In re: Robbyn Dale Mattson and Renee Diane Mattson ( 2012 )


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  •                                                            FILED
    1                         ORDERED PUBLISHED                APR 05 2012
    SUSAN M SPRAUL, CLERK
    2                                                        U.S. BKCY. APP. PANEL
    O F TH E N IN TH C IR C U IT
    3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
    4                            OF THE NINTH CIRCUIT
    5
    6   In re:                        )      BAP No.    WW-11-1478-JuHKi
    )
    7   ROBBYN DALE MATTSON and RENEE )      Bk. No.    10-50455
    DIANE MATTSON,                )
    8                                 )
    Debtors.       )
    9   ______________________________)
    )
    10   ROBBYN DALE MATTSON; RENEE    )
    DIANE MATTSON,                )
    11                                 )
    Appellants,    )
    12   v.                            )      O P I N I O N
    )
    13   DAVID M. HOWE, Chapter 13     )
    Trustee,                      )
    14                                 )
    Appellee.      )
    15   ______________________________)
    16                   Argued and Submitted on March 23, 2012
    at Seattle, Washington
    17
    Filed - April 5, 2012
    18
    Appeal from the United States Bankruptcy Court
    19                 for the Western District of Washington
    20        Honorable Brian D. Lynch, Bankruptcy Judge, Presiding.
    _____________________________________
    21
    Appearances:     Matthew J.P. Johnson, Esq. argued for appellants
    22                    Robbyn Dale Mattson and Renee Diane Mattson;
    Michael G. Malaier, Esq. argued for appellee,
    23                    David M. Howe, Chapter 13 Trustee.
    ____________________________________
    24
    25   Before:   JURY, HOLLOWELL, and KIRSCHER, Bankruptcy Judges.
    26
    27
    28
    1   JURY, Bankruptcy Judge:
    2        Chapter 131 above-median debtors, Robbyn Dale Mattson and
    3   Renee Diane Mattson (“Debtors”), moved to modify their confirmed
    4   plan under § 1329 due to their post-confirmation increase in
    5   income.   Debtors proposed to increase plan payments and shorten
    6   the term of their plan from five years to three years.   The
    7   chapter 13 trustee and appellee, David M. Howe, objected to the
    8   shortened term, contending that Debtors were above-median and
    9   required to contribute their increased income to a five year
    10   plan.
    11        The bankruptcy court granted Debtors’ motion to increase
    12   their payments under the plan, but denied their request to
    13   shorten the term.   The court held that in addition to satisfying
    14   the good faith requirement under § 1325(a)(3), which applies to
    15   modified plans by reference in § 1329(b)(1), Debtors also had to
    16   show a substantial, unanticipated change in their circumstances
    17   since the time of confirmation and that their proposed
    18   modification correlated to their change in circumstances.    The
    19   bankruptcy court found that Debtors’ proposed reduction in the
    20   term of their plan did not correlate with their change in
    21   circumstances (i.e., the increase in their income), nor did they
    22   offer any justification for reducing the length of their plan
    23   payments.   This appeal followed.
    24        Although the reasoning of the bankruptcy court for denying
    25
    26        1
    Unless otherwise indicated, all chapter and section
    references are to the Bankruptcy Code, 
    11 U.S.C. §§ 101-1532
    ,
    27
    and “Rule” references are to the Federal Rules of Bankruptcy
    28   Procedure.
    -2-
    1   the shortened term deviates from our precedent, for the reasons
    2   stated below we nevertheless AFFIRM.
    3                                I.   FACTS
    4        The facts in this appeal are not in dispute and are
    5   adequately summarized in the bankruptcy court’s published
    6   decision, In re Mattson, 
    456 B.R. 75
     (Bankr. W.D. Wash. 2011).
    7   We incorporate the relevant facts below and supplement them when
    8   needed.
    9        On December 21, 2010, Debtors filed their chapter 13
    10   petition.    Their schedules listed assets including a house, four
    11   vehicles, various funds in bank accounts, personal and household
    12   furnishings and over $83,000 in a retirement account, most of
    13   which were exempted.    Debtors’ Schedule F listed $163,367 in
    14   unsecured debt.
    15        Schedule I showed that Debtors were employed by the Camas
    16   School District.    Ms. Mattson was a teacher, earning an average
    17   of $3,067 per month; Mr. Mattson was listed as a “substitute
    18   janitor” from which he had no earnings yet per month and also
    19   showed an average $1,200 per month from operation of a business.
    20   Debtors’ combined average monthly income totaled $4,267 per
    21   month.    Debtors’ Schedule J reflected expenses of $4,117 per
    22   month, leaving a monthly net income of $150 per month.
    23        Schedule I stated that Mr. Mattson had just been hired as a
    24   substitute janitor within a week before the bankruptcy filing,
    25   and while he had not commenced work yet, he anticipated getting
    26   $16.50 per hour for what work he would be given.    That was
    27   expected to reduce his other income from “operation of a
    28   business.”    Mr. Mattson’s businesses were not identified in the
    -3-
    1   schedules, but the bankruptcy court noted that the case was
    2   filed as “f/d/b/a Robbyn D. Mattson Insurance” and “d/b/a East
    3   County Battery Doctors.”   Debtors’ Statement of Financial
    4   Affairs Number 18 identified prior businesses as “insurance
    5   sales” and “reconditioning/sales of automotive batteries.”
    6   Schedule I further noted that Mr. Mattson also earned
    7   approximately $2,760 a year coaching sports but this income was
    8   excluded from Schedule I as it was only for two months of the
    9   year and would not be available during an average month.
    10        Debtors’ Form B22C indicated they were above-median debtors
    11   and reflected a projected disposable income of $253 per month,
    12   although the Form B22C also noted that it didn’t accurately
    13   reflect Debtors’ projected income because it reflected the
    14   income from Mr. Mattson’s previous job and his seasonal income.
    15   Looking to the prior six-month period, Debtors argued, showed a
    16   substantially higher amount than their average income would be
    17   going forward, given Mr. Mattson’s lower income from the new job
    18   and the unavailability of the seasonal income.
    19        Debtors filed a chapter 13 plan which proposed a $150 per
    20   month payment for 60 months, for total payments of $9,000.
    21   Those payments went to Debtors’ attorney and unsecured
    22   creditors, who were expected to receive 2% on their claims.
    23   Debtors proposed to pay directly the secured creditors on their
    24   home and one vehicle.   The bankruptcy court confirmed Debtors’
    25   plan by order entered on March 2, 2011.
    26        Just over two and a half months later, on May 24, 2011,
    27   Debtors filed amended Schedules I and J.   On amended Schedule I,
    28   Mr. Mattson was now listed as a “janitor” (rather than
    -4-
    1   substitute) and the average monthly income for both Debtors had
    2   increased to a total of $5,936 per month.    Ms. Mattson’s income
    3   had increased slightly more than $400 a month, and Mr. Mattson’s
    4   income had doubled, to over $2450 per month.    The amended
    5   Schedule J listed higher expenses totaling $4,906 per month,
    6   nearly $800 per month higher than the original schedule.      While
    7   the amended Schedule J no longer reflected business operation
    8   expenses of $288 per month, indicating Debtors’ apparent
    9   abandonment of Mr. Mattson’s previous business, expenses in
    10   nearly every other category increased.    Some of the increases
    11   reflected potentially expected changes due to Mr. Mattson’s
    12   increase to full time employment as a janitor (increases in
    13   transportation and clothing, for example).    However, the amended
    14   Schedule J also included increased expenses in other areas (for
    15   example, electricity and heating fuel for Debtors’ home, home
    16   maintenance, food, medical and dental expenses, vehicle
    17   maintenance and licensing, and recreation and entertainment).
    18   In total, though, the amended Schedule I and Schedule J showed
    19   an overall increase in monthly excess income to $1,030 per
    20   month.
    21        Approximately three weeks after the amended schedules were
    22   filed, or just over three months after the plan had been
    23   confirmed, Debtors filed their amended plan and a motion for
    24   modification on June 15, 2011.    In their motion to modify,
    25   Debtors stated that modification was necessary because their
    26   income had increased.   Under the amended plan and motion,
    27   Debtors’ plan would be modified to provide for increased
    28   payments of $900 per month in June 2011 and then $1,000 per
    -5-
    1   month beginning with the July 2011 payment and the term of the
    2   plan would be reduced from 60 to 36 months.    Debtors’ amended
    3   plan proposed to pay their attorney and unsecured creditors, who
    4   would receive a payout increasing from $4,000 to $30,000.
    5         The chapter 13 trustee objected to Debtors’ motion, arguing
    6   that Debtors should be required to pay the increased $1,000
    7   monthly payment for the confirmed commitment period of 60
    8   months.   Under the originally filed means test, from which
    9   Debtors had increased their income, Debtors had a positive
    10   monthly disposable income of $253 per month.    Given the positive
    11   disposable income figure, the trustee argued, Debtors were not
    12   permitted under the Ninth Circuit’s decision in Maney v.
    13   Kagenveama (In re Kagenveama), 
    541 F.3d 868
     (9th Cir. 2008), to
    14   seek a deviation from the 60 month commitment period and Debtors
    15   cited no authority in their motion which would allow them to do
    16   so.   The trustee maintained that because Debtors’ income had
    17   increased there was no reason why Debtors could not make
    18   payments for 60 months.   Lastly, the trustee argued that
    19   Congress clearly intended that above-median debtors propose and
    20   complete a 60 month plan.
    21         Debtors replied that they were not bound to any
    22   predetermined commitment period because income based
    23   calculations under § 1325(b) were not applicable to
    24   modifications under § 1329 under our holding in Sunahara v.
    25   Burchard (In re Sunahara), 
    326 B.R. 768
     (9th Cir. BAP 2005).
    26   Debtors argued that as long as their proposed amended plan was
    27   filed in good faith and met the other requirements of chapter 13
    28   incorporated into § 1329, they could reduce the duration of the
    -6-
    1   plan, without consideration of the applicable commitment period
    2   in the confirmed plan.   Debtors also cited other bankruptcy
    3   court decisions in the Ninth Circuit which they contended
    4   authorized the debtor to amend his or her plan to less than 60
    5   months.   In re Hall, 
    442 B.R. 754
    , 760-61 (Bankr. D. Idaho
    6   2010); In re Ewers, 
    366 B.R. 139
    , 143 (Bankr. D. Nev. 2007).
    7        After a hearing on July 5, 2011, the matter was submitted
    8   and the bankruptcy court issued its published opinion.   In it,
    9   the court decided that a predictable test for crafting and
    10   reviewing plan modifications was preferable to the good faith
    11   analysis espoused in In re Sunahara.   Accordingly, the court
    12   held that, in addition to the Sunahara good faith analysis, plan
    13   modification under § 1329 also requires the moving party to show
    14   that there has been a substantial change in the debtor’s
    15   circumstances after confirmation “which was unanticipated or
    16   otherwise could not be taken into account at the time of the
    17   confirmation hearing, and that the change in the plan
    18   correlate[s] to the change in circumstances.”   In re Mattson,
    19   
    456 B.R. at 82
     (emphasis in original).   In light of this
    20   standard, the bankruptcy court found that Debtors’ proposed
    21   modification to shorten the term of their plan did not correlate
    22   with the change in circumstances——their increased income.     
    Id.
    23        The bankruptcy court also addressed the relevance of the
    24   applicable commitment period to plan modifications.   The court
    25   found that § 1329(c), which states that a plan “modified under
    26   this section may not provide for payments over a period that
    27   expires after the applicable commitment period under section
    28   1325(b)(1)(B),” suggested that the applicable commitment period
    -7-
    1   did not go away with modification, but was fixed at
    2   confirmation.   Id. at 83.      In other words, “[t]he plan may be
    3   extended by the Court for good cause, though not beyond five
    4   years, but the applicable commitment period from § 1325(b)
    5   cannot be altered.”     Id.   However, the bankruptcy court did not
    6   accept the trustee’s position that, unless a debtor proposed to
    7   pay the unsecured creditors in full, the length of the plan
    8   could not be reduced under § 1329(a)(2).        The court acknowledged
    9   that a debtor’s financial circumstances may change in a way that
    10   justified a reduction in plan length as demonstrated by In re
    11   Ewers, 
    366 B.R. 139
    .2
    12        The bankruptcy court entered the Memorandum Decision on
    13   August 26, 2011.   Debtors timely appealed.
    14                             II.    JURISDICTION
    15        The bankruptcy court had jurisdiction over this proceeding
    16   under 
    28 U.S.C. §§ 1334
     and 157(b)(2)(L).       We have jurisdiction
    17   under 
    28 U.S.C. § 158
    .
    18                                 III.    ISSUE
    19        Whether the bankruptcy court abused its discretion in
    20
    21        2
    In Ewers, the debtors’ income went down when they retired
    after confirmation of their plan. They moved to reduce the term
    22
    of their plan from five years to three years. The bankruptcy
    23   court held that the term of a modified plan is not restricted to
    the applicable commitment period that was first established
    24   under § 1325(b). The court found that the debtors’ chapter 13
    plan may be modified to a three-year plan without paying their
    25   unsecureds in full, if the plan otherwise satisfied the
    26   requirements of § 1329(b), which included the requirement of
    good faith under § 1325(a). In the end, the bankruptcy court
    27   allowed the trustee to provide further briefing on the issue of
    the debtors’ good faith with respect to the timing of their
    28   retirement.
    -8-
    1   denying Debtors’ request to shorten the term of their plan from
    2   five years to three years.
    3                          IV.   STANDARDS OF REVIEW
    4        Modification under § 1329 is discretionary.      In re
    5   Sunahara, 
    326 B.R. at 772
    ; Powers v. Savage (In re Powers), 202
    
    6 B.R. 618
    , 623 (9th Cir. BAP 1996).      A bankruptcy court abuses
    7   its discretion if it applies the wrong legal standard or its
    8   findings are illogical, implausible or without support in the
    9   record.   TrafficSchool.com, Inc. v. Edriver Inc., 
    653 F.3d 820
    ,
    10   832 (9th Cir. 2011).
    11        While the bankruptcy court’s decision whether to allow
    12   modification is reviewed for abuse of discretion, whether the
    13   bankruptcy court was correct in its interpretation of the
    14   applicable statutes is reviewed de novo.      Towers v. United
    15   States (In re Pac.-Atlantic Trading Co.), 
    64 F.3d 1292
    , 1297
    16   (9th Cir. 1995).
    17        Whether a plan modification has been proposed in good faith
    18   by the debtor is a question of fact, and the bankruptcy court’s
    19   findings on that issue are reviewed for clear error.      Downey
    20   Sav. & Loan Ass’n v. Metz (In re Metz), 
    820 F.2d 1495
    , 1497 (9th
    21   Cir. 1987).   A factual finding is clearly erroneous if it is
    22   illogical, implausible, or without support in inferences that
    23   can be drawn from the facts in the record.      United States v.
    24   Hinkson, 
    585 F.3d 1247
    , 1262–63 (9th Cir. 2009) (en banc).
    25        We may affirm on any ground supported by the record.
    26   Siriani v. Nw. Nat’l Ins. Co. (In re Siriani), 
    967 F.2d 302
    , 304
    27   (9th Cir. 1992).
    28
    -9-
    1                            V.   DISCUSSION
    2        Chapter 13 plan modification is governed by § 1329.
    3   Section 1329(a) provides for post-confirmation plan
    4   modifications under four delineated circumstances, two of which
    5   are relevant here:
    6        At any time after confirmation of the plan but before
    the completion of payments under such plan, the plan
    7        may be modified, upon request of the debtor . . .,
    to——
    8
    (1) increase . . . the amount of payments on claims of
    9        a particular class provided for by the plan;
    10        (2) extend or reduce the time for such payments[.]
    11        When a debtor’s proposed modifications fall within one or
    12   both of these provisions, the bankruptcy court must then decide
    13   whether the proposed modification complies with § 1329(b)(1).
    14   That section states: “[s]ections 1322(a), 1322(b), and 1323(c)
    15   of this title and the requirements of § 1325(a) of this title
    16   apply to any modification under subsection (a) of this section.”
    17   The statute’s reference to § 1325(a) means that the plan as
    18   modified must be proposed in good faith under § 1325(a)(3).    In
    19   this Circuit, bankruptcy courts make good faith determinations
    20   under § 1325(a)(3) on a case-by-case basis, after considering
    21   the totality of the circumstances.    See Leavitt v. Soto (In re
    22   Leavitt), 
    171 F.3d 1219
    , 1224–25 (9th Cir. 1999); 550 W. Ina Rd.
    23   Trust v. Tucker (In re Tucker), 
    989 F.2d 328
    , 330 (9th Cir.
    24   1993); Goeb v. Heid (In re Goeb), 
    675 F.2d 1386
    , 1390 & n.9 (9th
    25   Cir. 1982); see also Smyrnos v. Padilla (In re Padilla), 213
    
    26 B.R. 349
    , 352 (9th Cir. BAP 1997).
    27        Notably missing from § 1329 is any express requirement that
    28   a substantial and unanticipated change in the debtor’s financial
    -10-
    1   circumstances is a threshold requirement to overcome the res
    2   judicata effect of a confirmed plan under § 1327(a).3   However,
    3   concerns over the finality of a confirmed plan led to the
    4   judicially developed substantial and unanticipated change test
    5   to inform the court on the initial question of whether the
    6   doctrine of res judicata prevented modification of a confirmed
    7   plan.    See Murphy v. O’Donnell (In re Murphy), 
    474 F.3d 143
    , 149
    8   (4th Cir. 2007).   The Fourth Circuit, which is the only Court of
    9   Appeals to apply the substantial and unanticipated change test,
    10   explained the multi-step analysis for plan modification using
    11   the test:
    12        [W]hen a bankruptcy court is faced with a motion for
    modification pursuant to §§ 1329(a)(1) or (a)(2), the
    13        bankruptcy court must first determine if the debtor
    experienced a substantial and unanticipated change in
    14        his post-confirmation financial condition. This
    inquiry will inform the bankruptcy court on the
    15        question of whether the doctrine of res judicata
    prevents modification of the confirmed plan. If the
    16        change in the debtor’s financial condition was either
    insubstantial or anticipated, or both, the doctrine of
    17        res judicata will prevent the modification of the
    confirmed plan. However, if the debtor experienced
    18        both a substantial and unanticipated change in his
    19
    3
    20          Section 1327(a) addresses the finality of chapter 13 plan
    confirmation orders: “The provisions of a confirmed plan bind
    21   the debtor and each creditor, whether or not the claim of such
    creditor is provided for by the plan, and whether or not such
    22
    creditor has objected to, has accepted, or has rejected the
    23   plan.” We have observed that “‘[t]he purpose of § 1327(a) is
    the same as the purpose served by the general doctrine of res
    24   judicata. There must be finality to a confirmation order so
    that all parties may rely upon it without concern that actions
    25   which they may thereafter take could be upset because of a later
    26   change or revocation of the order . . . .’” Great Lakes Higher
    Educ. Corp. v. Pardee (In re Pardee), 
    218 B.R. 916
    , 923 (9th
    27   Cir. BAP 1998), aff’d 
    193 F.3d 1083
     (9th Cir. 1999). We use the
    term res judicata in its generic sense to encompass the claim
    28   preclusion and issue preclusion doctrines.
    -11-
    1        post-confirmation financial condition, then the
    bankruptcy court can proceed to inquire whether the
    2        proposed modification is limited to the circumstances
    provided by § 1329(a). If the proposed modification
    3        meets one of the circumstances listed in § 1329(a),
    then the bankruptcy court can turn to the question of
    4        whether the proposed modification complies with
    § 1329(b)(1).
    5
    6   Id. at 150 (citing Arnold v. Weast (In re Arnold), 
    869 F.2d 240
    ,
    7   243 (4th Cir. 1989).
    8        The First, Fifth and Seventh Circuits have rejected this
    9   approach and do not impose on parties seeking to modify a
    10   confirmed plan the threshold requirement of the substantial
    11   unanticipated change test.   See Barbosa v. Soloman, 
    235 F.3d 31
    ,
    12   41 (1st Cir. 2000), Meza v. Truman (In re Meza), 
    467 F.3d 874
    ,
    13   878 (5th Cir. 2006), and In re Witkowski, 
    16 F.3d 739
    , 746 (7th
    14   Cir. 1994) all holding that no change in circumstances is
    15   required.   The Ninth Circuit has not directly ruled on the issue
    16   but in Anderson v. Satterlee (In re Anderson), 
    21 F.3d 355
    , 358
    17   (9th Cir. 1994) suggested in dicta that the substantial and
    18   unanticipated change test applies.4   See Pak v. eCast Settlement
    19   Corp. (In re Pak), 
    378 B.R. 257
    , 268 (9th Cir. BAP 2007).
    20        Although dicta from the Ninth Circuit is persuasive, we are
    21   bound only by the Ninth Circuit’s holdings and not by the
    22   court’s election, whether express or implied, to leave open
    23
    24
    4
    In In re Anderson, which was not a plan modification
    25   case, the Ninth Circuit stated that the trustee can request a
    26   modification under § 1329(a), but bears “the burden of showing a
    substantial change in debtor’s ability to pay since the plan was
    27   confirmed and that the prospect of that change had not already
    been taken into account at the time of confirmation.” 
    21 F.3d 28
       at 358.
    -12-
    1   particular legal questions.5    However, in interpreting a
    2   statute, we have been instructed to follow the plain meaning
    3   rule and apply a statute according to its terms unless to do so
    4   would lead to absurd results.    U.S. Trustee v. Lamie, 
    540 U.S. 5
       526, 534 (2004).   As a consequence, we have traditionally taken
    6   a plain meaning approach to statutory interpretation questions.
    7   For this reason, in In re Powers, Max Recovery, Inc. v. Than (In
    8   re Than), 
    215 B.R. 430
    , 435 (9th Cir. BAP 1997), and McDonald v.
    9   Burgie (In re Burgie), 
    239 B.R. 406
    , 409 (9th Cir. BAP 1999), we
    10   held that the res judicata doctrine did not apply to plan
    11   modifications and, therefore, the substantial and unanticipated
    12   change test was unnecessary as a threshold requirement because
    13   the plain language of § 1329 did not support this judicially
    14   created requirement.6   See also Ledford v. Brown (In re Brown),
    15   
    219 B.R. 191
    , 195 (6th Cir. BAP 1998) (same).
    16        Despite our not adopting the substantial and unanticipated
    17
    5
    For this same reason, we are not convinced that the
    18
    Supreme Court’s dicta in Ransom v. FIA Card Servs., N.A., ___
    19   U.S. ___, 
    131 S. Ct. 716
     (2011) fares any better. The issue in
    Ransom also was not about plan modification but whether the
    20   debtor was entitled to a car-ownership deduction for purposes of
    the means test when he owned his car free and clear. The
    21   Supreme Court held that the debtor was not entitled to a
    22   deduction expense for a vehicle which he did not have. The
    court further held that “[t]he appropriate way to account for
    23   unanticipated expenses like a new vehicle purchase is not to
    distort the scope of a deduction, but to use the method that the
    24   Code provides for all Chapter 13 debtors (and their creditors):
    modification of the plan in light of changed circumstances.”
    25   
    Id. at 730
    .
    26        6
    We are bound by these prior decisions. Ball v.
    27   Payco–Gen. Am. Credits, Inc. (In re Ball), 
    185 B.R. 595
    , 597
    (9th Cir. BAP 1995) (holding that the Panel is bound by
    28   decisions of prior Panels).
    -13-
    1   change test as a prerequisite to plan modification, we have
    2   held, as did the Seventh Circuit in In re Witkowski, that the
    3   bankruptcy court may consider a change in circumstances in the
    4   exercise of its discretion.   In re Powers, 202 B.R. at 623.    In
    5   the end, in evaluating plan modifications, it may make little
    6   practical difference whether the bankruptcy court applies the
    7   substantial and unanticipated change test as a threshold
    8   requirement or uses it as a discretionary tool.7
    9        In light of this background, and the purpose behind the
    10   substantial and unanticipated change test, we conclude that to
    11   the extent the bankruptcy court applied the test it was harmless
    12   error given that Debtors did experience a substantial and
    13   unanticipated change in their post-confirmation income.    Thus,
    14
    15        7
    As the bankruptcy court in In re Klus, 
    173 B.R. 51
    , 58
    16   (Bankr. D. Conn. 1994) noted:
    17        There may be little practical difference between those
    two positions. The plain language of subsection (3)
    18        of § 1329(a) requires a post-confirmation change in
    19        circumstances, i.e. payment on the claim outside of
    the plan. While subsections (1) and (2) contain no
    20        such requirement, the significance of that fact is
    limited by § 1329(b)(1), which requires that the
    21        modified plan comply with § 1325(a). If, for example,
    a creditor seeks to modify the plan to increase
    22
    payments to the unsecured creditor class under
    23        § 1329(a)(1), the modification cannot be approved
    unless the debtor has the ability to make the
    24        increased payments. See § 1325(a)(6). If the debtor
    has satisfied the obligation to use all disposable
    25        income to fund the plan, see § 1325(b), the creditor’s
    26        modification will be disapproved unless there has been
    a post-confirmation improvement in the debtor’s
    27        financial circumstances. Conversely, any effort by
    the debtor to reduce payments is circumscribed by the
    28        good faith requirement of § 1325(a)(3) . . . .
    -14-
    1   even under the Fourth Circuit’s more stringent standard, the
    2   doctrine of res judicata did not prevent Debtors from modifying
    3   their plan under § 1329(a)(1) or (2).8    Nevertheless, the
    4   bankruptcy court was still required to determine whether
    5   Debtors’ proposed modification to reduce the term of their plan
    6   complied with § 1329(b)(1) and its cross reference to the good
    7   faith requirement under § 1325(a)(3).
    8        In this regard, the bankruptcy court acknowledged our
    9   holding in In re Sunahara that § 1329(b)(1) does not reference
    10   or otherwise incorporate the provisions concerning the
    11   disposable income test and applicable commitment period
    12   contained in § 1325(b).9    See also In re Hall, 
    442 B.R. at
    761
    13   (holding because § 1329 does not include any reference to
    14   § 1325(b), even though § 1329 includes specific reference to
    15
    16
    8
    Whether Debtors should have been allowed to modify their
    17   plan by increasing plan payments under § 1329(a)(1) is not at
    issue in this appeal.
    18
    9
    19            Section 1325(b)(1) states:
    20        If the trustee or the holder of an allowed unsecured
    claim objects to the confirmation of the plan, then
    21        the court may not approve the plan unless, as of the
    effective date of the plan——
    22
    23        (A) the value of the property to be distributed under
    the plan on account of such claim is not less than the
    24        amount of such claim; or
    25        (B) the plan provides that all of the debtor’s
    26        projected disposable income to be received in the
    applicable commitment period beginning on the date
    27        that the first payment is due under the plan will be
    applied to make payments to unsecured creditors under
    28        the plan.
    -15-
    1   other Code sections, the requirements of § 1325(b) should not be
    2   applicable to § 1329 modifications).10   As a result, if a
    3   debtor’s plan modification was challenged, he or she need not
    4   show that all of their projected disposable income was devoted
    5   to making plan payments under the modified plan.   In re
    6   Sunahara, 
    326 B.R. at 781-82
    .
    7        However, as the bankruptcy court aptly observed, In re
    8   Sunahara did not leave a wide open field for modifications to be
    9   approved.   In re Mattson, 
    456 B.R. at 79
    ; see also Barbosa, 235
    10   F.3d at 41 (noting that “as a practical matter, parties
    11   requesting modifications of Chapter 13 plans must advance a
    12   legitimate reason for doing so”); In re Powers, 202 B.R. at 622
    13   (“Although a party has an absolute right to request modification
    14   between confirmation and completion of the plan, modification
    15   under § 1329 is not without limits.”); In re Meeks, 
    237 B.R. 16
       856, 859-60 (Bankr. M.D. Fla. 1999) (“[T]he Debtors need not
    17   demonstrate a substantial, unanticipated change in circumstances
    18   in order to modify their confirmed chapter 13 plan.   However,
    19   neither can Chapter 13 debtors simply modify their plans willy
    20   nilly.”).
    21        The Sunahara Panel held that
    22        [I]mportant components of the disposable income test
    are employed as part of a more general analysis of the
    23        total circumstances militating in favor of or against
    the approval of modification, without requiring
    24        tortured and illogical statutory interpretations
    (where the outcome differs depending upon which party
    25
    26        10
    Although there is a split of authority on this issue, the
    27   majority of courts hold that post-confirmation modifications are
    not governed by § 1325(b). In re Grutsch, 
    453 B.R. 420
    , 424 &
    28   n.14 (Bankr. D. Kan. 2011) (collecting cases).
    -16-
    1        is seeking modification, whether a certain party has
    objected, or whether ‘extraordinary circumstances’
    2        exist, etc.).
    3   
    326 B.R. at 781
    .    Thus, the Panel instructed the bankruptcy
    4   court to “carefully consider whether modification has been
    5   proposed in good faith.”    
    Id.
     (citing § 1325(a)(3)).   We
    6   reasoned that a good faith determination
    7        necessarily requires an assessment of a debtor’s
    overall financial condition including, without
    8        limitation, the debtor’s current disposable income,
    the likelihood that the debtor’s disposable income
    9        will significantly increase due to [greater] income or
    decreased expenses over the remaining term of the
    10        original plan, the proximity of time between
    confirmation of the original plan and the filing of
    11        the modification motion, and the risk of default over
    the remaining term of the plan versus the certainty of
    12        immediate payment to creditors.
    13   Id. at 781-82; see also In re Grutsch, 
    453 B.R. at 427
     (“‘The
    14   good faith requirement of § 1325(a)(3) fills the gap that would
    15   otherwise exist, allowing all parties to object to inappropriate
    16   payment terms——whether excessive or inadequate——in a proposed
    17   modification.’”).
    18        Here, the bankruptcy court believed that the good faith
    19   test lacked predictability and therefore added the requirements
    20   of the substantial and unanticipated change test and that the
    21   change in the plan correlate to the change in circumstances.
    22   
    456 B.R. at 82
    .    We conclude that the bankruptcy court’s second
    23   requirement——that the proposed modification correlate to
    24   Debtors’ change in circumstances——necessarily implicates a good
    25   faith analysis.    See In re Savage, 
    426 B.R. 320
    , 324 & n.3
    26   (Bankr. D. Minn. 2010) (in order to comply with the “good faith”
    27   requirement of § 1325(a)(3), “the required change in financial
    28   circumstances should be directly resonant with the nature of the
    -17-
    1   proposed modification”).11   Indeed, we view the bankruptcy
    2   court’s correlation requirement as simply another factor that
    3   may be considered under the totality of circumstances approach
    4   to a good faith analysis in this Circuit.   We emphasize,
    5   however, that no single factor is determinative of the lack of
    6   good faith.
    7        Contrary to the bankruptcy court’s belief that the good
    8   faith test lacks predictability, we continue to accept that a
    9   good faith analysis under § 1325(a)(3), although not an exact
    10   science, adequately guides the exercise of the court’s
    11   discretion for deciding plan modification issues.
    12        [O]ur reliance in Sunahara on the § 1325(a)(3) good
    faith standard is vulnerable to criticism that it
    13        introduces a level of subjectivity that could yield
    disparate results. That subjectivity, however, is
    14        constrained by settled law of the circuit that good
    faith is to be assessed through the matrix of whether
    15        the plan proponent ‘acted equitably’ taking into
    account ‘all militating factors’ in a manner that
    16        equates with the ‘totality’ of circumstances.
    17   Fridley v. Forsythe (In re Fridley), 
    380 B.R. 538
    , 543 (9th Cir.
    18   BAP 2007) (citation omitted).   Thus, the Fridley Panel dismissed
    19   the argument that adopting the reasoning in In re Sunahara would
    20   license “circumvention of § 1325(b) by the ploy of confirming a
    21   plan that complies with § 1325(b) and then promptly modifying
    22
    11
    23          Similar to the bankruptcy court here, the bankruptcy
    court in In re Savage required that any modification that would
    24   reduce a debtor’s payment obligations and creditors’
    distribution rights to be supported by a material, adverse
    25   change in the debtor’s financial circumstances, that took place
    26   after the confirmation of the original plan. 
    426 B.R. at 324
    .
    Recently, the Eighth Circuit Bankruptcy Appellate Panel in
    27   Johnson v. Fink (In re Johnson), 
    458 B.R. 745
    , 749 (8th Cir. BAP
    2011) has cited with approval the holdings in In re Savage and
    28   In re Mattson.
    -18-
    1   the plan in a manner that does not comply with § 1325(b).    Such
    2   a stratagem plainly would be an unfair manipulation of the
    3   Bankruptcy Code, which is a factor named in Goeb as indicative
    4   of a plan proponent not acting equitably and, hence, not in good
    5   faith.”   Id.
    6        The “settled law” in this Circuit referred to by In re
    7   Fridley demonstrates that the good faith test under § 1325(a)(3)
    8   is neither ill-defined nor does it lack a predictable base.   In
    9   In re Goeb, the Ninth Circuit set forth a generalized test for
    10   good faith that includes consideration of the substantiality of
    11   proposed plan payments; whether the debtor has misrepresented
    12   facts in the plan; whether the debtor has unfairly manipulated
    13   the Bankruptcy Code; and whether the plan is proposed in an
    14   equitable manner.   
    675 F.2d at 1390
    .   At the very least, these
    15   factors direct attention away from the amorphous good faith
    16   concept, bringing relevant facts to the foreground.    Moreover,
    17   the standards set forth in In re Goeb offer a solid framework
    18   for evaluating a variety of circumstances, which is consistent
    19   with the discretionary aspect of plan modifications.   At bottom,
    20   determinations of good faith are made on a case-by-case basis,
    21   after considering the totality of the circumstances.   
    Id.
    22   Finally, bankruptcy courts are not free to ignore the concept of
    23   good faith in plan modifications given that § 1329 specifically
    24   references § 1325(a) and its good faith requirement.
    25        The bankruptcy court’s holding and the facts of this case
    26   fit within a conventional good faith analysis.   The burden of
    27   establishing that a plan is submitted in good faith is on the
    28   debtor.   Fid. & Cas. Co. of N.Y. v. Warren (In re Warren), 89
    -19-
    
    1 B.R. 87
    , 93 (9th Cir. BAP 1988); see also In re Hall, 
    442 B.R. 2
       at 758 (moving party bears the burden of showing sufficient
    3   facts to indicate that modification of debtors’ confirmed
    4   chapter 13 plan is warranted).    Further, the bankruptcy court
    5   has an independent duty to determine whether a chapter 13 plan
    6   is proposed in good faith.   Villanueva v. Dowell (In re
    7   Villanueva), 
    274 B.R. 836
    , 841 (9th Cir. BAP 2002).
    8        Here, the record shows Debtors failed to meet their burden
    9   of proving that the shortened term of their plan was made in
    10   good faith under the Goeb standards.    Those standards clearly
    11   require more than a showing of Debtors’ subjective good faith.
    12   Simply put, Debtors’ contribution of a portion of their
    13   increased income to their plan for a three year period does not
    14   amount to per se good faith.
    15        Indeed, the bankruptcy court considered whether Debtors’
    16   proposal was made in good faith in light of the relevant
    17   militating factors.   The court found Debtors were not retiring,
    18   leaving the employment market or changing jobs in some other way
    19   nor did they contend they had health issues.    Debtors do not
    20   dispute these findings on appeal nor do they point to any facts
    21   in the record which showed they would be unable to continue
    22   their increased payments beyond the 36 month period that they
    23   proposed.   Although the doctrine of res judicata did not prevent
    24   Debtors from shortening the term of their plan, they advanced no
    25   legitimate reason for doing so under the circumstances.
    26        As a consequence, in light of Debtors’ increased income,
    27   allowing them to shorten the term for their plan would be an
    28   inequitable result under In re Goeb.    See also In re Stitt, 403
    -20-
    
    1 B.R. 694
    , 703 (Bankr. D. Idaho 2008) (noting that the “good
    2   faith requirement of § 1325(a)(3) gauges the overall fairness of
    3   a debtor’s treatment of creditors under a plan”).    In addition,
    4   Debtors’ proposed modification to shorten the term of the plan
    5   when their income significantly increased is inconsistent with
    6   the overall policies of chapter 13 and the enactment of BAPCPA,
    7   which “has been read to tighten, not loosen, the ability of
    8   debtors to avoid paying what can reasonably be paid on account
    9   of debt.”    In re Kamell, 
    451 B.R. 505
    , 508 (Bankr. C.D. Cal.
    10   2011).    As the bankruptcy court aptly noted, “there is clearly
    11   more that could——in ‘good faith’——be paid to their creditors.”
    12   In re Mattson, 
    456 B.R. at 79
    .
    13        Finally, we emphasize that the continued absence from
    14   § 1329(b)(1) of any reference to § 1325(b) is conclusive as to
    15   whether a debtor may modify his or her plan to reduce the term
    16   below the applicable commitment period required for an original
    17   plan.    “Congress is presumed to act intentionally and
    18   purposefully when it includes language in one section of the
    19   Bankruptcy Code, but omits it in another section.”    In re Ewers,
    20   
    366 B.R. at 143
    .    Congress, aware of the function of the means
    21   test in chapter 13 relating to confirmation of original plans,
    22   did not amend § 1329(b)(1) to incorporate § 1325(b).      As noted
    23   by the bankruptcy court in In re Ewers, “BAPCPA added the term
    24   [applicable commitment period] in § 1329(c), which deals with
    25   the maximum length of a modified plan, obviously as a conforming
    26   amendment. . . .    ‘Three years’ in § 1329(c) was switched to
    27   ‘the applicable commitment period under section 1325(b)(1)(B),’
    28   no doubt, to be harmonious with § 1325(b).”    Id. at 143.   Having
    -21-
    1   taken the opportunity to amend § 1329(c), Congress’s decision
    2   not to amend § 1329(b) may be seen as deliberate.
    3        Therefore, the plain language of § 1329(a)(2), which
    4   authorizes modifications to extend or reduce the time for
    5   payments under the plan, continues to control.    As the
    6   bankruptcy court correctly acknowledged, a debtor’s
    7   circumstances may justify a reduction in plan length.      Mattson,
    8   
    456 B.R. at
    83 (citing In re Ewers, 
    366 B.R. 139
    ).12    In the end,
    9   the appropriateness of any particular modification is subject to
    10   the court’s discretion, as limited by § 1329.
    11                            VI.   CONCLUSION
    12        For the reasons stated, we conclude that the bankruptcy
    13   court did not abuse its discretion in denying Debtors’ proposed
    14   modification to shorten the term of their plan.    Accordingly, we
    15   AFFIRM.
    16
    17
    18
    19
    20
    21
    22
    23
    12
    Although the trustee cites Maney v. Kagenveama (In re
    24   Kagenveama), 
    541 F.3d 868
     (9th Cir. 2008), we do not find this
    decision persuasive for purposes of this appeal. As the
    25   bankruptcy court in In re Stitt observed, “while Kagenveama
    26   guides bankruptcy courts in interpreting certain new terms in
    the Code, it does not require them to retreat from the pointed,
    27   case-by-case analysis used to determine whether a plan has been
    proposed in good faith as formulated in its earlier decisions.”
    28   403 B.R. at 702.
    -22-
    

Document Info

Docket Number: WW-11-1478-JuHKi

Filed Date: 4/5/2012

Precedential Status: Precedential

Modified Date: 12/3/2014

Authorities (29)

In Re Julian Roosevelt Goeb and Jane Alma Goeb, Debtors. In ... , 675 F.2d 1386 ( 1982 )

In Re Francis A. Arnold, A/K/A Frank Arnold, Debtor. ... , 869 F.2d 240 ( 1989 )

In the Matter of Ronald J. Witkowski, Debtor-Appellant , 16 F.3d 739 ( 1994 )

In Re Ewers , 2007 Bankr. LEXIS 1267 ( 2007 )

Ball v. Payco-General American Credits, Inc. (In Re Ball) , 95 Daily Journal DAR 11731 ( 1995 )

Ledford v. Brown (In Re Brown) , 1998 FED App. 0008P ( 1998 )

Villanueva v. Dowell (In Re Villanueva) , 2002 Daily Journal DAR 3489 ( 2002 )

Pak v. eCast Settlement Corp. (In Re Pak) , 2007 Bankr. LEXIS 4238 ( 2007 )

Fridley v. Forsythe (In Re Fridley) , 380 B.R. 538 ( 2007 )

In Re Savage , 63 Collier Bankr. Cas. 2d 1096 ( 2010 )

In Re Kamell , 2011 Bankr. LEXIS 1738 ( 2011 )

In Re Grutsch , 2011 Bankr. LEXIS 2569 ( 2011 )

In Re Hall , 64 Collier Bankr. Cas. 2d 70 ( 2010 )

in-re-bruce-l-siriani-mark-w-stevens-philip-j-andrews-debtors-bruce-l , 967 F.2d 302 ( 1992 )

In Re Mattson , 2011 Bankr. LEXIS 3325 ( 2011 )

Johnson v. Fink (In Re Johnson) , 458 B.R. 745 ( 2011 )

Ransom v. FIA Card Services, N. A. , 131 S. Ct. 716 ( 2011 )

In Re Jonathan Barnes Leavitt, Debtor. Jonathan Barnes ... , 171 F.3d 1219 ( 1999 )

United States v. Hinkson , 585 F.3d 1247 ( 2009 )

In Re Klus , 32 Collier Bankr. Cas. 2d 208 ( 1994 )

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