In re Nachon-Torres

• Decision Date: 21 November 2014
• Docket Number: CASE NO: 09–30391–BKC–LMI, CASE NO: 10–25816–BKC–LMI,CASE NO: 11–36161–BKC–LMI, CASE NO: 12–23696–BKC–LMI
• Citation: 520 B.R. 306
• Parties: In re: Priscilla Nachon–Torres, Debtor. In re: Liliana Martinez, Debtor. In re: Christopher O. Garcia and Tina Garcia, Debtors. In re: Luis Daniel Luyando, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

520 B.R. 306

In re: Priscilla Nachon–Torres, Debtor. In re: Liliana Martinez, Debtor. In re: Christopher O. Garcia and Tina Garcia, Debtors. In re: Luis Daniel Luyando, Debtor.

CASE NO: 11–36161–BKC–LMI

CASE NO: 12–23696–BKC–LMI

CASE NO: 09–30391–BKC–LMI

CASE NO: 10–25816–BKC–LMI

United States Bankruptcy Court, S.D. Florida.

Signed November 21, 2014

Filed November 24, 2014

Michael A. Frank, Esq., Miami, FL, for Debtor.

MEMORANDUM OPINION REGARDING MODIFICATION OF CHAPTER 13 PLANS

Laurel M. Isicoff, Judge, United States Bankruptcy Court

The four cases to which this opinion applies¹ have required me to directly address a question that has been on the periphery of several of my prior rulings—is there a non-statutory threshold for seeking modification of a chapter 13 plan? The resolution of this issue will provide a framework for the issues I must consider in these four cases.

a) Is the chapter 7 test calculated from the original petition date or the modification date?

b) What is the consequence, if any, of the appreciation in, or depreciation in, value of an asset from the original petition date to the modification date?

c) What is the consequence of a debtor's abandonment of an asset during the plan period?

THE DEBTORS

Priscilla Nachon–Torres

Ms. Nachon–Torres filed her chapter 13 bankruptcy case on Sept. 22, 2011. She listed the value of her 2006 Hummer H2 on her schedules at $25,000. On June 25, 2013 Ms. Nachon–Torres filed a Motion to Modify.² She stated she could no longer afford her plan payments, but because she had made a mistake when she valued her car, the chapter 7 test could be recalculated to a lower amount, reflecting the vehicle's lower value, and she could then pay the recalculated, lower, payments. Ms. Nachon–Torres alleged the car was worth only $14,000 on the petition date (she realized this amount as the trade-in value for a new car). The chapter 13 Trustee objected,³ arguing first that the motion to modify was filed in bad faith because the change in circumstances (the mistaken car valuation) was neither substantial nor unanticipated. Second, the Trustee asserted that it was inappropriate for Ms. Nachon–Torres to change a value after the fact, especially where, by trading in the car, she deprived the Trustee of the ability to challenge the valuation. Finally, the Trustee argued, the chapter 7 test, even when a plan is modified, must be as of the original plan date, not the date of the modified plan.

Liliana Martinez

When Ms. Martinez filed bankruptcy she owned an interest in a time share, which she decided to keep. The chapter 7 test included a $1,000 value attributable to the timeshare, the value of which the chapter 13 Trustee did not dispute. Ms. Martinez filed a bankruptcy plan with an applicable commitment period of forty-four months. Her Second Amended Plan was confirmed on December 31, 2012.⁴ That Plan provided that unsecured creditors would receive payments of $56.00 in months 1–36 of the plan, and $111.36 in months 37–44 of the plan. Later Ms. Martinez determined that she couldn't afford the timeshare, and, because the timeshare value was “of little consequence”, the timeshare should be abandoned. Her Motion to Abandon⁵ was granted, without objection, on August 15, 2013.⁶ Ms. Martinez then moved to modify her plan, seeking to recalculate the chapter 7 test as of the modification date (this time omitting any value attributable to the time share), and, due to the reduced chapter 7 test calculation, proposing to eliminate the payments due to unsecured creditors in months 37–44 of the plan—thereby completing her plan in 36 months rather than 44 months.

The Trustee objected on several grounds—first, that had Ms. Martinez originally filed a chapter 7 case, the chapter 7 trustee would have had the benefit of the value of the timeshare, so Ms. Martinez's decision to abandon the timeshare post-confirmation shouldn't alter the original chapter 7 calculation; in other words, the chapter 7 test should be calculated as of the original petition date, not the date of the proposed modification.⁷ Second, if there should be any reduction in the chapter 7 test, it should be limited to a circumstance that is not in the control of a debtor.⁸

In one of the two subsequent omnibus objections to Ms. Martinez' proposed modification, the chapter 13 Trustee further argued that the act of abandoning property is not an unforeseen circumstance that would warrant modification, and that when Ms. Martinez filed her motion to abandon she never suggested she would then seek to reduce payments to creditors on account of that abandonment. Finally, “a debtor should not be allowed to waste part of his estate in order to reduce the amount necessary to pay his creditors.” The Trustee argues that Ms. Martinez's attempt to modify is in bad faith and modification should be denied.

Christopher and Tina Garcia

Mr. and Mrs. Garcia owned a piece of property that apparently appreciated in value during their chapter 13 case. The property was valued at $49,152 as of the petition date, and for purposes of calculating the chapter 7 test, but the property was sold a year after the bankruptcy was filed for $58,655 (the property apparently had no encumbrances). The Garcias proposed to pay off their plan either prior to the expiration of the five year applicable commitment period rather than increase the amount to be paid to their unsecured creditors by the $9,503 increase in the value of the sold property, or keep the proceeds of the sale and continue making the scheduled payments required under the confirmed plan.

The Trustee filed a Motion to Modify the Garcias' plan⁹ to pay that increase in value to the unsecured creditors, arguing that if the date to determine value is the date of modification then the Trustee's proposed modification is appropriate.¹⁰

Luis Daniel Luyando

Mr. Luyando filed bankruptcy on June 4, 2010. On July 9, 2010, Mr. Luyando filed a plan that proposed to pay all unsecured creditors 100% of their claims over a period of five years. That plan was confirmed on August 26, 2011. Mr. Luyando filed a motion to modify on August 22, 2013, claiming his income had decreased drastically.¹¹ The modified plan sought to pay the sole unsecured claim (the stripped down portion of a mortgage) less than 100% over the remaining months of the plan. The Trustee argued that, although Mr. Luyando's income may have changed, the value of his non-homestead property increased, therefore, it would be appropriate to adjust the plan payments to the unsecured creditor to reflect the increase in value of the property.¹²

MODIFICATION OF CHAPTER 13 PLANS

Modification of chapter 13 plans is governed by 11 U.S.C. § 1329 which authorizes modification of a plan any time after confirmation but before payments are complete under four circumstances: (a) to increase or reduce payments on claims; (b) to extend or reduce the time for payment (subject to a cap of five years); (c) alter the amount payable to a particular creditor who may have received payments outside of the plan; and (d) to address changes in health insurance costs. Modifications to a plan may be sought by the debtor, the chapter 13 trustee, or any holder of an allowed unsecured claim.

When Is Modification Appropriate?

One common question runs through these four cases—when is it appropriate to seek modification of a chapter 13 plan? Notwithstanding that a proposed modification may fit within the four stated statutory purposes, ultimately modification lies within the bankruptcy court's discretion, as section 1329 provides that a plan may be modified, not that a plan shall be modified. Thus, modification “involves a two-step process.” In re McAllister, 510 B.R. 409, 413 (Bankr.N.D.Ga.2014). The court must not only consider whether a proposed modification satisfies the “technical requirements” of section 1329, but also whether, under the circumstances of a particular case, the court should allow modification.

There is a split amongst the courts as to how that discretion should be applied—one significant group of courts hold that modification is only appropriate when there has been a change that is both substantial and unanticipated. See, e.g., In re Woodhouse, 119 B.R. 819, 820 (Bankr.M.D.Ala.1990) (“[U]nless there are substantial unanticipated changes in the debtor's ability to pay under a plan already confirmed, the rights of the debtor and his creditors are settled at the date of confirmation.”); In re Euler, 251 B.R. 740 (Bankr.M.D.Fla.2000).

Conversely, other courts hold that that since section 1329 does not include any requirement of “substantial or unanticipated” change, courts should not impose such a condition. See, e.g., Matter of Witkowski, 16 F.3d 739, 748 (7th Cir.1994) (“Section 1329 does not require any threshold requirement for a creditor, debtor or trustee to seek modification of an approved bankruptcy plan.”); Ledford v. Brown (In re Ledford), 219 B.R. 191, 195 (6th Cir. BAP 1998) (“Although the court may properly consider changed circumstances in the exercise of its discretion, § 1329 does not contain a requirement for unanticipated or substantial change as a prerequisite to modification.”). According to this view, there are no restrictions on a party's ability to seek modification, so long as the proposed modified plan conforms with the requirements of section 1329 and the court otherwise finds that modification is appropriate under the facts and circumstances. See, e.g., In re McAllister, 510 B.R. at 413 (applying a “totality of the circumstances” analysis in considering the appropriateness of the chapter 13 trustee's motion to modify).

Many courts consider the res judicata effect of a final confirmation order as being dispositive of this issue. See In re Euler, 251 B.R. at 746 (ruling that significant appreciation in an asset owned by the debtor on the petition date did not warrant the modification sought by the trustee because “[a]ll participants in the bankruptcy case are barred by the...