Cite as: Keith M. Lundin, Lundin On Chapter 13, § 126.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
Section 1329(c) imposes a duration limitation on the modified plan that is similar to but not exactly the same as the three- to five-year limitation on the original plan in § 1322(d).1 Section 1329(c) states that a modified plan “may not provide for payments over a period that expires after three years after the time that the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court may not approve a period that expires after five years after such time.”2 Section 1322(d) limits the duration of the original plan such that it “may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years.”3
When is “the first payment under the original confirmed plan . . . due” for purposes of § 1329(c)? Several starting dates are possible. The first payment under the original confirmed plan may be the first payment required by § 1326—a payment that typically is due within 30 days of the filing of the original plan.4 The first payment under the original confirmed plan might be the first payment due after confirmation of the original plan.5 In jurisdictions that delay confirmation until after expiration of the claims bar date,6 this date may be five, six or more months after the filing of the case and half a year or more after the first payment was actually made consistent with § 1326. In jurisdictions that immediately issue an income deduction order at the filing of the case,7 the three- or five-year period might be counted from the date the first payment was due under the order.
The reported decisions fix no clear rule for counting the duration of a modified plan. In West v. Costen,8 the U.S. Court of Appeals for the Fourth Circuit parrots the statute that the five-year maximum permissible length of a modified Chapter 13 plan is counted from the date the first payment was due under the original confirmed plan. The opinion does not identify what date that is. In In re Eves,9 the court counts the duration of the modified plan from the date the first payment was due after confirmation of the original plan. The court declined to count from the date the first payment was made by the debtor and refused to count from the date that a preconfirmation payroll deduction order required payments to commence.
The confusion in the case law is perhaps best illustrated by conflicting opinions from the Bankruptcy Appellate Panel for the Ninth Circuit and chaos in the bankruptcy courts in Arizona. The Ninth Circuit BAP more or less directly addressed the counting of the duration of a modified Chapter 13 plan in two cases. In United California Savings Bank v. Martin (In re Martin),10 to count the duration of the second of two consecutively filed Chapter 13 cases, the BAP observed, “The 60-month time period begins to run from the date the first payment becomes due after confirmation of the debtor’s Chapter 13 plan.”11 Two years later, in Nicholes v. Johnny Appleseed of Washington (In re Nicholes),12 in the context of an eligibility battle under § 109, the BAP said the 60-month period in § 1322(c) “begins running from the date at which the Chapter 13 debtor is first obligated to begin making payments to the trustee under the unconfirmed plan—i.e., within 45 days after the petition is filed—as opposed to the date at which the first payment becomes due under the confirmed plan.”13
Struggling with these conflicting statements from the BAP, the bankruptcy courts in Arizona have produced at least three different counting rules for the duration of a modified plan. In In re Collier,14 the bankruptcy court resolved the conflict between Nicholes and Martin in favor of Nicholes and counted the duration of a modified plan “from the date at which the Chapter 13 debtor is first obligated to begin making payments to the trustee under the unconfirmed plan—i.e., within 45 days after the petition is filed.”15 In In re Serna,16 a different Arizona bankruptcy court followed Martin rather than Nicholes, starting the 60-month period on the date the first payment was due from the debtor after confirmation of the plan.17 More recently, another bankruptcy court in Arizona rejected the “dicta” in both Martin and Nicholes and chose a third rule: the 60-month duration of a modified plan under § 1329 is counted from the date when “the debtor begins making payment to the trustee (the ‘commencement of payments method’).”18
On the debtor’s motion to modify a plan after confirmation, the bankruptcy court in Baxter v. Evans (In re Evans)19 explained persuasively why the five-year maximum duration in §§ 1322(d) and 1329(c) should be counted from the date on which the first payment was due under § 1326(a)(1):
The appropriate time from which to calculate the length of the Chapter 13 plan is the date at which the debtor is first obligated to begin making payments. . . . To allow the payment limitation period to begin at confirmation would allow for intentional delays in achieving confirmation to manipulate the mandatory time periods set forth in § 1322[(d)]. . . . [C]ommencing the time length of the payment period from confirmation would impose an additional burden on the debtors, not authorized by the Code, requiring the making of pre[confirmation] payments due pursuant § 1326(a)(1), but not counting those payments under the term set forth in the plan. The five-year maximum repayment period imposed by § 1322[(d)] and § 1329(c) would be impermissibly extended by the amount of time passing between filing and confirmation. . . . [T]he most logical point from which to begin counting the repayment period is at the time the debtor is first required to make payments under § 1326(a)(1). . . . In this case the plan was filed May 28, 1991, thus the first payment thereunder was due June 28, 1991. . . . [P]lan payments must be concluded by June 28, 1996, five years after the date the first payment was due under the confirmed plan.20
Are the duration limitations “voluntary”? Prior to 1984, the issue did not arise because only the debtor could propose a plan under § 1321,21 and creditors did not have standing to seek modification under § 1329.22 After the 1984 amendments to § 1329, an allowed unsecured claim holder has standing to seek modification, and it is possible to use modification to extend the plan beyond the debtor’s original commitment.
The U.S. Court of Appeals for the Fourth Circuit concluded that an allowed unsecured claim holder can force the debtor to either accept extension of the plan or suffer conversion or dismissal. In Arnold v. Weast (In re Arnold),23 on the motion of an allowed unsecured claim holder, the bankruptcy court extended a 36-month plan to 60 months over the objection of the debtor when the debtor’s income increased from $80,000 to approximately $200,000 per year. The court of appeals sustained the involuntary extension of the plan.
Arnold signals a subtle but important shift in the balance of power in Chapter 13 cases. In almost every composition plan shorter than 60 months, an extension toward the five-year maximum will increase the payment of unsecured claims. At confirmation of the original plan, the debtor controls the content of the plan and the disposable income test in § 1325(b) gives unsecured claim holders leverage to require payments for only three years.24 Under Arnold, allowed unsecured claim holders can use modification at any time after confirmation to push the plan beyond the three years contemplated by § 1325(b). If an increase in the debtor’s disposable income is cause for involuntary extension of a plan beyond three years, then allowed unsecured claim holders have greater rights at modification of a plan than they have at confirmation of the original plan.
The duration of a modified plan becomes more problematic if the disposable income test in § 1325(b) applies at modification.25 The three years in § 1325(b) are counted “beginning on the date that the first payment is due under the plan.”26 Because the modified plan becomes “the plan” under § 1329(b)(2), the three-year period in § 1325(b)(1)(B) might be counted from the date the first payment is due under the modified plan. If §§ 1325(b)(1)(B) and 1329(b)(2) interact in this way, upon objection by the trustee or an allowed unsecured claim holder,27 every modified plan would exceed three years, and the proponent of every modification would have to prove cause for extension.28 Section 1329(c) clearly limits the duration of the modified plan to five years after the first payment was due under the original confirmed plan. The three-year period in § 1325(b)(1)(B) will conflict with the five-year maximum duration in § 1329(c) in every Chapter 13 case in which modification is sought more than two years after the first payment was due under the original plan and in which the debtor cannot pay unsecured claims in full in the months remaining of the five-year period in § 1329(c).29
Notice that other statutory conditions that affect the duration of the original plan may be turned around at modification after confirmation. For example, many courts include the duration of the plan as a factor bearing on the debtor’s good faith at confirmation.30 Confirmation of a 36-month plan is a binding determination that 36 months is a good-faith effort by the debtor.31 But after confirmation, when an allowed unsecured claim holder moves to modify to extend the plan beyond three years, analysis under § 1329(b)(1) would focus on the proponent of the plan—the holder of the allowed unsecured claim—not on the debtor.32 What are the appropriate factors to consider to determine whether an unsecured claim holder’s motion to extend a Chapter 13 plan beyond three years is proposed in good faith? Would it make a difference whether the claim holder objected to the shorter duration of the original plan?
The congressional reports leading up to the 1978 Code recognized that under the former Bankruptcy Act, Chapter XIII debtors lacked protection from “endless” Chapter 13 plans—plans that lasted a decade in some districts—a sort of “involuntary servitude.”33 The three- to five-year duration limitations were built into §§ 1322(d) and 1329(c) as debtor protections.34 There is no legislative history to suggest that Congress intended the 1984 amendment to § 1329(a) as license for creditors to force Chapter 13 debtors to extend their plans beyond 36 months.
How does a “lump sum” contribution intended to cover several months of payment count toward the duration of a modified plan? This is a recurring issue in Chapter 13 practice because debtors sometimes use § 1329 to cure postconfirmation default in payments under the plan.35 In Aubain v. LaSalle National Bank (In re Aubain),36 the Chapter 13 case was dismissed when the debtor failed to pay the last three months of a five-year plan. Dismissal was a really bad outcome for the debtor because a wholly unsecured mortgage holder that failed to file a proof of claim would be discharged and the lien eliminated if the debtor completed payments under the plan. The bankruptcy court held that reinstating the dismissed Chapter 13 case after the 60th month to permit the debtor to pay the last three months in a lump sum was a permitted modification that did not violate the 60-month limitation in § 1329(c): “[T]he debtor in this case is not seeking to extend the plan, but merely to cure a default on already-scheduled payments.”37
In contrast, in Christensen v. Black (In re Black),38 the debtor moved to modify the confirmed plan to make a “lump sum contribution” of all payments due during the first 28 months and to then make 54 additional monthly payments. The Bankruptcy Appellate Panel for the Tenth Circuit found that the “lump sum contribution” could not hide 28 months of missing payments and the additional 54 months would cause the modified plan to be significantly longer than five years. With respect to counting a lump-sum payment toward plan duration, the BAP had this to say:
We can only speculate that the [bankruptcy] courts believe calling all prior plan payments “a lump sum contribution” authorizes treating that “contribution” as “the first payment under the original confirmed plan” under § 1329(c) and considering it to have become “due” on the date of the plan modification, so the five-year time limit runs from that date. . . . [W]e cannot agree that this “lump sum contribution” method of plan modification satisfies the plan duration limit expressed in § 1329(c).39
Filing a motion to modify near the end of the five-year maximum duration in § 1329(c) is problematic for the plan proponent. Not the least of the problems is accounting for the passage of time while the motion to modify is pending. The Bankruptcy Appellate Panel for the Ninth Circuit danced with this issue in Profit v. Savage (In re Profit).40
In the 54th month of a five-year plan, the Chapter 13 trustee in Profit moved to modify the plan to compel the debtors to pay unsecured claim holders a greater dividend from the value created by a postconfirmation debt forgiveness. The five-year plan began in June 1996 and was scheduled to be completed in June of 2001. The trustee’s motion was filed in December of 2000. After much litigation, the order modifying the plan was entered in October 2001. The Bankruptcy Appellate Panel for the Ninth Circuit found “no authority” for the proposition that “the filing of the motion to modify somehow tolled the running of the plan term.”41 The BAP held that the trustee’s modification violated the 60-month limitation in § 1329(c): “[T]he payment required under the modified plan could not be completed, either by June, 2001, or even by October, 2001, short of some stay or tolling mechanism. Because the modified plan exceeded the 60-month limit, the bankruptcy court therefore abused its discretion in granting the modification.”42
Profit suggests that the proponent of a modified plan may have to take some action other than just filing a motion to modify to keep the plan duration from expiring while the parties litigate modification. Could the modified plan solve the problem by defining the start of the modified plan as the date of filing the modification? Or would such a provision be like the “lump sum contribution” in Black? As demonstrated below,43 the courts have not been particularly receptive to modified plans that wish away periods during which the debtor failed to perform. Could a modified plan simply suspend counting for § 1329(c) purposes between the filing of the motion to modify and an order modifying the plan? This counting issue is not yet well developed in the § 1329(c) cases.
1 11 U.S.C. § 1322(d). See discussion of length of plan before and after BAPCPA beginning at § 112.1 General Rule: Three Years, More or Less and of applicable commitment period at § 100.1 Applicable Commitment Period Calculation.
2 11 U.S.C. § 1329(c). See, e.g., Cornelison v. Wallace (In re Cornelison), 202 B.R. 991 (D. Kan. 1996) (Postconfirmation attorney fees are administrative expenses entitled to priority and full payment under § 1322(a)(2); because payment of fees would require plan to exceed five-year limitation in §§ 1322(d) and 1329(c), plan cannot be modified to pay fees.); In re Jefferson, 299 B.R. 468 (Bankr. S.D. Ohio 2003) (Postconfirmation modification that admittedly will cause the plan to exceed 60 months cannot be approved because of §§ 1322(d) and 1329(c).); In re Jacobs, 263 B.R. 39, 50 (Bankr. N.D.N.Y. 2001) (After 60 months of payments, trustee’s motion to modify to distribute $20,000 received on account of an asset scheduled five years earlier with a value of $1 would violate the maximum duration permitted by § 1329(c). “[A] plan, as originally confirmed, that provides for payments over the statutory maximum sixty month period may not be modified after the expiration of that time to provide for any additional payments. . . . Allowing modification under the circumstances in the present case would give the impression that this Court condones the brand of fiscal involuntary servitude of the type the Congress explicitly sought to prohibit by enacting the Chapter 13 plan durational limits found in Code §§ 1322 and 1329.”).
3 11 U.S.C. § 1322(d).
4 See discussion beginning at § 44.1 First Test of Debtor’s Good Intentions. Many courts calculate the permissible length of the original plan by reference to the commencement of payments under § 1326. See § 112.2 Length of Plan after BAPCPA and § 112.3 How to Calculate the Length of the Plan.
7 See § 248.1 [ Order to Debtor’s Employer ] § 125.1 Order to Debtor’s Employer.
8 826 F.2d 1376 (4th Cir. 1987).
9 67 B.R. 964 (Bankr. N.D. Ohio 1986).
10 156 B.R. 47 (B.A.P. 9th Cir. 1993).
11 156 B.R. at 50.
12 184 B.R. 82 (B.A.P. 9th Cir. 1995).
13 184 B.R. at 87. Accord Profit v. Savage (In re Profit), 283 B.R. 567, 575 (B.A.P. 9th Cir. 2002) (“We have held that the 60-month period under § 1322(d) or § 1329(c) commences on the date the first plan payment was due pursuant to § 1326(a)(1), which provides that plan payments shall commence ‘within 30 days after the plan is filed.’” The BAP acknowledges that there may be a contrary rule in United California Savings Bank v. Martin (In re Martin), 156 B.R. 47 (B.A.P. 9th Cir. 1993).).
14 193 B.R. 1 (Bankr. D. Ariz. 1996).
15 193 B.R. at 3.
16 193 B.R. 537 (Bankr. D. Ariz. 1996).
17 193 B.R. at 538–40 (Case was filed on March 8, 1994, and confirmed on October 19, 1994. Original plan called for 56 monthly payments beginning on April 15, 1994, and ending in October of 1998. In October of 1995, debtor filed a modified plan. “The Modified Plan provides that payments will continue more than sixty (60) months after the date the first payment was due under the original plan (which in this case is the same date as the first interim payment made after commencement of the case). However, all payments will be completed within sixty months of the date the first payment was due after confirmation of the original plan. . . . Two Ninth Circuit BAP opinions are relevant . . . . In re Martin, 156 B.R. 47 (9th Cir. BAP 1993) . . . . ‘The 60 month time period begins to run from the date the first payment becomes due after confirmation of the debtor’s Chapter 13 plan’. . . . In re Nicholes, 184 B.R. 82 (9th Cir. BAP 1995) . . . . ‘This time period begins running from the date at which the Chapter 13 debtor is first obligated to begin making payments to the trustee under the unconfirmed plan.’ . . . [T]his Court will follow Martin rather than Nicholes. The only Court of Appeals to address this has held that the 60 month period begins to run from the first payment due after confirmation of the plan. See West v. Costen, 826 F.2d 1376 (4th Cir. 1987). . . . [T]here is no discernable policy reason why Congress would have intended a restrictive interpretation of statutes whose purpose is to facilitate the rehabilitation of debtors and the repayment of creditors.”).
18 In re Gurr, 194 B.R. 474, 476 (Bankr. D. Ariz. 1996) (Petition was filed in July of 1994. The plan proposed 60 payments from August of 1994 through July of 1999. Payments actually commenced in August 1994. The plan was confirmed in March 1995. Debtor defaulted and filed a modified plan that would extend payments “through March, 2000—60 months from the confirmation of the original plan, but 68 months from the commencement of payments under the original plan.” Using “commencement of payments method,” modification was denied.).
19 183 B.R. 331 (Bankr. S.D. Ga. 1995).
20 183 B.R. at 332–34.
21 See § 97.3 [ Who Can File Plan? ] § 72.4 Who Can File Plan?.
22 See § 253.1 [ Standing, Timing and Procedure ] § 126.1 Standing, Timing and Procedure.
23 869 F.2d 240 (4th Cir. 1989).
26 11 U.S.C. § 1325(b)(1)(B). See discussion of plan length before and after BAPCPA beginning at § 112.1 General Rule: Three Years, More or Less and § 126.3 Does Disposable Income Test Apply?. See also § 100.1 Applicable Commitment Period Calculation.
27 A little conspiracy can be imagined in this situation.
28 11 U.S.C. § 1329(c). See In re Witkowski, 16 F.3d 739, 747 (7th Cir. 1994) (Bankruptcy court was not clearly erroneous in sustaining trustee’s motion to modify 10% plan to require the debtor to pay 19% to unsecured creditors when many unsecured creditors did not file proofs of claim and the 10% plan would pay in full in less than the 47 months originally projected. “Given that the only modification sought was an increase in the percentage paid unsecured creditors while leaving the other terms unchanged,” “cause” existed for leaving the plan at 47 months, but modifying the plan to increase the percentage of payment from 10% to 19% of unsecured claims.).
29 See § 255.1 [ Does Disposable Income Test Apply? ] § 126.3 Does Disposable Income Test Apply?.
30 See § 194.1 [ Duration of Plan ] § 108.2 Duration of Plan.
31 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.
33 H.R. Rep. No. 95-595, at 117 (1977), contains this observation:
In certain areas of the country, inadequate supervision of debtors attempting to perform under wage-earner plans have made them a way of life for certain debtors. Extensions on plans, new cases and newly incurred debts put some debtors under court supervised repayment plans for seven to ten years. This has become the closest thing there is to indentured servitude; it lasts for an identifiable [sic], and does not provide the relief and fresh start for the debtor that is the essence of modern bankruptcy law.
35 See § 259.1 [ To Cure Postconfirmation Default ] § 127.2 To Cure Postconfirmation Default.
36 296 B.R. 624 (Bankr. E.D.N.Y. 2003).
37 296 B.R. at 634.
38 292 B.R. 693 (B.A.P. 10th Cir. 2003).
39 292 B.R. at 700.
40 283 B.R. 567 (B.A.P. 9th Cir. 2002).
41 283 B.R. at 576 n.12.
42 283 B.R. at 576.
43 See § 259.1 [ To Cure Postconfirmation Default ] § 127.2 To Cure Postconfirmation Default for discussion of plan modifications intended to cure postconfirmation defaults.