National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Chapter 13 – Adjustment of debts of an individual with regular income (Sections 1301 to 1330)

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The 9th Circuit Adopts NCBRC and NACBA’s Amici Argument Holding A Chapter 13 Trustee May Not Collect A Percentage Fee If A Chapter 13 Case Is Dismissed Before Confirmation

On June 12, 2023, the Ninth Circuit Court of Appeals held that 11 U.S.C. § 1326(b) requires a Chapter 13 trustee to turnover all plan payments to the Debtor upon dismissal before confirmation, without deducting her statutory fee. See Steedman v. McCallister (In re Evans), No. 22-35216, 2023 U.S. App. LEXIS 14571 (9th Cir. June 12, 2023).

The court agreed with the interpretation of the law submitted by the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys.

“The better approach, as proposed by amicus National Consumer Bankruptcy Rights Center and National Association of Consumer Bankruptcy Attorneys (NCBRC), is to read 28 U.S.C. § 586 and 11 U.S.C. § 1326 together. … We generally agree with NCBRC’s construction of the relevant statutes, which renders harmonious an otherwise fragmented scheme.”

Joining the Tenth Circuit, the Ninth Circuit held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case. 28 U.S.C. § 586(e)(2) provides that the trustee shall “collect” the percentage fee from “payments . . . under plans” that she receives. 11 U.S.C. § 1326(a)(1) provides for the debtor to make payments in the amount “proposed by the plan to the trustee.” Section 1326(a)(2) provides that the trustee shall retain these payments “until confirmation or denial of confirmation.” This section further provides that if a plan is not confirmed, the trustee shall return to the debtor any payments not previously paid to creditors and not yet due and owing to them. Section 1326(b) provides that, before or at the time of each payment to creditors under the plan, the trustee shall be paid the percentage fee under § 586(e)(2).

The court held that, reading these statutes together, “payments . . . under plans” in § 586 refers only to payments under confirmed plans. Before confirmation, a trustee does not “collect” or “collect and hold” fees under § 586, but instead “retains” payments “proposed by the plan” under § 1326(a)(2). If a plan is not confirmed, then § 1326(a)(2) requires a return to the debtor of payments “proposed by the plan.” If a plan is confirmed, then § 1326(b) provides for payment of the percentage fee to the trustee. Thus, under the plain meaning of the statutory text, a trustee is not paid her percentage fee if a plan is not confirmed. The court concluded that statutory canons of construction, such as the rule against superfluities, and the provisions’ amendment history confirmed its reading of the statutes. Policy arguments made by the trustee were not enough to overcome the plain language and context of the relevant statutory provisions.

The Second Circuit has this issue under consideration in Soussis v. Macco, Case No. 22-155 (2nd Circuit).  Also, the 7th Circuit has been asked to take up this issue on a direct appeal from In re Johnson, Case No. 22-04449 (Bankr. N.D. IL, May 12, 2023).

In re Evans – 9th CircuitEvans 

9th Cir NCBRC amicus July 2022

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The Fourth Circuit Examines Whether a Local Rule Can Mandate The Timing When Property Vests in Chapter 13 Cases

UPDATE: The Fourth Circuit has since decided this case. Click here to read our article discussing their ruling.

The Fourth Circuit is considering the issue whether a local bankruptcy rule can dictate the timing of vesting of estate property in chapter 13 cases.  This is an appeal from the United States District Court in Trantham v. Tate, 647 B.R. 139 (W.D.N.C. 2022).

The Bankruptcy Court for the Western District of North Carolina mandates the use of a local form chapter 13 plan.  This plan includes a provision that the property of the estate will not vest in the debtor until the final decree in the case.  The Debtor filed a plan that strikes through this language and included a nonstandard provision that property vests in the debtor upon confirmation.  The bankruptcy court sustained the trustee’s objection to this language and was affirmed by the district court.

The argument on appeal is that the determination of the date when property vests is controlled by the debtor pursuant to 11 U.S.C. § 1322(b)(9) which states “the plan may — provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.”  Since 1322(b) contains discretionary provisions for the debtor to choose from, a local rule that mandates the timing of vesting therefore modifies the debtor’s right to choose.  This is in violation of 28 U.S. Code § 2075 which states in pertinent part that “[s]uch rules shall not abridge, enlarge, or modify any substantive right.”

The District Court held “The Bankruptcy Court has determined that all chapter 13 plans should include the standard provision that property of the estate vests in the estate until the final decree is entered. An attempt to include a nonstandard provision in a plan filed in the Western District of North Carolina, that contradicts this standard provision, is inappropriate, and a plan that includes such a contradicting nonstandard provision cannot be confirmed.”  Trantham v. Tate, 647 B.R. 139, 145 (W.D.N.C. 2022).

NCBRC and NACBA submitted an amici curiae brief in support of the debtor.  The brief was written and submitted by NACBA member Richard P. Cook of Richard P. Cook, PLLC in Wilmington, North Carolina.  The Debtor/Appellant is represented by NACBA member Todd Mosley of the Mosley Law Firm, P.C. in Asheville, North Carolina.

The briefing, in this case, is complete and an order-setting oral argument is expected shortly.

Amici Curiae brief of NACBA and NCBRC

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The Fourth Circuit Considers Whether Restitution Ordered by a Maryland Court Upon is Non-Dischargeable

UPDATE: The Fourth Circuit has since issued a decision on this case. Click here to read our article discussing their ruling.

The Fourth Circuit is considering whether restitution included in a “probation before judgment” is non-dischargeable in Chapter 13 under 11 U.S.C. §1328 (a)(3).  Section 1328(a)(3) provides that “the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt— … for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.”  This is an appeal from the District Court in Feyijinmi v. Md. Cent. Collection Unit, Civil Action No. RDB-22-00904, 2022 U.S. Dist. LEXIS 198970 (D. Md. Nov. 1, 2022).

In 2006 the Debtor was found guilty of welfare fraud and sentenced to probation before judgment and ordered to pay restitution for $7,275.33.  In 2014 the Debtor filed a Chapter 13 bankruptcy and received a discharge on February 26, 2020.  Post-discharge the creditor notified the Debtor that she had an outstanding debt for the restitution and that they may intercept her tax refund.

The Debtor then filed a motion to reopen the bankruptcy and filed a complaint to determine whether the restitution was discharged.  The bankruptcy court held that the debt was non-dischargeable and was affirmed by the district court.  The court held

“The central fact is whether there is an implication of guilt. In Wilson, the court determined that probation before judgment following a guilty plea constituted a finding of guilt necessary to categorize the debtor’s restitution as attached to a criminal conviction. Here, the Appellant was found guilty, which squarely implies guilt sufficient to attach her restitution to a criminal conviction under 11 U.S.C. § 1328(a)(3). The appellant’s argument raises a distinction without a difference. Therefore, the Appellant’s probation before judgment following a finding of guilt constitutes a criminal conviction under 11 U.S.C. § 1328(a)(3) and her restitution was non-dischargeable.” Feyijinmi v. Md. Cent. Collection Unit, Civil Action No. RDB-22-00904, 2022 U.S. Dist. LEXIS 198970, at *9 (D. Md. Nov. 1, 2022).

NACBA submitted an amicus brief in this case supporting the Debtor.  The brief was written and submitted by Peter Goldberger of Ardmore, Pennsylvania.

The briefing, in this case, is complete and an order-setting oral argument is expected shortly.

Amicus Brief In re Feyijinmi

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“Equity Abhors a Forfeiture”

Where the debtor had paid over 70% of the purchase price of real property, the court found that equitable principles precluded granting relief from stay to allow the seller to enforce a provision in the sales documents requiring the defaulting debtor to “forfeit not only the property, but all deposits, improvements and payments made.” Allied Ventures, LLC. v. Cruz, No. 22-23864 (Bankr. W.D. Tenn. Feb. 23, 2023).The debtor entered into an agreement with Allied, titled Seller-Financed Industrial Purchase Agreement, to purchase property Allied had bought at a tax sale. As the “Buyer,” the debtor was able to take possession of the property and was obligated to pay $290,000 in accordance with a schedule of payments beginning with a $30,000 initial payment and $6,500 monthly payments once Allied obtain title. Once the purchase price was satisfied, Allied would transfer title to the Buyer. Allied exercised control over the property only to the extent that the agreement required the Buyer to use it for a purpose that was legal and that the Buyer provide insurance as specified by Allied.

The debtor also signed a promissory note as “Buyer/Borrower” obligating him to pay the entire purchase price of $290,000. Both the Purchase Agreement and the Promissory Note provided that, in the event of default, “[i]f the scheduled amount of payment is not made in sixty (60) days after the invoice date, you will forfeit not only the property, but all deposits, improvements and payments made.”

The debtor missed a payment and Allied sought to enforce the default provision. It obtained a state court judgment for possession in June 2022, and for reasons that weren’t explained, accepted a payment from the debtor in July, 2022. The debtor posted an $86,000 bond and appealed the state court judgment.

The debtor filed for chapter 13 bankruptcy in September, 2022. In his 100% plan he proposed to treat the debt to Allied as a secured debt and pay the remaining balance through the plan.

The case came before the court on Allied’s motion for relief from stay to allow it to possess and sell the property with forfeiture by the debtor of all payments and improvements made. In its motion, Allied argued that the debtor’s plan incorrectly treated its claim as secured when in fact it was a lease agreement, and that the debtor had failed to propose a feasible plan.

In response, the debtor argued the Allied’s interest was protected by the $417,400 actual value of the property and the insurance he had obtained. His proposed plan included adequate protection payments of $1,800 per month. With respect to the nature of the agreement, the debtor took the position that if the court found it was not a secured loan but an executory contract, he would assume the lease, pay any arrearage through the plan and maintain monthly payments directly. The debtor further “propose[d] to use the $86,000.00 presently being held by the Shelby County Circuit Court Clerk to satisfy any such post-petition arrearage, and to otherwise be applied to the plan as may be determined by the Court.”

The court began its analysis with the nature of the underlying claim. It observed that the seller delivered possession of the property to the debtor and, with limited exceptions, the debtor undertook full responsibility for it. The promissory note created an absolute obligation on the debtor to pay $290,000, and title would transfer at the end of the payment period. The court found that “[a]lthough there is some ambiguity in the arrangement contemplated by the parties, the Court believes and finds for purposes of the pending Motion for Relief from Stay that the agreement between the parties is best characterized as an installment land sales contract.” It noted that, under Tennessee law, such contracts create a situation like a deed of trust where “the vendee is regarded as the owner, subject to liability for the unpaid price, and the vendor is regarded as holding only the legal title in trust for the vendee from the time a valid contract for the purchase of land is entered into.”

The court went on to determine whether the language of repossession and forfeiture in the agreement and the note justified granting Allied’s motion for relief from stay. For that analysis, the court looked to equitable principles. By the time the case came before the court, the debtor had paid 71-77% of the total purchase price. If Allied had its way, the debtor’s more than $200,000 in payments would be forfeit to Allied’s right to sell to another buyer.

This was unpalatable to the court. “Equity abhors a forfeiture.” The court observed that states often deny a vendor the right to sell against a defaulting buyer “when forfeiture would be unreasonable or inequitable.” The trend is to allow the buyer an opportunity to pay the remaining purchase price or the defaulted payments, in a redemption-type solution.

In light of the fact that the confirmation hearing was coming up, the court found no good reason to “short circuit that process.” It denied Allied’s motion for relief from stay.

Allied has appealed this decision to the Bankruptcy Appellate Panel for the Sixth Circuit, case no. 23-8009.

Cruz Bankr WD Tenn Feb 2023

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No Harm in Failure to Disclose

The debtor was entitled to reopen her bankruptcy case to disclose a post-confirmation, pre-discharge lawsuit where she successfully completed her 100% plan so there was no harm to creditors by her failure to timely disclose the lawsuit, and the debtor would benefit from the opportunity to comply with Eleventh Circuit disclosure requirements. In re Calixto, No. 17-18317 (Bankr. S.D. Fla. Jan. 31, 2023).

Approximately one year before the end of her chapter 13 plan, the debtor slipped and fell on property owned by Gulfstream Park Racing Association, Inc. One month after she successfully completed her plan and received her discharge, she sued Gulfstream in state court for negligence. Gulfstream moved for summary judgment arguing that the debtor was judicially estopped from pursuing the case because she failed to disclose the lawsuit to the bankruptcy court. The debtor moved to reopen her bankruptcy in order to disclose the claim.

The court began with sections 541 under which a lawsuit is property of a chapter 13 bankruptcy estate, and 1306(a)(1) which incorporates property acquired by the debtor post-confirmation into the bankruptcy estate. It noted that while the Code does not obligate debtors to make ongoing post-confirmation disclosures when they acquire new property, Eleventh Circuit precedent has established that debtors have a continuing duty to disclose a post-confirmation litigation claim.

Having found that the litigation was property of the estate and that the debtor had a duty to disclose it and failed to do so, the court went on to consider the equities of allowing her to reopen her bankruptcy to do so now. It weighed the benefits of reopening against prejudice to any of the parties.

While the court noted that it views nondisclosure with a jaundiced eye, in this case, the debtor’s schedules were accurate when she filed them and when her case was confirmed. Furthermore, all her creditors were paid the full amount of their claims so none were prejudiced by the debtor’s failure to disclose the lawsuit during her bankruptcy and none stood to benefit from the disclosure now. Nor was the trustee prejudiced by the failure to disclose because the debtor retained her right to personally pursue the litigation while her bankruptcy case was pending. Thus, “even if the Debtor had previously disclosed the litigation claim – or if the Court permits her to reopen her case now to disclose it – it would not have, and will not have, any effect on her bankruptcy estate or her creditors.”

On the other hand, by reopening, the debtor stood to benefit from the opportunity to satisfy the procedural technicality established by the Eleventh Circuit and pursue her rights against Gulfstream in state court.

The court found that requiring Gulfstream to address the merits of the debtor’s case in state court did not constitute prejudice.

The court granted the debtor’s motion to reopen.

Calixto Bankr SD Fla Jan 2023

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Creditor Estopped from Objecting to Amended Plan

A mortgage creditor who accepted the debtor’s plan could not late object to confirmation of an amended plan that contained the same terms with respect to that creditor. In re Ritter, No. 22-40120 (Bankr. S.D. Ill. Feb. 2, 2023).

The debtor filed a chapter 13 petition listing his mortgagee’s claim at $116,819.95. The debtor proposed a plan to pay the claim at 0% interest and $0 monthly payments. Within minutes of filing that plan, he filed a second “original” plan proposing to make monthly payments to the mortgagee in the amount of $1,200.00 for 60 months, to pay $43,000.00 in arrearages, and to make a Limbo payment of $2,400.00. The creditor, Shellpoint Mortgage, filed an objection to the first original plan but withdrew it three days later stating that the second original plan provided sufficient treatment of its claim. Shellpoint then filed a proof of claim listing the outstanding principle as $119,308.66 and the arrearage as $35,247.86. It later added to its claim $2,125.00, in fees, expenses, and charges. Neither the debtor nor the trustee objected to Shellpoint’s claim.

The trustee objected to various aspects of the second original plan and, in response, the debtor filed a first amended plan, which mooted those objections. The amended plan also changed the payments to Shellpoint to a monthly payment of $763.72, the Limbo payment of $1,527.44, the pre-petition delinquency as $35,247.86, and the post-petition fees of $2,125.00. Shellpoint did not object to the amended plan, and the trustee objected only with respect to certain discrepancies which the debtor corrected in a second amended plan. Shellpoint objected to that plan raising for the first time the argument that the debtor could not cure arrearages because the property had been sold in a pre-petition foreclosure sale, though that sale had not yet been confirmed by the state court.

The debtor filed a third amended plan to correct certain issues raised by the trustee but did not change its treatment of the Shellpoint’s claim. Shellpoint reasserted its objections as to the third amended plan.

The court found Shellpoint’s objections were barred by the judicial estoppel and by certain provisions of the Bankruptcy Code.

As to judicial estoppel, the court found Shellpoint’s objections were inconsistent with its statement with respect to the second original plan that the plan “provides sufficient treatment as to Creditor.” At that time, Shellpoint’s asserted bases for its objection were not that the property had been sold, but were that the mortgage would not mature during the course of the plan and that the arrearage amount to be cured under the plan was $35,247.86. When the debtor amended his plan to conform to Shellpoint’s position, Shellpoint did not object or withdraw its claim.

In reliance on Shellpoint’s stated position, the court allowed Shellpoint to withdraw its objections and the trustee made monthly payments to Shellpoint totaling more than $10,000. The court found that if Shellpoint prevailed on its objections and were permitted to retain the payments as requested, it would give Shellpoint an unfair advantage over other creditors and harm the debtor.

The court also found sections 1325 and 1323 precluded the result Shellpoint sought. Section 1325(a)(5)(A) provides that the court shall confirm a plan if each secured creditor has accepted it. The court found Shellpoint’s withdrawal of its objection constituted such acceptance. Under section 1323, once it accepted the plan, Shellpoint could not later object to an amended plan containing the same terms.

The court overruled Shellpoint’s objections and confirmed the debtor’s plan.

Ritter Bankr SD Ill Feb 2023

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Chapter 7 Trustee Bound by Pre-Conversion Agreement

The Chapter 7 trustee was bound by the Chapter 13 trustee’s pre-conversion concession that the creditor’s liens were valid. Therefore the Chapter 7 trustee could not prevent the creditor from receiving the proceeds from the sale of the property securing the liens. In re Hillis, No. 20-70372 (Bankr. M.D. Ga. Jan. 11, 2023).

When the debtors filed for Chapter 13 bankruptcy they listed Southern Pine Credit Union as a creditor with security interests in a lawn mower, two John Deere loaders, and a Nissan Armada. During the pendency of the bankruptcy, the debtors sought and received an order approving the sale of the lawn mower and the two loaders with the proceeds going to Southern Pine in satisfaction of the loans secured by all the vehicles including the Nissan Armada. The Trustee consented to the sale, and Southern Pine offered no opposition. The court approved the sale and ordered the creditor to release the lien on the Nissan Armada upon receipt of the proceeds.

The debtors completed the sale but converted to Chapter 7 before they had received the proceeds. Southern Pine moved for relief from stay because it had not yet received the proceeds from the sale. Soon after it filed the motion, the debtors transferred the proceeds to Southern Pine. The chapter 7 trustee, believing the underlying liens might be avoidable, objected to the motion for relief from stay and made a verbal demand at the meeting of creditors for turnover of the funds. Southern Pine responded that the trustee was barred by res judicata from reneging on the pre-conversion agreement. The debtors filed a turnover motion seeking an order requiring the creditor to release the lien on the Nissan as required by the court’s order approving the sale.

The court began by finding that the Chapter 7 trustee had standing in the case because, under section 348(f)(1)(A), the proceeds from the sale of the vehicles became part of the converted estate. Under that provision property in an estate converted from chapter 13 to chapter 7 consists of property the debtors held at the time of their chapter 13 petition which they continue to hold at the time of conversion. The court found that the sale agreement gave the debtor a contractual right to the proceeds which became property of the new estate.

The court agreed with Southern Pine, however, that the Chapter 7 trustee was barred by res judicata from challenging the pre-conversion agreement to transfer the proceeds to the creditor in satisfaction of its liens. The only issue in that regard was whether the Chapter 7 trustee was in privity with the Chapter 13 trustee such that the Chapter 7 trustee should be bound by an agreement entered into by his predecessor. The court found the elements for res judicata as outlined in Griswold v. County of Hillsborough, 598 F.3d 1289, 1292 (11th Cir. 2010), were satisfied. Specifically, where section 704(a)(5) empowers the Chapter 7 trustee to oppose the allowance of an improper claim, section 1302(b)(1) empowers the Chapter 13 trustee to exercise the powers granted in section 704(a)(5). The court observed that when the two trustees have corresponding duties, the performance of those duties by the first binds the second.

Here, the Chapter 13 trustee did not object to the debtor’s motion to sell the property, including the understanding in the motion that Southern Pine had valid liens. Nor was the motion contingent upon the debtors’ staying in chapter 13. The court also rejected the trustee’s argument that because section 348(f) permits him to reevaluate the property of the estate, he is entitled to challenge the validity of the liens. The court found the trustee’s reading of the statute to be too broad. Valuation of property does not include lien validity.

The court concluded that Southern Pine’s motion was moot by reason of its having received the proceeds from the sale. It ordered Southern Pine to release the lien as requested by the debtors and overruled the trustee’s objections.

Hillis Bankr MD Ga Jan 2023

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Plan Confirmation Does Not Defeat Antimodification Provision

Although the debtor’s confirmed chapter 13 plan included a provision for release of the mortgage lien upon payment of the lender’s claim, the bankruptcy court erred in releasing the lien when the claim was for arrearages only, there remained outstanding principle at the end of the plan, and the mortgagee challenged release of the lien prior to discharge. Mortgage Corp. of the South v. Bozeman, No.21-10987 (11th Cir. Jan. 10, 2023).

The chapter 13 debtor’s bankruptcy schedules listed her mortgage debt as $17,393.04 plus $6,817.42 in arrearages. The mortgagee filed a proof of claim for the arrearages only. Though the life of the debt extended beyond the terms of the plan making it amenable to the “cure and maintain” option, the debtor listed the mortgage claim as “a secured claim paid through the plan.” Another provision guaranteed secured creditors’ retention of their liens until all payments under the plan were completed but provided that “[c]reditors must file a proof of claim to be paid.” The bankruptcy court identified the plan as a “full payment” plan under which the debtor’s entire mortgage debt would be considered paid at the end of completion of the plan payments.

The debtor completed her plan after less three years and after paying only the mortgage arrearage in full. With $15,032.73 remaining on the loan principle, the mortgagee sought to foreclose. The debtor responded with a motion for an order releasing the lien. The bankruptcy court found that the debtor had complied with the terms of her confirmed plan and granted the debtor’s discharge including release of the lien. The district court affirmed. The mortgagee appealed to the Eleventh Circuit.

The circuit court framed the issue as a contest between the anti-modification provision of section 1322(b) and the finality of a confirmation order under section 1327.

The court began with section 1322, observing that because the mortgage extended beyond the life of the plan, the “short -term” exception to the anti-modification provision did not apply. Nor did the debtor’s plan fall into the “cure and maintain” avenue of mortgage provision because the plan specifically contemplated either repayment of the entire mortgage early, or repayment only of the arrearages and release of the remaining debt and lien. The court found that when the bankruptcy court deemed the mortgagee’s claim satisfied and the lien released, it modified the mortgagee’s state-established right to full repayment of the original debt at the agreed upon interest rate.

The court found its decision was controlled by Universal Am. Mortg. Co. v. Bateman (In re Bateman), 331 F.3d 821, 822 (11th Cir. 2003). In that case, the confirmed chapter 13 plan provided for only partial payment of mortgage arrears. The court reasoned that the anti-modification provision prohibited modifications to the mortgagee’s rights and therefore the creditor’s “secured claim for arrearage survived the plan, and the creditor retained its right to full satisfaction of its claim.” The Bateman court stated that, “[a]llowing the confirmed plan to extinguish the mortgagee’s rights would deny the effect of the antimodification provision.”

In this case, the court found the bankruptcy court erred by eliminating the mortgagee’s entire claim and lien upon payment only of the arrearages. “Supreme Court and our precedent require us to conclude that declaring a homestead-mortgagee’s lien satisfied before the debt the lien secures is paid in full constitutes an impermissible modification of the homestead-mortgagee’s rights under the antimodification provision.” Because Nobelman v. Am. Savs. Bank, 508 U.S. 324, 332 (1993) emphasized that the anti-modification provision protects the “rights” rather than “claims” of the creditors, it was irrelevant that the debtor may have treated the mortgage in accordance with the claim as filed by the mortgagee.

The conflict arose out of the conflict between the antimodification provision and the res judicata effect of plan confirmation in section 1327. That section provides: “[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.”

In United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), the Supreme Court held that the interest of finality requires that parties be held to the terms of a confirmed plan. In that case the bankruptcy court confirmed a plan which discharged the interest on the debtor’s student loan without fulfilling the requisite showing of undue hardship. The Supreme Court found that where the creditor had notice of the plan terms and did not object, the res judicata effect of plan confirmation outweighed the fact that the plan terms were contrary to other requirements of the Code. This is so even if the plan contains provisions that are impermissible under the Code.

The debtor argued that Espinosa abrogated Bateman.

For five reasons, the court here found that Espinosa had no effect on the release of a lien after a confirmed plan erroneously modified the rights of the lienholder.

First, the court found that Espinosa was expressly limited to challenges brought under Federal Rule of Civil Procedure 60(b)(4), seeking relief from judgment.

Second, the procedural posture of Espinosa differed significantly from Bateman. Espinosa involved a creditor coming back six years after the debt was discharged and ten years after plan confirmation to launch a collateral challenge to the discharge. Bateman, on the other hand, involved a challenge to treatment of a claim after plan confirmation but prior to discharge and was not a collateral attack on the debt that was subject to discharge.

The court here, noted that, like the lender in Bateman, the mortgagee “timely objected to and appealed the bankruptcy court’s decision to release its lien.”

Third, the holding in Espinosa relied on whether a particular judgment was “void,” within the meaning of Rule 60(b)(4). The Supreme Court declined to “expand the universe of judgment errors” that would render an order void under the rule.

Fourth, Bateman was not decided on the basis that the plan was illegally confirmed and therefore, as in the case here, Bateman did not involve a collateral attack on the confirmed plan and was not decided on section 1327 finality.

Finally, the court noted that it had confirmed its holding in Bateman in the post-Espinosa case of Dukes v. Suncoast Credit Union (In re Dukes), 909 F.3d 1306, 1331 (11th Cir. 2018).

The court turned to whether the express terms of the debtor’s plan according to which the bankruptcy court released the mortagee’s lien should have been given effect under the finality rule set forth in section 1327. The court found that, under Bateman, the bankruptcy court should not have released the lien, stating that “even though our cases have recognized the importance of finality, they have also said time and again that secured liens survive bankruptcy proceedings.”

In sum, the court stated: “Although MCS did not timely object to the Plan’s confirmation or appeal the discharge of Bozeman’s debt, MCS did oppose Bozeman’s motion to release its lien, and it timely appealed the bankruptcy court’s order granting her motion. And because releasing MCS’s lien before MCS receives full payment would impermissibly modify MCS’s rights, MCS’s lien must survive the bankruptcy proceeding.”

Bozeman 11th Cir Jan 2023

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Laches Forecloses Trustee’s Motion to Dismiss

Where the Trustee slept on her right to challenge the debtor’s method of calculating her plan payments until shortly before the debtor completed her plan, the doctrine of laches compelled denial of the trustee’s motion to dismiss. In re Melcher, No. 16-21536 (Bankr. E.D. Ky. Aug. 30, 2022).

The debtor and the chapter 13 Trustee negotiated a 60-month plan in which the debtor agreed to commit one third of her annual gross income over $120,000 to the plan (“excess income payments”). The debtor calculated her first excess income payment by taking the income from Box 1 of her W-2 form, subtracting $120,000 and multiplying the result by .33. After discussion with the Trustee and one of her creditors, the debtor’s payment was accepted as correct. The debtor used the same method of calculation for the following years’ excess income payments. [Read more…] about Laches Forecloses Trustee’s Motion to Dismiss

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SG Agrees 10th Erred But Opposes Cert

Despite agreeing that the Tenth Circuit got it wrong, the Solicitor General for the United States filed a brief opposing certiorari in the case of Kinney v. HSBC Bank USA, No. 21-599 (brief filed Aug. 30, 2022). The issue was a simple one: whether the debtor could receive a completion discharge under section 1328(a) when she missed the final three payments on her mortgage due to a car accident, but made up the payments shortly after her plan expired. [Read more…] about SG Agrees 10th Erred But Opposes Cert