In re Butcher, 11–10545 HRT.

• Decision Date: 20 September 2011
• Docket Number: No. 11–10545 HRT.,11–10545 HRT.
• Citation: 459 B.R. 115
• Parties: In re Charles Wesley BUTCHER and Whitney Simone Butcher, Debtors.
• Court: U.S. Bankruptcy Court — District of Colorado

459 B.R. 115

In re Charles Wesley BUTCHER and Whitney Simone Butcher, Debtors.

No. 11–10545 HRT.

United States Bankruptcy Court, D. Colorado.

Sept. 20, 2011.

Stephen E. Berken, Denver, CO, for Debtor.

ORDER DENYING PLAN CONFIRMATION

HOWARD R. TALLMAN, Chief Judge.

This case comes before the Court on Debtors' Chapter 13 Plan (docket # 2) (the “Plan”). The case presents the issue of whether the Court may deny confirmation of the Debtors' chapter 13 plan on account of their failure to propose a plan in accordance with the district's Local Rules. More specifically, the question before the Court is whether a debtor's plan is confirmable if it disregards Local Bankruptcy Rule 3015–1(b)(1) and strikes Section VIII of Local Bankruptcy Form 3015–1.1, which requires debtors to modify their plan post-confirmation to provide for timely filed priority and secured claims that were not filed or litigated at the time of plan confirmation. The Court must address the Debtors' claim that the Court has exceeded its rule-making authority and, as part of that analysis, the Court must also examine whether the Debtor's plan complies with the requirements of the Bankruptcy Code and applicable procedural rules.

I. BACKGROUND

At the initial confirmation hearing held on March 17, 2011, the Court discussed with Debtors' counsel the fact that Debtors' Plan is not in compliance with this district's Local Bankruptcy Rules (“L.B.R.” or “Local Rules”). The Debtor's Plan marks Section VIII of the district's form Chapter 13 Plan (“Form Plan”) ¹ as “not applicable.” Thus, it violates the district's rule that a debtor's proposed chapter 13 plan “must conform to L.B. Form 3015–1.1 ² and it may not be confirmed.”

To examine this question and more fully evaluate the Debtors' position, the Court scheduled a confirmation hearing for June 16, 2011. The Court gave the Debtors an opportunity to file a brief and to present oral argument.

Debtors make a number of arguments in support of their position that they may disregard the Court's L.B.R. 3015–1(b)(1):

1. The Court has exceeded its rule-making authority in violation of 28 U.S.C. § 2071 and Fed. R. Bankr.P. 9029.

Debtors object specifically to Section VIII of the Form Plan. That section commits a debtor to modify a confirmed plan if necessary to make payment under the plan consistent with timely filed allowed claims that are filed after confirmation of the debtor's plan. Debtors argue that Section VIII violates substantive rights granted to them by statute and exceeds the Court's rule-making authority.

2. The language in Section VIII violates 11 U.S.C. § 1329.

Section 1329 is the section of the Bankruptcy Code that provides for modification of a confirmed chapter 13 bankruptcy plan. Debtors argue that § 1329(a) allows only the debtor, the trustee or an unsecured creditor—but not the Court—to seek modification of a confirmed chapter 13 plan. Therefore, the Form Plan violates § 1329(a) because it is tantamount to the Court moving for a post-confirmation modification of the Debtors' confirmed plan.

3. The language in Section VIII violates the res judicata effect of a confirmed chapter 13 plan under 11 U.S.C. § 1327.

Debtors argue that the binding effect of a confirmed chapter 13 plan under § 1327(a) overrides the claim filing, objection and allowance process set out in §§ 501 and 502 and in the Federal Rules of Bankruptcy Procedure.

II. DISCUSSION

A. Controlling Statutes and Rules

The claim allowance and plan confirmation processes in chapter 13 practice implicate a number of different Bankruptcy Code sections and provisions of the Federal Rules of Bankruptcy Procedure (the “Rules”):

1. 11 U.S.C. § 1322. This section contains a list of provisions that must be contained in a chapter 13 plan ³. It also lists provisions that may appear in a chapter 13 plan.⁴ Among the key provisions that are relevant here are § 1322(b)(2), which prohibits a debtor from modifying the rights of a creditor who holds a security interest in the debtor's principal residence, and § 1322(e), which requires a plan proposing to cure a default to provide for payment of a cure amount determined under the underlying agreement and nonbankruptcy law.

2. 11 U.S.C. § 1324(b) requires chapter 13 confirmation hearings to be held between 20 and 45 days after the § 341 meeting date. It gives the Court discretion to hold the confirmation hearing sooner but not later. Those time frames were added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”).⁵ The apparent policy reflected in that amendment is to insure a speedy chapter 13 plan confirmation.⁶

3. 11 U.S.C. § 1325. This section contains the requirements for confirmation of a proposed chapter 13 plan. Among the other, more specific requirements, a chapter 13 plan must comply with the provisions of chapter 13 and with other applicable provisions of the Bankruptcy Code.⁷ In addition, the plan must have “been proposed in good faith and not by any means forbidden by law.” ⁸ The Supreme Court has stated that § 1325(a) places an independent duty on the court to “address and correct a defect in a debtor's proposed plan even if no creditor raises the issue.” ⁹

4. 11 U.S.C. § 1327(a) states that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.”

5. 11 U.S.C. § 1328 provides generally for discharge of “all debts provided for by the plan or disallowed under section 502....” A notable exception to discharge is a long-term debt provided for under § 1322(b)(5). Most real-property mortgages fall under this exception to discharge.

6. 11 U.S.C. § 502 provides that a claim filed by a creditor is presumed allowed unless the debtor or other party in interest objects to the claim and the Court sustains the objection. It also sets the standards for the Court's allowance or disallowance of a claim as to which an objection is filed.

7. Fed. R. Bankr.P. 3002(c) provides that a proof of claim is timely if filed within 90 days after the first date set for the § 341 meeting of creditors but that governmental entities are allowed up to 180 days from the date of the order for relief.

8. Fed. R. Bankr.P. 9006(c)(2) provides that “[t]he court may not reduce the time for taking action under Rule[ ] ... 3002(c)....”

9. Fed. R. Bankr.P. 3007 provides the procedure for filing objections to proofs of claim and for the adjudication of those objections.

B. Section VIII Language

Section VIII of the district's Form Plan is the language the Debtors find objectionable. It states as follows:

POST–CONFIRMATION MODIFICATION. The debtor must file and serve upon all parties in interest a modified plan which will provide for allowed priority and allowed secured claims which were not filed and/or liquidated at the time of confirmation. The value of property to satisfy 11 U.S.C. § 1325(a)(4) may be increased or reduced with the modification if appropriate. The modification will be filed no later than one year after the petition date. Failure of the debtor to file the modification may be grounds for dismissal.

As will be discussed in more detail, Section VIII gives effect to the time frames set out in Rule 3002(c) for the timely filing of proofs of claim; it gives effect to the presumption of validity accorded to timely filed claims by § 502; and it gives effect to the Bankruptcy Code's allocation of the burden of objecting to a timely filed and presumptively valid claim. It also serves the purpose of insuring that the secured claims of home mortgage creditors are not impermissibly modified in contravention of § 1322(b)(2) and that the cure amounts in the plan are in compliance with § 1322(e).

C. The Court's Duty Is to Read the Different Sections of the Bankruptcy Code in Harmony

Debtor's position is based upon arguing that Congress has created irreconcilable inconsistencies between various provisions of the Bankruptcy Code and the Rules. Debtors argue that, since the different provisions cannot work together as written, the Court must choose a set of provisions to which it must give priority. In the Debtors' view, the entire claim filing, objection and allowance process set out in § 501 et seq. of the Bankruptcy Code and in Rule 3001 et seq. must be jettisoned as unworkable in light of chapter 13's confirmation provisions and particularly, the res judicata effect of plan confirmation under § 1327. But, of course, neither the parties nor the courts are free to pick and choose which provisions of the Bankruptcy Code and the Rules to observe and which to ignore.

It is this Court's duty to construe different provisions of the Bankruptcy Code in harmony with one another and not in contradiction. It is a “basic canon of statutory construction that different provisions of the same statute normally should be construed consistently with one another.” ¹⁰ Even when a court is confronted with the original statute and later amendments, “the normal assumption is that where Congress amends only one section of a law, leaving another untouched, the two were designed to function as parts of an integrated whole. [The courts] should give each as full a play as possible.” ¹¹

The issue currently before the Court was brought to light by the amendments to the Bankruptcy Code contained in BAPCPA. But the issue was not created by BAPCPA. Prior to its enactment, a plan could be confirmed prior to the proof of claim deadlines. In this district, and perhaps in others, that simply happened infrequently because BAPCPA added a provision to the Bankruptcy Code that dictates a court may hold a confirmation hearing no earlier than 20 days after the § 341 creditors meeting but no later than 45 days after the creditors meeting.¹²

The Court finds no irreconcilable contradiction between a speedy chapter 13 plan confirmation and...