Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-1_23-cv-00219/USCOURTS-alsd-1_23-cv-00219-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BA

---

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

CHRISTOPHER T. CONTE, STANDING )

CHAPTER 13 TRUSTEE FOR THE )

SOUTHERN DISTRICT OF ALABAMA, )

Appellant, )

)

vs. ) Civil Action No. 23-00221-KD-N

)

JOHNNY BRACKSTON HILL, )

LISA JO ANN BOUTWELL, )

Appellee. )

)

In re: ) Bankruptcy Case No. 18-02317-HAC

JOHNNY BRACKSTON HILL, )

LISA JO ANN BOUTWELL, )

Debtors. )

CHRISTOPHER T. CONTE, STANDING )

CHAPTER 13 TRUSTEE FOR THE )

SOUTHERN DISTRICT OF ALABAMA, )

Appellant, )

)

vs. ) Civil Action No. 23-00219-KD-N

)

PEGGY PROFFITT, )

Appellee. )

)

In re: ) Bankruptcy Case No. 18-04608-HAC

PEGGY PROFFITT, )

Debtor. )

ORDER

This action is before the Court1 on appeal from the decision of United States Bankruptcy 

Judge Henry A. Callaway entered May 30, 2023; the record on appeal (doc. 4, Civil Action No. 

23-00219-KD-N; doc. 5, Civil Action No. 23-00221-KD-N); Trustee Christopher T. Conte’s 

1 The Trustee’s unopposed Motion to Consolidate is moot. See Civil Action No. 23-00221-KD-N

(Doc. 4).

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Brief of Appellant (doc. 11,

2 Appellees Johnny Brackston Hill, Lisa Jo Ann Boutwell and Peggy 

Proffitt’s Answering Briefs (doc. 12), and Reply Brief of The Trustee (doc. 13); and the 

Trustee’s Appendices to the Appeal (doc. 11, Civil Action No. 23-00219-KD-N; doc. 14, Civil

Action No. 23-00221-KD-N). 

I. Background

Chapter 13 Debtor, Lisa Jo Ann Boutwell and Chapter 13 Debtor Peggy Proffitt were 

both injured in post-petition accidents that resulted in nonexempt net settlement proceeds. 

Boutwell was injured when merchandise fell on her head in a Dollar General Store. Proffitt was 

injured when she tripped and fell at a Wal-Mart Store. Boutwell’s net settlement proceeds are 

$19,685.61, and Proffitt’s net settlement proceeds are $7,685.39, both after payment of all 

attorney fees and costs and subrogation interests. Proffitt has an additional expense of $240.00, 

an insurance co-pay and possible expense of $500.00 for surgery on her nose. Boutwell and her 

husband Johnny Brackston Hill are currently paying $852.00 per month to the Trustee under a 

confirmed plan that pays a 40.25% dividend to unsecured creditors. Proffitt is paying $964.00 

per month to the Trustee under a confirmed plan that pays a 62.19% dividend to unsecured 

creditors. The Debtors have used their respective $7,750.00 personal property exemption under 

Alabama law and cannot exempt any of the net settlement proceeds.

The Trustee filed motions pursuant to 11 U.S.C. § 1329 to modify the Debtors' respective 

Chapter 13 plans to increase the dividend to the unsecured creditors based on the existence of the 

post-petition net settlement proceeds. The Trustee requested that Boutwell’s nonexempt 

proceeds of $19,685.61 be applied to the plan, in addition to the Debtors’ monthly payments, to 

increase the percentage paid to unsecured creditors to 77.07%. The Trustee requested that 

2 For ease of reference, citations for the Brief of Appellant, Response and Reply are to the docket 

of Civil Action No. 23-cv-00221-KD-N. 

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Proffitt’s nonexempt proceeds of $7,685.39 be applied to the plan, in addition to the Debtors’

monthly payment, to increase the percentage paid to unsecured creditors to 76.86% but does not 

object to reimbursement of $240.00 to Proffitt from the nonexempt settlement proceeds for outof-pocket expenses.

The Bankruptcy Court denied the motions. The Bankruptcy Court found that the 

Debtors’ non-exempt settlement proceeds from the post-petition personal injury claims are

property of the Debtors’ estates under 11 U.S.C. § 1306(a). However, the Bankruptcy Court 

determined that the settlement proceeds are “assets” of the estates and not “projected disposable 

income” under 11 U.S.C. § 1325(b), and therefore, the “projected disposable income” test did 

not provide a basis for modification. 

The Bankruptcy Court also found that the settlement proceeds, even though part of the 

bankruptcy estate, are not included in the liquidation test of 11 U.S.C. § 1325(a)(4) because they 

“would not be part of a hypothetical Chapter 7 under 11 U.S.C. § 541(a) or § 348(f)” (applying 

the theory that a hypothetical Chapter 7 liquidation necessitates a hypothetical conversion to a 

Chapter 7 and as a result the property of the estate is “based on the property the debtor had on the 

date of the petition not the date of the conversion.”). 

The Bankruptcy Court then determined that under the Eleventh Circuit’s “non-statutory 

‘ability to pay’ standard,” which applies “proposed plan modifications based on post-petition 

assets,” the settlement proceeds do not increase the Debtors’ ability to pay, are not “windfalls, 

and therefore, do not warrant a “plan modification to increase the percentage paid to unsecured 

creditors” (doc. 1). 

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The Bankruptcy Court ordered the Trustee to apply the settlement proceeds to the 

respective Chapter 13 plans at the current percentage rate for the unsecured creditors,

3 rather 

than a higher percentage rate. The Trustee filed notices of appeal. The Trustee’s motions for stay

pending appeal was granted.

II. Appellate jurisdiction, venue, and standard of review

The Court has appellate jurisdiction to hear final orders of the Bankruptcy Court pursuant 

to 28 U.S.C. § 158(a)(1) (“The district courts of the United States shall have jurisdiction to hear 

appeals [ ] from final judgments, orders, and decrees[.]”). Venue is proper because the appeal 

“shall be taken only to the district court for the judicial district in which the bankruptcy judge is 

serving.” Id. 

A bankruptcy court’s findings of fact are reviewed for clear error. In re Colortex 

Industries, Inc., 19 F.3d 1371, 1374 (11th Cir. 1994) (“The district court makes no independent 

factual findings; accordingly, we review solely the bankruptcy court's factual determinations 

under the “clearly erroneous” standard.”); In re Daughtrey, 896 F.3d 1255, 1273 (11th Cir. 2018)

(citations omitted). (“A factual finding is not clearly erroneous unless, after reviewing all of the 

evidence, we are left with ‘a definite and firm conviction that a mistake has been committed.’”)

A bankruptcy court's legal conclusions and any mixed questions of law and fact are reviewed de 

novo. In re Am.-CV Station Grp., Inc., 56 F.4th 1302, 1309 (11th Cir. 2023). “The district court 

must independently examine the law and draw its own conclusions after applying the law to the 

facts, and then may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or 

3 The Bankruptcy Court explained that “...all of the settlement proceeds are going to the debtors’

cases at the confirmed percentages, so they will not receive any funds from the settlement unless 

their cases are paid in full on the confirmed terms.” (doc. 1, p. 19). 

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remand with instructions for further proceedings.” McKinney v. Russell, 567 B.R. 384, 386 

(M.D. Ala. 2017) (citation omitted). 

Additionally, the “court may affirm the bankruptcy court's judgment ‘on any ground that 

appears in the record, whether or not that ground was relied upon or even considered by the court

below.” In re McLemore, 2023 WL 401332, at *3 (M.D. Ala. Jan. 25, 2023) (quoting Perry v. 

United States, 500 B.R. 796, 798 (M.D. Ala. 2013) (quoting Thomas v. Cooper Lighting, Inc., 

506 F.3d 1361, 1364 (11th Cir. 2007)).

III. Analysis

A. The Bankruptcy Court’s findings of fact

The parties do not dispute the Bankruptcy Court’s factual findings (doc. 11, n. 9, p. 49).

Accordingly, the factual findings are adopted by this Court (doc. 1, p. 4-7).

B. The Bankruptcy Court’s legal conclusions 

1. Property of the Chapter 13 bankruptcy estates.

The parties do not dispute the Bankruptcy Court’s decision that the settlement proceeds 

are property of the Chapter 13 bankruptcy estates under 11 U.S.C. § 1306(a) and the confirmed 

plans (doc. 12, p. 8). 

2. Modification of the Chapter 13 plan.

Pursuant to 11 U.S.C. § 13294, captioned “Modification of a plan after confirmation”, a 

Chapter 13 plan may be modified, upon the request of the trustee, the debtor, or the holder of an 

4 Title 11 U.S.C. § 1329, captioned “Modification of plan after confirmation”, states as follows:

(a) At any time after confirmation of the plan but before the completion of payments 

under such plan, the plan may be modified, upon request of the debtor, the trustee, or the 

holder of an allowed unsecured claim, to

(1) increase or reduce the amount of payments on claims of a particular class 

provided for by the plan; ...

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allowed unsecured claim, to “increase or reduce the amount of payments on claims” to unsecured 

creditors. 11 U.S.C. § 1329(a)(1). Pursuant to 11 U.S.C. § 1329(b)(1), a modified plan must 

meet the requirements of 11 U.S.C. § 1325(a). This includes the “best interests of creditors” or 

“liquidation” test found in 11 U.S.C. § 1325(a)(4); and because 11 U.S.C. § 1325(a) references 

11 U.S.C. § 1325(b), the projected disposable income requirement found in 11 U.S.C. §

1325(b)(1)(B) is also applicable.

5

3. Liquidation Test

Section 1325(a) generally sets out the plan confirmation requirements. Relevant here, the 

“best interests of creditors” or “liquidation” test is found in 11 U.S.C. § 1325(a)(4). As applied to 

plan modifications, the statute requires that any modification must ensure that:

The value, as of the effective date of the plan, of property to be distributed under 

the plan on account of each allowed unsecured claim is not less than the amount 

(b)(1) Sections 1322(a), 1322(b), and 1323(c) of this title and the requirements of section 

1325(a) of this title apply to any modification under subsection (a) of this section.

5 Title 11 U.S.C. § 1325, captioned “Confirmation of plan”, in relevant part, states as follows:

(a) Except as provided in subsection (b), the court shall confirm a plan if— ...

(4) the value, as of the effective date of the plan, of property to be 

distributed under the plan on account of each allowed unsecured claim is 

not less than the amount that would be paid on such claim if the estate of 

the debtor were liquidated under chapter 7 of this title on such date;

...

(b)(1)(B) the plan provides that all of the debtor's projected disposable income to 

be received in the applicable commitment period beginning on the date that the 

first payment is due under the plan will be applied to make payments to 

unsecured creditors under the plan.

(2) For purposes of this subsection, the term “disposable income” means current 

monthly income received by the debtor (other than child support payments, 

foster care payments, or disability payments for a dependent child made in 

accordance with applicable nonbankruptcy law to the extent reasonably 

necessary to be expended for such child) less amounts reasonably necessary to be

expended—

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that would be paid on such claim if the estate of the debtor were liquidated under 

chapter 7 of this title on such date.

11 U.S.C. § 1325(a)(4). The purpose appears to be to protect the unsecured creditors’ recovery 

by determining what the unsecured creditors would receive if the debtor proceeded under 

Chapter 7 instead of Chapter 13. The Chapter 7 liquidation test establishes the least amount that 

a modified plan may provide to unsecured creditors. The issue in dispute is what assets are 

included in the liquidation analysis under Chapter 7. 

The Bankruptcy Court found that while the claim, or the settlement proceeds, was part of 

the Chapter 13 estate under 11 U.S.C. § 1306, i.e., property of the estate at the time of the 

proposed plan modification, it should “not [be] included in the liquidation analysis because that 

claim would not be part of a hypothetical chapter 7 under either § 541(a) or § 348(f).” (doc. 1, p. 

12). Relying on the assumption that the hypothetical Chapter 7 liquidation test is accomplished 

by way of a hypothetical conversion to Chapter 7, the Bankruptcy Court applied 11 U.S.C. § 

348(f). This statute states that when a Chapter 13 case is converted to a case under another 

chapter, the “property of the estate in the converted case shall consist of property of the estate, as 

of the date of filing of the petition, that remains in the possession of or is under the control of the 

debtor on the date of conversion[.]” 11 U.S.C. § 348(f).

6 “[D]ate of filing the petition” meant the 

date of the original Chapter 13 petition. From this, the Bankruptcy Court held that because the 

post-petition personal injury settlement could not be “property of the estate, as of the date of 

filing of the petition”, the settlement proceeds could not be included in the liquidation test. To 

further the position that the “postpetition personal injury claims like the ones at hand would not 

be property of the bankruptcy estate if these cases were filed under chapter 7, or absent bad faith, 

6 The Bankruptcy Court relied upon 8 Collier on Bankruptcy ¶ 1329.05, (Richard Levin & Henry 

J. Sommer eds., 16th ed.); In re Taylor, 631 B. R. 346 (Bankr. D. Kan. 2021), and In re Madrid, 

2023 WL 3563019 (Bankr. W.D. Wash. May 18, 2023). 

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converted to chapter 7”, the Bankruptcy Court points out that Congress did not include postpetition personal injury claims in 11 U.S.C. § 541(a)(5) as it did “inheritances, divorce property 

settlement, and life insurance proceeds to which the debtor becomes entitled within 180 days of 

the petition” (doc. 1, p. 11). Consequently, the Bankruptcy Court found that the liquidation test

would not provide a basis for the proposed modification based on the receipt of settlement 

proceeds.

The Trustee argues the Bankruptcy Court erred by hypothesizing a conversion from 

Chapter 13 to Chapter 7 and consequently, 11 U.S.C. § 348(f) does not apply (doc. 11, p. 49-59).

The Trustee points out that the relevant statutes for modification – 11 U.S.C. § 1329(b) and § 

1325(a)(4) - do not mention a conversion, and no conversion occurs when the hypothetical 

Chapter 7 liquidation analysis is applied to a plan modification (Id., p. 53) (collecting cases). 

The Trustee explains that the purpose of – to exclude postpetition assets from the converted 

estate and thus encourage debtors to try Chapter 137 – is “not at play when the debtor is not 

converting ... and the only issue is what assets are to be valued in a liquidation analysis on plan 

modification.” (Id., p. 54). In that circumstance, the “purpose” of the liquidation test “is to 

ensure that the unsecured creditors receive at least as much as they would under the modified 

plan as under a hypothetical liquidation applied on the date of the modified plan.” (Id.). 

The Court agrees that 11 U.S.C. § 348(f) is inapplicable to the liquidation analysis. 

Specifically, the Court declines to graft a “hypothetical conversion analysis” under 11 U.S.C. § 

348(f) and 11 U.S.C. § 541(a)(5) into the hypothetical Chapter 7 analysis. Instead, the Court 

finds persuasive the majority of courts that have held “the effective date of the plan” means the 

7 “If a Chapter 13 debtor is not able to meet his plan commitments, he can convert to a Chapter 7 

and still hold onto his postpetition assets, putting him in no worse position than if he had filed 

Chapter 7 originally.” (doc. 11, p. 54). 

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date of modification, not the date of the original Chapter 13 plan. In re Montenegro, - - - B.R. - -

-, 2023 WL 8655441, at *4 (Bankr. S.D. Fla. Dec. 14, 2023) (“This Court adopts the majority 

view and concludes that the effective date of the modified plan controls.”); In re Nachon-Torres, 

520 B.R. 306, 313 (Bankr. S.D. Fla. 2014) (collecting cases). 8 And since the statute directs the 

Court to look at the amount that would be paid on such claim if the estates of the debtors were 

liquidated under Chapter 7 on such date [date of modification], the Court looks to what assets 

are property of the debtors’ estates currently (not at the time of filing the original Chapter 13

petition). 

In In re Waldron, 536 F. 3d 1239 (11th Cir. 2008), the Eleventh Circuit found that 

property of the estate under 11 U.S.C. § 1306(a)(1) included post-petition underinsured motorist

insurance proceeds from a post-petition accident, and that the debtors were required to amend 

8 In re Tinney, 2012 WL 2742457, at *1 (Bankr. N.D. Ala. July 9, 2012) (“Whether the Court 

should grant the Trustee's motion simply boils down to whether the temporal language in § 1306 

— ‘after commencement of the case but before the case is closed, dismissed, or converted’—

expands the 180–day time period in § 541(a)(5)(A); the Court finds that by its plain language § 

1306 does just that. The large majority of courts to address the issue agree.”) (collecting cases); 

In re Roscoe, 2017 WL 2839496, at *1–3 (Bankr. M.D. Fla. June 28, 2017) (“A well-respected 

minority of courts interpret section 1306 to incorporate the 180–day time limit found in section 

541(a)(5).[] These courts also view section 541(a)(5) as a more specific statute concerning life 

insurance and inheritance proceeds that should prevail over section 1306(a)(1). But the reference 

in section 1306(a) to section 541 focuses on the ‘kind’ of property specified in 541. And, more 

importantly, section 1306(a) includes its own specific time parameters. Because section 1306 is 

applicable only in chapter 13 cases,[] it is the more specific statute and therefore more

compelling when addressing chapter 13 issues.”); In re Roberts, 514 B.R. 358, 364–65 (Bankr. 

E.D.N.Y. 2014) (footnotes omitted) (emphasis added) (“This Court is unpersuaded by the 

minority view. If the initial plan confirmation date is used to calculate the liquidation value for 

the best interests of creditors test for plan modification purposes, the test fails to account for any 

property of the estate acquired post-confirmation, which, as in this case, may be the very basis 

for modifying the plan. If the best interests of creditors test need not account for postconfirmation property, a debtor will always satisfy the test at modification because it was 

satisfied at the initial plan confirmation. The majority view, by accounting for property of the 

estate acquired post-confirmation, maintains the purpose of the best interests of creditors test at 

modification, ensuring that creditors receive at least as much as they would under a chapter 7 

liquidation.”).

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their schedules to include this asset. (The debtors’ post-confirmation personal injury settlement 

proceeds were exempt under Georgia law). The Eleventh Circuit stated that “[t]he disclosure of 

post confirmation assets gives the trustee and creditors a meaningful right to request under 

section 1329, a modification of the debtor’s plan to pay his creditors.” 536 F. 3d at 1245. From 

this, courts have reasoned that “[t]here would be no purpose served in holding that postconfirmation property is property of the estate if there was not a mechanism to include that 

property for purposes of distribution. That mechanism is provided by recalculating the chapter 7 

test as of the date of the modified plan.” In re Nachon-Torres, 520 B.R. at 314.

In this circumstance, where an asset has come into the Chapter 13 estate postconfirmation, it must be valued as of the date of modification for purposes of 11 U.S.C. §

1325(a)(4) and the value should be added to the previously calculated “best interests of 

creditors” test result at confirmation. In this action, the value of the post-confirmation assets of 

the Debtors’ estates – the net settlement proceeds - should be added to the calculation of the 

“best interests of creditors” to determine whether the proposed modified plan satisfies 11 U.S.C. 

§ 1329. 

Applying the liquidation test, the increased distribution to the unsecured creditors as 

proposed by the Trustee, provides at least as much to the unsecured creditors as they would 

receive in a hypothetical Chapter 7 liquidation. Therefore, the best interest of creditors or 

liquidation test provides a basis for modification. 

4. The “projected disposable income” test

The “projected disposable income” test is found in 11 U.S.C. § 1325(b)(1)(B). The test 

has been applied to Chapter 13 plan modifications in this circuit and the parties do not contest its 

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application.

9 The projected disposable income test “provides that all of the debtor's projected 

disposable income to be received in the applicable commitment period” must be applied to the

payments to the unsecured creditors. Accordingly, if the settlement proceeds increase the 

Debtors’ projected disposable income, modification of the plan to account for these proceeds is 

required.

The Bankruptcy Court determined that since the settlement proceeds were not “regular 

income”, a “substitute”, or an “anticipated stream of payments”, the proceeds were not

“disposable income” (doc. 1, p. 9-10). Rather, the Court classified the settlement proceeds as 

assets. Consequently, the Court concluded that the “projected disposable income” test did not 

require modification of the plan. 

The Court agrees that the settlement proceeds do not meet the definition of “disposable 

income” as used in an initial plan confirmation, but nevertheless may be considered as additional 

disposable income. As explained in In re Peebles, 500 B.R. 270 (Bankr. S.D. Ga. 2013):

[T]he disposable income test [has] application in the context of a modification, 

but [] its application differs somewhat from that in an initial plan confirmation. To 

begin with, the Court agrees with the Debtors that the [settlement proceeds are]

not “disposable income” as strictly defined under § 1325(b)(2), because that 

subsection defines disposable income as “current monthly income received by the 

debtor” less amounts reasonably necessary to be expended for maintenance and 

support of the debtor, certain charitable contributions, and expenditures necessary 

for a debtor's business if the debtor is engaged in business. The definition thus 

incorporates the concept of “current monthly income” which is defined in 11 

U.S.C. § 101(10A). This section states, in relevant part:

The term “current monthly income”—

(A) means the average monthly income from all sources that the 

debtor receives (or in a joint case the debtor and the debtor's 

9 See In re Abrams, 632 B.R. 240, 241–42 (Bankr. S.D. Ala. 2021); In re Heideker, 455 B.R. 263 

(Bankr. M.D. Fla. 2011); In re Heyward, 386 B.R. 919 (Bankr. S.D. Ga. 2008).

f

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spouse receive) without regard to whether such income is taxable 

income, derived during the 6–month period ending on—

(i) the last day of the calendar month immediately preceding the 

date of the commencement of the case if the debtor files the 

schedule of current income required by section 521(a)(1)(B)(ii); or

(ii) the date on which current income is determined by the court for 

purposes of this title if the debtor does not file the schedule of 

current income required by section 521(a)(1)(B)(ii); and

(B) includes any amount paid by any entity other than the debtor 

(or in a joint case the debtor and the debtor's spouse), on a regular 

basis for the household expenses of the debtor or the debtor's 

dependents (and in a joint case the debtor's spouse if not otherwise 

a dependent)....

11 U.S.C. § 101(10A). The six month look-back period of § 101(10A)(A) would 

clearly exclude [the settlement proceeds at issue], which [debtors] did not receive 

until well after the petition date. As one court noted, “[b]ecause the current 

definition of projected disposable income results in a calculation that is, in large 

part, fixed by pre-petition circumstances, reviewing that calculation at the time of 

a post-confirmation modification may not be particularly meaningful. Because of 

its statutory definition, ‘current monthly income’ once correctly calculated should 

not change over time. Thus, attempting to apply § 1325(b) to a § 1329 

modification is not favored by post-BAPCPA cases.” In re Wetzel, 381 B.R. 247, 

251–52 (Bankr.E.D.Wis.2008).

However, the Court rejects the notion that this narrow definition of disposable

income that applies in the context of a debtor's plan confirmation will preclude a 

trustee from seeking an upward modification based on assets acquired by the 

debtor post-confirmation. It is illogical and contrary to the plain language of § 

1329 to suggest that a post-confirmation “windfall” of any kind, which would 

presumably always be excluded from the new definition of disposable income, 

cannot support a modification by the trustee. After all, such [settlement proceeds] 

still represents disposable income in the broader sense of being funds that are not 

needed for the support of the debtor or their dependents. ...The Court concludes 

that modifications were intended to capture sources of income or assets that 

did not exist during the six month look-back period which is used to calculate 

disposable income for purposes of confirming a Chapter 13 plan in the first 

instance.

...

The Court finds that nothing in the disposable income test of § 1325(b) precludes 

the Trustee's efforts to modify the plan pursuant to § 1329. 

In re Peebles, 500 B.R. at 275–76 (emphasis added). Thus, although the “disposable income” test

does not provide a basis for modification, it also does not preclude modification. 

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5. Bankruptcy Court’s exercise of discretion to not modify

“Even where modified plans satisfy these express limits, the statute reserves to the 

discretion of the bankruptcy court whether to confirm a modified plan. The bankruptcy court 

‘shall confirm’ a Chapter 13 plan if it meets the requirements of § 1325, [11 U.S.C.] § 1325(a), 

but the court has discretion to confirm modified plans. Plans ‘may be modified’ if they meet the 

requirements of § 1329. [11 U.S.C.] § 1329(a). Nothing prevents a bankruptcy court from 

refusing to confirm a modified plan put before it.” In re Guillen, 972 F.3d 1221, 1229 (11th Cir. 

2020)

The Bankruptcy Court interpreted the Eleventh Circuit’s decision in In re Waldron, as 

adopting a “non-statutory ‘ability to pay’” standard, and exercised its discretion under 11 U.S.C. 

§ 1329, to find there was “no legitimate reason” to increase the percentage to the unsecured

creditors as requested by the Trustee. The Bankruptcy Court found that modification was not 

required under the “ability to pay” standard because the settlement proceeds did not 

“substantially improve” the Debtors’ financial condition nor were they “unanticipated gain”

which would increase their ability to pay the creditors. 

The Bankruptcy Court first reasoned that a “debtor who settles a postpetition personal 

injury claim entered bankruptcy with an important non-property, non-monetary asset: good 

health and the ability to live injury-free and pain-free” and therefore, a settlement to compensate 

for loss of this asset does not “suddenly turn that non-estate asset into an asset which must be 

paid to prepetition creditors.” (doc. 1, p. 17-18). Instead, the settlement proceeds are not new 

assets coming into the bankruptcy estate, because the Debtors have “given consideration in the 

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form” of their injuries, pain and suffering. The undersigned does not agree with the novel 

conclusion that the settlement proceeds are not new assets and are instead consideration. 

However, the Court does not find that the Bankruptcy Court abused its discretion. 

“Although § 1329(a) does not explicitly state what justifies such a modification, it is well-settled 

that a substantial change in the debtor's financial condition after confirmation may warrant a 

change in the level of payments.” In re Arnold, 869 F.2d 240, 241 (4th Cir. 1989). The 

Bankruptcy court determined that the relatively small amount of settlement proceeds did not 

substantially improve the financial condition of the Debtors whereas to justify a modification. 

This determination was made after the Bankruptcy Court received testimony from the Debtors

which indicated that they are still living paycheck to paycheck. In addition, Debtor Boutwell 

was already on disability when “heavy merchandise” fell on her head in Dollar General. She 

testified that her husband took time off work at a paper mill to care for her after the accident, and 

they had to borrow $3,500.00 from her parents. Also, they have two vehicles, but her husband 

had an accident in one of their vehicles and needs $6,000 to repair it. Debtor Proffitt needs 

cosmetic surgery estimated at $500.00 for her nose after her fall at Walmart.

V. Conclusion

For the reasons discussed herein, the Bankruptcy Court’s decision is AFFIRMED.

DONE and ORDERED this 12th day of January 2024.

s / Kristi K. DuBose 

KRISTI K. DuBOSE 

UNITED STATES DISTRICT JUDGE

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