by 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.