Source: https://lundinonchapter13.com/Home/DisplaySectionContent?sectionNumber=127.6
Timestamp: 2019-07-16 12:09:55
Document Index: 512610105

Matched Legal Cases: ['§ 127', '§ 1329', '§ 1329', '§ 1329', '§ 363', '§ 1327', '§ 1329', '§ 1322', '§ 1306', '§ 1327', '§ 1322', '§ 1329', '§ 1325', '§ 1325', '§ 1329', '§ 1329', '§ 1329', '§ 1325', '§ 1325', '§ 74', '§ 74', '§ 12', '§ 268', '§ 127', '§ 1327', '§ 120', '§ 1327', '§ 120', '§ 1327', '§ 120', '§ 1327', '§ 1327', '§ 113', '§ 1327', '§ 120', '§ 1327', '§ 120', '§ 1322', '§ 1329', '§ 1322', '§ 1322', '§ 1329', '§ 74', '§ 522', '§ 51', '§ 49', '§ 315', '§ 143', '§ 143', '§ 268', '§ 127', '§ 1306', '§ 46', '§ 113', '§ 1327', '§ 120', '§ 1327', '§ 120', '§ 126', '§ 126', '§ 90', '§ 91', '§ 92', '§ 126', '§ 126', '§ 126', '§ 254', '§ 126', '§ 1325', '§ 126', '§ 126', '§ 126', '§ 126', '§ 170', '§ 101', '§ 1329', '§ 1325', '§ 1329', '§ 1329', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 363', '§ 362', '§ 346', '§ 1329', '§ 1329', '§ 1329', '§ 1325', '§ 1325', '§ 1329', '§ 1329', '§ 1325', '§ 1325', '§ 1329']

127.6 - To Sell or Refinance Property of the Estate
§ 127.6 — To Sell or Refinance Property of the Estate
Modification under § 1329 may be required if the debtor sells property after confirmation.1 Section 1329(a) was not drafted with the sale of property in mind; but property provided for in some other way (payments, for example) in the confirmed plan probably can be sold by modification under § 1329(a)(1) or (a)(2). For example, if the confirmed plan provided for payment in full of a secured claim holder by monthly payments with interest, a modified plan that sells the collateral and pays the allowed secured claim in full could be described as reducing the time for the making of payments to a claim holder that is provided for by the plan. This is not a perfect fit into § 1329(a)(2),2 but it is a fit.
Section 1327(b) may eliminate the need for court permission to sell property that vested in the debtor at confirmation. If neither the plan nor the order of confirmation provides otherwise, at confirmation property of the estate vests in the debtor free and clear of the claims or interests of creditors provided for by the plan.3 It is arguable that the property vesting in the debtor is no longer subject to the ordinary restrictions on the disposition of property of the estate and can be sold by the debtor after confirmation without modifying the plan and without complying with § 363.4 If the plan overcomes the vesting effect in § 1327(b),5 and if the plan is silent with respect to the sale of property, then the debtor will need to modify the plan under § 1329 to sell property that remained in the estate after confirmation. The statutory authority to provide for the sale of estate property by modification is probably found in §§ 1322(b)(8)6 and 1322(b)(10)7—the same sections implicated at confirmation as the source of a debtor’s power to sell property to satisfy claims.8
Creditors should consider objecting to modification of a plan to sell nonexempt property if the sale puts cash in the debtor’s hands that might be dissipated before the completion of payments under the plan.9 When modification does not commit the nonexempt proceeds from a sale to funding the plan, conversion or dismissal after the sale could leave creditors with less than they were entitled to in the Chapter 13 case.10 On the other hand, it has been held that a Chapter 13 debtor can modify the plan after confirmation to sell property that would be exempt and use the proceeds to pay off the plan.11
Modification to sell property of the estate becomes more interesting when the motion comes from a creditor or the trustee and property to be sold did not exist at confirmation. Imagine that the debtor acquires property after confirmation by inheritance, or perhaps just by appreciation. Under § 1306, property of the Chapter 13 estate includes all property that the debtor acquires during the case.12 Depending on whether the plan contained a provision overcoming the effect of § 1327(b),13 property acquired after confirmation may be property of the estate or property of the debtor. In either case, § 1322(b)(8) permits the plan to “provide for the payment of all or part of a claim against the debtor from property of the estate or property of the debtor.” Section 1322(b)(8) is applicable at modification under § 1329(b)(1).14
These Code sections combine to empower the trustee, or the holder of an allowed unsecured claim, to use modification to require the sale of property acquired after confirmation and apply the proceeds to increase payments under the plan. At modification, the best-interests-of-creditors test in § 1325(a)(4)15 or the disposable income test in § 1325(b)16 may require exactly what the unsecured claim holders want: an increased dividend because liquidation of the estate at the effective date of the modified plan includes additional value (or income) that must be paid to creditors.17 In this way, appreciation of property after confirmation may be captured for the benefit of creditors by modification under § 1329.
In re Barbosa18 comes close to the possibility just described. At confirmation in 1996, the debtors owned investment property worth $64,000. The confirmed plan paid 10 percent to unsecured claim holders. In 1999, the debtors sold the investment property for $137,500. The trustee moved to modify to increase payments to unsecured creditors to 100 percent. The bankruptcy court found that in a hypothetical liquidation under Chapter 7, the estate would include the increased value of the investment property, thus at modification under § 1329, creditors in the Chapter 13 case were entitled to the accumulated appreciation.19
This analysis raises the specter of serial motions to modify to require the sale or other disposition of appreciating property after confirmation. The changed-circumstances precondition to postconfirmation modification imposed by some courts20 is in part a reaction to this concern. The same bankruptcy court that decided Barbosa held in In re Trumbas21 that an unsecured claim holder cannot use modification under § 1329 to force the debtor to sell or refinance a home four years after confirmation to pay appreciation to creditors. The court found that an increase in value of the debtor’s home 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.”22
Barbosa signals a risk for Chapter 13 debtors inherent in any plan modification to sell property of the Chapter 13 estate. If the best-interests-of-creditors test under § 1325(a)(4) is recalculated at modification23 and if the property to be sold has appreciated or equity has been generated by payments during the Chapter 13 case, the best-interests-of-creditors test may capture the appreciation or equity for the benefit of unsecured claim holders. Because a postconfirmation sale produces cash that could fund an increase in payments, you have an explosive situation in which the trustee and allowed unsecured claim holders have much incentive to demand a share of the goodies.
Reported decisions since Barbosa bear out this analysis. For example, in In re Morgan,24 six months after confirmation the debtor moved to sell real property that the confirmed plan retained in the Chapter 13 estate. The modification proposed to use the proceeds to pay mortgage arrearages that would otherwise be paid from distributions by the trustee. Citing Barbosa, the bankruptcy court recalculated the best-interests-of-creditors test at modification and concluded that the difference between the scheduled value of the property and the sale price was captured for unsecured creditors. The confirmed plan valued the property at $135,990. The sale was for $193,000. Attributing the difference to either “under-evaluation at the time of the original confirmation, or appreciation of the value during the pendency of this case,”25 the bankruptcy court refused the debtor’s motion to sell the property because § 1325(a)(4) required an increase in payments to unsecured creditors.
In In re Stinson,26 the debtors sold a residence two years after confirmation at a sale price 21 percent higher than the value used at confirmation. On the trustee’s motion, the bankruptcy court held that the confirmed plan must be modified to increase the base,27 “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.”28
Morgan and Stinson illustrate a potentially powerful tool for trustees and unsecured creditors when a debtor modifies the plan after confirmation to sell an asset and the best-interests-of-creditors test generates a minimum dividend greater than that required at confirmation of the original plan. This use of the logic of Barbosa is just developing in the case law. The issue is most acute when the debtor moves to sell an asset after confirmation because then the trustee or creditor does not need an exotic mechanism to fund the responsive motion to increase payments to creditors.29
1 See also § 74.5 Surrender or Sale of Collateral before BAPCPA and § 74.6 Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA for discussion of sale of property as a method of dealing with secured claims; § 12.11 Income from Leasing, Selling or Liquidating Assets for discussion of selling assets as a source of regular income for eligibility purposes.
2 See § 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11 To Extend or Reduce the Time for Payments.
3 11 U.S.C. § 1327(b), (c). See § 120.3 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate, § 120.4 11 U.S.C. § 1327(c): Free and Clear Effect on Liens and § 120.5 Effects of Confirmation after BAPCPA.
4 See, e.g., In re Rangel, 233 B.R. 191, 198 (Bankr. D. Mass. 1999) (Debtor does not need a bankruptcy court order to hire a real estate broker to sell homestead after confirmation because homestead vested in the debtor under § 1327(b); however, debtor must submit an amended plan because the debtor intends to “use the proceeds of the sale to make a lump sum payment to satisfy his plan.”); In re Walker, 20 B.R. 372 (Bankr. E.D. Va. 1982) (Debtors have unrestricted right to dispose of their house because § 1327(c) vests title in the debtors upon confirmation.).
5 See § 113.11 Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b), § 120.3 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and § 120.5 Effects of Confirmation after BAPCPA.
6 11 U.S.C. § 1322(b)(8) states that a Chapter 13 plan can “provide for the payment of all or part of a claim against the debtor from property of the estate or property of the debtor.” 11 U.S.C. § 1329(b)(1) incorporates § 1322(b) at modification of a confirmed plan.
7 11 U.S.C. § 1322(b)(10) allows a Chapter 13 plan to “include any other appropriate provision not inconsistent with this title.” Section 1322(b)(10) applies at modification of a plan after confirmation. 11 U.S.C. § 1329(b)(1).
8 See § 74.5 Surrender or Sale of Collateral before BAPCPA.
9 Lien avoidance under § 522(f) can produce similar problems for creditors. See § 51.2 [ Protecting Lienholder after Lien Avoidance ] § 49.5 Protecting Lienholder after Lien Avoidance.
10 See §§ 315.1 [ In Cases Filed before October 22, 1994 ] § 143.1 In Cases Filed before October 22, 1994 and 316.1 [ In Cases Filed after October 22, 1994 ] § 143.2 In Cases Filed after October 22, 1994. See, e.g., In re Deeble, 169 B.R. 240, 242–43 (Bankr. S.D. Ga. 1994) (Upon the sale of real property after confirmation, the debtor is entitled to an exemption in the proceeds, but the exempt portion should be held by the trustee until the debtor completes all payments under the plan and is entitled to a discharge. Section 522(c) provides that exempt property is not liable during or after a bankruptcy case for any debt that arose before commencement of the case “unless the case is dismissed.” “[P]ermitting a debtor to collect his or her exemption prior to the conclusion of the case may result in the debtor receiving substantial funds while remaining under bankruptcy protection for many months. At any time the debtor may elect to voluntarily dismiss the Chapter 13 case. Such a debtor would have benefitted fully from the exemption, without the quid pro quo anticipated in the Code of final payment in accordance with debtor’s confirmed plan. Upon dismissal, creditors could levy upon any funds remaining but that theoretical remedy may well be a hollow promise if the debtor has already spent the funds. . . . Accordingly, I hold that the funds remaining in the hands of the Chapter 13 Trustee which are subject to allowed claims of exemption . . . be retained by the Chapter 13 Trustee until the conclusion of all payments for the terms of the confirmed plan.”). But see Gamble v. Brown (In re Gamble), 168 F.3d 442 (11th Cir. 1999) (Debtor is entitled to possession and use of exempt portion of equity in real property that was sold after Chapter 13 petition. Exempt portion of proceeds is no longer property of the Chapter 13 estate, and the debtor “may use it as his own.”).
11 In re Duffy, 240 B.R. 60 (Bankr. D. Nev. 1999) (Overrules trustee’s objection to modification of plan to sell residence and pay balance of 44-month plan from exempt proceeds. Voluntary use of exempt proceeds to pay plan in full works to the benefit of unsecured creditors by accelerating payment.). See § 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11 To Extend or Reduce the Time for Payments.
12 11 U.S.C. § 1306(a)(1). See discussion beginning at § 46.1 What Is Property of the Chapter 13 Estate?.
13 See § 113.11 Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b), § 120.3 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and § 120.5 Effects of Confirmation after BAPCPA.
14 See § 126.2 Application of Tests for Confirmation and § 126.6 Modification after Confirmation after BAPCPA.
15 See discussion of best-interests-of-creditors test beginning at § 90.1 In General: Plan Payments vs. Hypothetical Liquidation.
16 See discussion of disposable income test before and after BAPCPA beginning at § 91.1 In General and § 92.1 In General.
17 See § 126.2 Application of Tests for Confirmation, § 126.3 Does Disposable Income Test Apply? and § 126.6 Modification after Confirmation after BAPCPA.
18 236 B.R. 540 (Bankr. D. Mass. 1999), aff’d on other grounds, 243 B.R. 562 (D. Mass.), aff’d, 235 F.3d 31 (1st Cir. 2000).
19 See § 254.1 [ Application of Tests for Confirmation ] § 126.2 Application of Tests for Confirmation. But see McDonald v. Burgie (In re Burgie), 239 B.R. 406 (B.A.P. 9th Cir. 1999) (On trustee’s motion to modify after confirmation, nonexempt proceeds from postconfirmation sale of debtors’ homestead are not disposable income for purposes of § 1325(b).); In re Euler, 251 B.R. 740, 748 (Bankr. M.D. Fla. 2000) (Bankruptcy court grants debtor’s motion to sell appreciated property after confirmation and pay off the plan in a lump sum and denies trustee’s responsive motion to increase payments to unsecured claim holders. Appreciation in real property is not an unanticipated change in circumstance; thus, the predicate to the trustee’s motion is absent. Court cites McDonald v. Burgie (In re Burgie), 239 B.R. 406 (B.A.P. 9th Cir. 1999), for the proposition that “‘[t]he proceeds of the sale of a debtor’s real estate in a chapter 13 case never become disposable income for purposes of chapter 13.’ . . . Post-petition disposable income does not include pre-petition property or its proceeds. . . . Even if the Debtor had formed an intention to sell the Real Estate before confirmation of their Plan, they cannot be compelled to use the proceeds to pay creditors under their Plan pursuant to a plan modification.”).
20 See § 126.5 Changed-Circumstances Requirement? and § 126.6 Modification after Confirmation after BAPCPA.
21 245 B.R. 764 (Bankr. D. Mass. 2000).
22 245 B.R. at 767.
23 This possibility is discussed in § 126.2 Application of Tests for Confirmation. See also § 126.6 Modification after Confirmation after BAPCPA.
24 299 B.R. 118 (Bankr. D. Md. 2003).
25 299 B.R. at 122.
26 302 B.R. 828 (Bankr. D. Md. 2003).
27 See § 170.1 [ Methods of Paying Unsecured Claims ] § 101.3 Methods of Paying Unsecured Claims for discussion of “base” plans.
28 302 B.R. at 833.
29 Compare Profit v. Savage (In re Profit), 283 B.R. 567 (B.A.P. 9th Cir. 2002) (Bankruptcy court inappropriately granted trustee’s proposed modified plan that required the debtor to increase the dividend to unsecured claim holders to reflect postconfirmation forgiveness of indebtedness when trustee’s motion did not provide any mechanism for paying creditors the equity created by the forgiveness of indebtedness.).
Murphy v. O'Donnell (In re Murphy), 474 F.3d 143 (4th Cir. Jan. 18, 2007) (Refinancing of home after confirmation is not a substantial unanticipated change in circumstances that will support modification after confirmation because it produces no change in balance sheet; sale of condominium 11 months after confirmation at 51.6% increase in value is substantial and unanticipated change that supports trustee's motion to increase dividend to unsecured creditors.), aff'g 327 B.R. 760, 770, 771 (Bankr. E.D. Va. Jan. 12, 2005) (Debtor motions to sell or refinance real property to pay off plans are not motions to modify under § 1329. "[E]arly payoff of the plan has absolutely no prejudicial effect on any party . . . . [N]either the motion to sell nor the motion to refinance seeks to reduce the amount to be paid the unsecured creditors. . . . [A]n early payoff actually increases the economic worth, or present value, of the distribution to the unsecured creditors. . . . [T]he court declines to treat a voluntary early pay-off by the debtors of the confirmed plans in the present cases as a post-confirmation 'modification' that triggers de novo review of previously resolved confirmation issues, such as the liquidation test." Motions to sell or refinance are instead measured against the test in Arnold v. Weast (In re Arnold), 869 F.2d 240 (4th Cir. 1989): "Under Arnold, the test is whether the increased value of the real estate represents a 'substantial' change in the debtor's financial situation and whether the party seeking modification—here, the trustee—could have 'reasonably anticipated' the magnitude of the change at the time of confirmation." With respect to Murphy, motion to sell represented 51.6% increase in value of condominium in only 11 months. This was a substantial and unanticipated change in debtor's financial condition that justified trustee's motion to increase dividend to unsecured creditors. With respect to Goralski's refinance, 33% increase in 18 months was substantial but not "dramatic." But even if that increase in value satisfied substantial and unanticipated test, Goralski's proposal to refinance did not effect an improvement in their financial condition because refinancing just converts the increase in value into a corresponding increase in debt. Thus, the financing debtors were not required to increase the dividend to unsecured claim holders.).
Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (B.A.P. 9th Cir. June 27, 2005) (Postconfirmation modification to refinance home and pay off base plan immediately is not prohibited by Code. Citing In re Sounakhene, 249 B.R. 801 (Bankr. S.D. Cal. 2000), although § 1325(b) disposable income test is not read into postconfirmation modification under § 1329, analysis underlying that test should be used in considering totality of circumstances, including good faith.).
In re McCollum, 363 B.R. 789, 796 (E.D. La. Feb. 22, 2007) (Vance) (Sale proceeds are not disposable income, and net proceeds above exempt amount "provided the creditors more than the liquidation value of nonexempt assets and the present value of the payments due for the duration of the plan."), aff'g 348 B.R. 377, 390 (Bankr. E.D. La. Feb. 22, 2006) (Debtor can modify to sell homestead and pay off plan with a greater amount than would be paid to creditors if debtor stayed in plan for 54 months. Confirmed plan would pay creditors an additional $6,348. Debtor proposed to sell real property and pay trustee $12,000 for early termination. Modification more than satisfied best-interests-of-creditors test, and lump-sum early payment was consistent with Bayshore National Bank of LaPorte v. Smith, 252 B.R. 107 (E.D. Tex. 2000), aff'd, 252 F.3d 1357 (5th Cir. 2001). "Whether the request by this Debtor is a modification of his plan or not, the Court is satisfied that the amounts offered are greater than the gross aggregate of 54 months of disposable income under his plan, exceed the liquidation value of his non-exempt assets as calculated at confirmation, or if appropriate, today. A strict interpretation of § 1329 does not warrant that at least 36 months of payments must be made. On modification, courts must examine the substance of the plan and the nature of the debtor's obligations to the creditors. The crucial question is not whether the request affects the number of payments, but the amount to be paid. Therefore, the provisions of § 1325(b) are not applicable to this consideration, except as they may reflect on a debtor's good faith under § 1325(a).").
Mangum v. Marshall (In re Mangum), Nos. 06 C 3847, 04 B 41017, 06 A 879, 2007 WL 495300 (N.D. Ill. Feb. 12, 2007) (Debtor need not modify confirmed plan to sell residence and make early payoff of creditors. Proceeds of sale would not be disposable income for purposes of modification.), aff'g 343 B.R. 185, 188-90 (Bankr. N.D. Ill. May 18, 2006) (With court approval, Chapter 13 debtor can sell home after confirmation and pay off plan without modifying plan or increasing payment to unsecured creditors. Confirmed plan required minimum of 10% to unsecured claim holders. Seven months after confirmation, court granted debtor's motion to sell home, and nonexempt proceeds were paid to Chapter 13 trustee. Trustee paid unsecured creditors 10% and held balance of sale proceeds, demanding that debtor agree to pay unsecured creditors 100%. Debtor filed adversary proceeding requesting discharge and return of sale proceeds. "Section 1325(b)(1)(B) governs only whether a plan should be confirmed. It does not address how payments made by a debtor should be applied after confirmation or when a case should end. . . . Nothing in § 1325(b)(1)(B) prevents a debtor from paying her plan payments from some source other than her actual disposable income, such as from the equity in her home if she chooses to sell or refinance her property during the course of the case. . . . [T]here is no allegation that the debtor's disposable income has increased and no party filed a timely motion to amend . . . . [N]othing in § 1325(b)(1)(B) requires a case to stay open after the debtor makes all the payments required by the plan. The three year requirement in § 1325(b)(1)(B) simply provides one test for determining the minimum amount that a debtor must propose to pay to creditors to have her plan confirmed if she does not pay all creditors 100% of their allowed claims. There is no language in the statute authorizing or requiring the Trustee to keep a case 'open,' in some sort of limbo, despite the fact that all plan payments have been made. . . . [D]ebtor's pre-payment of plan payments greatly benefits all creditors. . . . Nothing in the Bankruptcy Code prevents a debtor from making her plan payments early and receiving her discharge before three years have passed. . . . The debtor's plan . . . already reflects her obligation to pay her creditors at least the equivalent of her equity in her home as of the time the case was filed. Now the trustee wants to force the debtor to pay that equity to her creditors twice; first, by making 36 plan payments at $600 each; and second, by requiring her to pay the actual equity she received when she sold her home into the plan as an additional lump sum payment. . . . Section 1325 does not require the debtor to comply with the 'best interests of creditors test' by paying the equivalent of her equity to her creditors and to pay her actual equity realized in a refinance or sale of the property into the plan. . . . [T]hat the plan does not contain any specific provision authorizing the sale of her property in no way precludes the debtor from selling her property (with court approval) pursuant to § 363 of the Bankruptcy Code, a provision available to any debtor in any chapter.").
In re Milano, No. 09-61915, 2012 WL 1965661 (Bankr. N.D. Ohio May 31, 2012) (Kendig) (Modification to allow debtors to sell residence and satisfy mortgages was not feasible when debtors did not offer concrete sales plan and offered limited evidence of value and marketability.).
In re Demske, 372 B.R. 85, 89-90 (Bankr. M.D. Fla. July 6, 2007) ("[T]he refinancing on Debtors' home does not qualify as disposable income. But, this fact is superfluous because it is how the refinancing effects [sic] Debtors' disposable income which is at issue, not the categorization of the refinancing itself. . . . If the refinancing increases Debtors' disposable income, then that increase must be projected for the balance of the three years so as to determine what the unsecured creditors would receive over the term of the three-year plan. If the refinancing decreases Debtors' disposable income, the unsecured creditors are not receiving any dividends anyway, but the unsecured creditors should still get the difference between the pay-off to the secured creditors and the amount of interest reserved for the balance of the plan.").
Jones v. Wells Fargo Home Mortgage (In re Jones), 366 B.R. 584 (Bankr. E.D. La. Apr. 13, 2007) (Magner) (After approval of postconfirmation modification to permit refinancing, Wells Fargo willfully violated § 362(a)(3) and (6) by applying postpetition payments to undisclosed fees and charges.), aff'd in part and remanded on other grounds, 391 B.R. 577 (E.D. La. July 1, 2008) (Berrigan), on remand, 418 B.R. 687 (Bankr. E.D. La. Oct. 1, 2009) (Magner), aff'd, No. CIV. 07-3599, 2010 WL 3398849 (E.D. La. Aug. 24, 2010) (Lemelle), remanded, 439 Fed. Appx. 330 (5th Cir. Aug. 24, 2011) (unpublished) (Higginbotham, Smith, Haynes), on remand, No. 06-1093, 2012 WL 1155715 (Bankr. E.D. La. Apr. 5, 2012) (Magner).).
In re Zavala, 366 B.R. 643 (Bankr. W.D. Tex. Apr. 11, 2007) (McGuire) (No requirement for debtor to notify trustee of postconfirmation sale of exempt homestead.).
In re Vue, 364 B.R. 767 (Bankr. D. Or. Mar. 16, 2007) (Under Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (B.A.P. 9th Cir. 2005), postconfirmation modification to refinance home and make early payoff of unsecured creditors may be confirmed if it meets good-faith test. Disposable income test does not apply.).
In re Brown, No. 05-41071, 2006 WL 3370867 (Bankr. D. Mass. Nov. 20, 2006) (unpublished) (Debtor, not estate, liable for capital gains taxes on postconfirmation sale of property. Postconfirmation sale of debtor's 50% interest in rental property resulted in $17,936 capital gains taxes. Net proceeds will pay creditors 100% earlier than 36-month plan. Under §§ 346(d) and 1305, only debtor was liable for taxes.).
In re Turek, 346 B.R. 350, 356-60 (Bankr. M.D. Pa. July 21, 2006) (Early payoff of plan from sale or refinancing of real property is a modification under § 1329 without regard to whether property vested in the debtor at confirmation; debtors who sold property after confirmation without modifying plan are precluded from seeking disgorgement of funds distributed consistent with the confirmed plan. "Section 1329 explicitly states that a plan may be modified to reduce the time for payments under the plan and, in a separate provision, states that a plan may be modified to reduce payments under the plan. See § 1329(a)(1) and (2). If the time for making payments under a plan is a modification of the plan only if the amount of the payments are reduced, paragraph (a)(2) of the section would be superfluous. . . . [A]pplying a plain meaning analysis to the statute . . . the early payoff of a chapter 13 plan is a modification of the confirmed plan. . . . Debtors contemplating post petition refinancing or the sale of property outside the terms of a plan must seek modification of the plan if proceeds are to be used to obtain an early pay off. A debtor's ability to sell or refinance his property will be affected by whether the property vested in the debtor at confirmation. A debtor in whom estate property is not vested may not sell assets of the estate without obtaining court approval. Further, such debtor will have to obtain court approval both to sell the property and to pay off the plan early. Generally, a debtor in whom estate property is vested may sell the property without first obtaining court approval. However, if proceeds of such a sale are to be used to partly fund or pay off a plan and the plan did not anticipate this payment scheme, the debtor must obtain the court's approval to modify the plan before consummating the sale.").
In re Brumm, 344 B.R. 795, 797-803 (July 9, 2006) (Refinancing of residence to pay off plan early is not a modification under § 1329 and does not trigger opportunity for trustee to increase dividend to unsecured creditors from 0% to 100%. "[T]he Debtor will not experience any increase in income due to the proposed refinancing—the Debtor is incurring debt. . . . The Trustee could have negotiated with the Debtor to include language in the confirmed plan that captured any future appreciation in the Debtor's real property for the creditors of the estate, but that was not done in this case. . . . [R]efinancing of the Debtor's principal residence and proposed early plan payoff is not a basis for requiring a plan modification. . . . [T]he substance of what the trustee and unsecured creditors bargained for at confirmation is unchanged . . . the only party harmed by the early plan payoff is the debtor, who is voluntarily paying creditors more than what the confirmed plan requires. . . . [T]he notion that an early plan payout is a plan modification (because either the timing of the plan payments is altered or the basis for funding the plan is different) has superficial appeal, that notion promotes form over substance. . . . [W]hen a debtor does not propose to substantively alter a Chapter 13 plan then no modification of a plan is required. . . . [T]he hallmark of Chapter 13 cases is the bargain between the debtor and the debtor's creditors whereby the debtor is allowed to keep pre-petition property in exchange for promising payments in the future that—at a minimum—must be at least as much as creditors would receive had the debtor filed Chapter 7 and liquidated all non-exempt assets. . . . [R]equiring a plan modification on the basis of a proposed refinancing effectively commits the post-petition appreciation of pre-petition property to the repayment of creditors in contravention of the Chapter 13 bargain. . . . [A] decision by a debtor to refinance property and thereby substitute a new debt for an old one is fundamentally different than a debtor's proposal to sell property that a debtor was to retain under the terms of a confirmed plan. . . . [W]hen a debtor proposes to sell property, the debtor is not undertaking a corresponding new debt and the proceeds of the sale are truly income to the debtor rather than being a loan. . . . [T]he court can discern no reason for providing debtors with a disincentive to complete Chapter 13 plans early through refinancing. . . . [T]he court is unconvinced based on the facts of this case that a substantial, unanticipated change in circumstances has occurred that merits a plan modification.").
In re Merritt, 344 B.R. 785, 787-88 (June 8, 2006) (Sale of property after confirmation is a modification of plan, and § 1325(a)(4) requires recalculation of best-interests-of-creditors test based on appreciated value on effective date of modified plan. "Modification of a confirmed plan is generally required when a debtor seeks to sell real property that the debtor had previously sought to retain. . . . In the context of a plan modification, unless otherwise specified, the effective date of the plan is the date of the plan as modified, and the calculation of the best interest of creditors test includes . . . the appreciation of a debtor's existing real property from the petition date to the effective date of the plan as modified. . . . On the effective date of the plan, as modified, the Debtors had substantial equity in their property beyond the amount of their applicable exemptions, which in a Chapter 7 case, would have paid all creditors in full. Because § 1325(a)(4) is a requirement to approving a plan modification . . . all filed claims must be paid in full.").
In re Wimpee, 343 B.R. 845 (Bankr. W.D. Ky. May 11, 2006) (Sale of real property 18 months after confirmation and tender of $41,000 to pay off plan did not preclude trustee's motion to modify plan to increase dividend to unsecured creditors from 35% to 75%; sale of property in violation of plan provision and unrevealed discrepancies in income and expenses rendered debtors vulnerable to trustee's motion to modify.).
In re Saunders, No. 02-21699 NVA, 2006 WL 4854454 (Bankr. D. Md. Mar. 31, 2006) (Reconsidering order that approved sale of real property conditioned on full payment of all claims, property was titled only in Mrs. Saunders, proceeds from sale will pay only her claims in full—creditors of Mr. Saunders have no claim against sale proceeds.).
In re Jafary, 333 B.R. 680, 687 (Bankr. S.D.N.Y. Nov. 18, 2005) (Morris) (A Chapter 13 trustee must return to the debtor funds received after the completion of the case when the trustee paid a mortgage arrearage that was also paid when mortgage was refinanced. Debtor's Chapter 13 plan provided for the curing of a default on a mortgage obligation as well as a pool of funds to be paid to unsecured creditors. After confirmation, debtor sought to refinance mortgage and pay off Chapter 13 case. Upon receipt of the funds, the trustee satisfied the pool to the unsecured creditors and cured the mortgage default. Subsequent to the filing of the trustee's final report, the trustee received funds from the mortgage creditor, indicating that it had received cure amount on the mortgage at the time of the refinance. The debtor sought to compel the trustee to return the funds. "The amount paid to the unsecured creditors under a pot plan is determined by the number and amount of claims filed, and not by any increase in the pot itself. In retaining the $4,945.40, the Trustee in this instance seeks unilaterally to increase the amount of the pot." The trustee cannot do this without a modification of the plan. Debtor is entitled to these excess funds.).
In re Forte, 341 B.R. 859, 871-72 (Bankr. N.D. Ill. Oct. 6, 2005) (Trustee's motion to modify to capture proceeds from refinancing was untimely because debtor already tendered payoff of plan; but, if motion was timely, it would be denied because "a refinancing does not improve a debtor's financial condition. This unchanged condition is a strong argument for denial of the Trustee's motion. The most significant change in circumstances here is the Debtor's ability to borrow money to allow her to perform her chapter 13 bargain early. Given the time value of money, paying off her plan early will benefit all concerned." With respect to trustee's argument that early payoff of the plan from refinancing requires a motion to modify under § 1329: "I am sympathetic to the substance of this argument. . . . But procedurally, the argument comes too late. The time to raise this argument was in response to the Debtor's motion seeking permission to refinance. If made and accepted then, the Debtor's request to refinance in order to pay off her plan early would have been construed as the Debtor's motion to modify and therefore would have been measured against the requirements of § 1329. The Debtor's good faith would have been at issue under § 1325(a)(3), and the calculations required by the best-interests-of-creditors test under § 1325(a)(4) could have been performed. After the lump sum payment has completed payments under the plan, it is simply too late for the Trustee to raise this issue.").
In re Keller, 329 B.R. 697, 702 (Bankr. E.D. Cal. Aug. 29, 2005) (McManus) (Debtors' motion to refinance their home and prepay plan payment in less than confirmed 48 months requires good-faith analysis under Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (B.A.P. 9th Cir. 2005), with court criticizing Sunahara for economic consideration of plan modifications in good-faith analysis.).
In re Agcaoili, No. 00-04514, 2005 WL 3964430 (Bankr. D. Haw. Aug. 3, 2005) (unpublished) (After approval of refinancing, Ocwen admitted that it demanded incorrect payoff amount and that its computerized system did not permit proper accounting for Chapter 13 payments; sanctions against Ocwen for debtors' attorney fees of $2,879.74.).
Siddiqui v. Gardner (In re Williamson), 327 B.R. 578 (Bankr. E.D. Va. June 27, 2005) (Postconfirmation approval of sale of home precludes litigation to recover purported excess sale price. Contract for sale was contingent on bankruptcy court approval. Purchaser has no cause of action for paying more than its original bid. Purchaser attempted to recover from other bidder and real estate agents in state court action, but res judicata effect of bankruptcy court approval of sale bars that action.).
In re Ash'shadi, No. 04-55924, 2005 WL 1105039, at *2, *3 (Bankr. E.D. Mich. May 6, 2005) (unpublished) (Granting postconfirmation motion to sell residence, proceeds over mortgagee's claim are not disposable income; debtor need not make new exemption claim to excess proceeds. Quoting McDonald v. Burgie (In re Burgie), 239 B.R. 406, 411 (B.A.P. 9th Cir. 1999), "the proceeds at issue are not a stream of income. . . . Converting a debtor's prepetition capital asset (residence) into cash through a post-petition sale alters the form of the asset, but not its nature. Post-confirmation sales proceeds do not constitute disposable income.").
In re Nevins, No. 02-37055DWS, 2005 WL 984182 (Bankr. E.D. Pa. Apr. 26, 2005) (unpublished) (Debtors' motion to sell property after confirmation and to allocate proceeds is a motion to modify plan; trustee's argument that sale proceeds in excess of value on schedules should be captured for benefit of unsecured creditors must be presented as a motion to modify by trustee and if timely filed, competing motions can be assessed under § 1329(b)(1). That proceeds of sale were paid to Chapter 13 trustee for safekeeping did not constitute completion of payments under plan and thus did not bar trustee from filing competing motion to modify to increase payments to creditors.).
In re French, No. 01-10603, 2005 WL 548081 (Bankr. D. Vt. Mar. 4, 2005) (unpublished) (Debtor's motion to refinance and pay off Chapter 13 plan is motion to modify, and creditor's responsive motion to increase payments to unsecured creditors triggers disposable income test analysis; evidence that debtor made $125,000 more than was projected for year before motions renders further projection of income and expenses speculative, but debtor's motion to refinance would be granted if debtor increases payments to unsecured creditors by $20,000—court's estimate of additional income likely to be available if plan were extended from 48 months to 60 months.).