by 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:
- 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?
- Projected Disposable Income: Can post-confirmation settlements be considered “disposable income” under § 1325(b) for purposes of plan modification?
- 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.