National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Subchapter II – The plan (Sections 1321 to 1330)

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Eleventh Circuit to Decide Key Issues in Post-Confirmation Plan Modifications

Facts

In In re Conte, the Eleventh Circuit is reviewing a decision from the District Court for the Southern District of Alabama that upheld a bankruptcy court’s denial of a Chapter 13 trustee’s motion to modify confirmed plans based on debtors’ post-confirmation personal injury settlements.

The cases involve two Chapter 13 debtors: Lisa Boutwell, who received $19,685.61 from a settlement after being injured at a Dollar General store, and Peggy Proffitt, who received $7,685.39 from a similar settlement after falling at Walmart. The trustee, Christopher Conte, moved to modify both plans to apply these nonexempt settlement proceeds to increase the percentage paid to unsecured creditors. Under the original confirmed plans, Boutwell was paying a 40.25% dividend, and Proffitt was paying a 62.19% dividend to unsecured creditors. The trustee’s modifications sought to raise these percentages to 77.07% and 76.86%, respectively.

The bankruptcy court ruled that the settlement proceeds were part of the bankruptcy estate under 11 U.S.C. § 1306(a) but held that they were not “projected disposable income” under § 1325(b) and could not be used to modify the plans. The court also found that the settlements were not part of the “liquidation test” under § 1325(a)(4) because post-petition personal injury proceeds would not be included in a hypothetical Chapter 7 case. The district court affirmed, and the trustee appealed.

Issues on Appeal

The appeal raises critical questions about the treatment of post-confirmation assets in Chapter 13 cases:

  1. Liquidation Test Application: Should post-confirmation assets, like personal injury settlements, be included in the hypothetical liquidation analysis under § 1325(a)(4) when a plan modification is proposed?
  2. Projected Disposable Income: Can post-confirmation settlements be considered “disposable income” under § 1325(b) for purposes of plan modification?
  3. Discretion in Plan Modifications: To what extent does the bankruptcy court have discretion to deny plan modifications based on new assets, even when creditors’ recovery could increase?

Amici Support

The National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amici curiae brief supporting the debtors. They argue that:

  • § 1325(b)’s disposable income test does not apply to plan modifications, as it is limited to plan confirmation.
  • Post-confirmation assets, like personal injury settlements, should not reset the liquidation value under § 1325(a)(4).
  • Bankruptcy courts have broad discretion under § 1329 to determine whether a debtor’s ability to pay has changed.

Implications

This appeal has significant implications for Chapter 13 debtors and trustees. If the trustee prevails, post-confirmation assets could routinely increase payments to unsecured creditors, discouraging debtors from filing Chapter 13. Conversely, affirming the lower courts’ decisions would solidify protections for post-confirmation assets, limiting modifications that could strain debtors’ financial stability.

Conclusion

The Eleventh Circuit’s decision will address how courts balance creditors’ interests with debtors’ post-confirmation financial realities. Oral arguments are expected in early 2025.

In re Conte Amici Brief

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Ninth Circuit Clarifies Disposable Income Exclusions for Chapter 13 Debtors Concerning Voluntary Contributions to Retirement Plans

Facts

Jorden Marie Saldana, a surgical technician earning approximately $101,776 annually, filed for Chapter 13 bankruptcy to reorganize her finances and address over $64,000 in unpaid taxes and unsecured debts. In calculating her disposable income, Saldana excluded $747 per month in voluntary contributions to her employer-managed retirement plan.

The Chapter 13 trustee objected, arguing that voluntary retirement contributions constitute disposable income under the Bankruptcy Code and must be applied to repay creditors. The bankruptcy court agreed, sustaining the trustee’s objection and requiring Saldana to adjust her Chapter 13 plan. Saldana appealed to the district court, which affirmed the bankruptcy court’s decision. Saldana then appealed to the Ninth Circuit.

Analysis

The Ninth Circuit reversed the lower courts, holding that voluntary contributions to employer-managed retirement plans are excluded from disposable income under Chapter 13. The court relied on the “hanging paragraph” in 11 U.S.C. § 541(b)(7), which explicitly states that such contributions “shall not constitute disposable income as defined in section 1325(b)(2).”

The Ninth Circuit emphasized that the statutory language is unambiguous, allowing Chapter 13 debtors to exclude any amount of voluntary contributions to qualified retirement plans from their disposable income calculations. This interpretation aligns with Congress’s intent in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which sought to protect retirement savings while encouraging Chapter 13 reorganizations.

The court rejected alternative interpretations that would limit the exclusion to pre-petition contributions or cap it based on historical contribution levels. It also dismissed concerns about debtor abuse, noting that Chapter 13’s good faith requirements and other safeguards adequately address potential misuse of the exclusion.

Conclusion

The Ninth Circuit’s decision in In re Saldana reinforces the broad protections for retirement contributions in Chapter 13 bankruptcy cases. By excluding voluntary contributions from disposable income, the ruling encourages debtors to maintain long-term financial stability while reorganizing their debts.

NCBRC and NACBA filed an amici brief in support of the debtor

In re Saldana – 9th Circuit

Amici Curiae Brief of NCBRC-NACBA

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Debtor’s Right to Propose Chapter 13 Plans Affirmed by Fourth Circuit: Flexibility Over Local Form Defaults

Holding

The Fourth Circuit Court of Appeals reversed the district court’s decision, holding that Sheila Ann Trantham had standing to appeal the bankruptcy court’s ruling and that the bankruptcy court erred in denying confirmation of her Chapter 13 plan based on a local form’s vesting provision. The court affirmed that a debtor has the right to propose a Chapter 13 plan with provisions that may deviate from local form defaults, provided they comply with the Bankruptcy Code.

Facts

Sheila Ann Trantham filed for Chapter 13 bankruptcy and proposed a plan that included a provision for the property of the estate to vest in her upon plan confirmation. The bankruptcy court, however, required adherence to the local form plan, which mandated that property vest only upon the entry of the final decree. Trantham’s plan was rejected by both the bankruptcy court and the district court, leading to her appeal.

Analysis

The Fourth Circuit first addressed the issue of standing, analyzing whether Trantham had the constitutional standing to appeal. The court found that Trantham suffered an injury in fact because the bankruptcy court’s requirement to adhere to the local form plan increased her procedural burdens and restricted her control over her property. Specifically, under the local form, her property remained encumbered by creditor claims and required court approval for certain actions, such as selling property, which resulted in tangible harms including the potential for increased costs and procedural delays. The court further held that Trantham was not required to meet the “person aggrieved” standard of prudential standing, as she was the party directly involved and affected by the bankruptcy court’s decision.

The court then focused on the debtor’s right to propose a Chapter 13 plan. The Fourth Circuit emphasized that the Bankruptcy Code grants debtors significant flexibility in designing their repayment plans, including the timing of when property vests in the debtor. The court criticized the bankruptcy court’s mandatory application of the local form’s vesting provision, arguing that it improperly constrained the debtor’s substantive right under the Bankruptcy Code to propose a plan. The court underscored that while local forms can promote efficiency, they must not abridge, modify, or enlarge the substantive rights provided by the Bankruptcy Code. The court ruled that Trantham’s plan, which called for vesting at confirmation, was permissible under the Code and should not have been rejected solely because it deviated from the local form’s default provision. The court concluded that the bankruptcy court’s decision to require adherence to the local form’s vesting schedule without considering the specifics of Trantham’s plan violated her rights under the Bankruptcy Code.

Conclusion

The Fourth Circuit reversed the district court’s ruling and remanded the case for further proceedings, instructing that Trantham’s plan should be assessed based on its compliance with the Bankruptcy Code, rather than on adherence to the local form’s default provisions.

NACBA and NCBRC submitted an amicus brief authored by Richard Cook, who also participated in the oral arguments. Additionally, NCBRC conducted a moot court session to prepare Appellant and Amici’s counsel for the oral arguments.

Trantham v. Tate 4th Cir Opinion rev dist court

Trantham Appellant’s Brief

Trantham Amici Brief – NACBA-NCBRC

Trantham Appellee’s Brief

Trantham Appellant’s Reply Brief

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4th Circuit Holds a Deferred Entry of Conviction by Probation Before Judgment is Non-Dischargeable as a “Conviction” Under Section 1328(a)(3)

In In re Feyijinmi, the 4th Circuit held that a debt for restitution ordered as part of a criminal conviction is nondischargeable under 11 U.S.C. § 1328(a)(3), even if the conviction was expunged or the restitution was later converted to a civil matter. Additionally, the State’s characterization of the debt on its proof of claim as “court fees” did not change its nondischargeable nature.

Facts

Dedre Feyijinmi was found guilty of welfare fraud in Maryland state court and ordered to pay $14,487 in restitution. The court deferred the entry of her conviction and placed her on probation before judgment. After completing her probation, the state expunged her criminal records but her restitution obligation remained, and it was later transferred to the State’s Central Collection Unit. Feyijinmi filed for Chapter 13 bankruptcy, and the State filed a proof of claim for the restitution debt, labeling it as “court fees.”

Analysis

The court’s legal analysis began with the interpretation of “conviction” under 11 U.S.C. § 1328(a)(3). The court applied federal law, relying on the Supreme Court’s decision in Dickerson v. New Banner Institute, Inc., which held that a guilty plea followed by probation qualifies as a conviction, even if no formal judgment is entered. The court determined that Feyijinmi’s probation before judgment, which required a guilty finding, constituted a conviction under federal law. This interpretation promotes national uniformity and prevents anomalous results that could arise from varying state definitions.

Next, the court addressed whether restitution ordered as part of a probation before judgment constitutes a “sentence” under § 1328(a)(3). The court concluded that “sentence” includes any penal consequences resulting from a determination of guilt, such as probation and restitution. The court found that Congress intended to except criminal restitution from discharge in bankruptcy to prevent federal proceedings from invalidating state-ordered restitution.

Finally, the court rejected Feyijinmi’s argument that the State’s labeling of the debt as “court fees” on its proof of claim affected its dischargeability. The court held that restitution debts are nondischargeable without any action by the creditor and that the State’s proof of claim and its characterization of the debt did not change its nature. The court also found no evidence of bad faith or unreasonable delay that could have prejudiced Feyijinmi.

NACBA filed an amicus brief in support of the Debtor/Appellant.

In re Feyijinmi – 4th Circuit

In re Feyijinmi – Appellants Brief

In re Feyijinmi – NACBAs Amicus Brief In Support of Appellant

In re Feyijinmi – Appellees Brief

Tips

  1. Accurately Characterize Claims: Ensure that proofs of claim accurately reflect the nature of the debt to avoid confusion and potential disputes in bankruptcy proceedings.
  2. Understand Federal Definitions: Be aware that federal law, not state law, governs definitions such as “conviction” and “sentence” in the context of bankruptcy dischargeability.
  3. Advising Clients on Restitution: Advise clients that restitution debts are generally nondischargeable in bankruptcy, even if labeled differently on proofs of claim or converted to civil matters.

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Ninth Circuit To Determine Whether Section 1322(c)(2) Allows Birfurcation of Residential Mortgage Claims

In Mission Hen LLC v Lee, Case No. 23-4220 (9th Cir. 2023), the Ninth Circuit is considering whether the Ninth Circuit B.A.P. erred by concluding that a chapter 13 plan may modify and bifurcate an undersecured lien secured by the debtor’s principal residence pursuant to 11 U.S.C. § 1322(c)(2).

Mission Hen argues that the plan violates the anti-modification provision of § 1322(b)(2). It argues that a chapter 13 plan may not modify a lien secured only by a debtor’s principal residence, including a claim that is undersecured. While § 1322(c)(2) allows a modification of a “payment of the claim” if the final payment falls within the plan term, Mission Hen argues that the statute allows for modification of only the payment term, not the claim itself.   Mission Hen also asserts that the reasoning of Nobelman v. American Savings Bank, 508 U.S. 324 (1993), prohibits the bankruptcy court from modifying anything other than the repayment terms of its claim. In Nobelman, the bankruptcy court denied confirmation of a chapter 13 plan that would have allowed the debtors to bifurcate the secured creditor’s lien on their real property into unsecured and secured claims and to make payments on only the secured portion.

The Ninth Circuit B.A.P. held “Mission Hen’s argument based on Nobelman fails. The Court’s decision was founded on statutory interpretation. About a year after the Nobelman decision, Congress amended the statute by enacting current § 1322(c)(2). Congress undoubtedly has the power to overcome the Supreme Court’s interpretation of a statute by amending the statute. Nobelman does not help us construe the amended statute. See In re Collier-Abbott, 616 B.R. 117, 122 (Bankr. E.D. Cal. 2020) (“When the Supreme Court issued its ruling in Nobelman, there was not, and there could not have been, consideration of the then yet to be enacted exception to 11 U.S.C. § 1322(b)(2) residence secured claim valuation limitation.”). …Although the Ninth Circuit has not squarely addressed whether § 1322(c)(2) permits the bifurcation and stripdown of an undersecured, soon-to-mature claim, the  Fourth Circuit, Eleventh Circuit, and other courts have answered in the affirmative. … Therefore, because Mission Hen’s secured claim matures during the plan term, the plain language of § 1322(c)(2) allows the Debtors to bifurcate and cram down the Mission Hen claim. The bankruptcy court did not err in holding that Mission Hen’s claim was not protected by the anti-modification provision.”

The case will likely be scheduled for oral argument in October or November of 2024.

NCBRC and NACBA filed an amicus brief supporting the Debtor and urging the court to affirm the B.A.P.

Mission Hen v Lee Appellants Brief

Mission Hen v Lee – Appellees Brief

Mission Hen v Lee – NCBRC-NACBA Amicus Brief

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9th Circuit to Address Whether a Debtor May Deduct Voluntary Retirement Deductions to Determine Disposable Income

The Ninth Circuit Court of Appeals has agreed to hear an appeal whether the bankruptcy court erred in ruling that a Chapter 13 debtor, in calculating projected disposable income, is not permitted to deduct the amount of voluntary retirement plan contributions even where the debtor was making the contributions prepetition. The debtor’s appeal from adverse decisions below.

APPELLANTS OPENING BRIEF

BRIEF OF AMICI CURIAE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS AND NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER

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The Seventh Circuit Considers Whether a Chapter 13 Trustee May Take A Fee If the Case is Dismissed Pre-Confirmation

The Seventh Circuit, in the case of In re Johnson, Case No. 23-2212 (7th Cir. 2023), accepted a direct appeal from the Bankruptcy Court for the Northern District of Illinois.  The bankruptcy court held that a chapter 13 trustee may not deduct her fee if a chapter 13 case is dismissed without having a plan confirmed. The court adopted the reasoning in Goodman v. Doll (In re Doll), 57 F.4th 1129 (10th Cir. 2023).

At present, two courts have affirmed that a trustee may not deduct a fee if the chapter 13 case is dismissed prior to confirmation. In addition to the Doll opinion, the Ninth Circuit agreed in Evans v. McCallister (In re Evans), 69 F.4th 1101 (9th Cir. 2023).  The Doll decision is currently being considered for certiorari by the Supreme Court.  Another case is pending on this issue in In re Soussis, Case No. 22-155 (2nd Cir. 2023).

NCBRC and NACBA filed an amicus brief in support of the Debtor/Appellee.  NCBRC NACBA Filed Amicus Brief – In re Johnson

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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