May 10, 2006
MEMORANDUM OF DECISION
This matter was set for hearing on the Chapter 13 trustee's motion to modify the debtor's plan to increase distribution to unsecured creditors (Bk Doc. 74) and on debtor Eleanor James-Rumley's objection to the trustee's motion. (Bk Doc. 77) The court has reviewed the evidence in the context of applicable law and finds the trustee's motion must be DENIED, and the debtor's objection must be SUSTAINED.
FINDINGS OF FACT
The parties stipulated at a February 23, 2006 hearing that there is no dispute as to the facts giving rise to this motion and objection:
January 17, 2001, Eleanor James-Rumley filed her Chapter 13 bankruptcy petition with the court. James-Rumley included a schedule of assets with the petition. It did not list any prepetition causes of action against any party as her property; and, consequently, of the bankruptcy estate. The debtor also submitted a proposed reorganization plan, which provided that she would pay Chapter 13 Trustee C. David Cottingham $525.00 per month for 60 months to pay an approximate $31,500.00 in prepetition debt. She proposed to pay 0% percent to her unsecured creditors under the plan.
Following an April 3, 2001 hearing, the court entered an order of confirmation (BK Doc. 15, original NIBS Doc. 14) which set the term of the debtor's plan at 60 months, and required James-Rumley to pay $620.00 per month to the trustee, a higher plan payment than originally proposed. The confirmed plan also provided that the unsecured claims would be paid 0%, as originally proposed. Paragraph 4 of the confirmation order stated that "the property of the estate shall not vest in the debtor until the discharge is granted under Section 1328 or the case is dismissed." Subsequent to confirmation, the debtor's plan payments were modified several times: to $776.00 per month (Bk Doc. 22, original NIBS Doc. 21); to $670.00 per month (Bk Doc. 27, original NIBS Doc. 26); and to $560.00 per month (Bk Doc. 36, original NIBS Doc. 35). No other provisions of the confirmation order were modified by these adjustments of the payments.
On November 9, 2004, Bankruptcy Administrator Joseph E. Bulgarella filed a motion for status conference, stating at Paragraph 5 that "upon information and belief, a cause of action is pending." (BK Doc. 38) At that time, the debtor's schedule of assets had not been amended to reflect any lawsuit. December 3, 2004, the law firm of Utsey Utsey filed an application to be employed to represent the debtor (Bk Doc. 42). This application stated that the firm was representing James-Rumley in an ongoing litigation filed August 22, 2003 in the Circuit Court of Sumter County, Alabama. December 9, 2004, the court entered an order approving the employment of Utsey Utsey as attorneys for debtor in the state court action. (Bk Doc. 44) A copy of this order was also provided to the Chapter 13 trustee. The parties stipulated at the February 23, 2006 hearing that the lawsuit was based on prepetition occurrences, although it was actually filed postpetition in 2003.
On June 24, 2005, Utsey Utsey filed a motion requesting compensation and expenses for their services on James-Rumley's behalf (Bk Doc. 53); and followed up on June 27, 2005, with a motion to approve settlement of the pending state court action (Bk Doc. 55). These matters were set for hearing July 28, 2005 with notice to the Chapter 13 Trustee. No objections were filed to the proposed compensation and settlement. An order was entered August 2, 2005 approving the compromise and awarding the fees to debtor's state court counsel. (Bk Doc. 65)
At this point, the debtor still had not amended her schedules to reflect that she had a pending cause of action, nor had the trustee filed any motion to amend the confirmed plan to increase the percentage paid to unsecured creditors. After the approval order was entered, the trustee testified that on October 18, 2006 he received a lump sum payment which was sufficient to pay all allowed claims in the case at the amount provided for in the original confirmation order.
After payment to the trustee, the debtor on December 28, 2005, amended Schedule B of her petition to reflect the state court suit as property (Bk Doc. 71); and amended her Schedule C to claim $1,875.00 of the proceeds as exempt. (Bk Doc. 72) January 4, 2006, the trustee filed a motion to amend the plan to increase the distribution to unsecured creditors from the originally confirmed 0% to 41% based on the debtor's "disposable income". He based his percentage on a continued payment of $560.00 per month. (Bk Doc. 74)
January 11, 2006, the debtor objected to the trustee's proposed modification (Bk Doc. 77), asserting that the trustee was barred from amending the plan pursuant to 11 U.S.C. § 1329. The debtor contended the proceeds belonged to her, and not to her prepetition bankruptcy estate.
The parties stipulated at hearing that the debtor had paid the trustee's office enough money to pay all allowed claims under the plan by the time the trustee filed his January of 2006 motion to modify. The parties also agreed that the trustee had not yet distributed these funds to creditors when he filed the motion. It was not until the trustee's February 2006 distribution that the money actually went out to creditors to pay all claims provided for in the original plan. The trustee stated at the February of 2006 hearing, that he had not filed a final report of a completed plan, nor had James-Rumley's discharge been entered.
The trustee has not accused the debtor of attempting to defraud her creditors or otherwise showing affirmative bad faith because she failed to list the cause of action earlier in the case.
The parties also agreed that the dispute turned on whether the trustee's motion was filed timely under the "completion of payments under such plan" language in Section 1329(a). The debtor's counsel contended the motion was untimely filed, and due to be denied based on this language. The trustee asked the court to find that, since the motion was filed in the 59th month of what was a 60-month plan, it was timely and that he be allowed to distribute funds to unsecured creditors.
The court took the issue under submission for a decision following the hearing.
CONCLUSIONS OF LAW
This court has jurisdiction of Eleanor James-Rumley's Chapter 13 bankruptcy case pursuant to 28 U.S.C. § 1334(a). The court has jurisdiction of this contested matter, a core bankruptcy proceeding arising under 11 U.S.C. § 1329, under 28 U.S.C. § 1334(b). Jurisdiction is referred to this Bankruptcy Court by the General Order of Reference of the United States District Courts for the Northern District of Alabama, signed July 16, 1984, As Amended July 17, 1984.
Section 1329 (a) of the Bankruptcy Code provides the following:
Modification of plan after confirmation
(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; . . . (emphasis added)
Cottingham sought to amend James-Rumley's plan to allow a distribution to unsecured creditors, a valid statutory reason for modification under Section 1329(a)(1). The only legal dispute between the parties is as to the timeliness of the trustee's motion. At hearing, the parties argued the varying court interpretations of the phrase "before the completion of payments under such plan . . .", including: 1. When the debtor has made all payments required by the plan as confirmed (generally, the debtor's position), see In re Phelps, 149 B.R. 534, 539 (Bankr. N.D. Ill. 1993); 2. When the debtor has paid the trusteeand the trustee has actually paid the debtor's plan creditors in full (generally, the trustee's position) see In re Casper, 153 B.R. 544, 548 (Bankr. N.D. Ill. 1993), rev'd by Casper v. McCullough (Matter of Casper), 154 B.R. 243, 247 (N.D. Ill. 1993); or 3. When the stated term of the plan ends (be that at the end of 36 or 60 months) (also the trustee's position).
The court's review finds that published case law almost universally interprets the phrase to mean the first alternative — when the debtor has delivered the entire amount due under the plan to the trustee. However, the court has not located a case in which all the facts are equivalent to the James-Rumley circumstance.
The following are samples of the opinions taking the majority view, but which are nevertheless distinguishable, to one degree or another, from this debtor's case:
See In re Bergolla, 232 B.R. 515, 516 (Bankr. S.D. Fla. 1999) (Debtors paid the trustee a lump sum only five months into their plan equaling the entire amount due in the remaining 56 months. The court held ". . . [t]he Debtors should receive a discharge when, in good faith, the balance of a confirmed Chapter 13 Plan is paid early using proceeds from the sale of exempt property, in this case homestead property.");
Casper v. McCollough (Matter of Casper), 154 B.R. 243, 247 (N.D. Ill. 1993), rev'g In re Casper, 153 B.R. 544 (Bankr. N.D. Ill. 1993) ("completion of payments" under Section 1329(a) occurs when the debtor pays the trustee the full amount needed to pay off creditors as provided in plan);
In re Sounakhene, 249 B.R. 801, 806 (Bankr. S.D. Cal. 2000) (where debtors refinanced their home to pay the trustee a lump sum before expiration of the 36-month term of plan, the court held the trustee could not modify the plan to increase distribution to unsecured creditors under Section 1329(a) because debtors had completed all payments under the plan);
In re Jacobs, 263 B.R. 39, 44 (Bankr. N.D.N.Y. 2001) (where debtors had paid more than the plan required over its full term, trustee could not later modify their plan under Section 1329(a) to retrieve subsequent $20,000.00 settlement for prepetition creditors);
In re Smith, 237 B.R. 621, 626 (Bankr. E.D. Tex. 1999) (case where a family gift paid off debtor's Chapter 13 case early, court found that "without providing advance notice to any party, a Chapter 13 debtor may tender all payments due and owing under a confirmed plan on an accelerated basis and thereby create an entitlement to discharge.");
In re DeBerry, 183 B.R. 716, 717 (Bankr. M.D.N.C. 1995) (where debtors had paid off their Chapter 13 plan, their plan could not be modified to "provide for" postpetition IRS claim; and IRS would be granted relief from stay to collect against them);
In re Moss, 91 B.R. 563, 565 (Bankr. C.D. Cal. 1988) (holding "the plan cannot be modified because the debtor has made all payments called for by the plan . . .");
In re Pritchett, 55 B.R. 557, 560 (Bankr. W.D. Va. 1985) (holding a Chapter 13 plan could not be modified because the debtor had completed her plan);
In re Profit, 283 B.R. 567, 573 (9th Cir. BAP 2002) (where debtors failed to remit tax refunds to trustee required as payments under the plan; and trustee moved for modification before the refunds were turned over, the court found trustee's motion was timely under Section 1329(a)); and
In re Richardson, 283 B.R. 783, 802 (Bankr. D. Kan. 2002) (holding "[s]ince the debtors have completed their plan payments in this case, the trustee can no longer obtain modification of the plan to effect the result he desires . . .")
This court agrees with this majority rule, a strict construction of the plain, and unambiguous, text of Section 1329(a). If Congress had intended to attach additional conditions to the cutoff event for post-confirmation modification, it could have done so with equally plain language.
James-Rumley should have amended her schedules as soon as she knew of the cause of action. There is no evidence one way or another to prove her awareness or lack of awareness of the cause of action when she filed her bankruptcy petition. But certainly, the schedules should have been amended when suit was filed in 2003 in state court.
Whatever fault rests with the debtor, she and her state court counsel filed an application to employ him for the Sumter County litigation in December of 2004 with notice to her Chapter 13 trustee. In June of 2005, the debtor and her counsel returned to court to seeking approval of the consent judgment negotiated, and of counsel's fees and expenses. Full notice was again given to all interested parties, including the trustee.
Still more time elapsed before October 18, 2005, when the trustee's office received settlement proceeds sufficient to pay off the creditors as provided in the plan, with funds left over. The court finds that the "completion of payments under such plan" language in Section 1329(a), means that the time for amending the James-Rumley plan terminated after that October 18, 2005 payment.
Consequently, the trustee's January 4, 2006 motion to amend the plan to provide a 41 percent distribution to unsecured creditors was not timely filed. For that reason, it must be denied.
The court must hold that Chapter 13 Trustee Cottingham's MOTION TO INCREASE PERCENTAGE (BK Doc. 74) is due to be DENIED as untimely filed; and that debtor Eleanor James-Rumley's OBJECTION TO TRUSTEE'S MOTION TO INCREASE PERCENTAGE (BK Doc. 77) is due to be SUSTAINED.
An order, consistent with these findings pursuant to Fed.R.Bankr.P. 7052, will be entered separately.
DONE and ORDERED.