Court Opinion

ID: 199203
Source: CourtListenerOpinion
Date Created: 2011-02-07 04:26:24+00
Date Added: 2024-06-11T17:26:58.485062
License: Public Domain

235 F.3d 31 (1st Cir. 2000)
MARCELINO BARBOSA; MARIANA BARBOSA, Appellants,v.DOREEN SOLOMAN; MELLON MORTGAGE COMPANY, Appellees.
No. 00-1221.
United States Court of Appeals, For the First Circuit.
Heard Aug. 3, 2000.Decided December 21, 2000.

1
APPEAL FROM THE UNITED STATES DISTRICT  COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Robert E. Keeton, U.S. District Judge.

2
Anthony L. Gray, with whom Joseph F. Ryan, and Brown,  Rudnick, Freed & Gesmer, P.C. were on brief for appellants.

3
Lynne F. Riley, with whom Doreen B. Soloman, Office of  the Chapter 13 Trustee, was on brief for Doreen B. Soloman.

4
Richard S. Hackel, with whom Samuel D. Shiro was on  brief, for appellee Mellon Mortgage Company.

5
Before  Torruella, Chief Judge, Selya, Circuit Judge, and Casellas,* District Judge.

6
CASELLAS, District Judge.

7
The controversy in this appeal  arises out of the not-so-infrequent scenario where, after the  confirmation of a bankruptcy plan under Chapter 13, but before the  case is closed or converted to Chapter 7, the debtors sell property  of the estate which "vested" in them "free and clear of any claim or  interest of any creditor" pursuant to the provisions of 11 U.S.C. §  1327.1  The distribution of the proceeds from the sale of such  property is usually controversial; especially when, as here, the  property sold has considerably appreciated in value and as a  consequence, the debtors received substantial profits which they  intend to keep to themselves.2  On the other hand, the debtors'  unsecured creditors and the Chapter 13 Trustee moved to compel the  debtors to amend their bankruptcy plan in order to distribute the  proceeds from the sale to the unsecured creditors.

I.  BACKGROUND

8
The property sold in this particular case consists of a  two-family building retained by the debtors for investment purposes  ("the Property"), which was subject to a lien in the amount of  $114,000 held by Mellon Mortgage Company ("Mellon").  On May 5, 1997,  Mellon entered into a stipulation with the Debtors, Marcelino and  Mariana Barbosa ("the Debtors"), whereby they agreed that the market  value of the Property was $64,000 ("the Stipulation").  Therefore,  Mellon's secured claim was "stripped down" by $50,000, from $114,000  to $64,000.  The Stipulation also provided for payment in full of the  stripped-down secured claim plus interest.  The balance, now  unsecured, would be repaid "at a rate of not less than 10%."  As a  guarantee, Mellon "retain[ed] its lien in full until successful  completion of the repayment plan."

9
On July 17, 1998, the Debtors filed their repayment plan,  in consonance with the terms of the Stipulation.  It was confirmed by  the bankruptcy court on September 23, 1998.  The Plan provided, among  other things, the following: (1) full payment of Mellon's stipulated  secured claim plus interest at a 9% annual interest rate; (2)  prepayment of Mellon's stipulated secured claim at any time, without  premium or penalty; (3) payment of a dividend to unsecured creditorsequal to 10% of the amount of their claims; and (4) reduction of the  monthly plan payment, in the event that Mellon's secured claim was  prepaid.

10
The bankruptcy court's Confirmation Order approved the  Debtors' Plan and summarized the disbursements to be made under it. In addition, it acknowledged the modification of Mellon's secured  claim as explained above.  Regarding the unsecured claims, it stated  that they "shall be paid [at] a dividend of not less than 10%." Finally, in compliance with 11 U.S.C. § 1327, the Confirmation Order  provided that: "[T]he provisions of the confirmed Plan bind the  debtors and all creditors; the confirmation of the Plan vests all  property of the estate in the debtors; and all property vesting in  the debtors is free and clear of any claim or interest of any  creditor, except as provided in the Plan or this order." (Emphasis  added).

11
After the entry of the Confirmation Order, the Debtors  sought leave from the bankruptcy court to sell the Property free of  liens or encumbrances pursuant to 11 U.S.C. §§ 1303 and 363.  Leave  was obtained and accordingly, the property was sold for $137,500 to a  good faith purchaser.  The bankruptcy court's order approving the  sale (the "Sale Order") provided for payment in full of Mellon's  secured claim pursuant to the Plan and the Confirmation Order; while  the balance of the proceeds were to be held in escrow by the Debtors'  counsel "until the earlier of (a) an agreement by and between the  Debtors and ... the Chapter 13 Trustee ... regarding disbursement of  such proceeds, and (b) disposition by the Court, by a final order,  adjudicating a motion filed by the Chapter 13 Trustee seeking an  amendment to the Plan...."

12
The Debtors and the Chapter 13 Trustee were unable to  reach an agreement for the distribution of the proceeds.  Therefore,  the Trustee moved to compel the Debtors to modify their Plan in order  to pay the excess of the proceeds to the Debtors' unsecured  creditors.3  The end result under the Trustee's proposed plan would  be that the dividend paid to unsecured creditors would increase from  10% to 100%.

13
The Debtors opposed the Trustee's motion.  On July 30,  1999, after a hearing, the bankruptcy court entered a Modification  Order granting the Trustee's motion and holding that the Debtors were  compelled to amend their Plan in order to distribute the proceeds to  the unsecured creditors. In re Barbosa, 236 B.R. 540 (Bankr.D.Mass.  1999).  The court reasoned that since the Debtors' bankruptcy plan  did not provide for prepayment of the unsecured claims, the Debtors,  through their Sale Motion, were "implicitly seek[ing] to modify their  plan to reduce the time for satisfying the claims of unsecured  creditors." Id. at 545.4  Accordingly, the court rejected Debtors'  implied amendments to reduce the time of payment to the unsecured  creditors and satisfy their claims by paying the 10% dividend,  without any regard to the change in circumstances. Id. at 548-49,  556.  In addition, the bankruptcy court found that the Debtors'  intention to keep the proceeds of the sale, while paying the 10%  dividend provided by the Plan to the unsecured creditors, failed to  meet both the good faith requirement and the best-interests-of-the-creditors test of 11 U.S.C. §§ 13295 and 1325(a)6 in order to modify  a confirmed plan, given the substantial and unanticipated change in  the Debtors' financial circumstances. In re Barbosa, 236 B.R. at 552-56.

14
Further, the bankruptcy court noted that although pursuant  to 11 U.S.C. § 1327(b), the Property sold vested in the Debtors free  and clear of any claim from the creditors (accord In re Rangel, 233 B.R. 191 (Bankr.D.Mass. 1999)), the result in this case by allocating  the appreciation of property, which the court characterized as  windfall profits, to the Debtors rather than to the unsecured  creditors "is antithetical to the results that would be achieved in  the absence of a confirmed plan that vested the Property in the  Debtors." In re Barbosa, 236 B.R. at 551.  The court continued:

15
Moreover, there is something unsavory about  Chapter 13 Debtors 'stripping down' a mortgage  under § 506(a) and (d) and receiving the  'super' discharge provided by § 1328(a) while  walking away with substantial cash proceeds due  to the appreciation in value of their Property,  without amending their plan to satisfy the  claims of their unsecured creditors... Putting  aside the various inconsistent Code sections,  the problems created by the vesting language in  § 1327(b) and the order of confirmation used in  this case, and hairsplitting arguments about  what constitutes property of the estate in  Chapter 13, the spectacle of the Debtors  profiting while in bankruptcy is disconcerting  and may be indicative of a bad faith  manipulation of the Code.

16
Id. at 551-52.  Accordingly, the bankruptcy court held that the  Debtors were required to amend their plan as requested by the Trustee  to provide for full compensation to the unsecured creditors. Id. at  556.

17
On appeal, the district court affirmed the bankruptcy  court's decision and order. Barbosa v. Solomon, 243 B.R. 562 (D.  Mass. 2000).  However, it used a different rationale.  It found that  the central issue was the meaning of the phrase "property of the  estate" as used in the various sections of the Bankruptcy Code. Id. at 565.  It then noted that a reading of the bankruptcy court's  memorandum opinion might give the impression that the Trustee "admits  that ... [proceeds of the foreclosure sale are] no longer property of  the estate...." Id.  However, in the district court's opinion, "if  th[at] is what the bankruptcy court's Memorandum means, it is an  error of law." Id.  Rather, the district court's interpretation of  the concept "property of the estate" as used by section 1327 of the  Code, vested title to the realty in the Debtors at confirmation, but  not the proceeds of the sale. Id. at 567-68.  The district court  concurred with the bankruptcy court in all other aspects and  therefore, it affirmed the judgment below.

18
The Debtors appealed from that decision and raise various  issues.  In particular, they contend that the district court erred in  ruling that the proceeds were part of the bankruptcy estate, based on  11 U.S.C. §§ 1327 and 541(a)(6).  They rely on the vesting language  of section 1327 of the Code and the Confirmation Order for the  proposition that Mellon forfeited any claim to the excess proceeds  from the property when it entered into the Stipulation, and that such  forfeiture became effective when the Confirmation Order was entered.

19
Second, Debtors argue that the bankruptcy and district  courts erred by improperly applying 11 U.S.C. § 1329 by finding that  they had implicitly sought a modification of the Plan through the  motion for confirmation of sale.

II.  ANALYSIS OF APPLICABLE LAW

20
Since this case presents primarily questions of law, this  Court's review of the bankruptcy and district court's decisions is de  novo. In re Savage Industries, Inc., 43 F.3d 714, 719 n. 8 (1st Cir.  1994); In re DN Associates, 3 F.3d 512, 515 (1st Cir. 1993). However, any findings of fact by the lower courts are reviewed on a  clearly erroneous standard. In re Savage Indus., 43 F.3d at 720.

21
A.  The Confirmed Plan in a Chapter 13 Bankruptcy Case.

22
Section 1327(b) of the Bankruptcy Code states that "the  confirmation of a plan vests all property of the estate in the  debtor." 11 U.S.C. § 1327(b).  In addition, section 1327(c) adds that  such vesting "is free and clear of any claim or interest of any  creditor provided for by the plan." Id.  The language used by the  bankruptcy court in its Confirmation Order was in consonance with  these Code provisions.

23
The Debtors argue that in defining the concept "property  of the estate" the district court ignored various sections of the  Bankruptcy Code; particularly section 541(a)(6) which establishes  that the concept "property of the estate" includes proceeds "of or  from property of the estate." 11 U.S.C. § 541(a)(6).  Therefore, the  Debtors argue that section 1327 of the Code, combined with section  541, vested in them the Property along with its proceeds "free and  clear of any claim or interest of any creditor." 11 U.S.C. § 1327(c).

24
However, in direct contraposition with the Debtors'  intended interpretation is section 1306(a) of the Bankruptcy Code,  which defines the concept "property of the estate" within a Chapter  13 bankruptcy thus:

25
Property of the estate includes, in addition to  the property specified in section 541 of this  title:

26
(1) all property of the kind specified in  such section that the debtor acquires after the  commencement of the case but before the case is  closed, dismissed, or converted to a case under  chapter 7, 11, or 12 of this title, whichever  occurs first; and

27
(2) earnings from services performed by the  debtor after the commencement of the case but  before the case is closed, dismissed, or  converted to a case under chapter 7, 11, or 12  of this title, whichever occurs first.

28
11 U.S.C. § 1306(a).  While this section does extend the application  of section 541 to cases filed under Chapter 13, it does so within a  specific context.  In particular, the status of the property of the  estate after the confirmation of a Chapter 13 plan is a controversial  issue in itself. See Russell G. Donaldson, Continued Existence of  Bankruptcy Code Chapter 13 Estate After Confirmation of the Chapter  13 Plan, 126 ALR Fed. 665 (1995)(Supp. 1999); David B. Wheeler, Whose  Property Is It Anyway? 18-NOV Am. Bankr. Inst. J. 14 (1999)(brief  review and analysis of the four different approaches currently used  by the bankruptcy courts to harmonize §§ 1327 and 1306 of the  Bankruptcy Code); Thomas E. Ray, Post-Petition Claims and the  Automatic Stay in Chapter 13, 19-FEB Am. Bankr. Inst. J. 12  (2000)(reference to the same variety of interpretations given by the  bankruptcy courts to §§ 1327 and 1306 of the Code); Vickie L. Vaska, Commentary: Property of the Estate After Confirmation of a Chapter 13  Repayment Plan: Balancing Competing Interests, 65 Wash. L. Rev. 677  (July 1990); see also In re Reynard, 250 B.R. 241, 246-47  (Bankr.E.D.Va. 2000); In re Holden, 236 B.R. 156, 160-63 (Bankr.D.Vt.  1999); In re Rangel, 233 B.R. at 198.

29
By stating that the bankruptcy estate continues to be  replenished by post-petition property until the case is closed,  dismissed, or converted under chapter 7, 11 or 12 of the Bankruptcy  Code, section 1306(a) is actually providing for the continued  existence of the bankruptcy estate until the earliest of any of the  above-mentioned events occur.  The meaning of the "vesting" language  of section 1327(b) within this context has been explored far and wide  throughout the nation.  In fact, the bankruptcy court noted that  sections 1306(a) and 1327(b) of the Code "are difficult to reconcile"  in this regard. In re Barbosa, 236 B.R. at 545, quoting In re Rangel, 233 B.R. at 193.

30
Some courts have interpreted section 1306(a) as actually  providing for the continuation of the bankruptcy estate until the  earliest of any of the above-mentioned events. See Security Bank of  Marshall Town v. Neiman, 1 F.3d 687 (8th Cir. 1993).  Still others  have held that the confirmation order terminates the estate  altogether, re-vesting all property of the estate in the debtor. In  re Olivier, 193 B.R. 992 (Bankr.N.D.Ga. 1996); In re Petruccelli, 113 B.R. 5 (Bankr.S.D.Cal. 1990).  A third approach, called "the-middle-of-the-road approach", stands for the proposition that the estate  continues to exist only with regard to property used to fund the  plan. In re Leavell, 190 B.R. 156 (Bankr.E.D.Va. 1995); In re  Ziegler, 136 B.R. 191 (Bankr.N.D.Ill. 1992).  All of these positions  have been criticized; the first two for overly emphasizing either  section 1306 or 1327, rendering the opposing section meaningless,  Wheeler, supra at 14, while the third approach is criticized for  involving a subjective analysis not contemplated, or provided for, by  the Code. Id.; see also Donaldson, supra, 126 ALR Fed. 665 §§ 2-5.

31
However, a fourth line of cases has held that by virtue of  sections 1327(b)-(c), property of the estate at the time of  confirmation vests in the debtors free of any claims from the  creditors.  The estate does not cease to exist however, and it  continues to be funded by the Debtors' regular income and post-petition assets as specified in section 1306(a). In re Reynard, 250 B.R. at 247; In re Trumbas, 245 B.R. 764, 766 (Bankr.D.Mass. 2000); In re Holden, 236 B.R. at 162-63; In re Rangel, 233 B.R. at 198.

32
Many commentators consider this approach to be the best,  since it gives meaning to both sections 1306 and 1327, without the  subjective analysis required by the middle-of-the-road approach. E.g. Wheeler, supra.  It was also the approach followed by the bankruptcy  court in this case.  Because we think that this approach has a  logical consistency that harmonizes two apparent inconsistent  sections, we hereby adopt it.  However, we note that this rule cannot  be applied in an inflexible manner, for in spite of the "vesting"  provided by section 1327 of the Code, until all payments due under  the plan are made, both the trustee and the unsecured creditors have  an interest in the preservation of the debtor's financial situation,  and in the extension of the ability-to-pay standard to future  situations under the plan.  In this particular case, "receiving  proceeds has also altered the debtor's financial circumstances",  which brings into play § 1329 of the Code. In re Suratt, 1996 WL 914095, *1 (D.Or. 1996).7

33
B.  Modification of a Confirmed Chapter 13 Plan.

34
Section 1329 of the Code provides that a confirmed plan  may be modified at the request of the debtor, the trustee, or the  holder of an allowed unsecured claim in order to "increase or reduce  the amount of payments on claims of a particular class provided for  by the plan; [or to] extend or reduce the time for such payments..."  11 U.S.C. § 1329(a)(1,2).  Any such post-confirmation modifications  shall comply with sections 1322(a)-(b)8, 1323(c)9, and 1325(a)10 of  the Bankruptcy Code. 11 U.S.C. § 1329(b)(1).

35
The Debtors argue that both the bankruptcy court and the  district court erred in applying section 1329 of the Code to allow a  modification of the confirmed plan at the request of the Trustee and  Mellon without their showing a substantial and unanticipated change  in the Debtors' financial circumstances from the time of  confirmation.  They argue that the Property's sale was contemplated  by the parties at the time of entering into the Stipulation and by  the Court when it confirmed the Plan.  Therefore, they aver that the  modification requested by the Trustee and Mellon is precluded by res  judicata.  For that purpose, they allege that the sale was not an  unanticipated event, and that the appreciation in value of the  property was foreseeable.  They do not dispute however, nor can they  given the facts, that the change in the Debtors' financial  circumstances is substantial.

36
From the start, we note that Debtors' arguments are not  grounded on the specific provisions of the Code; since section 1329  does not in itself establish a criterion for granting a modification,  other than the plan as modified must comply with all applicable  provisions of the Code. 11 U.S.C. § 1329(b), incorporating by  reference 11 U.S.C. § 1325(a).  This means that the Plan as modified  must be proposed in good-faith. 11 U.S.C. § 1325(a)(3).  Also, it  must comply with the "best-interests-of-the-creditors" test and the  "ability-to-pay" standard. 11 U.S.C. § 1325(a)(4-6).  However, the  Code says nothing about the applicability of the doctrine of res  judicata or the threshold requirement of unanticipated and  substantial change in the debtor's financial circumstances.  These  are doctrines of judicial origin. See, e.g., In re Witkowski, 16 F.3d 739, 746 (7th Cir. 1994)("The clear and unambiguous language of §  1329 negates any threshold change in circumstances requirement and  clearly demonstrates that the doctrine of res judicata does not  apply."); In re Than, 215 B.R. 430, 435 (B.A.P.9th Cir 1997)("The  unanticipated, substantial change test is judicial gloss to § 1329,  ... and the standard was seriously questioned by the Seventh  Circuit's 1994 Witkowski opinion."); In re Powers, 202 B.R. 618, 622  (B.A.P.9th Cir. 1996)("[W]e decline to hold that the change must be  substantial and unanticipated as suggested by various cases in this  circuit.  The plain language of § 1329 simply does not support a  change in circumstances as a prerequisite to modification."); In re  Euler, 251 B.R. 740, 744 (Bankr.M.D.Fla. 2000)(recognizing that  section 1329 "is silent as to whether the court should impose any  conditions on a modification ... other than those provided by §  1329(b)."); In re Fitak, 92 B.R. 243, 249 (Bankr.S.D.Ohio 1988), aff'd 121 B.R. 224 (S.D.Ohio 1990)("While the legislative history  indicates that a post-confirmation modification should be ordered  pursuant to § 1329(a) upon a showing of changed circumstances which  affect a debtor's ability to pay, the case law suggests that the  doctrine of res judicata limits the scope of appropriate post-confirmation modifications.").

37
Some of the stated grounds for the application of the  doctrine of res judicata within the context of a modification sought  pursuant to § 1329, are: (1) the "awkward" application of section  1329, In re Euler, 251 B.R. at 744, quoting In re Perkins, 111 B.R.  at 673 ("Unfortunately... section 1329 is 'somewhat awkward in  concept and application."); (2) the apparent inconsistency of  sections 1321 and 1329 of the Code; while the first provides that  only the debtor shall file a plan, the second provides standing to  the trustee and the unsecured creditors to seek to modify it after  confirmation, id. at 745-46; (3) the "little, if any, guidance as to  the standard to be applied by a bankruptcy court in determining  whether a request for a post-confirmation modification of a Chapter  13 plan should be granted," In re Fitak, 92 B.R. at 248; (4) the  legislative history of § 1329, In re Euler, 251 B.R. at 746; (5) the  case law, e.g. In re Fitak, 92 B.R. at 249, citing In re Moseley, 74 B.R. 791,799-800 (Bankr.C.D.Cal. 1987)11, Anaheim Savings & Loan  Ass'n v. Evans (In re Evans), 30 B.R. 530, 531 (B.A.P.9th Cir.  1983)12; and (5) the finality accorded to the confirmed plan, In re  Euler, 251 B.R. at 746.  Of all these factors, the need to accord a  degree of finality to the confirmation order is one of the most  weighty for some courts. See, e.g., Witkowski, 16 F.3d at 745, and  cases cited therein.

38
However, while the doctrine of res judicata has been  applied by some courts in this context, e.g. In re Arnold, 869 F.2d 240, 243 (4th Cir. 1989)("The doctrine of res judicata bars an  increase in the amount of monthly payments only where there have been  no unanticipated, substantial changes in the debtor's financial  situation."); In re Suratt, 1996 WL 914095 at *2 (D.Or. 1996)("The  doctrine of res judicata limits post confirmation modifications to  cases in which the change in a debtor's ability to pay was  unanticipated at the time of confirmation."); In re Solis, 172 B.R. 530, 532 (Bankr.S.D.N.Y. 1994) quoting 5 L.King, Collier on  Bankruptcy ¶ 1329.01 (15th ed. 1994) ("A trustee's application  'should be limited to situations in which there has been a  substantial change in the debtor's income or expenses that was not  anticipated at the time of the confirmation hearing.'"); In re Fitak, 92 B.R. at 250 ("[T]he doctrine of res judicata operates as a  limitation on the ability of parties to obtain a post-confirmation  modification under § 1329(a) based upon unanticipated changed  circumstances."), it is by no means the uniformly accepted norm.

39
Many other courts have ruled that section 1329(a) allows  the parties an absolute right to request a modification (although a  modification will not necessarily be granted). Witkowski, 16 F.3d at  745; In re Powers, 202 B.R. at 622 ("Although a party has an absolute  right to request modification between confirmation and completion of  the plan, modification under § 1329 is not without limits."); In re  Than, 215 B.R. at 436 (same); In re Trumbas, 245 B.R. at 767  (following In re Barbosa, 236 B.R. at 548, and Witkowski, supra); In  re Meeks, 237 B.R. 856, 859-60 (M.D.Fla. 1999)("[T]he Debtors need  not demonstrate a substantial, unanticipated change in circumstances  in order to modify their confirmed chapter 13 plan.  However, neither  can Chapter 13 debtors simply modify their plans willy nilly."); In  re Laye, 1994 WL 905759, *2 (Bankr.N.D.Ill. 1994)(following Witkowski, supra).  This approach is based on the clear language of  the statute. In re Witkowski, 16 F.3d at 746; In re Powers, 202 B.R.  at 622 ("[W]e decline to hold that the change [under § 1329] must be  substantial and unanticipated as suggested by various cases in [the  Ninth Circuit].  The plain language of § 1329 simply does not support  a change in circumstances as a prerequisite to modification.")  Also,  it acknowledges that section 1329 does provide a criterion for  granting a modification. In re Witkowski, 16 F.3d at 745-46.  First,  "modifications are only allowed in [the] three limited circumstances"  provided by the statute. Id. at 745.  Second, as provided by §  1329(b)(1) of the Code, "a modified plan is only available if §§  1322(a), 1322(b), 1325(a) and 1329(c) of the bankruptcy code are  met." Id.  Third, a modification may only be proposed in good faith. Id. at 746.13  Fourth, "all proposed modifications need not be  approved and in practice not all modifications are approved." Id. Moreover, the statutory framework is clear in allowing post-confirmation modifications, a feature that is incongruent with the  application of the doctrine of res judicata. Id. at 745.14

40
The legislative history of section 1329(a) is not  conclusive on this issue either, and if anything, it supports the  inference that res judicata should not be applied.  Section 1329(a)  was amended in 1984 to provide standing to the trustee and the  holders of unsecured claims to move to amend the confirmed bankruptcy  repayment plan. Consumer Credit Amendments, Section 319, Title III of  the Bankruptcy Amendments and Federal Judgeship Act of 1984  ("BAFJA"), Publ. L. No. 98-353;  8 Collier on Bankruptcy ¶ 1329.03  (Lawrence P. King, chief ed., 15th ed. 2000).  Prior to the  amendment, only the debtor was authorized to request a modification  of the plan. Id.; see also William L. Norton Jr., Bankruptcy Law and  Practice 2d, Bankruptcy Code 1270, eds.' comm. (1998-1999).  However,  Congress saw fit to allow the trustee and holders of unsecured claims  to seek an amendment to the confirmed plan in order to carry the  ability-to-pay standard forward in time, allowing upward or downward  adjustment of plan payments in response to changes in the debtor's  financial circumstances which affect his/her ability to make  payments. See Oversight Hearings on Personal Bankruptcy Before the  Subcommittee on Monopolies and Commercial Law of the Committee on the  Judiciary, House of Representatives, 97th Cong., 1st and 2nd Sess. 22-23 (1981-1982).15

41
There was an indication at the Congressional Oversight  Hearings on Personal Bankruptcy that the standing conferred to the  trustee and the unsecured creditors would serve to accommodate any  changes in the financial circumstances of the debtor (either  adversely or favorably), which substantially affect his ability to  make future payments under the plan. Oversight Hearings, supra, at  215-216, 221-222 (1981-1982) (statement of the Hon. Conrad K. Cyr,  Bankruptcy Judge for the District of Maine, speaking on behalf of the  National Bankruptcy Conference and the National Conference of  Bankruptcy Judges); Arnold & Porter, BANKR84, Hearings(21).  However,  the reference to a substantial change was never accompanied by the  requirement that the change be unanticipated.16  Moreover, the  legislative history indicates that the application of the doctrine of res judicata was never discussed, considered, or contemplated by  Congress. Oversight Hearings, supra.

42
Faced with this legislative intention, and the plain  language of the statute, we are compelled to concur with the district  court and the bankruptcy court that the Witkowski approach is the  more sensible one. In re Barbosa, 236 B.R. at 547.  However, the  bankruptcy judge was careful to note that "motions to modify cannot  be used to circumvent the appeals process for those creditors who  have failed to object confirmation of a Chapter 13 plan or whose  objections to confirmation have been overruled." Id.  Moreover, the  bankruptcy judge noted that "§§ 1327 and 1330 accord significant  finality to confirmation orders in Chapter 13 cases." Id. Accordingly, the court concluded that "while Witkowski may be a  correct statement of the law, as a practical matter, parties  requesting modifications of Chapter 13 plans must advance a  legitimate reason for doing so, and they must strictly conform to the  three limited circumstances set forth in § 1329." Id. at 548.

43
Upon a close analysis, the bankruptcy court's conclusions  of law do accord significant finality to confirmed plans without  requiring specific threshold tests not contemplated by the statute. Therefore, we adopt the Witkowski approach as modified by the  bankruptcy court and refrain from adopting the substantial and  unanticipated test for seeking a modification pursuant to § 1329. Accordingly, we find that the Trustee and Mellon were not precluded  by res judicata from seeking an amendment to the plan.  In addition,  given the factual circumstances of this case -- where the Debtors  realized through the sale an appreciation in value of almost 215% of  the stipulated value of the property at confirmation -- we find that  the bankruptcy court did not abuse its discretion in granting the  amendment. Witkowski, 16 F.3d at 746 ("Because modification under §  1329 is discretionary, our review is limited to a determination of  whether the district court abused its discretion in modifying the  plan.").

44
Finally, as the bankruptcy judge said, it is antithetical  to the bankruptcy system to allow a debtor to "strip down" a  mortgage, underpay the unsecured creditors, and obtain a super  discharge under section 1328(a) of the Code, while selling the  property mortgaged for a price of two times its estimated value for  purposes of the "strip down", and keeping to himself the excess of  the proceeds. In re Barbosa, 236 B.R. at 552.  In fact, to allow the  Debtors to keep the proceeds of the sale in such circumstances  effectively defeats Congress' intention to extend the application of  the "ability-to-pay" standard forward throughout the duration of the  plan. Oversight Hearings, supra.

III.  CONCLUSION

45
On these grounds, the district court's order upholding the  bankruptcy court's judgment is Affirmed. Costs are awarded to the  appellees.

Notes:

*
  Of the District of Puerto Rico, sitting by designation.

1
  11 U.S.C. § 1327 provides, in relevant part:
(a) The provisions of a confirmed plan bind the debtor and each  creditor, whether or not the claim of such creditor is provided for by  the plan, and whether or not such creditor has objected to, has  accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order  confirming the plan, the confirmation of a plan vests all of the  property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order  confirming the plan, the property vesting in the debtor under  subsection (b) of this section is free and clear of any claim or  interest of any creditor provided for by the plan. (Emphasis added).

2
  After payment in full of all secured bankruptcy claims, plus  interest, and all closing costs, taxes, insurance premiums and other  amounts, there remains $50,668.35 in excess proceeds.

3
  Mellon joined the Trustee's efforts by filing a separate  motion.

4
  The court also ruled that pursuant to 11 U.S.C. § 1329, the  Trustee had standing to seek modification of the plan, and that  "[e]ven if this Court were to conclude that the Chapter 13 Trustee  must show a substantial change in circumstances, the Court observes  that the Chapter 13 Trustee could satisfy that standard [given that]  [a]lthough the Debtors contemplated the sale of their Property in  their Chapter 13 plan, the sales price was more than double the  stipulated value of Mellon's secured claim." In re Barbosa, 236 B.R.  at 547 n. 8.

5
  Section 1329(a) of the Bankruptcy Code provides for the  modification of a confirmed Chapter 13 plan upon request of the debtor,  the trustee, or the holder of an allowed unsecured claim, for the  following limited modifications:
(1) increase or reduce the amount of payments on claims of  a particular class provided for by the plan;
(2) extend or reduce the time for such payments; or
(3) alter the amount of the distribution to a creditor whose  claim is provided for by the plan to the extent necessary to  take account of any payment of such claim other than under  the plan.
11 U.S.C. § 1329(a).
Section 1329(b) of the Code provides in turn, that a proposed plan  modification must meet the requirements of sections 1322(a), 1322(b),  1323(c) and 1325(a) of the Code.

6
  Section 1325(a) provides in the pertinent part that a  bankruptcy plan may only be confirmed if "[it] has been proposed in  good faith and not by any means forbidden by law." 11 U.S.C. §  1325(a)(3).  While "the value, as of the effective date of the plan, of  property to be distributed under [it] on account of each allowed  unsecured claim" must be "not less than the amount that would be paid  on such claim if the estate of the debtor were liquidated under chapter  7 of [the Code] on such date." 11 U.S.C. § 1325(a)(4).

7
  In In re Suratt, 1996 WL 914095 at *1, the bankruptcy court  rejected debtor's argument that by "vesting" the property on him upon  confirmation, § 1327 operated to exclude the trustee and the  unsecured creditors from partaking in the post-confirmation sale  proceeds of former estate property.  The court noted that:
The logical extension of the debtor's argument is ... that  there must be a provision in all Chapter 13 plans  requiring post-confirmation sale proceeds from property  originally part of the estate to be paid to creditors, in  order to preclude the debtor from receiving those funds. There is no such requirement in the Bankruptcy Code, nor  has any court imposed such a requirement. 11 U.S.C. §  1329(a) is intended, in part, to provide the protection  the debtor claims is missing.  Its purpose is to protect  creditors' rights to a debtor's increased income,  including from proceeds from the sale of property that has  appreciated in value, post-confirmation.
Id. at *3.

8
  Section 1322(a) of the Code establishes the requirements that must  be met by a bankruptcy repayment plan in order to be approved by the  court.  Section 1322(b) on the other hand, enumerates all permissible  provisions which can be included in a bankruptcy repayment plan. 11  U.S.C. § 1322(a)-(b).

9
  Section 1323(c) provides that: "Any holder of a secured claim that  has accepted or rejected the plan is deemed to have accepted or  rejected, as the case may be, the plan as modified, unless the  modification provides for a change in the rights of such holder from  what such rights were under the plan before modification, and such  holder changes such holder's previous acceptance or rejection." 11  U.S.C. § 1323(c).

10
 Section 1325(a) of the Code provides, in the pertinent part, that  the courts "shall confirm a plan if" (1) it complies with all  applicable provisions of the Code; (2) it "has been proposed in good  faith and not by any means forbidden by law"; (3) the value of property  to be distributed under the plan on account of all allowed unsecured  claims is not less than what would be paid under a chapter 7  liquidation; and (4) the debtor is able to comply with the plan. 11  U.S.C. § 1325(a)(1), (3)-(4), (6).

11
 In re Moseley, supra, makes a distinction between motions to  modify a confirmed plan filed by the debtor, and motions to modify  filed by the trustee or the unsecured creditors.  The debtor may file  motions to modify liberally, "on a proper showing of changed  circumstances"; 74 B.R. at 799; while "a creditor may move to modify a  plan adversely to a debtor after confirmation only upon a showing of a  post-confirmation default by the debtor, or that the circumstances have  changed since confirmation." Id.  As to everything else, the confirmed  plan is res judicata. Id.

12
 Anaheim Savings & Loan Ass'n v. Evans, supra, states while  discussing the effect of a confirmation pursuant to section 1327, that:  "An order confirming a Chapter 13 plan is res judicata as to all  justifiable issues which were or could have been decided at the  confirmation hearing." 30 B.R. at 531.

13
 Specifically, "lack of good faith can be shown by manipulation of  code provisions." In re Witkowski, 16 F.3d at 746.

14
 The Witkwoski court stated: "The common-law principle of res  judicata ... does not apply when a statutory purpose to the contrary  is evident." In re Witkowski, 16 F.3d at 744 (internal quotations  omitted).  It then noted that "the statutory framework of the  Bankruptcy Code plainly assumes the possibility of modifications of  bankruptcy plans after they are confirmed."  Id. at 745.

15
 See Statement of Professor Vern Countryman:
Since plans are confirmed on the basis of projections of  future income of the debtor, any subsequent change in the  debtor's income, either an increase or a reduction, during  the term of the plan will result in an excessive or an  inadequate commitment of his disposable income under the  plan.  Because we believe that, in exchange for the  advantages of Chapter 13 over Chapter 7, the debtor should  commit his disposable income for the term of the plan, we  propose a new section 1329(d) to deal with that problem. While this provision will permit the debtor to seek a  modification of the plan in the event of a reduction in  income, it will also permit an unsecured creditor, in the  event of an improvement in the debtor's income position at  any time during the period of the plan, to seek a  modification so that the full amount of the debtor's  disposable income remains committed to payments under the  plan.  This proposal ... seems to us to be a reasonable quid  pro quo for the benefits conferred on the debtor under  Chapter 13 which would not be available to him in a Chapter  7 case. Oversight Hearings on Personal Bankruptcy Before the Subcommittee on  Monopolies and Commercial Law of the Committee on the Judiciary, House  of Representatives, 97th Cong., 1st and 2nd Sess. 22-23 (1981-1982)(statement of Mr. Vern Countryman, Harvard Law School Professor  and Vice-Chairman of the National Bankruptcy Conference); Arnold &  Porter, BANKR84, Hearings(21).
Although the proposed subsection 1329(d) was not finally enacted  by Congress, the essential purpose behind it, to permit the unsecured  creditors (and the trustee) to request an amendment to the confirmed  bankruptcy plan if there was a change in the debtor's income, did  become law.

16
 In fact, the original proposed amendment read:
On request of the debtor or of a creditor holding an allowed  unsecured claim and after notice and a hearing, the plan  shall be modified under subsection (a) of this section to  any extent that any change in the debtor's total projected  disposable income, as defined in section 1320 of this title, substantially affects whether the plan, before modification,  complies with the conditions specified in sections  1325(a)(6) and 1325(c) of this title.
Proposed Section 1329(d); Oversight Hearings, supra, at 31.  The  reference to a "substantial change" was later deleted from the section  and did not become law.