15). Substantial consummation is no longer a bar to the modification of a confirmed plan. 11 U.S.C. § 1127(b). Instead, an individual debtor's plan can be modified any time prior to the completion of payments and modification may be sought, not just by the plan proponent and the reorganized debtor, id., but by the debtor, the trustee, the United States Trustee, or an unsecured creditor. Compare, 11 U.S.C. § 1127(e) with 11 U.S.C. § 1329(a). Finally, unless the court orders otherwise, the individual debtor does not receive a discharge upon confirmation but must wait until all payments under the plan have been completed. Compare, 11 U.S.C. § 1141(d)(5) with 11 U.S.C. § 1328(a). These similarities have led one commentator to suggest that "individual Chapter 11 cases can now be characterized as `big Chapter 13' cases...." Robert J. Landry, III, Individual Chapter 11 Reorganizations: Big Problems with the New "Big" Chapter 13, 29 U. ARK. LITTLE ROCK L.REV. 251, 252 (2006-07).

Despite the similarities, some things were not changed and potentially significant differences remain. For example, unlike Chapter 13, in the Chapter 11 case there is no automatically appointed trustee to oversee the debtor's plan or to receive and distribute payments to creditors, see, 11 U.S.C §§ 1302(a), 1326. The duration of the Chapter 11 debtor's plan is not limited to a maximum period of five years. 11 U.S.C. §§ 1322(d), 1329(c). Perhaps because of the lack of any time limit, there is nothing in Chapter 11 that is similar to the provisions of Chapter 13 which permit payments to be made to some creditors after the date of the final plan payment or an exception to the debtor's discharge to accommodate such ongoing payments. See, 11 U.S.C. §§ 1322(b)(5), 1328, 1141(d)(5). Other provisions of the law which were not changed and which remain the same for all Chapter 11 debtors include the definition of substantial consummation, 11 U.S.C. § 1101(2), the time when the case may be closed, 11 U.S.C. § 350(a), and the obligation to pay quarterly fees to the United States Trustee so long as the case remains open. 28 U.S.C. § 1930(a)(6).

In this Chapter 11 case, the court must consider some of the changes introduced by the 2005 reforms and some of what remained the same. The particular question before it involves closing an individual debtor's Chapter 11 case, subject to reopening, before the debtor has completed the payments called for by the confirmed plan and before the debtor has received a discharge. Doing so is apparently routine in the Eastern District of North Carolina, see, In re Sheridan, 391 B.R. 287, 290 n. 2 (Bankr.E.D.N.C.2008), but here in the Northern District of Indiana the possibility has drawn strenuous objections from the U.S. Trustee.

The debtor is a physician. Under the terms of the confirmed plan, his creditors are to be paid out of future income over a period of five years. Precisely how much unsecured creditors will be paid is not known.¹ The payments to them are based upon a formula that begins with the debtor's post confirmation income and then subtracts various expenses, the plan payments to secured and priority creditors, and any expenses of administration, such as the U.S. Trustee's ongoing quarterly fees. In his amended disclosure statement the debtor projected that, over the five year life of the plan, approximately $70,030, exclusive of bonuses, would be available to pay creditors and the expenses of administration. Payments to secured and priority creditors were projected to total $18,778.81, leaving an anticipated $51,251.19 to pay unsecured creditors and the U.S. Trustee.² See, Amended Disclosure Statement, filed Sept. 19, 2007, pgs. 7-9.

The debtor's proposed plan, as modified, was confirmed and, since confirmation, has been substantially consummated. See, 11 U.S.C. § 1101(2) (defining "substantial consummation"). Furthermore, any issues concerning claims have been resolved, so the only thing that remains to be done is for the debtor to successfully perform his plan and receive a discharge. The debtor has filed a motion asking the court to close the case now, subject to being reopened after the plan payments have been completed so that a discharge might be entered. See, 11 U.S.C. 350(b) ("A case may be reopened ... to administer assets, to accord relief to the debtor, or for other cause."). The reason for doing so is to minimize the debtor's expenses by eliminating the ongoing quarterly fees that must be paid to the U.S. Trustee and, since those expenses are among those which are subtracted from the debtor's income to calculate the payments due creditors, make a corresponding increase in the distribution to creditors. The only objection to the motion, following notice to all creditors, came from the U.S. Trustee and the matter is before the court, following a hearing and the submission of briefs, to consider the issues raised by the debtor's motion to close and the U.S. Trustee's objections thereto.

To a great extent the foundation of the parties' respective arguments rests on either what was changed by the 2005 reforms or what was not. The debtor focuses largely upon what has apparently remained the same and things which were not changed by that legislation: the long-standing policy of closing Chapter 11 cases soon after confirmation, the language of § 350(a) concerning when cases are to be closed, 11 U.S.C. § 350(a), and Bankruptcy Rule 3022 which helps to implement that statute in Chapter 11 cases. The U.S. Trustee, on the other hand, focuses largely upon what was changed in 2005. The essence of its argument is that Congress sought to make an individual debtor's Chapter 11 case more like Chapter 13 and so, like Chapter 13, the case should remain open until all the plan payments have been completed and the debtor receives a discharge. It also argues that avoiding the U.S. Trustee's quarterly fees is not a sufficient reason to close the case prior to the debtor completing the plan payments, and that doing so will make it more difficult for creditors to monitor the debtor's activities and to take advantage of their opportunity to seek post confirmation modification of the plan, 11 U.S.C. § 1127(e), or, should the debtor fail to perform the plan, conversion or dismissal. 11 U.S.C. § 1112(b)(4)(N).

There is truth in what both sides have to say. The courts do have a long-standing policy of closing Chapter 11 cases soon after confirmation, particularly where the debtor is reorganized rather than liquidated, generally around the time when the only thing that remains to be done is for the reorganized debtor to make the payments called for by the plan. See e.g., In re Jay Bee Enterprises, Inc., 207 B.R. 536 (Bankr.E.D.Ky.1997); In re Indian Creek Ltd. Partnership, 205 B.R. 609 (Bankr. D.Ariz.1997); In re Jordan Mfg. Co., Inc., 138 B.R. 30 (Bankr.C.D.Ill.1992); In re Mold Makers, Inc., 124 B.R. 766 (Bankr. N.D.Ill.1990). At the same time, however, where the debtor is an individual Congress did insert many elements of Chapter 13 into Chapter 11. In light of these changes, particularly the delayed discharge and the open-ended opportunity for modifying a confirmed plan, the court is not prepared to say that the pre-BAPCPA policy of closing Chapter 11 cases soon after confirmation remains completely intact for individual debtors. Nonetheless, the similarities in the two chapters do not make them identical and there continue to be important differences between them: differences which counsel against adopting the U.S. Trustee's position that cases should remain open until the plan payments have been completed.

The primary weakness in the U.S. Trustee's position is the potentially unlimited duration of an individual debtor's Chapter 11 plan. Although this debtor's plan will only last for five years, and some plans may be completed in a matter of months, see, In re Ball, 2008 WL 2223865 (Bankr.W.D.W.Va.2008), it is easy to imagine a Chapter 11 plan that could last for decades. All it would take for that to happen is for a debtor to have a 20 to 30 year home mortgage (something that is not at all unusual) and for the confirmed plan to provide that the mortgage debt will be paid according to its terms. While the provisions of Chapter 13 easily accommodate such long term obligations, see, 11 U.S.C. §§ 1322(b)(5), 1329(c), the provisions of Chapter 11 do not. In Chapter 11 the payments under such a plan would not be completed, and the debtor would not be entitled to a discharge, until the mortgage debt was fully satisfied — 20 to 30 years hence. The court finds it difficult to believe that Congress would prohibit ...