§ 127.9     To Increase Payments to Creditors
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 127.9, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Section 1329(a)(1) authorizes modification after confirmation to “increase . . . the amount of payments on claims of a particular class provided for by the plan.” The use of modification to increase payments was encouraged by the 1984 amendments to § 1329, granting allowed unsecured claim holders standing to seek postconfirmation modification.1

[2]

Reported decisions have aggressively allowed trustees and unsecured claim holders to modify plans to increase payments—often over the strong opposition of debtors. It has been held that the Chapter 13 trustee has standing to seek postconfirmation modification to increase payments into the plan based on an increase in the debtor’s disposable income, notwithstanding that the trustee did not raise a disposable income objection to confirmation of the original plan.2 In Arnold v. Weast (In re Arnold),3 on the motion of an allowed unsecured claim holder, the U.S. Court of Appeals for the Fourth Circuit forced a dissenting debtor to increase monthly payments into the plan from $800 to $1,500 and to extend the duration of the plan from 36 months to 60 months when the debtor’s income increased from $80,000 to $200,000 per year after confirmation. The court did not directly address whether the projected disposable income test in § 1325(b) is applicable to a modified plan under § 1329.4 Similarly, in In re Koonce,5 the court granted the trustee’s motion to modify to pay unsecured claim holders 100 percent to reflect that the debtors won $1.3 million in the Massachusetts State Lottery. In re Euerle6 held that a debtor who received a $300,000 inheritance after confirmation was obliged to advise the trustee and to file a supplemental schedule listing the additional asset pursuant to Bankruptcy Rule 1007(h).7 On the trustee’s motion, the court ordered the plan modified to pay 100 percent of unsecured claims. The bankruptcy court in In re Nott8 indicated that a $300,000 inheritance received after confirmation would be captured for unsecured creditors by the best-interests-of-creditors test on a motion to modify the plan to increase payments to creditors under § 1329(a)(1) and (b).

[3]

Increases in income that were not “projected” at confirmation are an obvious inspiration for motions to modify to increase payments to creditors. Things get tricky when the change in income arguably could have been foreseen at confirmation of the original plan. Some courts preclude modification to increase payments based on changes in income that are not “substantial and unanticipated.”9 Tax refunds often fall in this gray area. Most courts consider tax refunds to be projected disposable income at confirmation of the original plan.10 An “unexpected” tax refund is either an oxymoron—in which case the refund is always captured for distribution to creditors without modification of the plan. Otherwise, the proponent of modification faces a threshold burden to prove the refund is an unanticipated circumstance.11 Courts are concerned that minor changes in income and expenses of Chapter 13 debtors should not automatically justify motions to increase payments to creditors.

[4]

The liquidation of property by sale, by substitution of insurance proceeds or by settlement of litigation produces opportunities for motions to modify to increase payments to creditors. For example, in In re Barbosa,12 the debtors and a mortgage holder stipulated at confirmation that the market value of real property was $64,000. The mortgage was stripped down from $114,000 to $64,000, and the confirmed plan provided a 10 percent dividend to unsecured claim holders. Two years after confirmation, the debtors sold the real property for $137,500. The trustee moved to modify the plan to commit the sale proceeds to increase payments to unsecured creditors. The U.S. Court of Appeals for the First Circuit affirmed the bankruptcy court’s conclusion that appreciation in the value of the property was captured for unsecured claim holders by the best-interests-of-creditors test at modification.13

[5]

In In re Studer,14 the debtors waited until after confirmation to inform the trustee about a prepetition personal injury action. Upon postconfirmation settlement, the trustee moved to modify the plan to require the debtors to increase payments based on the settlement proceeds. The trustee’s modification was granted with an allowance to the debtors of the portion of the proceeds “necessary for the debtors’ reasonable maintenance and support.”15 The same bankruptcy court, in In re Florida,16 granted a trustee’s motion to modify a confirmed plan to pay unsecured claims in full from insurance proceeds at the postconfirmation death of the debtor’s husband; the court found that the insurance proceeds were projected disposable income and were not necessary for the maintenance or support of the surviving spouse, and “§ 522(c) does not render income from exempt property immune from treatment as disposable income.”17 Another bankruptcy court held that settlement proceeds from a postconfirmation action for violation of the automatic stay are captured for creditors by a trustee’s motion to increase payments under § 1329(a)(1).18

[6]

The court in In re Powers19 granted the trustee’s motion to increase the dividend from 54 percent to 100 percent when the debtor liquidated real property after confirmation and the proceeds would have permitted completion of the original plan in 15 months. The surrender or repossession of property after confirmation can be the predicate for modification to increase payments when surrender or repossession frees up income for distribution to other creditors.20 To avoid a “windfall” to the debtor, the court in In re Solis21 granted the trustee’s motion to modify to pay creditors the $40,000 proceeds from the postconfirmation sale of the debtor’s medical practice. In Collier v. Valley Federal Savings Bank (In re Collier),22 the confirmed plan was modified to pay creditors excess insurance proceeds that resulted when fire destroyed the debtor’s rental property.23

[7]

Not every sale or change in the form of an asset will support a motion to modify to increase payments to creditors. There is controversy whether the disposable income test applies at modification after confirmation under § 1329.24 Theoretically, anytime a Chapter 13 debtor sells property or otherwise changes an asset into cash, income is produced that probably was not accounted for at confirmation. On different theories, several reported decisions have refused to allow trustees or unsecured claim holders to capture this new income through modification.

[8]

For example, in In re Ferretti,25 the debtor settled a prepetition automobile accident after confirmation, and the trustee moved to modify to require distribution of the settlement proceeds to creditors. The debtor had claimed the auto accident exempt in the statement and schedules, and no one objected. The bankruptcy court found that the exemption defeated the trustee’s argument for modification to increase payments to creditors: “The clear language of 11 U.S.C. § 522(c) protects exempt property, regardless of form, from pre-petition debts. This express limitation cannot be ignored for purposes of defining disposable income under 11 U.S.C. § 1325(b)(2).”26

[9]

In In re Richardson,27 the bankruptcy court refused a trustee’s motion to increase payments using insurance proceeds. Ten months after confirmation, the debtors’ adult son died in a car accident and the Richardsons received $400,000 of exempt28 life insurance proceeds. When the debtors tried to pay off the Chapter 13 plan, the trustee objected, arguing that the insurance proceeds were disposable income payable to creditors. The bankruptcy court disagreed:

[T]he postconfirmation receipt of life insurance benefits as a beneficiary is neither earnings nor other property that was devoted to the plan and therefore not accessible to [the trustee] for payment to creditors through the plan. . . . If after obtaining confirmation of a plan, a debtor receives a windfall and proposes to pay the total projected disposable income before the end of the plan term, the trustee should accept the money, distribute it according to the plan, and grant the debtor a discharge. . . . [T]he Code does not say there should then be a denial of discharge because of the debtor’s good fortune.29
[10]

In McDonald v. Burgie (In re Burgie),30 the Bankruptcy Appellate Panel for the Ninth Circuit went even further to insulate Chapter 13 debtors from postconfirmation modification to increase payments based on liquidation of an asset. The confirmed plan in Burgie required a 34 percent dividend. Five days after confirmation, the debtor moved for and was granted court approval to sell a residence. After homestead exemption, approximately $20,000 of the sale proceeds remained, and the trustee moved to modify the plan to increase the dividend to unsecured claim holders. The Ninth Circuit BAP assumed without deciding that § 1325(b) applied,31 but held that the change in form of an asset is never by itself a basis for modification after confirmation to increase the dividend to unsecured claim holders:

The proceeds of the sale of a debtor’s real estate in a chapter 13 case never become disposable income . . . . This result applies in a chapter 13 case whether or not the property is exempt from execution. While a debtor may voluntarily use such proceeds to make payments to creditors under a chapter 13 plan, a debtor cannot be compelled to use the proceeds for this purpose. . . . Postpetition disposable income does not include prepetition property or its proceeds. This is the chapter 13 debtor’s bargain. Creditors of a chapter 13 debtor have no claim to any of these assets. . . . The sale of a capital asset does not create “disposable income” pursuant to § 1325. . . . A debtor’s prepetition homestead is a capital asset, not postpetition income.32
[11]

The BAP in Burgie goes on to make one further distinction: if the asset in question “is an anticipated stream of payments,” then the payments “must be included in projected income.”33 This distinction could be awkward to apply. The lump-sum settlement of a prepetition cause of action would not be subject to a motion to modify to increase payments to creditors, but a structured settlement that produced periodic payments might. If the debtor sold a piece of property after confirmation for cash, the cash would not be income under the Burgie rule and could not be the basis for a motion to increase payments to creditors. Would the same result apply if the debtor sold property, took a mortgage for some or all of the purchase price and then received the purchase price in monthly installments? In all these situations, the motion to modify to increase payments to creditors would engage the difficult discussion whether and how the disposable income test in § 1325(b) applies at modification after confirmation under § 1329.34

[12]

The reported decisions also make a distinction between motions to increase payments filed in response to a debtor’s motion to sell property and a motion to modify to require the debtor to sell or mortgage property to increase payments to creditors.35 For example, in In re Trumbas,36 the same bankruptcy court that decided Barbosa37 denied an unsecured creditor’s motion to require the debtor to sell or refinance a home four years after confirmation to increase payments to creditors. At confirmation, the debtor in Trumbas valued her house at $35,000. Four years after confirmation, the debtor valued the house at $131,000. The bankruptcy court found that the increase in value was “foreseeable when the court confirmed the debtor’s plan” and “nothing in the Bankruptcy Code requires the debtor . . . to incur new debt or to sell her home as a condition precedent to obtaining her discharge.”38 Distinguishing Barbosa, “[a] number of courts . . . have considered post-confirmation sales of property which appreciated post-petition and have concluded that the debtor must make the proceeds available to unsecured creditors. . . . In this case, the fact that the Debtor has not realized proceeds from the appreciation of her home distinguishes her case from others and is outcome determinative.”39

[13]

Along these lines, in In re Profit,40 the Bankruptcy Appellate Panel for the Ninth Circuit reversed an order granting a trustee’s motion to increase payments when the debtors experienced a substantial forgiveness of debt during the Chapter 13 case. After confirmation, an appreciative employer forgave a $150,000 debt on the Profits’ home. The debtors sold the home, moved and used some of the proceeds to buy another house. The Chapter 13 trustee found out about all of this when the debtors asked for a payoff amount. The trustee moved to compel the debtors to include the value of the debt forgiveness in their plan. The bankruptcy court granted the trustee’s motion.

[14]

On appeal, the Bankruptcy Appellate Panel for the Ninth Circuit didn’t disagree with the bankruptcy court’s analysis that the forgiveness of debt created value in the Chapter 13 estate that was captured for creditors at modification by the best-interests-of-creditors test.41 But the BAP found the trustee’s motion deficient because it did not specify how the debtors would pay the increased value to creditors. Because the debt forgiveness was buried in the debtors’ new home, there was no obvious source of cash for increasing payments to creditors. The BAP concluded that the trustee’s modification was not feasible.42

[15]

Profit is instructive that motions to modify Chapter 13 plans to increase payments to creditors must specify how the debtor will carry out the proposed modification. Keep in mind that many such motions come from the trustee or from allowed unsecured claim holders, and the effect of modification is to force the debtor to pay more money to the trustee. When an asset is being sold or insurance or settlement proceeds are being paid to the debtor, there is ready cash that can be grabbed by a motion to increase payments into the plan. When the event that precipitated the motion to modify does not produce cash—such as the forgiveness of debt in Profit—the proponent has an additional burden to demonstrate how the new value in the estate will be converted into something that can be distributed to creditors through the plan.

[16]

On unusual facts, one court refused a debtor’s motion to modify a Chapter 13 plan to increase payments to some creditors. In In re Taylor,43 co-signed debts were “deleted” from the original plan, and the holders of the co-signed claims were granted relief from the stay to proceed against the cosigners. After stay relief, the debtors filed a modified plan that provided for 100 percent payment of the co-signed claims. Characterizing the debtor’s proposal as a “reclassification” of the co-signed claims, the court disapproved the modified plan on the ground that modification “would be unfairly prejudicial.”44 The court observed that “the Debtors are attempting to . . . reinstate the automatic stay . . . so the cosigners will not be required to pay. . . . [A] debtor cannot defeat a creditor’s right to pursue the co-debtors by a postconfirmation modification.”45

[17]

The failure of creditors to timely file proofs of claim and the litigation of claims allowance after confirmation sometimes inspire trustees and unsecured claim holders to move to modify to increase payments under the plan. One court denied a trustee’s motion to require the debtor to continue making payments when the failure of creditors to file proofs of claim allowed the plan to complete in less than three years and an extension to three years would increase the dividend from 7 percent to 19 percent.46 Another court, on very similar facts, granted the trustee’s motion to modify a confirmed plan to require the debtor to pay 100 percent of allowed unsecured claims, when the debtor successfully objected to a claim and several other creditors did not file proofs of claim.47 When a claim scheduled as priority turned out to be a general unsecured claim and the confirmed plan would complete in 11 months, the bankruptcy court granted the trustee’s motion to modify to increase the dividend from 0 percent to 30 percent.48

[18]

Ironically, when creditors file unexpectedly large proofs of claim, the trustee cannot count on modification to correct distribution problems. In In re Wilson,49 the confirmed plan required full payment of secured and priority claims and a “variable” payment to unsecured claims depending on the amount available in the pot50 after payment of secureds and priority debt. After confirmation but before the governmental claims bar date,51 the trustee began distributions to filed claims, including distributions to general unsecured creditors. The trustee relied on the amounts listed in the debtor’s schedules to determine that funds were sufficient to permit early distributions to unsecured creditors. Unfortunately for the trustee, the IRS and the District of Columbia filed timely priority claims larger than scheduled, and suddenly the trustee did not have enough money to pay all creditors as required by the confirmed plan. The trustee moved to modify to require the debtor to increase payments to cover the shortfall. The bankruptcy court denied the trustee relief:

Had the trustee not made distributions on the general unsecured claims prior to the governmental claims bar date, the debtors’ plan could have been successfully administered pursuant to its terms while yielding a smaller than originally expected return on the general unsecured claims. This continued feasibility results from the plan providing for a variable, rather than fixed or percentage, distribution on general unsecured claims. Because the debtors’ plan continues to be feasible and also continues to satisfy the other requirements of § 1325, the court does not deem it appropriate to require the debtors to modify their plan to require the payment of additional monies to allow the secured and priority creditors to be paid in full . . . and to pay a dividend of twenty-three percent on general unsecured claims. . . . [I]t would be appropriate on motion of an affected creditor, to consider requiring the trustee to reimburse the estate unless she recovers . . . all distributions made in error by the trustee.52
[19]

Changes in the legal standards applicable to confirmation can prompt creditors to seek modification to increase payments under the plan. For example, imagine an undersecured mortgage holder with a claim that was bifurcated in a jurisdiction that permitted claim splitting prior to the Supreme Court’s decision in Nobelman v. American Savings Bank.53 The mortgagee is the holder of an allowed unsecured claim for purposes of a motion to modify under § 1329(a). Based on Nobelman, the mortgage holder could argue that payments on account of its allowed secured claim should be increased under § 1329(a)(1) or extended under § 1329(a)(2)54 to reflect that its entire claim cannot be modified under § 1322(b)(2).55 Though this proposed modification fits the technical requirements of § 1329, there has been no flood of reported decisions discussing the use of § 1329 to undo a pre-Nobelman mortgage stripdown. Based on res judicata and the binding effect of confirmation under § 1327(a), one court refused an undersecured mortgage holder’s § 1329(a) motion to fix the stripdown of its lien in a plan confirmed before the Supreme Court’s decision in Nobelman.56

[20]

There is obvious fairness to requiring debtors to share good fortune with creditors. This is the same fairness that permits Chapter 13 debtors to reduce payments to creditors when circumstances disable the debtor from completing the original plan. The courts have little trouble getting around res judicata and getting around the binding effect of § 1327(a)57 when the moving party is the trustee or the holder of an allowed unsecured claim and the motion to modify increases payments to creditors. These same issues loom insurmountably to some courts when it is the debtor’s motion and the proposed modification reduces payments58 or changes the treatment of a secured claim.59 It is of more than academic interest that were the debtor to convert to Chapter 7 after winning a lottery or realizing new income, the postpetition assets and income belong to the debtor and would not be available for distribution to creditors in the Chapter 7 case.60 Perhaps the sharing of postpetition good fortune is seen by some courts as the cost of the Chapter 13 discharge. The reported cases support the proposition that an allowed unsecured claim holder can force the debtor with improved financial condition to a choice: accept an increase in payments to creditors or get out of Chapter 13.

[21]

It should be remembered that an objection to modification to increase payments will be measured against the tests in § 1329(b).61 When the trustee or an allowed unsecured claim holder moves to modify to increase payments, the proponent must satisfy the good-faith test in § 1325(a)(3),62 the best-interests-of-creditors test in § 1325(a)(4)63 and the feasibility test in § 1325(a)(6).64 In In re Perkins,65 the trustee proposed a postconfirmation modification to require the debtor to increase payments to creditors by paying over the cash realized from the sale of an asset. The modification was denied because the trustee made no provision for taxes due upon the sale and thus the proposed modification failed the feasibility test in § 1325(a)(6). In Cornelison v. Wallace (In re Cornelison),66 a motion by the debtor’s attorney to allow additional fees through the plan was interpreted as a motion to modify to increase payments under § 1329; the motion was denied because the payment of additional fees would extend the plan beyond the five-year limitation in § 1329(c).67

[22]

The feasibility test in § 1325(a)(6) becomes the debtor’s best friend on a creditor’s motion to increase payments. In In re Bernardes,68 the debtor scheduled real property valued at $114,500. Eight months after confirmation, the debtor moved to sell the property for $202,500. A wholly unsecured third mortgage holder moved to modify the plan to increase payments to creditors. The debtor quickly withdrew the motion to sell the property. This change of direction saved the debtor from the motion to modify:

The modification of a confirmed plan may be disapproved if the plan as modified fails to satisfy the feasibility test . . . . The modified plan expressly assumes that Mr. Bernardes will sell the subject realty for $202,500.00, leaving an estimated $46,250.00 available for distribution among unsecured creditors. . . . Mr. Bernardes withdrew his motion to sell the property. Presently, he has no intention of selling the subject realty. Thus, the condition precedent to Old Republic’s modified plan has failed. Old Republic has made no showing, nor does this court find, that Mr. Bernardes can afford to increase the distribution to unsecured creditors without selling the subject realty. The court must therefore deny Old Republic’s motion to amend the plan under § 1329(a) as the modified plan fails to satisfy the feasibility requirement of § 1325(a)(6).69
[23]

It is difficult for creditors to know when a debtor experiences a significant increase in income or assets that would justify a motion to modify to increase payments. No provision of the Code or Rules requires a Chapter 13 debtor to report the receipt of postpetition assets or increases in income, except the narrow class of inheritances within 180 days of the petition described in § 541(a)(5).70 Some courts include in the standard order of confirmation that the debtor must report changes in income on some regular basis.71 Even so, the report will typically be filed with the court or the trustee, and creditors must make a special effort to become informed. The disposable income test in § 1325(b) has been used as the statutory springboard for ongoing postconfirmation monitoring of the debtor’s income;72 but this test is an imperfect basis for postconfirmation modification to increase payments to creditors because § 1325(b) only applies upon the objection of the trustee or of an allowed unsecured claim holder.73 Few creditors can justify the cost of routinely requesting updated income information from Chapter 13 debtors pursuant to Bankruptcy Rule 2004.


 

1  See § 253.1 [ Standing, Timing and Procedure ] § 126.1  Standing, Timing and Procedure.

 

2  McDonald v. Louquet (In re Louquet), 125 B.R. 267 (B.A.P. 9th Cir. 1991). See Powers v. Savage (In re Powers), 202 B.R. 618 (B.A.P. 9th Cir. 1996) (That debtor’s income as a casino dealer increased 48% after confirmation justified trustee’s motion to increase payments to unsecured claim holders.).

 

3  869 F.2d 240 (4th Cir. 1989).

 

4  See § 126.3  Does Disposable Income Test Apply? and § 126.6  Modification after Confirmation after BAPCPA.

 

5  54 B.R. 643 (Bankr. D.S.C. 1985).

 

6  70 B.R. 72 (Bankr. D.N.H. 1987).

 

7  See also § 41.3 [ Preconfirmation Amendment of Petition, Statements, Schedules and Lists ] § 41.2  Preconfirmation Amendment of Petition, Statements, Schedules and Lists.

 

8  269 B.R. 250 (Bankr. M.D. Fla. 2000).

 

9  See § 126.5  Changed-Circumstances Requirement? and § 126.6  Modification after Confirmation after BAPCPA.

 

10  See § 91.2  Projected (Disposable) Income and § 92.2  Projected Disposable Income: All Debtors.

 

11  See, e.g., In re Flennory, 280 B.R. 896, 897–98 (Bankr. S.D. Ala. 2001) (On bank’s motion to increase payments based on tax refund after confirmation, “a full analysis of Flennory’s income and expenses resulted in little or no increase at all in disposable income. . . . If fluctuations in income and expenses do not amount to a change substantial enough to give the debtor a significant increase in disposable income, then a creditor should not be permitted to seek to modify the debtor’s plan and vice versa.”).

 

12  236 B.R. 540 (Bankr. D. Mass. 1999), aff’d on other grounds, 243 B.R. 562 (D. Mass. 2000), aff’d, 235 F.3d 31 (1st Cir. 2000).

 

13  Accord In re Stinson, 302 B.R. 828, 833 (Bankr. D. Md. 2003) (Trustee’ motion to increase base amount is granted when debtors sold residence two years after confirmation for 21% more than the value used at confirmation. Modification to increase base amount satisfied the substantial and unanticipated circumstances test in Arnold v. Weast (In re Arnold), 869 F.2d 240 (4th Cir. 1989), because confirmed plan contemplated retaining the property and paying the arrearages and regular monthly payments from postpetition wages, and 21% increase in value in two years was substantial. Section 1325(a)(4) required the plan base to increase “to provide the unsecured creditors with a fund that is equivalent to the amount that would be available if the estate were liquidated under Chapter 7.”); In re Nott, 269 B.R. 250 (Bankr. M.D. Fla. 2000) (Arguably in dicta, $300,000 inheritance received after confirmation would be captured for unsecured creditors by a motion to modify under § 1329. “[E]ffective date of the plan” is the effective date of the modified plan for purposes of § 1329(b). At modification after confirmation, § 1325(a)(4) is applied to determine the liquidation value of the estate as of the effective date of the modified plan. Property acquired after confirmation is property of the estate. Inheritance received after confirmation must be valued for purposes of the hypothetical liquidation test if a motion to modify the plan to increase payments is filed.); In re Profit, 269 B.R. 51, 59 (Bankr. D. Nev. 2001) (On the trustee’s motion to modify plan to increase payments, postconfirmation forgiveness of indebtedness income resulting from employer’s forgiveness of debt on debtors’ residence is captured for unsecured creditors by the best-interests-of-creditors test in § 1325(a)(4), subject to exemption. The best-interests-of-creditors test in § 1325(a)(4) applies as of the effective date of the modified plan in the manner described in Barbosa v. Soloman, 235 F.3d 31 (1st Cir. 2000). “[T]he forgiveness of debt, as represented by the sales proceeds of the Palm Springs property, is property of the estate and, while not disposable income, must be considered at time of modification pursuant to §§ 1329(b)(1) and (2) and 1325(a)(4). Unless exempt, the Trustee’s Motion to Modify must be granted because the Palm Springs property sales proceeds must be made available for Debtor’s unsecured creditors.”), rev’d on other grounds, 283 B.R. 567 (B.A.P. 9th Cir. 2002).

 

14  237 B.R. 189 (Bankr. M.D. Fla. 1998).

 

15  237 B.R. at 193.

 

16  268 B.R. 875 (Bankr. M.D. Fla. 2001).

 

17  268 B.R. at 880. See also In re Tolliver, 257 B.R. 98, 100, 101 (Bankr. M.D. Fla. 2000) (On trustee’s motion to modify, proceeds from settlement of workers’ compensation claim are disposable income captured for payment to unsecured creditors. Although § 1325(b) ordinarily would not apply at modification on the motion of the trustee, “because Debtors failed to inform the Trustee of the potential settlement proceeds or of Tolliver’s involvement in a lawsuit prior to entry of the confirmation order, the Court could not previously make an appropriate determination as to whether the proceeds constituted disposable income. . . . Accordingly, the Court now addresses the issue.” Distinguishing Gamble v. Brown (In re Gamble), 168 F.3d 442 (11th Cir. 1999), and In re Ferretti, 203 B.R. 796 (Bankr. S.D. Fla. 1996), “[b]ecause the worker’s compensation proceeds in the instant case have not been exempted pursuant to 11 U.S.C. § 522(c),” the proceeds are disposable income payable to unsecured claim holders.). But see In re Richardson, 283 B.R. 783, 799 (Bankr. D. Kan. 2002) (Trustee cannot modify plan to increase payments using insurance proceeds received by the debtors 10 months after confirmation when the debtors’ adult son died in an automobile accident. The debtors exempted the insurance proceeds without objection, and the proceeds are “neither earnings nor other property that was devoted to the plan.”).

 

18  In re Furgeson, 263 B.R. 28 (Bankr. N.D.N.Y. 2001).

 

19  140 B.R. 476 (Bankr. N.D. Ill. 1992).

 

20  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 for discussion of surrender and repossession of collateral after confirmation. See, e.g., In re Barclay, 276 B.R. 276 (Bankr. N.D. Ala. 2001) (Section 1329(a)(1) authorizes an increase in payments by modification after confirmation when the debtor surrenders a car.).

 

21  172 B.R. 530 (Bankr. S.D.N.Y. 1994).

 

22  198 B.R. 816 (Bankr. N.D. Ala. 1996).

 

23  Accord In re Thomas, 291 B.R. 189, 194–98 (Bankr. M.D. Ala. 2003) (10% plan is modified on trustee’s motion to pay fire insurance proceeds to unsecured creditors. Debtor scheduled residence at $42,000 subject to a $38,000 mortgage and exempted the $4,000 of equity. Less than two years later, residence was destroyed by fire and after payment of balance of mortgage, insurance carrier tendered $25,405.33 to the trustee. “[T]he modification is one of a type contemplated by Section 1329(a)(1). . . . [T]he Section 1329(b) requirements are met. . . . [T]he doctrine of res judicata does not operate to bar amendment of a confirmed plan. . . . [T]he Debtor’s plan is modified in order to pay the surplus insurance proceeds for the benefit of unsecured creditors. . . . [T]he Trustee [shall] remit $4,000 to the Debtor . . . the amount of equity in the residence, as reported in the Debtor’s schedules.”).

 

24  See § 126.3  Does Disposable Income Test Apply? and § 126.6  Modification after Confirmation after BAPCPA.

 

25  203 B.R. 796 (Bankr. S.D. Fla. 1996).

 

26  203 B.R. at 800. Accord In re Graham, 258 B.R. 286, 292–93 (Bankr. M.D. Fla. 2001) (Applying Gamble v. Brown (In re Gamble), 168 F.3d 442 (11th Cir. 1999), on the trustee’s motion to modify a 6% plan to increase payments to creditors using the settlement proceeds from a postpetition automobile accident, the debtors’ $1 exemption claim trumps the disposable income test. “The principles of Gamble control disputes over the application of the ‘disposable income’ test to § 522(l) conclusively exempt property. . . . [I]f a debtor’s claimed exemption is established under § 522(l) through expiration of the Rule 4003(b) period without objection, then § 522(c), [Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed. 2d 280 (1992),] and Gamble operate to prevent a bankruptcy court from treating such exempt property as disposable income under § 1325(b). . . . Debtors properly claimed an exemption in the personal injury claim . . . . The Rule 4003(b) [period] passed without objection. Thus, under § 522(l) and Taylor, the personal injury claim and any proceeds therefrom became conclusively exempt . . . . [T]he exempt personal injury settlement may not be applied to Debtors’ Plan as ‘disposable income,’ but is released completely into the custody, use and enjoyment of Debtors without qualification.” In a footnote, good-faith test in § 1325(a)(3) is an alternative source for disposable-income-test analysis on the motion of the trustee to modify the plan after confirmation.). See § 91.2  Projected (Disposable) Income§ 92.2  Projected Disposable Income: All Debtors, § 126.3  Does Disposable Income Test Apply? and § 126.6  Modification after Confirmation after BAPCPA for further discussion of the difficult interaction between the disposable income test and exemptions.

 

27  283 B.R. 783 (Bankr. D. Kan. 2002).

 

28  The debtors exempted the insurance proceeds without objection, thus eliminating consideration of the best-interests-of-creditors test. See § 126.2  Application of Tests for Confirmation  and § 126.6  Modification after Confirmation after BAPCPA for discussion of how the best-interests-of-creditors test captures appreciating and newly acquired assets at modification after confirmation. See also § 90.2  Exemption Issues and § 90.3  Exclusions and Exemptions after BAPCPA for discussion of exemptions and the best-interests-of-creditors test.

 

29  283 B.R. at 799–801.

 

30  239 B.R. 406 (B.A.P. 9th Cir. 1999).

 

31  As assumption not warranted when the objection to modification comes from the debtor. See § 91.1  In General§ 92.1  In General and § 126.3  Does Disposable Income Test Apply?.

 

32  239 B.R. at 409–12. Accord In re Profit, 269 B.R. 51 (Bankr. D. Nev. 2001) (Applying McDonald v. Burgie (In re Burgie), 239 B.R. 406 (B.A.P. 9th Cir. 1999), on trustee’s motion to modify plan to increase payments, postconfirmation forgiveness of indebtedness income resulting from employer’s forgiveness of debt on debtor’s residence is not disposable income and need not be submitted to the trustee for payment to creditors under § 1322(a)(1) because the forgiveness of indebtedness produced a lump sum at sale of the residence, not a stream of payments.), rev’d, on other grounds, 283 B.R. 567 (B.A.P. 9th Cir. 2002); In re Euler, 251 B.R. 740 (Bankr. M.D. Fla. 2000) (When the plan does not provide that appreciation will be captured for the benefit of unsecured claim holders, trustee cannot modify the plan after confirmation to increase payments to unsecured claim holders when the debtor proposes to sell real property and pay off the plan in a lump sum. Bankruptcy court cites McDonald v. Burgie (In re Burgie), 239 B.R. 406 (B.A.P. 9th Cir. 1999), for the proposition that proceeds from sale of real property are not disposable income.).

 

33  239 B.R. at 412.

 

34  See § 126.3  Does Disposable Income Test Apply? and § 126.6  Modification after Confirmation after BAPCPA.

 

35  See also discussion beginning at § 126.1  Standing, Timing and Procedure and § 127.6  To Sell or Refinance Property of the Estate.

 

36  245 B.R. 764 (Bankr. D. Mass. 2000).

 

37  See above in this section, and see § 126.2  Application of Tests for Confirmation and § 126.6  Modification after Confirmation after BAPCPA.

 

38  245 B.R. at 767.

 

39  245 B.R. at 767 n.6.

 

40  269 B.R. 51 (Bankr. D. Nev. 2001), rev’d, 283 B.R. 567 (B.A.P. 9th Cir. 2002).

 

41  See § 126.2  Application of Tests for Confirmation for discussion of this aspect of In re Profit, 269 B.R. 51 (Bankr. D. Nev. 2001), rev’d, 283 B.R. 567 (B.A.P. 9th Cir. 2002). See also § 126.6  Modification after Confirmation after BAPCPA.

 

42  See § 111.1  Able to Make Payments and Comply with Plan and § 111.2  Feasibility Turned on Its Head after BAPCPA for discussion of feasibility of Chapter 13 plans.

 

43  99 B.R. 902 (Bankr. C.D. Ill. 1989).

 

44  99 B.R. at 905.

 

45  99 B.R. at 903, 905.

 

46  In re Woodhouse, 119 B.R. 819 (Bankr. M.D. Ala. 1990). Accord In re Torres, 193 B.R. 319, 324 (Bankr. N.D. Cal. 1996) (Rejects creditor’s motion to require payments for nine more months when 35% plan was paid in full in 27 months. Original plan provided for 35% payment of unsecured claims but said nothing about minimum duration of plan. Res judicata and § 1327 prohibit modification to extend payments because § 1325(b) was not triggered by objection to confirmation of the original plan. “This plan, as the form was completed by Debtor and confirmed by the Court, unambiguously announced that payments to the Trustee were going to be made only as long as necessary to permit all allowed claims to be paid at the rate of 35%, and it imparted notice to all that a minimum term of three years was not being proposed. Anyone—Trustee and/or creditors—who disliked the absence of a three year minimum term could have objected to confirmation on that basis to invoke § 1325(b)(1)(B) . . . . Once the plan is confirmed, it is res judicata as to the § 1325(b)(1)(B) issue.”).

 

47  In re Bostwick, 127 B.R. 419 (Bankr. N.D. Ill. 1991). Accord In re Fields, 269 B.R. 177 (Bankr. S.D. Ohio 2001) (Trustee’s motion to increase payments when a “percentage plan” completes in less than 36 months is permitted by § 1329(a)(1) without regard to whether disposable income test applies at plan modification.); In re McKinney, 191 B.R. 866 (Bankr. D. Or. 1996) (Grants trustee’s motion to require payments for 36 months to increase the dividend to unsecured creditors. Plan as confirmed provided 0% to unsecured claim holders. There were no secured claims, and it was projected that full payment of priority claims would require more than three years. Priority claims as finally allowed were substantially less than anticipated and were paid in 12 months. On trustee’s motion, court required payments to continue for three years.).

 

48  In re Burns, 216 B.R. 945 (Bankr. S.D. Cal. 1998) (Debtor estimated priority child support at $13,000, and confirmed plan that paid priority claims in full and no dividend to unsecured claim holders. Child support was assigned to County and turned out to be an unsecured, nondischargeable, nonpriority debt of $17,428.52. Upon learning that the plan based on the filed claims would be completed in 11 months, the Chapter 13 trustee moved to modify the confirmed plan to require a 30% dividend to unsecured claim holders. Debtors responded with a motion to modify proposing a separate classification of the unsecured nonpriority child support claim to pay that claim in full with interest and nothing to other unsecured claim holders. Applying AMFAC Distribution Corp. v. Wolff (In re Wolff), 22 B.R. 510 (B.A.P. 9th Cir. 1982), court found that debtors’ proposed separate classification discriminated unfairly against the nonchild support unsecured claim holders, and the court confirmed the trustee’s proposed modified plan.).

 

49  274 B.R. 4 (Bankr. D.D.C. 2001).

 

50  See § 170.1 [ Methods of Paying Unsecured Claims ] § 101.3  Methods of Paying Unsecured Claims for discussion of “pot” or “base” plans.

 

51  See § 276.1 [ Governmental Units ] § 132.3  Governmental Units.

 

52  274 B.R. at 12.

 

53  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993). See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

54  See § 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11  To Extend or Reduce the Time for Payments.

 

55  See §§ 104.1 [ The Power to Modify ] § 74.11  The Power to Modify and 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

56  In re Klus, 173 B.R. 51, 54–56 (Bankr. D. Conn. 1994) (Undersecured mortgage holder with a claim that was bifurcated under § 506(a) and stripped down in a Chapter 13 plan confirmed before the Supreme Court’s decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993), cannot amend the plan after confirmation under § 1329 to eliminate the unsecured portion of its claim and realize the protection from modification declared in Nobelman. “It is well settled that ‘under § 1327, a confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation.’ . . . Keycorp’s motion is merely an attempt to relitigate the status of its claim after a change in the law occurring after the Confirmation Order. . . . Keycorp is . . . barred by the doctrine of res judicata from receiving the benefits achieved by the Nobelman appellee.”).

 

57  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.

 

58  See § 265.1 [ To Decrease Payments to Creditors ] § 127.8  To Decrease Payments to Creditors.

 

59  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.

 

60  See 11 U.S.C. § 348. See also § 143.2  In Cases Filed after October 22, 1994. But see § 142.3  Application of § 707(b) Abuse Test at Conversion and § 143.5  Bad-Faith Conversion.

 

61  See § 254.1 [ Application of Tests for Confirmation ] § 126.2  Application of Tests for Confirmation.

 

62  See discussion of good faith before and after BAPCPA beginning at § 103.1  In General§ 104.1  In General§ 105.1  Prepetition Conduct and Misconduct—In General§ 106.1  In General§ 107.1  Greed, Not Need§ 108.1  Economic Components of Good Faith—In General and § 109.1  Smell Tests.

 

63  See discussion of best-interests-of-creditors test beginning at § 90.1  In General: Plan Payments vs. Hypothetical Liquidation.

 

64  See § 111.1  Able to Make Payments and Comply with Plan and § 111.2  Feasibility Turned on Its Head after BAPCPA.

 

65  111 B.R. 671 (Bankr. M.D. Tenn. 1990).

 

66  202 B.R. 991 (D. Kan. 1996).

 

67  See also In re Jacobs, 263 B.R. 39 (Bankr. N.D.N.Y. 2001) (Bankruptcy court denies trustee’s motion to increase payments to unsecured creditors when trustee received $20,000 after 60th monthly payment on account of the settlement of the debtors’ interest in an asset scheduled five years earlier with a value of $1. Debtor had completed payments under the plan. Appreciation in the value of the asset was not a substantial, unanticipated change in circumstances. To allow the trustee’s motion would violate the 60-month maximum duration of a modified plan under § 1329(c).).

 

68  267 B.R. 690 (Bankr. D.N.J. 2001).

 

69  267 B.R. at 695.

 

70  See Fed. R. Bankr. P. 1007(h). See, e.g., In re Euerle, 70 B.R. 72 (Bankr. D.N.H. 1987). See also § 41.3 [ Preconfirmation Amendment of Petition, Statements, Schedules and Lists ] § 41.2  Preconfirmation Amendment of Petition, Statements, Schedules and Lists.

 

71  See § 91.2  Projected (Disposable) Income and discussion of projected disposable income test after BAPCPA beginning at § 92.1  In General.

 

72  See discussion of disposable income test before and after BAPCPA beginning at § 91.1  In General and § 92.1  In General.

 

73  See § 91.1  In General, § 92.1  In General, § 126.3  Does Disposable Income Test Apply? and § 126.6  Modification after Confirmation after BAPCPA.