In re Rimmer, 88-11562B.

• Decision Date: 24 July 1992
• Docket Number: No. 88-11562B.,88-11562B.
• Citation: 143 BR 871
• Parties: In re Ann RIMMER, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

143 B.R. 871 (1992)

In re Ann RIMMER, Debtor.

No. 88-11562B.

United States Bankruptcy Court, W.D. Tennessee, E.D.

July 24, 1992.

Lloyd C. Utley, Jackson, Tenn., for debtor.

Bradley A. Sigler, Jackson, Tenn., for Dyersburg Employees Credit Union.

William C. Guy, Chapter 13 Trustee, Jackson, Tenn.

George Stevenson and George Emerson, Jr., Chapter 13 Trustees — Memphis, Memphis, Tenn.

Madalyn Scott, Memphis, Tenn., for U.S. Trustee.

MEMORANDUM OPINION AND ORDER ON DEBTOR'S MOTION TO SURRENDER VEHICLE

WILLIAM H. BROWN, Bankruptcy Judge.

The debtor moved to surrender a 1986 Dodge Aries to the secured creditor, Dyersburg Employees Credit Union ("Credit Union"), and the substance of the debtor's motion is to modify her confirmed Chapter 13 plan pursuant to 11 U.S.C. § 1329(a) so as to satisfy the Credit Union's secured claim by the surrender and to reclassify the remainder of the Credit Union's deficiency claim as unsecured.

The issue presented is one of both law and fact as to whether the debtor may so modify a confirmed plan. The debtor's motion was contested by the Credit Union, thus presenting a core proceeding to the Court. 28 U.S.C. § 157(b)(2)(L). The following contains findings of fact and conclusions of law pursuant to F.R.B.P. 7052.

SUMMARY OF FACTS

The debtor is in a Chapter 13 plan which was confirmed on December 14, 1988, with the plan amended by consent order, dated March 1, 1990, providing that the Credit Union would be treated as a secured creditor for $5,350.00, with interest accruing at 12%, payable at $140.00 per month. In addition, the plan provides for the Credit Union to have an unsecured debt of $846.57. There is one other secured creditor in the plan, U.S.A. Financial Services, which holds security in household goods. The plan was confirmed with a sixty month payment term. At this time, $2,080.04 remains owing to the Credit Union on its original secured debt, and the debtor is approximately $800.00 in arrears on her payments to the Credit Union. The debtor testified that her work at her place of employment had slowed down, creating financial stress, that the Dodge Aries needed a new motor, which would cost approximately $1,500.00, that the body of the car was in good condition, and that the car was not worth much at this time. She further testified that she had received an income tax refund of $1,800.00, at which time she approached the Credit Union about working with her on trading cars so that the Credit Union would receive a replacement lien on the substituted car, but the Credit Union advised her that it was too much trouble to go to court about such a trade. The debtor was unable financially to both repair the Aries and continue paying for it in the plan, and the debtor needed a vehicle to drive to work.

There was no indication in the proof that the debtor had abused the Aries or had failed to maintain it properly. There also was no proof of a lack of good faith on the debtor's part as to the proposed surrender and the resulting modification to her plan.

DISCUSSION AND CONCLUSIONS OF LAW

It is a common occurrence in Chapter 13 cases to have the debtor move to allow a surrender of collateral, usually depreciable assets such as vehicles, and because of the frequency of these motions, the Court has determined that it is appropriate to issue a written opinion establishing this Court's view of such motions. There is, of course, a split of authority on whether such motions should be granted, and this opinion will discuss some of the divergent cases.

The beginning point for this discussion must be 11 U.S.C. § 1329 which controls post-confirmation modification:

(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; or

(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.

(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 three years 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.

This Court previously has required "strict compliance with § 1329." In re Lynch, 109 B.R. 792, 795 (Bankr.W.D.Tenn. 1989). This strict compliance in Lynch included "a proper motion for modification, which motion must be noticed to all scheduled creditors or at the very least, all creditors holding allowed claims in the confirmed Chapter 13 plan." Id. The present motion was styled merely as a motion to surrender personal property, and it was served only upon the Chapter 13 Trustee, the debtor, the Credit Union, and the insurance company with coverage on the Aries. There is no indication in the written motion that it is one to modify the plan; although, as previously noted, that is the gravamen of the motion. Certainly, the present motion does not "give all affected creditors specifically, the other unsecured creditors the ability to object to the modification and to be advised of the impact of that modification on plan payments to each creditor." Id. As the Court observed in Lynch, the debtor should not be given "a de facto modification without complying with the requirements of § 1329." Id.

Because this debtor did not comply with the Court's and Code's requirements for notice and opportunity for hearing on post-confirmation modifications that may have an impact upon other unsecured creditors in this plan, the Court could deny the debtor's motion and engage in no further discussion. However, that denial would be without prejudice to the debtor's renewal of her motion; therefore, the Court will discuss the requirements for allowing a modification of the type sought by this debtor.

As stated, the first step is for the debtor to file a motion seeking to modify a confirmed plan pursuant to § 1329(a), and this motion must be noticed to all creditors and to the Chapter 13 Trustee. The motion must make it clear that the debtor is seeking not merely to surrender collateral, but also to modify the confirmed plan, and of course the motion should be specific in the relief sought.

Assuming, as in this case, that the debtor seeks to modify a confirmed plan by surrendering a depreciable asset such as a vehicle and to reclassify a portion of the secured debt by adding a deficiency to the unsecured class, the debtor will first have the burden of showing a sufficient "change of circumstances" subsequent to the confirmation so as to justify a modification. In re Gadlen, 110 B.R. 341, 343-44 (Bankr. W.D.Tenn.1990). Such a showing of changed circumstances may be necessary in order to overcome the "normal preclusive effects" of the prior final confirmation order. See KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY § 6.9, at 6-6 to 6-8 (1991); see generally, Comment, Postconfirmation Modification Of Chapter 13 Plans: A Sheep In Wolf's Clothing, 9 BANKR.DEV.J. 153, 157 & n. 33, 158-62 (1992); compare In re Abercrombie, 39 B.R. 178 (Bankr.N.D.Ga.1984) (holding that reclassification of a secured claim would violate res judicata principles). In the present case, the debtor made a prima facie showing that a sufficient change of circumstances had occurred subsequent to the confirmation of her plan, specifically, that, without fault on her part, her Aries vehicle had suffered engine failure.

After a suitable showing of change of circumstances, the Code permits the Court to consider, under § 1329(a), whether a postconfirmation modification may be allowed. That analysis involves an examination of the Code's provisions, and courts have differed on those provisions when the issue is one of reclassification of a secured creditor. See generally KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY § 6.49 at 6-125 TO 6-128 (1991). Of course, if the proof established that, through the offered surrender of collateral, the secured creditor was receiving a value equivalent to its remaining secured debt, such a modification would be permissible and unopposed. It is normal, however, to find that the debtor has used the depreciable asset, resulting in a loss of value, and that the asset is not worth the equivalent of the remaining secured debt. Does the Code permit such a debtor to modify a confirmed plan by surrendering a depreciable asset for less value than the secured debt and then reclassifying the balance as unsecured? Assuming that it does, if there is an objection to the modification, the Court must consider the impact of the modification on other creditors' payments in the plan. In re Lynch, 109 B.R. at 795.

For purposes of the present motion, the difficult question is whether such a modification occasioned by surrender of the vehicle is permissible at all. One Court has said "no" on the basis that § 1329(a) "does not permit individualized treatment of class members or the reclassification of a single creditor from a secured to an unsecured status." In re Sharpe, 122 B.R. 708, 710 (E.D.Tenn.1991). That District Court, in reversing the Bankruptcy Court, did not find the statutory language of § 1329(a)(1) to be broad enough to allow such reclassification modifications. However, the rationale of the Sharpe Court appears to be based in large part upon the discrimination between...