Opinion
Case No. 06-50198.
July 18, 2007
ORDER GRANTING MOTION TO MODIFY DEBTORS' CHAPTER 13 PLAN
This cause came on for hearing on May 31, 2007, upon the Motion to Modify Debtors' Chapter 13 Plan filed by the Trustee, Frank M. Pees (Doc. #24), and the response filed by the joint Debtors, Tony and Laura Storey (Doc. # 25). The Trustee moves to modify the Debtors' confirmed plan to increase the dividend from 7% to 50%. The Trustee asserts that based on the claims filed, the projected length is less than the applicable commitment period required by § 1325(b) of the Bankruptcy Code, and by raising the dividend to 50%, it will cause the Plan to meet the applicable commitment period.
The facts material to this dispute are uncontested and may be summarized as follows:
The Debtors filed a Petition for Relief under Chapter 13 of the Bankruptcy Code on January 20, 2006. In due course, the Debtors' Chapter 13 plan was confirmed on March 30, 2006; the Plan provided for a dividend of seven percent (7%) to unsecured creditors. The Debtors' current monthly income is above the median income for a family of like household size in Ohio. As a result, the applicable commitment period for the Debtors' Plan mandated by § 1325(b) is 60 months. The estimated unsecured debt according to the Debtors' Schedule F is $76,444.73. It appears that unsecured claims filed in the case total $82,098.61.
The Debtors first response to the Trustee's Motion is grounded in the theory that an order confirming the Plan operates as res judicata, and thus, an unanticipated and substantial change in a debtor's circumstances is a prerequisite to modification of a confirmed Chapter 13 plan under § 1329.
Section 1329 provides in pertinent part as follows:
(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;. . . .
The Fourth Circuit Court of Appeals has held that a substantial change in a debtor's financial condition is required for post-confirmation modification. Arnold v. Weast (In re Arnold), 869 F.2d 240 (4th Cir. 1989). Concurring with this decision, the court in In re Fitak, 121 B.R. 224 (S.D. Ohio 1990), found, "while the doctrine of res judicata may indeed bar an increase in payments it does so only in the absence of unanticipated, substantial changes in the debtor's financial situation." In re Fitak, 121 B.R. at 226.
However, other courts have held the opposite. In In re Brown, the court concluded that an "unanticipated and substantial change in the debtor's circumstances is not a prerequisite to post-confirmation modification under § 1329." Ledford v. Brown (In re Brown), 219 B.R. 191, 195 (B.A.P. 6th Cir. 1998). Citing with approval the Seventh Circuit Court of Appeals decision of Inthe Matter of Witkowski, 16 F.3d 739, 744 (7th Cir. 1994), theBrown court noted "the mechanism to change the binding effect of § 1327 is § 1329 which allows for modifications." Brown, 219 B.R. at 194. As noted by the Seventh Circuit, if the drafters of the Bankruptcy Code intended for an order of confirmation to operate as res judicata, there would be little or no reason for § 1329.Witkowski, 16 F. 3d at 745. It is well settled that the courts are to interpret a statutory scheme in order to give effect to every provision, if possible. This provision makes it clear that Congress did not intend the common law doctrine of res judicata to apply to § 1329 modifications." Brown, 219 B.R. at 194.
This ruling was endorsed by Judge J. Vincent Aug, Jr. and Judge Jeffrey P. Hopkins of this district in In re Fields, 269 B.R. 177 (Bankr. S.D. Ohio 2001); the Fields court found that post-confirmation modification under § 1329 is within the discretion of the court after consideration of the totality of the circumstances. "The proposed modification is to be examined in light of the requirements set forth in § 1329(b) and (c) (which include all of the confirmation standards set forth in § 1329(a)) as well as the equities of the situation." Fields, 269 B.R. at 180.
This Court agrees with the Sixth Circuit Bankruptcy Appellate Panel decision in In re Brown: an unanticipated and substantial change in a debtor's circumstances is not required for post-confirmation modification under § 1329. Furthermore, the plain language of § 1329 neither requires nor even references a requirement of a substantial change. This Court joins the Fields court and holds that a substantial change in a debtor's circumstances is a factor that can be considered in the context of a request for modification of a chapter 13 plan, but is not required.
The Trustee additionally indicated to the Court at the hearing that some of the impetus behind his Motion was an error made by the Trustee's office which resulted in his recommendation in support of confirmation of the Debtors' Plan. The original projection by the Trustee indicated the plan projection met the applicable commitment period; however, the Trustee included a secured claim twice in his calculation. When this mistake is corrected, the Debtors' Plan (with a 7% dividend) does not meet the applicable commitment period required by § 1325(b), according to the Trustee's calculations, which are not disputed by the Debtors. In light of this, the Trustee could have filed a motion to set aside the order of confirmation under 60(b) of the Federal Rules of Civil Procedure on the basis of mistake.
The Debtors' second defense to the Trustee's Motion rests on the argument that the term "applicable commitment period" as used in § 1325(b) is not a temporal requirement, but rather is merely a multiplicand, utilized only for the purpose of determination of the minimum dividend to be paid unsecured creditors. They assert that their Plan as confirmed meets the requirements of Chapter 13 of the Bankruptcy Code, even though they will be remitting to the Trustee payments for only 27 months.
Section 1325(b) provides in pertinent part as follows:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan —
. . .
(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
. . .
(4) For purposes of this sub-section, the `applicable commitment period' —
(A) subject to subparagraph (B), shall be —
(I) 3 years; or
(ii) not less than 5 years, if the current monthly income of the debtor and the debtor's spouse, combined, when multiplied by 12 is not less than
. . .
(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals[.]
11 U.S.C. § 1325 (emphasis supplied).
The meaning of the term "applicable commitment period" has been addressed by several bankruptcy courts, including two in the Sixth Circuit which found the term "applicable commitment period" to be temporal in nature, determining plan length.
In In re Davis, 348 B.R. 449 (Bankr. E.D. Mich. 2006), the court found that using the applicable commitment period as a monetary term is a gross departure from the pre-BAPCPA practice and is unjustified under the plain language of the statute. Therefore, the court concluded that it would not abandon the pre-BAPCPA minimum length requirement absent clear instruction from Congress. Joining this position, in In re Grant, 2007 WL 858805 (Bankr. E.D. Tenn. 2007), the court concluded "`[A]pplicable commitment period' is a temporal measurement. . . . The debtor is . . . required to propose a plan of either 3 or 5 years, depending on . . . income." Grant, 2007 WL 858805 at *9. The Court need not repeat here the reasoning of the Davis and Grant courts; suffice it to say that this Court concurs and agrees that the "applicable commitment period" is a temporal term determining plan length. This is the plain language of the statute. If Congress intended to create a mathematical formula, it knows how to do so with the use of the word "multiply," as illustrated in numerous other provisions in the Bankruptcy Code. Davis, 348 B.R. at 456. Accordingly, inasmuch as modification of a chapter 13 plan must be consistent with the statutory requirements for confirmation, the Debtors must commit to their Plan all of their projected disposable monthly for a period of 60 months.
Brown, 219 B.R. at 194.
Therefore, although there is no substantial change in the Debtors' circumstances, the Debtors' Plan must be modified to increase the dividend from 7% to 50%, so that the Plan will meet the applicable commitment period that is required under § 1325. Accordingly, it is
ORDERED AND ADJUDGED that the Trustee's Motion to Modify the Confirmed Plan filed by the Trustee, Frank M. Pees (Doc. #24) is GRANTED, and the Debtors' Chapter 13 Plan is modified to increase the unsecured creditors' dividend to 50%.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.