Witkowski, Matter of

• Decision Date: 14 February 1994
• Docket Number: No. 93-1462,93-1462
• Citation: 16 F.3d 739
• Parties: , Bankr. L. Rep. P 75,712 In the Matter of Ronald J. WITKOWSKI, Debtor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 739

16 F.3d 739

62 USLW 2546, Bankr. L. Rep. P 75,712

In the Matter of Ronald J. WITKOWSKI, Debtor-Appellant.

No. 93-1462.

United States Court of Appeals Seventh Circuit.

Argued Oct. 1, 1993.

Decided Feb. 14, 1994.

Sheryl A. Fyock, Office of Trustee, Elaine C. Jensen (argued), Chicago, IL, for Jack McCullough.

J. Reed Millsaps, Michael L. Maduff, Frank J. Kokoszka, Paul Eberhardt (argued), Leslie A. Blau, Blau, Eberhardt & Kokoszka, Chicago, IL, for Ronald J. Witkowski.

Before POSNER, Chief Judge, WOOD, Jr. and MANION, Circuit Judges.

MANION, Circuit Judge.

Ronald Witkowski filed a Chapter 13 petition for bankruptcy. The bankruptcy court approved Witkowski's proposed bankruptcy plan which provided that unsecured creditors receive 10% of their claims. After some creditors failed to file claims, the trustee moved to modify the plan seeking to increase the percentage for those creditors who did file claims. The bankruptcy court granted the motion, and the district court affirmed. Witkowski appeals to this court and we affirm.

I. Background

Chapter 13 bankruptcy "adjusts debts of 'an individual with regular income.' " Matter of Smith, 848 F.2d 813, 814 (7th Cir.1988) (quoting 11 U.S.C. Sec. 109(e)). In contrast to a Chapter 7 bankruptcy, which requires liquidation, Chapter 13 "allows a debtor to keep his assets, but he must use his future income to pay his creditors." Id. See also Matter of Aberegg, 961 F.2d 1307, 1308 (7th Cir.1992); In re Schaitz, 913 F.2d 452, 453 (7th Cir.1990). To begin a Chapter 13 bankruptcy, the debtor must file a petition for bankruptcy with the clerk of the bankruptcy court. 11 U.S.C. Sec. 301; Smith, 848 F.2d at 814. Within 15 days of the filing of the Chapter 13 petition, the debtor must file a bankruptcy plan. Bankruptcy Rule 3015; id. After the debtor files for bankruptcy and formulates a bankruptcy plan, the bankruptcy court holds a hearing to determine whether the plan satisfies all of the requirements of the bankruptcy code. Sec. 1324. See e.g., Smith, 848 F.2d at 815. "The bankruptcy court must confirm the Chapter 13 plan if it meets the six requirements of Sec. 1325(a)...." Aberegg, 961 F.2d at 1308.

A bankruptcy plan basically sets forth an estimate of the total amount of money that the debtor owes creditors and the amount he can afford to pay them. See e.g., Smith, 848 F.2d at 814-15; In re Moseley, 74 B.R. 791, 796-97 (Bankr.C.D.Cal.1987), appeal dismissed as moot and order vacated, 101 B.R. 608 (9th Cir.1989). The plan then establishes an estimated payment schedule which includes the monthly payments the debtor will make, the time period in which these payments will be paid, and the total percentage each creditor will receive on his claim. Id. The payment schedule, however, is only an estimate. For various reasons, at the time that the bankruptcy plan is submitted the exact amount of allowable claims is unknown. For example, the amount of the claim may be in dispute; or a creditor may fail to file a timely proof of claim, as required by Rule 3002(a) to participate in a distribution under the bankruptcy plan. Rule 3002(a). 8 Collier on Bankruptcy p 3002.03 at 3002-9 (15th ed. 1993).

Once the allowable claims are established, the actual amount the debtor must pay may differ from the amount of estimated claims. See e.g., In re Casper, 153 B.R. 544, 545 (Bankr.N.D.Ill.1993), rev'd on other grounds sub nom., 154 B.R. 243 (N.D.Ill.1993); In re Garcia, 6 B.R. 35, 37 (Bankr.D.Kan.1980). This may require an adjustment in the payment schedule, depending on the type of plan. Garcia, 6 B.R. at 37. Two models of bankruptcy plans have evolved which automatically adjust the payment schedule by including a variable which fluctuates depending on the amount of claims actually filed. Various courts call these two models "pot plans" and "percentage plans." See e.g., In re Phelps, 149 B.R. 534, 537 n. 3 (Bankr.N.D.Ill.1993); Moseley, 74 B.R. at 797 n. 9; In re Jordan, 161 B.R. 670, 671-72 (Bankr.D.Minn.1993); In re Casper, 153 B.R. at 547; Garcia, 6 B.R. at 37. Accordingly, for purposes of discussion, a "percentage plan" is a plan which provides a set percentage of his claim each creditor will receive but leaves the exact amount the debtor will pay in flux until all claims are approved. A "pot plan" refers to a plan which provides that the debtor will pay a fixed amount or "pot" of money into the bankruptcy estate but the percentage creditors will receive ultimately depends on the total amount of claims that are approved.

Against this backdrop, we now consider Witkowski's plan, which provided:

The debtor, the debtor's employer, or other entity shall remit the sum of [$600] ¹ each month payable at the rate of [$600] per month to the Trustee for the benefit of creditors. From the payments specified above secured creditors shall be paid 100% of allowed claims and unsecured creditors shall be paid 10% of allowed claims. The term of the Plan shall be ² months or such lesser time as may be required to pay all claims as provided above."

Witkowski asserts that this is a "percentage plan" because it provides a set percentage which creditors will receive under the plan and leaves in flux the total number of payments that he will have to make, depending on how many claims are filed and approved.

In confirming the plan, however, the bankruptcy court entered a simple order which provided that the debtor's plan is as follows:

                Secured  Unsecured  No. of Months  Mo.  Payments
                -----------------------------------------------
                 100%       10%          47            $600
                

The order did not include the language "or such lesser time as may be required to pay all claims as provided above." Nonetheless, for purposes of this opinion, we will assume that the confirmation order incorporated the unamended language ³ of the proposed plan because the bankruptcy code provides that the "provisions of the confirmed plan bind the debtor and each creditor." Sec. 1327(a) (emphasis added). Accordingly, we will assume, as Witkowski argues, that the language "or such lesser time as may be required to pay all claims as provided above" created a "percentage plan."

Witkowski's bankruptcy plan was confirmed on March 29, 1990. The deadline for creditors to file proof of claims was June 11, 1990. Many of Witkowski's creditors failed to file claims by this deadline. Because fewer claims were filed than anticipated, Witkowski's payments of $600 for 47 months exceeded the amount necessary to provide a 10% return to unsecured creditors. The trustee moved to modify the bankruptcy plan to increase to 19% the percentage unsecured creditors who had filed claims would receive. Witkowski objected to the modification, claiming that his plan was a "percentage plan" which automatically accounted for the surplus in its term length of "47 months or such lesser time as required." Witkowski claimed that the lesser time required was approximately 43 months. Notwithstanding Witkowski's objections, the bankruptcy court granted the trustee's motion to modify. Witkowski appealed and the district court affirmed.

II. Discussion

Witkowski asserts three arguments in support of his position that the bankruptcy court erred in modifying his confirmed bankruptcy plan. First, he claims that a bankruptcy court cannot modify an approved bankruptcy plan unless the trustee demonstrated an unanticipated substantial change in financial circumstances. Witkowski claims that the trustee did not meet this threshold test because in a bankruptcy some creditors routinely fail to file claims. Therefore, Witkowski claims the bankruptcy court could not modify the plan. Witkowski next argues that the court's modification changed the approved "percentage plan" to a "pot plan" and that such a modification was inappropriate. Finally, Witkowski claims that the bankruptcy court erred by failing to conduct an independent inquiry as to whether cause exists for the modified plan to exceed three years. We discuss each of these issues in turn.

A. Section 1329

Witkowski first argues that the bankruptcy court could not modify his confirmed bankruptcy plan because no unanticipated "substantial change" in financial circumstances occurred. Thus the preliminary question is why the court needs to find a substantial change in circumstance before modifying the plan. Section 1329 of the bankruptcy code controls modifications of confirmed bankruptcy plans and provides that:

(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 the 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.

(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.

By its terms, Sec. 1329 does not provide for any threshold requirement to modify a bankruptcy plan. In re Powers, 140 B.R. 476, 478 (Bankr.N.D.Ill.1992); In re Perkins, 111 B.R. 671, 673 (Bankr.M.D.Tenn.1990) ("changed circumstances, unanticipated or otherwise, is not imposed by the code as a threshold barrier to access to modification under Sec. 1329"). See also In re Larson, 122 B.R. 417, 420 (Bankr.D.Idaho 1991) (refusing to impose a threshold requirement on the similarly worded modification statute which applies to Chapter 12 bankruptcies). Rather, according to the terms of Sec. 1329, the debtor, the trustee or an unsecured claimholder has an absolute right to request modification of the plan between confirmation of the plan and completion of the plan payments. Sec. 1329(a)(...