In re Terrell
| Decision Date | 21 September 2021 |
| Docket Number | Case No. 18-28674-gmh |
| Citation | 633 B.R. 872 |
| Parties | IN RE: Antonio TERRELL and Angel Marie Terrell, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
Rebecca R. Garcia, Oshkosh, WI, Trustee, Pro Se.
Michael J. Watton, Milwaukee, WI, for Debtor.
DECISION AND ORDER
Nearly two years after the court confirmed the debt-adjustment plan in this case, the debtors objected to a claim filed by the State of Wisconsin Department of Children and Families. The claim objection requests a determination that the Department's claim is not entitled to priority under 11 U.S.C. § 507(a)(1)(B). ECF No. 75. The Department responds that the objection comes too late because the confirmed plan provides for its claim as entitled to priority under § 507(a)(1)(B). For the following reasons, the objection is sustained, and the Department's claim is declared to be not entitled to priority.
The court confirmed debtors Antonio and Angel Terrell's chapter 13 plan in February 2019. ECF Nos. 2, 42 & 45. The confirmed plan provided that the debtors would pay the trustee an amount approximately equal to their projected disposable income for 60 months. These payments about matched the amount the plan required the trustee to pay for administrative expenses, to creditors who held claims secured by the debtors’ vehicles, and on priority tax claims. If any funds remained after paying these claims, the plan provided for payment of the Department's "allowed priority claim[ ] ... based on a domestic support obligation ... owed or assigned to a governmental unit as provided by 11 U.S.C. § 507(a)(1)(B)". ECF No. 2, at 5. The plan further states that the Department "will be paid less than the full amount of the claim under 11 U.S.C. § 1322(a)(4)", a statutory provision that authorizes a chapter 13 plan to pay less than the full amount of a claim entitled to priority under § 507(a)(1)(B) if the plan requires the debtor to pay all projected disposable income into the plan for 5 years.
The debtors’ inclusion of the Department's claim in the plan section providing for § 507(a)(1)(B) claims accords with the Department's proof of claim, which states that the debtors owe it nearly $30 thousand in "[p]ublic assistance overpayments for Child Care and FoodShare" and that the claim is entitled to priority under § 507(a)(1)(B) in the full amount. Claim No. 32, at 2-3.
After the court confirmed the plan the Seventh Circuit held in In re Dennis that a claim for a debt arising from overpayment of public assistance benefits is not entitled to priority under § 507(a)(1)(B). 927 F.3d 1015 (7th Cir. 2019). Seeing in Dennis a basis to contest the Department's assertion of priority as a precursor to modifying the plan to reduce the time over which they must make monthly plan payments, the debtors objected to the Department's claim.
Two potentially dispositive issues can be quickly dispensed with (because they are not, or cannot be, seriously contested): First, there is no need to consider in detail whether the Department's claim is entitled to priority under § 507. The Department does not challenge the debtors’ assertion that under Dennis its claim—for "a debt owed to the government for the overpayment of benefits"—is not entitled to priority under § 507(a)(1)(B). See 927 F.3d at 1017-18. And the Department does not argue that its claim is otherwise entitled to priority under § 507.
Second, no applicable statute or rule sets a deadline on requests to determine the amount of a claim entitled to priority under § 507. The Department also does not contest this. Its position is, instead, that plan confirmation (either generally or due to the specific provisions of the plan in this case) established that its claim is entitled to priority under § 507(a)(1)(B), and even if that was an error, the debtors cannot now "seek to reclassify the ... claim from priority to general unsecured." ECF No. 77, at 5.
This brings us to the crux of the parties’ dispute: Does the debtors’ claim objection come too late because the confirmed plan provides for the Department's claim as one entitled to priority under § 507(a)(1)(B) ?
Section 1327(a) of the Bankruptcy Code 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." 11 U.S.C. § 1327(a). The debtors’ confirmed plan lists the Department's claim in section 4.5, which states in relevant part as follows:
The allowed priority claims listed below are based on a domestic support obligation that is owed or assigned to a governmental unit as provided by 11 U.S.C. § 507(a)(1)(B) and will be paid less than the full amount of the claim under 11 U.S.C. § 1322(a)(4). If the Available funds to creditors in Parts 3 and 4 box is selected, then there should be no distribution to nonpriority unsecured creditors in Part 5 until or unless the § 507(a)(1)(B) claim is paid in full. This plan provision requires that payments in § 2.1 be for a term of 60 months; see 11 U.S.C. § 1322(a)(4).
?
The plan thus provides for the Department's claim as one entitled to priority under § 507(a)(1)(B). This provision governs the debtors’ and the Department's rights and obligations under the confirmed plan—that's the effect of § 1327(a) —and any alteration of those rights and obligations requires a request to modify the confirmed plan under 11 U.S.C. § 1329. Section 1329 authorizes the debtor, as well as the trustee and any holder of an allowed unsecured claim, to modify a plan after it is confirmed but before the completion of plan, payments to "reduce the amount of payments on claims of a particular class provided for by the plan" or "reduce the time for such payments", among other things. § 1329(a)(1) & (2). The debtors have moved under § 1329 to modify the plan to shorten the plan term. The trustee (but not the Department) objected that the modification is impermissible because the plan as modified would not pay the Department's § 507(a)(1)(B) claim in full or require the debtors to pay their disposable income for a full 5 years. See § 1329(b)(1) (). In response, the debtors objected to the Department's claim seeking a determination that the Department's claim is not entitled to priority under § 507(a)(1)(B).
The Department's principal brief argues that a confirmed plan has preclusive effect that goes beyond the plan's operation to foreclose any determination that is inconsistent with the plan's terms:
"[O]nce a bankruptcy plan is confirmed, its terms are not subject to collateral attack." Adair v. Sherman , 230 F.3d 890, 894 (7th Cir. 2000) () .... Allowing a debtor to later challenge an issue that the debtor could have raised at the confirmation hearing "destroy[s] the finality that bankruptcy confirmation is intended to provide." [ Id. ] at 895.
ECF No. 77, at 2-3. The Department's reply brief continues this theme:
"It is a well-established principle of bankruptcy law that a party with adequate notice of a bankruptcy proceeding cannot ordinarily attack a confirmed plan." In re Harvey, 213 F.3d [318,]321 [(7th Cir. 2000) ] (). When a debtor expressly provides for a claim in the plan, as the Debtors did here with DCF's priority claim, section 1327 effectively allows the claim upon confirmation and bars any subsequent attempt to change the terms.
ECF No. 85, at 4-5. The Department reads too much into Adair and Harvey.
Orders confirming chapter 13 plans are unquestionably appealable "final orders" for purposes of 28 U.S.C. § 158(a)(1). See Bullard v. Blue Hills Bank, 575 U.S. 496, 135 S. Ct. 1686, 1691-94, 191 L.Ed.2d 621 (2015). Unlike final orders in ordinary civil litigation, however, orders confirming chapter 13 plans do not bring an end to all proceedings in the bankruptcy case. "A bankruptcy case involves ‘an aggregation of individual controversies,’ many of which would exist as stand-alone lawsuits but for the bankrupt status of the debtor." Id. at 1692 (quoting 1 Collier on Bankruptcy 15.08[1][b] (16th ed.)). Confirmation is one such individual controversy-one that typically precedes many others.
Section 1324 of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure call for confirmation of the plan in the early stages of a chapter 13 case. Under § 1324(b) and Rule 2003(a) the confirmation hearing is contemplated to occur as early as 41 days after the date on which the debtor files the bankruptcy case. See 11 U.S.C. § 301(b) (); Fed. R. Bankr. P. 2003(a) (); 11 U.S.C. § 1324(b) (); see also id. § 303(a) . In comparison to the short timeline that is contemplated for confirmation, creditors have at least 70 days after the date on which the debtor files the case to file a proof of claim. Fed. R. Bankr. P. 3002(c). And governmental units—frequent filers of proofs of claim alleging priority—have 180 days to file proofs of claim. 11 U.S.C. § 502(b)(9)(A) & Fed. R. Bankr. P. 3002(c)(1). Because the Code requires that a chapter 13 plan pay most classes of claims entitled to priority in...
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In re Terrell
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