Cite as: Keith M. Lundin, Lundin On Chapter 13, § 127.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
Chapter 13 plans too often are silent with respect to postpetition claims. Although § 1322(b)(6) permits the plan to provide for the payment of all or any part of a claim allowed under § 1305,1 Chapter 13 debtors and counsel are not focused on postpetition claims at confirmation of the plan. When the debtor incurs a debt after the petition that qualifies as a postpetition claim under § 1305,2 the debtor often needs to modify the plan to pay the claim.
Unfortunately, there is little in § 1329(a) to suggest that Congress contemplated postconfirmation modification to provide for the payment of postpetition claims. Once again the use of the words “provided for” becomes important.3 Section 1329(a) states that a confirmed plan can be modified to “increase or reduce the amount of payments on claims of a particular class provided for by the plan.”4 If the original plan is silent with respect to postpetition claims, then it cannot be said that postpetition claims are a “particular class provided for by the plan.” Similarly, § 1329(a)(2) permits modification to “extend or reduce the time for such payments.”5 The phrase “such payments” must be interpreted to refer back to the “payments on claims of a particular class provided for by the plan” in § 1329(a)(1). If the confirmed plan did not specify payment for postpetition claims, then § 1329(a)(2) is no help at modification after confirmation. Finally, § 1329(a)(3) permits the modified plan to “alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan.”6 Once again, the modification contemplated by § 1329(a)(3) has as its predicate that the claim is provided for by the original plan. If the confirmed plan is silent with respect to payment of postpetition claims, then § 1329(a)(3) is not available, even if it can be shown that modification is necessary to account for payment of postpetition claims “other than under the plan.”
The absence of clear statutory authority to modify a plan to provide for postpetition claims is substantial incentive for every Chapter 13 plan to include a boilerplate provision for the payment of postpetition claims under §§ 1322(b)(6) and 1305.7
Notwithstanding the statute, a few courts have permitted debtors to modify the plan after confirmation to provide for the payment of postpetition claims.8 One court suggested that statutory authority to modify to provide for postpetition claims can be found in § 1329(b)(2) even when the confirmed plan is silent with respect to postpetition claims. In In re Bagby,9 the confirmed plan did not provide for postpetition claims. After confirmation, motions and agreed orders were submitted to provide for postpetition check-cashing services that qualified under § 1305 because the funds advanced were used to pay rent and utilities necessary for the debtor’s performance under the plan.10 The bankruptcy court found that notice to creditors did not adequately inform that the proposed modification would delay payments to prepetition creditors in favor of payment of the postpetition claims. The bankruptcy court acknowledged some question whether § 1329 permits postconfirmation modification to provide for postpetition claims when the confirmed plan was silent with respect to postpetition claims. The court held that modification to add the treatment of postpetition claims was authorized under § 1329(b)(2) because “the plan as modified becomes the plan” unless the modification is disapproved after proper notice.
Bagby could be read as holding only that in the absence of objection, a plan can be modified to provide for postpetition creditors without regard to whether postpetition claims are provided for in the confirmed plan. Interpreted this way, Bagby puts a premium on notice to creditors and diligence by creditors. Prepetition creditors typically are affected by the addition of a provision for postpetition creditors—at least, as in Bagby, that payments will be diluted or delayed to account for the new claims. If Bagby is a notice and procedure case, then any objection might defeat the modification to add a class of postpetition claims.
Bagby can be read more broadly to approve the use of § 1329 to provide for postpetition claims when the confirmed plan is silent on the subject. In essence, Bagby finds in § 1329(b) authority for the debtor to create a new class of claims by modification after confirmation. In other contexts, the use of § 1329 to change or to create new classes of creditors has not been well received.11
Many reported decisions refuse modification to provide for postpetition claims that are not allowable under § 1305. As detailed elsewhere,12 § 1305 permits the filing and allowance of postpetition claims for taxes and consumer debts for property or services necessary for the debtor’s performance under the plan. Only the holder of the postpetition claim can file a proof of that claim.13 Section 1322(b)(6) permits a Chapter 13 debtor to “provide for the payment of all or any part of any claim allowed under § 1305 of this title.”14 If the holder declines to file a proof of claim, most courts hold the postpetition claim is not allowable and cannot be provided for under § 1322(b)(6).15 This interpretation of §§ 1305 and 1322(b)(6) has inspired many courts to reject postconfirmation modification to provide for the payment of postpetition claims when the postpetition claim is not allowable under § 1305.
For example, in In re Roseboro,16 the debtor was not permitted to “add” claims for postpetition purchases that were unnecessary to the debtor’s performance under the plan because such claims were not allowable under § 1305(a)(2). The court found that when the holder of the postpetition claim declined to file a proof of claim, the claim could not be provided for by the plan under §§ 1305(a)(2) and 1322(b)(6). Similarly, in In re Dickey17 the court held that § 1329 does not permit modification to provide for postconfirmation taxes when the taxing authority declines to file a proof of claim. A substantial number of reported decisions concur in the holding that a debtor cannot modify the plan to provide for a postpetition claim if the holder refuses to file a proof of claim or if the claim otherwise is not allowable under § 1305.18
The holder of a postpetition claim can decline to file a proof of claim and thus prevent the allowance of its claim under § 1305.19 Not all debts incurred after the petition fit the technical requirements for allowance of postpetition claims in § 1305.20 But in the cases just discussed, the courts are confusing modification of a plan under § 1329 with the question whether the holder of a postpetition claim is entitled to distributions under the (modified) plan.
If the modified plan says “allowed postpetition claims will be paid in full,” the debtor has satisfied § 1322(b)(6) explicitly—the plan provides for the payment of all or part of a postpetition claim that is allowed under § 1305. That the holder of a postpetition claim chooses not to file a proof of claim has no relevance to the propriety of the modified plan that provides for payment of allowed postpetition claims. That the debtor incurs a debt after the petition that is not allowable under § 1305 does not affect whether the plan can be modified to provide for allowed postpetition claims. Modification may be Pyrrhic: if the claim is not allowable under § 1305, the postpetition debt will not be paid through the modified plan and will not be discharged.21 But the many reported decisions that speak of postpetition claim holders forced to participate in plans by postconfirmation modification are misguided. A Chapter 13 debtor cannot force a postpetition claim holder to file a proof of claim, nor can the debtor impose discharge by modifying to provide for allowed postpetition claims.
One court has accurately explained that modification under § 1329 is not dependent upon the allowance of postpetition claims under § 1305. In In re Farquhar,22 the debtor was permitted to modify a plan after confirmation to provide partial payment of postpetition claims allowed under § 1305. The court observed that the debtor does not have standing to file proofs of claim on behalf of the postpetition claim holders, and thus modification does not ensure that postpetition claims will be allowed and paid through the modified plan. The court tested the proposed modification against the usual standards in § 1329(b)23 and rejected the modified plan because it discriminated unfairly by paying prepetition unsecured claim holders 23.58 percent and allowed postpetition unsecured claimants only 5.2 percent. The court in Farquhar correctly recognized that there is no connection between modification to provide for allowed postpetition claims and the allowance or discharge of such claims. The Farquhar court did not identify the provision of § 1329 that permitted modification when the confirmed plan was silent with respect to the treatment of postpetition claims.
The bankruptcy court in In re Sims24 rejected a modification that forced postpetition claim holders to participate in the plan or suffer discharge. The debtors moved to modify the confirmed plan to “add” five postpetition medical service providers, giving the postpetition creditors 90 days to file a proof of claim. The modification disallowed any claim filed after 90 days. The modified plan would pay the postpetition creditors pro rata with other unsecured claim holders—approximately 2.66 percent. The bankruptcy court refused this strong-arm tactic:
This relief is inconsistent with the relevant provisions of the Bankruptcy Code. In essence, the Debtors are attempting to force the post-petition creditors to file a claim and accept an amount equal to 2.66% of their claim, or be “disallowed” and receive nothing on the claim. However, these creditors are not so limited by the provisions of the Bankruptcy Code. Under the Code, they may elect not to file a claim under Section 1305, waive participation in the instant plan, and seek to recover against the debtor after the Chapter 13 case is closed.25
Nothing in this discussion solves the problem that § 1329(a) seems not to allow modification to provide in the first instance for payment of postpetition claims. Debtors should avoid this problem by always providing in the original plan for the payment of allowed postpetition claims, consistent with § 1322(b)(6).26
It is not obvious why the postpetition claim holder cares whether the debtor modifies the plan to provide for postpetition claims. If the postpetition debt is not allowable under § 1305, then it cannot be provided for by the plan. The debt will not receive distributions and will not be discharged upon completion of payments to other creditors. If the debt is allowable under § 1305, but the holder either does not like the proposed treatment under the (modified) plan or does not want to participate in distributions, the creditor can simply refuse to file proof of its postpetition claim. The holder then will not have an allowed postpetition claim, will not receive distributions under the plan and will not be discharged upon completion of payments.27
Permitting modification to provide payment for allowed postpetition claims only increases the options available to the postpetition claim holder. If the treatment is acceptable under the modified plan, then the postpetition claim holder can file proof of its claim and participate in distributions. There is no coercion in the § 1329 process.
Modification of a confirmed plan to provide for postpetition debt, when allowed, is subject to the usual standards under § 1329(b)(1).28 For example, one bankruptcy court used the “unfair discrimination” test in § 1322(b)(1) to reject postconfirmation modification. In In re Brooks,29 the debtor stipulated after confirmation that postpetition unpaid utility bills would be paid ahead of other creditors. The bankruptcy court found good statutory and policy reasons for rejecting this modification:
Those stipulation[s] improperly designate CILCO’s claims as a separate class from the classifications in the confirmed plans. . . . [T]here is no justification for giving CILCO special treatment. . . . [T]he Code provides a framework for the treatment of post-petition utility bills. . . . If it is concerned about payment for post-petition services, . . . protection is afforded by providing the deposit. If a utility elects not to protect itself by requiring a deposit . . . it has little basis to complain, and no reason to request that it come before other pre-petition unsecured creditors. . . . To permit a debtor to ignore . . . [paying] his utility bills and pass that cost on to unsecured pre-petition creditors destroys the whole concept of paying his creditors through a Chapter 13 plan.30
1 See § 204.1 [ Providing for Postpetition Claims ] § 113.6 Providing for Postpetition Claims.
3 See also §§ 234.1 [ Failure to Provide For ] § 121.3 Failure to Provide For 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.
4 11 U.S.C. § 1329(a)(1) (emphasis added). See §§ 265.1 [ To Decrease Payments to Creditors ] § 127.8 To Decrease Payments to Creditors and 266.1 [ To Increase Payments to Creditors ] § 127.9 To Increase Payments to Creditors.
5 11 U.S.C. § 1329(a)(2) (emphasis added). See § 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11 To Extend or Reduce the Time for Payments.
6 11 U.S.C. § 1329(a)(3) (emphasis added). See § 267.1 [ To Account for Payments Other Than under the Plan ] § 127.10 To Account for Payments Other Than under the Plan.
7 See § 89.8 Postpetition Claims, § 113.6 Providing for Postpetition Claims, § 114.5 To Provide for Postpetition Creditors, § 132.9 Postpetition Claims, § 137.1 Postpetition Claims before BAPCPA, § 137.2 Postpetition Claims after BAPCPA and§ 158.6 Postpetition Claims.
8 See, e.g., In re Thornton, 21 B.R. 462 (Bankr. W.D. Va. 1982) (Postpetition claims for medical services added to Chapter 13 plan after confirmation but before completion of payments.).
9 218 B.R. 878 (Bankr. W.D. Tenn. 1998).
11 See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7 To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim. See also In re Burns, 216 B.R. 945 (Bankr. S.D. Cal. 1998) (Denies confirmation of debtors’ proposed modified plan that would separately classify an unsecured, nonpriority, nondischargeable support claim for payment in full with no payment to other unsecured claim holders. In original plan, debtors thought there was a priority support claim for $13,000 and proposed a plan that would pay the priority claim in full and nothing to general unsecured claim holders. It turned out that the support claim was assigned to governmental unit, and when the claim was filed, it was filed as a general unsecured claim that would be nondischargeable, but was not entitled to priority. When it appeared based on the filed claims that the original confirmed plan would be paid in full in 11 months, the Chapter 13 trustee moved to modify the plan to pay 30% to unsecured claim holders. The debtors responded with a modified plan that would separately classify the nondischargeable, nonpriority support claim for payment in full with no payment to other unsecured claim holders. Applying AMFAC Distribution Corp. v. Wolff (In re Wolff), 22 B.R. 510 (B.A.P. 9th Cir. 1982), the court determined that the debtors’ proposed separate classification was an unfair discrimination, and the court confirmed the trustee’s proposed modification.).
13 11 U.S.C. § 1305(a) provides: “A proof of claim may be filed by any entity that holds a claim against the debtor . . . for taxes . . . or . . . a consumer debt . . . for property or services necessary for the debtor’s performance under the plan” (emphasis added). See § 281.1 [ Postpetition Claims ] § 132.9 Postpetition Claims.
14 11 U.S.C. § 1322(b)(6). See § 204.1 [ Providing for Postpetition Claims ] § 113.6 Providing for Postpetition Claims.
16 77 B.R. 38 (Bankr. W.D.N.C. 1987).
17 64 B.R. 3 (Bankr. E.D. Va. 1985).
18 See In re Sims, 288 B.R. 264 (Bankr. M.D. Ala. 2003) (Confirmed plan cannot be modified to require postpetition medical service providers to file proofs of claim within 90 days or face disallowance and discharge; modification that would pay postpetition claim holders pro rata with other unsecured debt only 2.66% cannot be forced on postpetition claim holders that have a choice under § 1305 to waive participation in the plan and recover their entire claims after the Chapter 13 case.); In re Flores, 270 B.R. 203 (Bankr. S.D. Tex. 2001) (Modification after confirmation is denied because the postpetition sales taxes that the debtor proposes to pay through the plan are § 1305 postpetition claims with respect to which only the state can file a claim. Chapter 13 case was filed on August 31, 1999. Debtor owed state sales taxes for third quarter 1999 and all postpetition quarters. After confirmation, debtor filed a proof of claim on behalf of state and moved to modify the plan to pay all sales taxes through the plan. State objected. Citing §§ 502(i) and 501(d), Chapter 13 debtor can file a proof of claim under § 501(c) with respect to a § 507(a)(8) sales tax that arises after the commencement of the case; but §§ 501(c), 501(d) and 502(i) are reconciled with § 1305 by limiting this power to sales taxes arising after the petition that relate to prepetition activity when the taxing authority has not filed a proof of claim within 180 days in § 502(b)(9). In this case, the debtor’s power to file a proof of claim and force participation by the state was limited to the portion of prepetition activity that fell within the third quarter of 1999. With respect to all postpetition activity, only the taxing authority can file a proof of claim, and thus the debtor’s proposed plan modification could not require the state’s participation with respect to postpetition sales tax activity.); In re Epstein, 200 B.R. 611 (Bankr. S.D. Ohio 1996) (Income taxes for 1989 are a postpetition debt in a Chapter 13 case filed on September 6, 1989. That the debtor amended plan after confirmation to provide for the payment of 1989 taxes does not accomplish discharge because IRS chose not to file a proof of claim. Debtor cannot file a claim for postpetition taxes on behalf of the IRS. Amendment of the schedules does not satisfy § 1305.); In re Haith, 193 B.R. 341, 342 (Bankr. N.D. Ala. 1995) (Denies motion to amend schedules and to modify where the debtor seeks to add a postpetition debt and the creditor objects. “[O]nly post-petition debts for which a claim has been filed may be allowed or disallowed in a chapter 13 plan. . . . [O]nly the holder of a post-petition debt may file the proof of claim for that debt. . . . Neither the Bankruptcy Code nor the Bankruptcy Rules allows [sic] a debtor to force a post-petition creditor into an existing chapter 13 plan.”); In re Smith, 192 B.R. 712 (Bankr. E.D. Tenn. 1996) (Amending statements and schedules to add nine postpetition creditors does not “provide for” those claims where confirmed plan is silent with respect to postpetition claim holders. The added debts are not allowable under § 1305. Postpetition claim holders have not filed proofs of claim. The postpetition claims will not be discharged.); In re Trentham, 145 B.R. 564 (Bankr. E.D. Tenn. 1992) (Section 1329 does not permit postconfirmation modification to add postpetition consumer creditors. The debtor can provide for postpetition consumer creditors in the original plan under § 1322(b)(6). To accomplish allowance, payment and discharge of postpetition consumer debts, the original plan must provide for payment of § 1305 claims, the postpetition creditor must obtain the trustee’s approval before the debt is incurred, or if prior approval was not obtained, the creditor must establish that it did not know that prior approval by the trustee was practicable, and the postpetition creditor must voluntarily file a proof of claim. The debtor cannot file a proof of claim on behalf of a postpetition creditor nor can the debtor force the postpetition claim holder to file its own proof of claim.); In re Goodman, 136 B.R. 167 (Bankr. W.D. Tenn. 1992) (Postpetition medical services are postpetition claims under § 1305(a); however, a postpetition creditor that chooses not to file a proof of claim cannot have an allowed claim and thus cannot be “provided for” under § 1322(b)(6). Debtors “may not ‘sidestep’ § 1305(a)’s requirements through postconfirmation modification under § 1329. . . . Post-petition creditors can decline to participate in the previously confirmed Chapter 13 plan by not filing a proof of claim, and the debtor cannot force or cram down such a creditor’s participation through postconfirmation modification.”); RTO Rents v. Benson (In re Benson), 116 B.R. 606 (Bankr. S.D. Ohio 1990) (Debtor cannot “sidestep” the requirements of § 1305 through modification after confirmation under § 1329. Postpetition lessor can decline to participate in Chapter 13 plan, and debtor cannot force participation through modification of the plan to assume the postpetition leases. Section 1329 provides that § 1322 applies to postconfirmation modification. Under § 1322(b)(6), a plan may provide for the payment of all or any part of any claim “allowed” under § 1305. Allowance of a claim under § 1305 can only be accomplished by the filing of a claim by the postpetition creditor. The postpetition lessor refuses to file a claim, and it cannot be forced to accept assumption of its leases through modification of the plan.); In re Glover, 107 B.R. 579 (Bankr. S.D. Ohio 1989) (Section 1329 does not authorize postconfirmation modification to provide for payment of postpetition debt except when the holder of the postpetition claim files a proof of claim.); In re Cotton, 102 B.R. 891 (Bankr. M.D. Ga. 1989) (Debtor cannot modify after confirmation to deal with a mortgage that was assumed by the debtor after confirmation and without the permission of the Chapter 13 trustee. It was not necessary for the debtor’s performance under the plan for the debtor to purchase a residence and assume the mortgage. The mortgage holder has not filed a proof of claim under § 1305, and there is no requirement that it do so.).
19 See § 281.1 [ Postpetition Claims ] § 132.9 Postpetition Claims.
22 112 B.R. 34 (Bankr. D. Colo. 1989).
24 288 B.R. 264 (Bankr. M.D. Ala. 2003).
25 288 B.R. at 268–69.
26 See § 204.1 [ Providing for Postpetition Claims ] § 113.6 Providing for Postpetition Claims.
28 See § 254.1 [ Application of Tests for Confirmation ] § 126.2 Application of Tests for Confirmation for discussion of the tests incorporated by § 1329(b)(1).
29 Nos. 95-81556, 95-82425, 95-81388, 2002 WL 31760206 (Bankr. C.D. Ill. Dec. 10, 2002) (unpublished).
30 2002 WL 31760206, at *3–*5.