Cite as: Keith M. Lundin, Lundin On Chapter 13, § 114.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
Procedure for preconfirmation modification varies. In some jurisdictions, preconfirmation modification is a formal process commenced by filing a written motion. In other jurisdictions, preconfirmation modification and fine-tuning of plans is almost invisible, often occurring across the table between the trustee and debtor’s counsel at the meeting of creditors. In some jurisdictions, the notice of the § 341 meeting warns creditors that modification of the plan may occur at the meeting of creditors.
Bankruptcy Rule 2002(a)(5) contemplates 20 days’ notice to parties in interest of “a time fixed to accept or reject a proposed modification of a plan.” Bankruptcy Rule 2002(b) requires 25 days’ notice of “the time fixed for filing objections and the hearing to consider confirmation of a . . . chapter 13 plan.” A preconfirmation modification of a Chapter 13 plan would have to satisfy both notice requirements. The courts have strictly enforced the requirement that preconfirmation amendments be noticed to creditors with adequate opportunity to object.3
In some jurisdictions, it is the debtor’s responsibility to give notice to creditors of preconfirmation plan modifications. Failure to give adequate notice of preconfirmation modifications may defeat the preclusive effect of confirmation.4
It is common in advance of confirmation that debtor’s counsel must adjust the amount of a monthly payment or the value of collateral or the interest rate payable to a secured claim holder. Technically, any such change after the filing of the plan is a modification that triggers the 20-day notice requirement of Bankruptcy Rule 2002(a)(5) and the 25-day notice required by Bankruptcy Rule 2002(b). As a practical matter, most plan adjustments affect only one creditor and are fashioned at the creditor’s request. When the affected creditor agrees to the preconfirmation modification and other creditors are not affected, an “agreed order of modification” avoids delay and expense. Some courts by local rule or practice have limited the notice of preconfirmation modifications to affected creditors and the trustee. When a preconfirmation modification affects some creditors but not others, it has been held that unaffected creditors are not entitled to a second notice of confirmation and modification does not restart deadlines for unaffected creditors to object to provisions of the original plan that were not modified.5 In most jurisdictions, contested preconfirmation modifications are not set for separate hearing but are combined with the hearing on confirmation of the plan.
In jurisdictions where the confirmation order is generated at the § 341 meeting, plan modifications accomplished at the meeting of creditors should be noticed to creditors to avoid problems under Bankruptcy Rule 2002(a)(5). One method is to renotice the modified plan with a typed warning to creditors that the plan was modified at the meeting of creditors and that the modified plan will be confirmed if a written objection is not filed within 20 days.6 It is not necessary to convene a new § 341 meeting of creditors when the proposed plan is modified after the meeting of creditors but before confirmation.7
The passage of time between the filing of a plan and modification can work against the debtor. Debtors are almost always better off acting quickly to file any necessary preconfirmation modifications. For example, in In re Neill,8 several months after filing a plan, the debtor moved to modify to extend the proposed plan from 24 months to 36 months. Discussed in detail elsewhere,9 § 1322(d)10 prohibits a Chapter 13 plan from providing for payments over a period longer than three years unless the court “for cause” approves a longer period. The court refused modification because, when added to the months already passed, the proposed extension would require the plan to exceed 36 months and the debtor had offered no cause for the extension.
Modification before confirmation does not necessarily relieve the debtor of duties that arose under the proposed plan before modification. For example, 11 U.S.C. § 1326(a)(1) requires the debtor to commence making payments proposed by a plan within 30 days after the plan is filed.11 In In re Walters,12 three months after filing a plan that called for weekly payments of $135, the debtor filed an amended plan reducing the weekly payment to $52. During the three-month interim, the debtor accumulated a $790 delinquency. The bankruptcy court held that the amended plan did not retroactively cure the default in payments under the original plan. Because the amended plan did not propose to cure the delinquency, confirmation of the amended plan was denied.
Timing can be important when the modified plan deals with a creditor omitted in the original schedules.13 The debtor should modify the plan quickly after realizing that a creditor has been omitted to maximize the time for participation by the omitted creditor. The binding effect of confirmation, the allowance of the omitted creditor’s claim and the effect of discharge may be determined by whether the preconfirmation modification was filed and noticed soon enough for the omitted creditor to fully participate in the Chapter 13 case.14
Section 1323(a) prohibits any preconfirmation modification if “the plan as modified fails to meet the requirements of § 1322 of this title.”15 In Williams v. Tower Loan of Mississippi, Inc. (In re Williams),16 the U.S. Court of Appeals for the Fifth Circuit rejected a modification before confirmation to surrender part of the collateral for an undersecured claim while paying the balance as a secured claim through the plan. The Fifth Circuit concluded that § 1325(a)(5)(C)17 permits a Chapter 13 debtor to keep all of the collateral and pay the entire secured claim through the plan or else the debtor must surrender all of the collateral securing the claim. The debtor’s proposal to distribute both cash and property did not satisfy § 1325(a)(5)(C) and thus was not a permissible preconfirmation modification under § 1323.18
The Fifth Circuit in Williams does not address or explain why the denial of a preconfirmation motion to modify the plan was a final order for purposes of appellate jurisdiction.19 Perhaps more importantly, § 1325(a)(5)(C) is not among the sections applicable to preconfirmation modification under § 1323(a). The test for confirmation in § 1325(a)(5)(C) would certainly apply when the (modified) plan reached confirmation, but the confirmation standards in § 1325 are not statutory limits on the preconfirmation modification of plans under § 1323(a). As a practical matter, it is not obvious why a debtor would modify a plan before confirmation under § 1323 in a way that would not be confirmable under § 1325; but then again, lots of things happen between the proposing of a plan and confirmation, and creditors have been known to fail to object to confirmation of plan provisions that could not have been approved over objection.20
Under § 1323(b), once the debtor files a preconfirmation modification, “the plan as modified becomes the plan.”21 As explained by the Bankruptcy Appellate Panel for the Eighth Circuit, this means that “the modified plan replace[s] the original plan” and all of the tests for confirmation are applied to the modified plan, not to the original plan.22
1 11 U.S.C. § 1323.
2 11 U.S.C. § 1323. This is consistent with 11 U.S.C. § 1321, which reserves to the debtor the power to file the plan in the first instance. See § 55.1 [ Debtor Must File a Plan ] § 51.2 Debtor Must File a Plan. This should be contrasted with the power of the trustee or the holder of an allowed unsecured claim to seek postconfirmation modification of a plan under 11 U.S.C. § 1329(a). See § 253.1 [ Standing, Timing and Procedure ] § 126.1 Standing, Timing and Procedure. See, e.g., Dominion Bank v. Cassell (In re Cassell), 119 B.R. 89, 95 (W.D. Va. 1990) (Neither the bankruptcy court nor the Chapter 13 trustee has authority to modify a Chapter 13 plan before confirmation. “The role of the bankruptcy court is to determine whether a debtor’s proposed plan should be confirmed. If it determines that a plan should not be confirmed, then it should state its reasons for that determination. However, the bankruptcy court may not unilaterally modify a debtor’s plan, even if it reasonably assumes that a debtor would approve the modification.”); In re Baines, 263 B.R. 868, 873 (Bankr. S.D. Ill. 2001) (Although proceeds of prepetition lawsuit and workers’ compensation are disposable income under In re Watters, 167 B.R. 146 (S.D. Ill. 1994), trustee cannot modify plan before confirmation to require distribution to only unsecured creditors. The debtor’s unconfirmed plan provided that one-half of workers’ compensation would be paid to the trustee without specification that those proceeds would be distributed to any particular class of creditors. Before confirmation, the trustee received a workers’ compensation check and moved for a “special distribution” to unsecured creditors. “According to Section 1322(b)(4), a debtor may choose, at his sole discretion, to pay his unsecured and secured creditors contemporaneously. . . . Neither the trustee nor any unsecured creditor can compel a Chapter 13 debtor to exercise his Section 1322(b)(4) option. . . . [T]he Trustee cannot force the [debtors] to modify their as-yet unconfirmed plan to provide for the contemporaneous payment of both their secured and unsecured creditors.”).
3 See Javens v. Ruskin, No. 99-74189, 2000 WL 1279189, at *1 (E.D. Mich. Aug. 24, 2000) (Debtor cannot use preconfirmation modification to resolve objections to confirmation when the modified plan is filed on the day of the confirmation hearing and without notice to creditors. “‘In an attempt to resolve the overwhelming objections, the Debtor responds by filing an amendment to [the] plan on the date scheduled for confirmation and motion for dismissal.’ . . . Under the rules, the Bankruptcy Court could not substitute the amended plan for the original plan at the confirmation hearing because the rules require twenty-five days notice of a hearing to consider confirmation of a Chapter 13 plan. Fed. R. Bankr. P. 2002(b).”), aff’d, 2001 WL 1450676 (6th Cir. Nov. 9, 2001) (unpublished); Talman Home Mortgage Corp. v. El Lago Apartment Venture, 70 B.R. 346 (N.D. Ill. 1987) (Remand for new hearing on confirmation is required where creditor had actual knowledge of preconfirmation amendment but did not receive notice of amended plan in conformity with Bankruptcy Rule 2002(a).); In re Vincente, 257 B.R. 168, 175 (Bankr. E.D. Pa. 2001) (Amended plan filed after the hearing on confirmation as an attachment to a brief in response to objections to confirmation is not timely filed within the contemplation of § 1323 and was not adequately noticed to creditors; however, because the objectionable provisions of the original plan were carried into the amended plan and the objecting mortgage holder responded to the amended plan with further objections, bankruptcy court accepts the debtor’s invitation to consider the amended plan without an additional evidentiary hearing. “I reject the Debtor’s view that he can propose a plan, make no payments thereunder, file on the eve of confirmation and after five months an adversary proceeding that raises issues known to him when the case was commenced, use the pendency of that adversary case to support repeated requests to adjourn confirmation while still making no payments, and then when the court refuses to continue confirmation further, agree that his plan raises legal issues which require an extended briefing schedule and when his turn finally comes to support his positions, amend the plan without any consequence. . . . I am unpersuaded that § 1323[,] which allows the Debtor the right until confirmation to amend a plan, is intended to support this practice.”); In re Gronski, 65 B.R. 932 (Bankr. E.D. Pa. 1986) (Creditors must be notified of preconfirmation modifications of the plan and informed of a new bar date for objections to confirmation.).
4 See § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2 Notice and Due Process Considerations, Including Claims Allowance and Valuation.
5 See In re Carbone, 254 B.R. 1, 2 (Bankr. D. Mass. 2000) (Creditor’s objection to confirmation of modified plan was untimely filed 32 days after the modification was filed. A local rule required an objection to confirmation to be filed no later than 30 days after the first date set for the § 341 meeting or “thirty days (30) days after service of a modified plan, unless otherwise ordered by the court.” Debtor modified the plan at the meeting of creditors to change the treatment of the IRS and the Massachusetts Department of Revenue. “Both the Chapter 13 trustee and the debtor signed a statement indicating neither notice to other creditors or a hearing on the modification were necessary because the modification did not adversely affect creditors.” Thirty-two days after the § 341 meeting, a creditor filed objections to confirmation. The bankruptcy court found the objections to be untimely by counting the 30 days under the local rule from the § 341 meeting. Service of the plan modification was not required because the creditor had not filed a notice of appearance or a request for service of pleadings in the Chapter 13 case. The objecting creditor apparently was present at the meeting of creditors at which the modification was filed dealing with the IRS and the Department of Revenue.); In re Duncan, 245 B.R. 538 (Bankr. E.D. Tenn. 2000) (That the debtor modified the plan after the meeting of creditors but before confirmation does not resuscitate a creditor’s right to object to confirmation when local rule required objections to be filed before the conclusion of the meeting of creditors and the untimely objection filed by the creditor relates only to portions of the plan that were not modified.).
6 The binding effect of confirmation of a modified plan after such notice is discussed in § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.
7 In re Thornhill, 268 B.R. 570, 574 (Bankr. E.D. Cal. 2001) (“R & N contends that the trustee should notice and conduct a new meeting of creditors under Bankruptcy Code section 341 for each amended plan. . . . [T]here is nothing in the Bankruptcy Code to require that a new 341 meeting be conducted in conjunction with each amendment of a plan.”).
8 158 B.R. 93 (Bankr. N.D. Ohio 1993).
9 See discussion of length of plan beginning at § 112.1 General Rule: Three Years, More or Less.
10 11 U.S.C. § 1322(d), as redesignated by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 301, 108 Stat. 4106 (1994). Prior to the 1994 Act, this section was 11 U.S.C. § 1322(c).
11 See § 43.1 [ First Test of Debtor’s Good Intentions ] § 44.1 First Test of Debtor’s Good Intentions.
12 223 B.R. 710 (Bankr. W.D. Mo. 1998).
13 See § 283.1 [ Unscheduled Creditors ] § 133.2 Unscheduled Creditors before BAPCPA.
14 See §§ 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2 Notice and Due Process Considerations, Including Claims Allowance and Valuation, 283.1 [ Unscheduled Creditors ] § 133.2 Unscheduled Creditors before BAPCPA and 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5 Claims Not Provided for by the Plan or Disallowed under § 502.
15 11 U.S.C. § 1323(a).
16 168 F.3d 845 (5th Cir. 1999).
17 11 U.S.C. § 1325(a)(5)(C) is discussed in § 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA.
18 See also In re Brigance, 219 B.R. 486, 494 (Bankr. W.D. Tenn. 1998), aff’d, 234 B.R. 401 (W.D. Tenn. 1999) (Debtors cannot modify Chapter 13 plan before confirmation to separately classify check-cashing service for more favorable treatment than other unsecured claim holders because the proposed modification fails the unfair-discrimination test for confirmation in § 1322(b)(1).).
19 See § 225.1 [ Appeal of Grant or Denial of Confirmation ] § 117.4 Appeal of Grant or Denial of Confirmation.
20 See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.
21 11 U.S.C. § 1323(b).
22 Nielson v. DLC Inv., Inc. (In re Nielson), 211 B.R. 19, 22–23 (B.A.P. 8th Cir. 1997) (Bankruptcy court erred in assessing good faith at confirmation based on original plan when debtors filed preconfirmation modification before the hearing on confirmation. “Debtors have the right to modify the plan before the confirmation hearing, § 1323(a), and ‘the plan as modified becomes the plan.’ [Section] 1323(b). . . . [T]he court reviewed only the original plan, rather than the modified plan. . . . The modified plan replaced the original plan and the good faith and best interests of creditors requirements under the Bankruptcy Code must be considered under the plan the Debtor is attempting to confirm. Accordingly on remand, the bankruptcy court should consider the good faith issue in light of the increased repayment and duration of the modified plan.”).