Germeraad v. Powers et al
Filing
7
OPINION (See Written Opinion): The bankruptcy court did not err as a matter of law when it found that it did not have the authority to grant the Trustee's motion to modify. The bankruptcy court's decision denying the Trustee's motion to modify is AFFIRMED. This case is closed. Entered by Judge Sue E. Myerscough on 9/30/2015. (VM, ilcd)
E-FILED
Wednesday, 30 September, 2015 04:39:46 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
In re:
MYRICK POWERS and
ELVIE OWENS-POWERS
Debtors,
_____________________________________
JOHN H. GERMERAAD, Trustee,
Appellant,
vs.
MYRICK POWERS and
ELVIE OWENS-POWERS,
Debtors,
Appellees.
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District Court
No. 14-03128
Appeal from:
Bankruptcy Case
No. 10-71700
Honorable Mary P.
Gorman
OPINION
SUE E. MYERSCOUGH, U.S. District Judge:
Following Debtor Elvie Owens-Powers’s promotion and transfer
to a higher paying job, the Trustee, John Germeraad, filed a motion to
modify the confirmed Chapter 13 plan to which Owens-Powers and
fellow Debtor Myrick Powers were subject. The Debtors opposed the
motion. The bankruptcy court denied the motion, and the Trustee
appealed. Because the bankruptcy court did not err as a matter of
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law discretion in denying the Trustee’s motion to modify the Chapter
13 plan, the decision of the bankruptcy court is AFFIRMED.
I.
BACKGROUND
Chapter 13 bankruptcy adjusts the debt of “an individual with
regular income.” In re Witkowski, 16 F.3d 739, 740 (7th Cir. 1994)
(quoting 11 U.S.C. § 109(e)). It allows a debtor to keep his assets,
while requiring him to use his future income to pay his creditors. Id.
The Debtors here, Myrick Powers and Elvie Owens-Powers, filed
their petition for Chapter 13 bankruptcy in May 2010. In March
2011, the bankruptcy court confirmed the Debtors’ First Amended
Chapter 13 Plan. The Plan provided that the Debtors would pay
$660 per month to the Trustee initially, rising to $758 per month
after 7 months. In May 2012, the Debtors filed a motion to modify
their payment plan, and the bankruptcy court lowered the monthly
payment from $758 per month to $670 per month. From all of these
payments, the Trustee was to pay the claims of several unsecured
creditors.
In June 2013, the Trustee filed a motion to modify the payment
plan. The Trustee claimed that the Debtors’ 2012 income tax return
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had disclosed a $50,000 increase in income compared to the income
shown on their 2011 return. The Trustee calculated that the
Debtors had a net increase in income of $2,984.92 per month. The
Trustee proposed that the Debtors raise their payments by $746 per
month.
The Debtors objected. They presented various reasons why
their payments should not be raised, among them that the Debtors
were divorcing and faced increased expenses as a result.
The bankruptcy court denied the Trustee’s motion, finding: (1)
that the statute that provides the method for calculating disposable
income, 11 U.S.C. § 1325(b), does not apply to plan modifications
under 11 U.S.C. § 1329; (2) that plan modifications under Section
1329 must be based on statutory authority, and that there was none
in this instance; (3) that no other provision in the bankruptcy code
supported the Trustee’s motion; and (4) that the Trustee did not
establish a factual basis for relief in any event.
On appeal, the Trustee argues that: (1) the bankruptcy court
erred when it found it lacked legal authority to grant the Trustee’s
requested modification; (2) the bankruptcy court clearly erred in its
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evaluation of the Debtors’ financial circumstances; and (3) the
bankruptcy court abused its discretion when it denied the Trustee’s
motion to modify the Debtors’ Chapter 13 plan.
II.
JURISDICTION
The Court has appellate jurisdiction over this matter pursuant
to 28 U.S.C. ' 158 (providing that district courts have jurisdiction to
hear an appeal from a final judgment, order, or decree).
III.
STANDARD OF REVIEW
District courts review a bankruptcy court’s factual findings for
clear error and its conclusions of law de novo. Freeland v. Enodis
Corp., 540 F.3d 721, 729 (7th Cir. 2008). District courts review a
bankruptcy court’s decision to grant or deny a motion to modify a
debtor’s Chapter 13 plan for an abuse of discretion. In re
Witkowski, 16 F.3d 739, 746 (7th Cir. 1994).
IV.
ANALYSIS
A. The bankruptcy court did not err as a matter of law when it
found it lacked legal authority to grant the Trustee’s
motion.
Confirmation of Chapter 13 bankruptcy plans is governed by 11
U.S.C. § 1325. In particular, Section 1325(b) governs the
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calculation of a debtor’s “disposable income” for the purpose of
analyzing an objection to a plan’s confirmation.
Modification of confirmed plans, on the other hand, is governed
by 11 U.S.C § 1329. See 11 U.S.C. § 1329(a)(1) (“At any time after
confirmation … the plan may be modified, upon request of … the
trustee … to … increase or reduce the amount of payments …”).
Here, the Trustee sought to modify the Debtors’ plan by
bringing a motion to modify pursuant to Section 1329. The Trustee
sought, in particular, to increase the Debtors’ monthly payments due
to the Debtors’ increased income.
In denying the Trustee’s motion, the bankruptcy court found
that, although the Trustee denied that he was “seeking to recalculate
[the Debtors’] disposable income,” his motion did “in fact” request
such a recalculation. (Opinion, d/e 1 at 162.) The bankruptcy
court explained that disposable income may not be recalculated
pursuant to a Section 1329 motion to modify, because Section 1329
does not specifically mention the Section that governs disposable
income calculation: Section 1325(b). Having concluded that a
Section 1325(b) disposable income calculation was not proper under
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a Section 1329 motion to modify, the bankruptcy court denied the
motion. (See id. at 167.)
On appeal, the Trustee argues that the bankruptcy court erred
as a matter of law when it found that it lacked legal authority to grant
the Trustee’s motion. This Court disagrees.
Section 1329(a) provides that plans may be modified after
confirmation for a variety of purposes. Section 1329(b) further
provides that a number of other sections of the bankruptcy code
apply to modification. Indeed, Section 1329(b) explicitly states that
Sections 1322(a), 1322(b), 1323(c), and 1325(a) “apply to any
modification” under Section 1329(a).
Notably absent from the list of sections that apply to Section
1329(a) modification is Section 1325(b). Section 1325(b) provides
the method of calculating disposable income for the purpose of plan
confirmation. As the bankruptcy court noted, “the express language
of § 1325(b) limits its applicability to plan confirmation.” (Opinion,
d/e 1 at 164.) This, combined with the fact that “the express
language of § 1329(b)(1) … does not include §1325(b),” led the
bankruptcy court to conclude correctly that “proposed plan
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modifications are not analyzed under a disposable income test.”
(Opinion, d/e 1 at 165.)
The bankruptcy court then addressed the Trustee’s argument
that no statutory authority beyond § 1329(a) is required for plan
modification. The Trustee relied in large part on the Seventh
Circuit’s pronouncement that there is no threshold amount of
changed circumstances required to bring a motion to modify. In re
Witkowski, 16 F.3d 739, 746 (7th Cir. 1994). But, the bankruptcy
court noted, under Witkowski, modifications are only allowed if they
comply with “the specific provisions enumerated in §1329(b)”—of
which Section 1325(b) is not one. (Opinion, d/e 1 at 167.) Further,
the bankruptcy court observed, allowing modification without
applying the requirements of Section 1325(b) would allow trustees to
do an “end-run” around Section 1325(b)’s constraining standards for
calculating disposable income, simply by waiting until after a plan is
confirmed before filing a motion to modify the payment plan.
(Opinion, d/e 1 at 169.)
The Trustee cites several cases from outside of the Seventh
Circuit in which courts have held that a confirmed Chapter 13 plan
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may be modified when the debtor experiences an increase in income.
But this Court remains controlled by the Seventh Circuit’s opinion in
In re Witkowski, 16 F.3d 739 (7th Cir. 1994). There, the Seventh
Circuit echoed Section 1329(b)’s plain language when it emphasized
that modification “is only available if §§ 1322(a), 1322(b), 1325(a),
and 1323(c) of the bankruptcy code are met.” Id. at 745. A
recalculation of disposable income under Section 1325(b) is simply
not available in a motion to modify under Section 1329.
In sum, the bankruptcy court did not err as a matter of law
when it found that it lacked authority to grant the Trustee’s motion to
modify the Debtors’ payment plan. Because of this, the Court need
not consider whether the bankruptcy court clearly erred or abused
its discretion when it found that it would deny the Trustee’s motion to
modify even if the bankruptcy court did have authority to grant the
motion.
V.
CONCLUSION
The bankruptcy court did not err as a matter of law when it
found that it did not have the authority to grant the Trustee’s motion
to modify. The bankruptcy court’s decision denying the Trustee’s
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motion to modify is AFFIRMED. This case is closed.
ENTER: September 30, 2015
FOR THE COURT:
s/ Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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