In re Barnes

• Decision Date: 17 March 2014
• Docket Number: No. 11–27724.,11–27724.
• Citation: 506 B.R. 777
• Parties: In re William R. BARNES, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

506 B.R. 777

In re William R. BARNES, Debtor.

No. 11–27724.

United States Bankruptcy Court, E.D. Wisconsin.

Signed March 17, 2014.

William A. Woodrow, Neenah, WI, for Debtor.

MEMORANDUM DECISION ON TRUSTEE'S OBJECTION TO CONFIRMATION

MARGARET DEE McGARITY, Bankruptcy Judge.

This matter came before the Court on the trustee's objection to confirmation of the debtor's modified plan on the grounds that it improperly shortened the applicable commitment period. The issue presented is whether a debtor, who had above-medium income at the time his chapter 13 petition was filed, may, post-confirmation, reduce the plan duration to a period less than 60 months without also providing for full repayment to unsecured creditors. The trustee and the debtor submitted briefs in support of their respective positions. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L), and the Court has jurisdiction under 28 U.S.C. § 1334. This decision constitutes the Court's findings of facts and conclusions of law pursuant to Fed. R. Bankr.P. 7052. For the reasons stated below, the objection to confirmation is overruled in part and sustained in part, without prejudice and subject to further proceedings.

BACKGROUND

William R. Barnes filed his chapter 13 petition on May 13, 2011. Because his income at filing exceeded the applicable median family income, he was required to propose a 60–month plan. His plan, which was confirmed on July 20, 2011, provided that he was to pay $1,285.00 per month for 60 months. The confirmed plan also proposed a 100% repayment to unsecured creditors. The debtor's income started to decrease as his working hours decreased shortly after the plan was confirmed. On October 14, 2011, the debtor filed a modified plan, reducing his payments to $450.00 bi-weekly, with a projected payment to unsecured creditors of 100%. That modified plan was confirmed on November 10, 2011. His income continued to decrease and the debtor requested, and received, a suspension of payments for two months from September 26, 2013, through November 25, 2013. Because his income continuedto fall to the point where he became a below-median income debtor, he filed the current motion to modify the plan on December 6, 2013. The current proposal reduces bi-weekly payments to $150.00 and reduces the total plan period to 38 months, with unsecured creditors receiving less than 100%.

ARGUMENTS

The trustee argues the requirements for confirmation set forth in 11 U.S.C. § 1325(b) apply to post-confirmation modifications and, therefore, the debtor may not amend his plan to provide for a duration of less than 60 months. See In re King, 439 B.R. 129 (Bankr.S.D.Ill.2010) (finding requirement that above-median income debtors either pay unsecured creditors in full or propose plans of 60 months' duration, was equally applicable to modified plans and prevented debtors from modifying plan postconfirmation to reduce 60–month payment term without paying unsecured claims in full). The debtor has not submitted any evidence that he cannot make payments for a period of 60 months at the reduced level proposed in the modified plan. Had Congress intended the applicable commitment period to have to application to modifications, it could have easily included it in section 1329(a) as one of the items that may be changed in a post-confirmation modification. Additionally, the reference to a maximum duration in section 1329(c) clearly indicates that the applicable commitment period does not change even if the plan is modified.

The debtor argues that the plain language of 11 U.S.C. § 1329(a)(2) permits the shortening of the length of a plan and that such a modification is not subject to the requirements of 11 U.S.C. § 1325(b). That section does not limit the extension or reduction of time for payments to only those debtors who were below-median income at the time of filing. Because section 1325(b) is not specifically enumerated in section 1329(b)(1), its requirements are inapplicable to post-confirmation plan modification and, therefore, debtors may shorten the duration of their confirmed plan at any time, regardless of whether unsecured creditors are paid in full. See, e.g., In re Tibbs, 478 B.R. 458 (Bankr.S.D.Fla.2012) (holding above-median income debtors could modify confirmed plan to provide for payment of remaining amounts owing under plan in single payment, with funds contributed by relatives, before applicable commitment period had run and without paying allowed unsecured claims in full).

DISCUSSION

Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, section 1329(c) did not permit a modification to extend payments beyond three years after the first payment under the original plan became due, unless the court, for cause, permitted a longer time not to exceed five years. BAPCPA replaced the three-year period with “applicable commitment period” as the required length of a plan during which the debtor must commit his projected disposable income to the payment of unsecured claims, if the chapter 13 trustee or an unsecured creditor objects to a plan that does not so provide. The applicable commitment period is three years for a below-median income debtor and five years for an above-median income debtor. 11 U.S.C. § 1325(b)(4). This brings us to the question in this case: If an above-median debtor's income decreases below the applicable median income following confirmation, can a modification shorten the original term of the plan to not less than three years?

Recognizing that a debtor's circumstances change over time, the Code permitsmodification of a plan as follows, in relevant part:

(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to—

(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;

(2) extend or reduce the time for such payments;

(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or

(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance....

(b)(1) Sections 1322(a), 1322(b), and 1323(c) of this title and the requirements of section 1325(a) of this title apply to any modification under subsection (a) of this section.

(2) The plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.

(c) A plan modified under this section may not provide for payments over a period that expires after the applicable commitment period under section 1325(b)(1)(B) after the time that the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court may not approve a period that expires after five years after such time.

11 U.S.C. § 1329.

There is a split of authority as to whether the disposable income test of section 1325(b) applies to a modification under section 1329. Under section 1325(b)(2) disposable income is based on the debtors “current monthly income,” defined in section 101(10A) and based on the six month period before filing. It cannot change over time no matter how the debtor's circumstances change after that six month pre-filing period, and this number determines the applicable commitment period under section 1325(b)(4). If the trustee or an unsecured creditor objects, a plan cannot be confirmed unless its term is at least the applicable commitment period, which in this case was five years for this above-median income debtor. Thus, his initial plan was confirmed and was scheduled to complete in five years.

A loss of income intervened after confirmation and before the five years had elapsed, and the debtor turned to modification under section 1329. By its terms, section 1329(b)(1) does not expressly incorporate section 1325(b). Section 1329(a)(2) apparently permits debtors to reduce the duration of their confirmed plan, subject to the requirements of section 1325(a). Section 1325(b)—the “applicable commitment period” requirement—is not listed in the specific sections applicable to a modified plan under section 1329, namely sections 1322(a), 1322(b), 1323(c), and the requirements of 1325(a). Nevertheless, section 1325(a), in turn, provides that “except as provided in subsection (b), the court shall confirm a plan if” the requirements of section 1325(a) are satisfied. The interpretation of this last section is the only requirement now at issue.

Here is where the intricate and delicate dance of statutory interpretation plays out, with courts allowing and not allowing shortening of a plan at modification, all invoking the “plain meaning” of the interplay among the various provisions of chapter 13. Generally, courts holding that shortening the term is not allowed have looked to the language of section 1325(a), a provision that is expressly incorporated into section 1329, which states “[e]xcept as provided in subsection (b), the court shall confirm a plan.” 11 U.S.C. § 1325(a). These courts have determined that this language implicitly incorporates the disposable income test of section 1325(b)(1)(B) into the modification provisions of section 1329. See, e.g., In re Heideker, 455 B.R. 263 (Bankr.M.D.Fla.2011) (holding requirement that debtors must either pay their unsecured creditors in full or propose plans that extend for entire term of their applicable commitment periods, were equally applicable to modified plans); In re King, 439 B.R. 129 (Bankr.S.D.Ill.2010) (finding above-median income debtors were prevented from modifying plan post-confirmation to reduce 60–month payment term without paying unsecured claims in full); In re Heyward, 386 B.R. 919 (Bankr.S.D.Ga.2008) (finding “applicable commitment period” is temporal...