Court Opinion

ID: 4173628
Source: CourtListenerOpinion
Date Created: 2017-06-01 17:03:25.273515+00
Date Added: 2024-06-11T14:24:15.117192
License: Public Domain

PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT
                    _____________

                  Nos. 15-3341 & 16-3482
                      _____________

     IN RE: PAUL E. KLAAS; BETH ANN KLAAS,
                             Debtors

                 ELIZABETH SHOVLIN,
                               Appellant
                    _______________

      On Appeal from the United States District Court
         for the Western District of Pennsylvania
         (Nos. 2-15-cv-00802 & 2-16-cv-00467)
       Honorable Arthur J. Schwab, District Judge
                   _______________

                 Argued: October 26, 2016

   Before: FISHER, VANASKIE, and KRAUSE, Circuit
                       Judges

                   (Filed: June 1, 2017)

      
        Honorable D. Michael Fisher, United States Circuit
Judge for the Third Circuit, assumed senior status on
February 1, 2017.
                     _______________

Phillip S. Simon, Esq. (Argued)
Suite 401
603 Washington Road
Pittsburgh, PA 15228
       Attorney for Appellees Paul E. Klaas and Beth Ann
       Klaas

Aurelius P. Robleto, Esq. (Argued)
Robleto Law
Suite 1306
401 Liberty Avenue
Pittsburgh, PA 15218
       Attorneys for Appellant Elizabeth Shovlin

Owen W. Katz, Esq. (Argued)
Jana S. Pail, Esq.
Ronda J. Winnecour, Esq.
Office of Chapter 13 Trustee
600 Grant Street
3250 USX Tower
Pittsburgh, PA 15219
       Attorneys for Appellee Ronda J. Winnecour

                     _______________

                OPINION OF THE COURT
                    _______________

KRAUSE, Circuit Judge.

                              2
       The Bankruptcy Code sets certain limits on the amount
of time that debtors may be required to remain in Chapter 13
proceedings and make payments on their debts. This case
presents two questions of first impression among the Courts
of Appeals: whether bankruptcy courts have discretion to
grant a brief grace period and discharge debtors who cure an
arrearage in their payment plan shortly after the expiration of
the plan term, and if so, what factors are relevant for the
bankruptcy court to consider when exercising that discretion.
Because we conclude the Bankruptcy Code does permit a
bankruptcy court to grant such a grace period and the
Bankruptcy Court did not abuse its discretion in granting one
here, we will affirm the rulings of the District Court, which in
turn affirmed the relevant order and judgment of the
Bankruptcy Court.

I.     Background

        This consolidated appeal presents two decisions for
review from the District Court: one affirming the Bankruptcy
Court in its denial of Appellant-Creditor’s Motion to Dismiss
a Chapter 13 bankruptcy proceeding, and the other affirming
the Bankruptcy Court’s grant of Appellee-Debtors’ Motion
for Summary Judgment in a related adversary proceeding.
Before addressing the facts relevant to those orders, a brief
review of the relevant Bankruptcy Code provisions is
necessary to understand the rights and obligations at issue in
this case.

       A.     Statutory Background

       Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§
1301–1330, offers the possibility of relief to individual
debtors who have some capacity to make payments on their

                               3
debts. 11 U.S.C. § 109(e). After filing a voluntary petition
for relief, a Chapter 13 debtor must propose a “plan” that
provides for the payment of future earnings to cover claims
on the debtor’s estate. 11 U.S.C. §§ 1321, 1322(a)-(c). The
Code includes requirements for the contents of such a plan,
including that the plan must provide for the payment of all
priority claims and may not “discriminate unfairly” between
classes of unsecured creditors. 11 U.S.C. § 1322. Relevant
to this case, the Code requires that if the debtor’s income is
higher than the median income for the state in which the
debtor resides, “the plan may not provide for payments over a
period that is longer than 5 years.” 11 U.S.C. § 1322(d)(1).
The proposed plan is subject to court approval, but the Code
directs the bankruptcy court to confirm a proposed plan if it
complies with the Code’s requirements, including that it is
proposed in good faith and that it is anticipated “the debtor
will be able to make all payments under the plan and to
comply with the plan.” 11 U.S.C. § 1325(a)(1), (a)(3), (a)(6).

       The bankruptcy court may appoint a neutral trustee to
collect the money paid under the plan and to distribute it to
creditors throughout the plan period. 11 U.S.C. § 1302. The
total amount to be paid to the trustee in order to complete the
goals of the plan, including charges for escrow account fees
and the trustee’s services, is often referred to as the “plan
base.” Although “[t]he term ‘base’ is not found in the
Bankruptcy Code,” it is “commonly understood to mean the
sum of money that a debtor will pay through his Chapter 13
plan.” In re Jenkins, 428 B.R. 845, 849 (B.A.P. 8th Cir.
2010).

      Once confirmed, modifications to the plan are
governed by 11 U.S.C. § 1329. That section provides, in

                              4
relevant part: “[a]t 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 … extend or
reduce the time for such payments.” 11 U.S.C. §§ 1329(a)(2).
However, it also incorporates § 1322(d)(1)’s five-year term
limit by specifying that “the court may not approve” a plan
modification that would extend the term to require payments
more than five years after the first payment was due under the
original plan. 11 U.S.C. § 1329(c). Once a debtor meets his
obligations by completing “all payments under the plan,” he
becomes entitled to “a discharge of all debts provided for by
the plan,” 11 U.S.C. § 1328, often referred to as a
“completion discharge.”

       Of course, not all debtors are able to meet their plan
obligations. In that circumstance, the bankruptcy court may
dismiss a case or convert it to a Chapter 7 bankruptcy “for
cause,” including upon “material default by the debtor with
respect to a term of a confirmed plan.”             11 U.S.C.
§ 1307(c)(6). Alternatively, the court may grant a “hardship
discharge” of some of the debts if (1) the debtor cannot make
all payments due to “circumstances for which [he] should not
justly be held accountable,” (2) a certain amount of property
has already been distributed under the plan, and (3)
modification under § 1329 “is not practicable.” 11 U.S.C.
§ 1328(b).

       B.     Factual Background

       In 2009, Appellee-Debtors Paul and Beth Ann Klaas
filed a voluntary Chapter 13 petition in the Western District
of Pennsylvania, proposing a plan that required payments of
$2,485 each month for sixty months, i.e., five years, and that

                               5
was confirmed by the Bankruptcy Court. About a year after
confirmation, in response to an increase in mortgage
payments, the plan was amended to increase the payments to
$3,017 a month for the remainder of the sixty-month period.
This new monthly payment reflected an anticipated plan base
of $174,059.24 that Debtors were then required to pay to
complete the plan’s goals. Debtors made consistent monthly
payments and, after sixty months, they had paid a total of
$174,104, slightly exceeding their projected plan base.

        Nevertheless, sixty-one months after the start of the
plan, Appellee-Trustee Ronda Winnecour filed a Motion to
Dismiss the case under 11 U.S.C. § 1307(c), alleging that her
final calculation showed that Debtors still owed $1,123 to
complete their plan base.1 She noted in her motion that
“[s]hould the debtors remit funds sufficient to complete the
plan, the Trustee [would] not object to withdrawing her
motion to dismiss.” Appellant App. Vol. II, 7. Debtors cured
the arrears within 16 days of the motion alerting them to the
deficit, and the Trustee consequently withdrew the motion.

       By that point, however, the Trustee’s motion had been
joined by Appellant-Creditor Elizabeth Shovlin, who was the
successor in interest to a holder of several unsecured claims
against Debtors, and Creditor pressed forward, arguing that

       1
          The record is unclear about the source of this
shortfall. The Bankruptcy Court found that it was largely due
to an increase in the Trustee’s fee during the term of the plan,
and not to any missed payments during the plan term. In re
Klaas (“Klaas III”), 548 B.R. 414, 424 (Bankr. W.D. Pa.
2016).

                               6
the late payment was invalid because the plan and the Code
required all payments to be completed within sixty months.2
While the Bankruptcy Court agreed that the failure to
completely fund the plan base within sixty months was a
material default constituting cause for dismissal under 11
U.S.C. § 1307(c), it also found that the default was not the
result of an unreasonable delay by Debtors, that Debtors
promptly corrected the deficiency, and that the delay did not
significantly alter the timing of plan distributions to creditors.
The court, therefore, denied the Motion to Dismiss,
concluding that “[b]y the time of the hearing on the trustee’s
motion, the default was no longer material,” and that Debtors
had “fully funded their plan obligations.” In re Klaas
(“Klaas I”), 533 B.R. 482, 488 (Bankr. W.D. Pa. 2015).
Creditor appealed the order denying the motion, and the
District Court affirmed. Shovlin v. Klaas (“Klaas II”), 539
B.R. 465, 466 (W.D. Pa. 2015).

        Creditor also initiated an adversary proceeding by
filing a complaint objecting to the discharge of the Klaases’
debts. Nearly a year after its decision on the Motion to
Dismiss, the Bankruptcy Court, relying on that ruling and the
law of the case doctrine, again rejected Creditor’s arguments
that the failure to complete all payments within the plan term
mandated dismissal and granted summary judgment in favor
of Debtors. In re Klaas (“Klaas III”), 548 B.R. 414, 425
(Bankr. W.D. Pa. 2016). The Bankruptcy Court issued a

       2
        Creditor also argued that Debtors should be denied a
discharge on the basis that they failed to timely complete a
required financial management course, In re Klaas (“Klaas
I”), 533 B.R. 482, 485–86 (Bankr. W.D. Pa. 2015), but she
does not raise this issue on appeal.

                                7
completion discharge, Bankr. Case 09-29574 Dkt. No. 211,3
and the District Court again affirmed on appeal, Shovlin v.
Klaas (“Klaas IV”), 555 B.R. 500, 502 (W.D. Pa. 2016).
Creditor then filed a notice of appeal of the adversary case,
which was consolidated with the first appeal before our
Court.

II.    Jurisdiction

        Although no party in this case contests our jurisdiction,
“[w]e have an independent obligation to ascertain our own
jurisdiction” before we may reach the merits of the case. In
re Cont’l Airlines, Inc., 932 F.2d 282, 285 (3d Cir. 1991).
And although the two appeals have been consolidated before
us, “[n]either consolidation with a jurisdictionally proper case
nor an agreement by the parties can cure a case’s
jurisdictional infirmities.” Brown v. Francis, 75 F.3d 860,
866 (3d Cir. 1996). For these reasons, we must verify that we
can exercise jurisdiction over each of the consolidated cases
independently.

        District courts have “jurisdiction to hear appeals …
from final judgments, orders, and decrees … of bankruptcy
judges,” 28 U.S.C. § 158(a), and, in turn we have jurisdiction
to hear appeals from “all final decisions, judgments, orders,
and decrees entered” by a district court. 28 U.S.C. § 158(d).
On appeal, then, “[t]he finality issue must be resolved with
respect to the decisions of both the bankruptcy judge and the
district court.” In re White Beauty View, Inc., 841 F.2d 524,
526 (3d Cir. 1988).

       3
         The court provided, however, that the discharge is
subject to any claims held by Creditor after the outcome of
this appeal. Bankr. Case 09-29574 Dkt. No. 216.

                               8
       Typically, in civil litigation, a decision is only final if
it leads to a court’s complete disassociation from a case.
Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1691 (2015).
The challenge in this case is that, while the Bankruptcy
Court’s grant of summary judgment in the adversary case
clearly did conclude the court’s involvement in the
bankruptcy proceeding, its order denying Creditor’s Motion
to Dismiss did not. Creditor’s appeal from the denial of the
Motion to Dismiss therefore requires additional analysis to
determine if that order, and the District Court’s affirmance of
that order, should nonetheless be deemed final and, hence,
subject to our review.

        We start with the premise that “[c]onsiderations unique
to bankruptcy appeals have led us to construe the factor of
finality somewhat more broadly in this context than under 28
U.S.C. § 1291.” In re White Beauty View, Inc., 841 F.2d at
526. Because bankruptcy proceedings are often “protracted
and involve numerous parties with different claims,” we take
a pragmatic approach and examine the practical effect of the
court's ruling. Id. Simply put, when it comes to analyzing
the finality of an order, “[t]he rules are different in

                                9
bankruptcy.”4 Bullard, 135 S. Ct. at 1692. Our Court
considers four factors in this analysis: “(1) the impact on the
assets of the bankruptcy estate; (2) the need for further fact-
finding on remand; (3) the preclusive effect of a decision on
the merits; and (4) the interests of judicial economy.” In re
Armstrong World Indus., Inc., 432 F.3d 507, 511 (3d Cir.
2005).

        Here, as to the first factor, we find it relevant that in
the course of denying Creditor’s Motion to Dismiss, the
Bankruptcy Court explicitly reached the legal conclusion that
“the Debtors have completed their plan obligations.” Klaas I,
533 B.R. at 489. The practical effect of that conclusion was
to certify the case as eligible for a completion discharge, and
the Bankruptcy Code directs courts to grant a discharge “as
soon as practicable” following this determination. 11 U.S.C.
§ 1328(a). This functionally ended the bankruptcy case and
thus affected Creditor’s claim on the estate.

       As to the second and third factors, the parties agreed
there were no disputed factual issues (and, hence, no need for
further fact-finding) relevant to the availability and propriety

       4
          In In re Christian, for example, we exercised
jurisdiction over a district court order affirming a bankruptcy
court’s denial of a motion to dismiss a Chapter 7 case because
without timely appellate review, the entire bankruptcy
proceeding would have had to be completed before it could
be determined whether the case was properly brought in the
first place, and such a resolution would not be “desirable or
practical.” 804 F.2d 46, 48 (3d Cir. 1986). See also In re
Taylor, 913 F.2d 102, 104 (3d Cir. 1990); In re Brown, 916
F.2d 120, 124 (3d Cir. 1990).

                               10
of a grace period for debtors here to cure their arrearage. As
a result, the parties’ rights and obligations on those issues
were settled by the court’s decision on the Motion to Dismiss,
and both the Bankruptcy Court and District Court gave that
decision preclusive effect by applying the law of the case
doctrine when adjudicating the adversary claim and
concluding that discharge was a foregone conclusion. See
Klaas III, 548 B.R. at 421; Klaas IV, 555 B.R. at 507.

        Admittedly, the fourth factor—judicial economy—
may have been better served had Creditor waited to appeal
until after final judgment was rendered in both the bankruptcy
and the adversary proceeding. That would have relieved the
District Court of the burden of adjudicating these appeals
separately. But now that both appeals are before our Court,
this factor too counsels in favor of adjudicating both claims.

        In sum, all four of the relevant factors indicate the
Bankruptcy Court’s order denying the Motion to Dismiss, and
consequently the District Court’s order affirming that denial,
should be deemed final orders. We therefore may exercise
jurisdiction over both appeals.

III.   Standard of Review

       In reviewing bankruptcy court decisions on appeal, we
“stand in the shoes” of the district court and apply the same
standard of review. In re Global Indus. Techs., Inc., 645 F.3d
201, 209 (3d Cir. 2011) (en banc). Accordingly, “we review
the bankruptcy court’s legal determinations de novo, its
factual findings for clear error and its exercise of discretion
for abuse thereof.” In re Trans World Airlines, Inc., 145 F.3d
124, 131 (3d Cir. 1998).

                              11
        Here, the order granting Debtors summary judgment is
subject to plenary review. Rosen v. Bezner, 996 F.2d 1527,
1530 (3d Cir. 1993). The other order under review, denying
Creditor’s Motion to Dismiss, is reviewed for an abuse of
discretion, but the bankruptcy court necessarily abuses its
discretion when its decision “rests upon … an errant
conclusion of law.” In re SGL Carbon Corp., 200 F.3d 154,
159 (3d Cir. 1999) (citation omitted). In this case, Creditor
argues that the Bankruptcy Court’s exercise of discretion to
allow a curative payment rather than dismiss the case was
premised on an errant legal conclusion—specifically, the
conclusion that “the Debtors were entitled to a discharge
under section 1328(a) when they did not complete all of their
payments within the 60-month term of their Plan,” Creditor
Reply to Trustee Br., 2, and we exercise plenary review over
any conclusions of law that form the basis for an exercise of
discretion, In re SGL Carbon Corp., 200 F.3d at 159; see also
In re Mintze, 434 F.3d 222, 228 (3d Cir. 2006) (holding that
before we can determine whether a bankruptcy court abused
its discretion, we must determine as a matter of law whether
the court “had any discretion to exercise”).

       In short, despite the different procedural posture of the
two orders under review, both turn upon the same narrow and
dispositive legal question: whether Debtors may be granted a
completion discharge under § 1328(a), despite having
completed their plan base funding only after the end of the
sixty-month term. The District Court correctly reviewed that
question de novo when it was presented on each appeal, see
Klaas II, 539 B.R. at 469; Klaas IV, 555 B.R. at 506–07, and
we will do the same.

                              12
IV.    Analysis

       Creditor argues that because, in her view, the
Bankruptcy Code compels courts to dismiss a bankruptcy
proceeding whenever a shortfall remains at the conclusion of
the five-year term, the Bankruptcy Court here abused its
discretion in denying her Motion to Dismiss and erred in
granting summary judgment.

       It appears this is a recurring problem in bankruptcy
cases, for “many situations … may arise in which completion
of the monthly plan payments will not result in the payment
of the dividends required by the Bankruptcy Code and
promised in the plan,” such as when “fees are higher than
projected, administrative expenses are incurred, … or larger
than expected secured claims are filed” after plan
confirmation. In re Estrada, 322 B.R. 149, 153 (Bankr. E.D.
Cal. 2005). While the modification procedure may be used to
adjust for some of these changes during the course of the
plan, “there will be the occasional case where the plan’s
insolvency is not apparent until very late in the case,” and
“despite the trustee’s and the debtor’s best efforts to avoid the
problem, the plan payments may not fund” all dividends and
expenses necessary to complete the plan base. Id.; see also In
re Escobedo, 169 B.R. 178 (Bankr. N.D. Ill. 1993). The Code
does not expressly provide for this scenario, nor does it
appear that the United States Trustee Offices have developed
a consistent practice to address it. Oral Argument at 26:56
(No. 15-3341), available at http://www.ca3.uscourts.gov/oral-

                               13
argument-recordings.5 In the absence of an ex ante solution,
however, we hold that bankruptcy courts retain discretion
under the Bankruptcy Code to grant a reasonable grace period
for debtors to cure an arrearage, and we also hold that the
Bankruptcy Court here did not abuse its discretion in doing so
in this case. We explain the basis for each holding below.

       A.     Discretion under the Bankruptcy Code

        We interpret provisions of the Bankruptcy Code using
established canons of statutory construction. In re Armstrong
World Indus., 432 F.3d at 512. We begin with the plain
language of the statute, and if its meaning is plain, we “make
no further inquiry unless the literal application of the statute
will end in a result that conflicts with Congress’s intentions.”
Id. (citations omitted). We also read statutory provisions in
context and avoid an interpretation that is incompatible with
the rest of the law. United Sav. Ass’n of Tex. v. Timbers of
Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988).

       Creditor argues that the plain language of the statute
bars any payment after the plan term. Specifically, as
Creditor points out, § 1322 instructs that a court “may not”
approve a proposed plan if it schedules payments over a
period of more than five years. 11 U.S.C. § 1322(d).

       5
         We note that the practice of the Trustee in this case,
of filing and then withdrawing motions to dismiss after the
end of the plan term, appears problematic—tending to
produce unnecessary litigation as it did here. Indeed, even
the Trustee acknowledged a better approach would be to
conduct an audit and provide notice to the parties by filing a
motion for a status conference prior to the end of the plan
term. Id. at 37:05.

                              14
Likewise, under § 1329, a court “may not” approve a
proposed plan modification that would schedule payments to
be due more than five years after the first payment under the
original plan was due. 11 U.S.C. § 1329(c). And in addition,
the court must find the plan is proposed “in good faith” and it
is anticipated at the time of confirmation or modification that
“the debtor will be able to make all payments under the plan
and to comply with the plan.” 11 U.S.C. § 1325(a);
§ 1329(b)(1) (incorporating the requirements of § 1325(a)).

       In focusing on these sections of the Code, however,
Creditor misapprehends the relevant question, which is not
whether bankruptcy courts may confirm a plan or plan
modification that proposes a plan term greater than five years.
Plainly, it may not. The relevant question here, however, is
whether a bankruptcy court may deny a motion to dismiss
and/or grant a completion discharge when there remains at the
end of that plan term a shortfall that the debtor is willing and
able to cure. And the answer to that question is that it may—
an answer found in two entirely different sections of the
Code, namely, § 1307, which governs the Bankruptcy Court’s
power to grant a dismissal, and § 1328, which governs its
power to issue a completion discharge.

        Section 1307, for example, not only has no express
restriction on term length, but also provides that upon a
material default, the court “may”—not must—dismiss a case

                              15
for cause. 11 U.S.C. § 1307(c).6 That permissive language,
Anderson v. Yungkau, 329 U.S. 482, 485 (1947), stands in
contrast to the “may not” language of §§ 1322 and 1329,
which by definition is prohibitive. 11 U.S.C. § 102(4)
(defining “may not” as “prohibitive, and not permissive”).
Indeed, although no other Court of Appeals has squarely
addressed this issue to date, a number of bankruptcy courts
have, and the majority have drawn this same distinction
between criteria for plan confirmation and criteria for
dismissal.7 See, e.g., In re Brown, 296 B.R. 20, 22 (Bankr.
N.D. Cal. 2003) (“[W]hile the court may not confirm a plan
which is to run for more than 60 months, nothing in the Code
mandates dismissal of a case with a confirmed plan which
ends up needing some extra time to complete.”); In re Harter,
279 B.R. 284, 288 (Bankr. S.D. Cal. 2002) (“[Section]
1322(d) does not contain a ‘drop dead’ provision that
mandates dismissal of the case after five years.”); see also 8
Collier on Bankruptcy (16th Ed.), ¶ 1322.18[2] (footnote

       6
          As the Bankruptcy Court here assumed Debtors’
failure to fund the plan base before the end of the plan period
constituted a “material default by the debtor with respect to a
term of a confirmed plan,” 11 U.S.C. § 1307(c)(6), Klaas I,
533 B.R. at 487–88, and Debtors do not challenge this ruling
on appeal, we will assume, without deciding, that the $1,123
arrearage at issue constituted a plan default.
       7
          The only Court of Appeals to have considered the
issue is the Seventh Circuit, which recently assumed, without
deciding, that a bankruptcy court had discretion to allow a
debtor to cure a default resulting from a failure to make all
payments within the five-year plan period. Germeraad v.
Powers, 826 F.3d 962, 968 (7th Cir. 2016).

                              16
omitted) (“[S]ection 1322(d) … focuses on the payments
provided for by the plan. If payments are late, but the debtor
is substantially complying with the plan, the court should
allow the plan to be completed within a reasonable time after
the stated term.”).

       Likewise, § 1328 directs bankruptcy courts to issue a
completion discharge if the debtor has completed “all
payments under the plan,” 11 U.S.C. § 1328(a), without an
express requirement that such payments were made within
five years. While Creditor would read such a requirement
into the phrase “under the plan,” that reading would be in
conflict with the way that phrase is used elsewhere in the
Code.     Section 1325(a)(6), for example, requires the
Bankruptcy Court at confirmation to verify that the debtor is
able “to make all payments under the plan” and also “to
comply with the plan.”           11 U.S.C. § 1325(a)(6).
Distinguishing between these two requirements would be
unnecessary, and the first would be rendered superfluous, if,
as Creditor asserts, making “all payments under the plan”
requires perfect compliance with each plan term, including

                             17
the term length.8 See In re Fesq, 153 F.3d 113, 115 (3d Cir.
1998) (“[A]s a general rule of statutory construction ‘[w]e
strive to avoid a result that would render statutory language
superfluous, meaningless, or irrelevant.’”).

       In addition, we have previously interpreted the nearly
identical phrase “under a plan confirmed” as used in 11
U.S.C. § 1146(c) to simply mean “made pursuant to the
authority conferred by such a plan,” In re Hechinger Inv. Co.
of Del., Inc., 335 F.3d 243, 254 (3d Cir. 2003), and we
assume “identical words used in different parts of the same
act are intended to have the same meaning,” Sorenson v.

       8
          Creditor seeks to engraft principles of contract law
onto our statutory interpretation, insisting that payment within
sixty months is a necessary condition precedent to discharge
and that a failure to fully fund the plan within sixty months is
therefore an irreparable breach of the plan. True, the Klaases’
plan contains a clause that prohibits the Trustee from
extending the plan term beyond sixty months. But even if
this could be read to prohibit the Trustee from accepting the
late payment made in this case, we have never held that a
Chapter 13 plan creates a contract between a debtor and his
creditors governed by common law principles, nor have we
held that all of the debtor’s rights under the Bankruptcy Code
are extinguished upon breach of any particular plan term.
Creditor relies on our holding in In re Shenango Group, Inc.,
in which we applied contract principles in the bankruptcy
context, but we did so there to resolve a dispute about the
correct construction of a Chapter 11 reorganization plan, not
to interpret the rights of the parties under the Bankruptcy
Code itself. 501 F.3d 338, 344 (3d Cir. 2007). This analogy
is therefore unavailing.

                              18
Sec’y of Treasury of U.S., 475 U.S. 851, 860 (1986).
Consistent with this canon, if the District Court allows a grace
period so that the final payment exceeds five years, the
payment due is still “pursuant to the authority conferred by
[the] plan,” In re Hechinger, 335 F.3d at 254, so that if the
debtor makes that payment, he will have completed all
payments “under the plan” and the bankruptcy court “shall
grant the debtor a discharge. 11 U.S.C. § 1328(a).9

        While the text is unambiguous and we need not refer
to legislative history, the history of the act here reinforces our
conclusion and sheds light on the statute’s purpose. See Sec.
& Exch. Comm’n v. C. M. Joiner Leasing Corp., 320 U.S.
344, 350–51 (1943). The Bankruptcy Reform Act of 1978
amended the former Bankruptcy Act, which the Reform Act
described as “overly stringent and formalized,” in order to
make wage earner plans more flexible and to encourage the
use of debt repayment plans rather than liquidation. H.R.
Rep. No. 95-595, at 117 (1977). The House Judiciary
Committee Report for the Reform Act also lamented that
wage payment plans had become “a way of life for certain
debtors” and that extensions on plans for seven to ten years
had “become the closest thing there is to indentured servitude;

       9
          For the avoidance of all doubt, we are not holding
that a debtor has an absolute right under the Bankruptcy Code
to cure an arrearage after the five-year limit has passed and
thus obtain a completion discharge. Rather, we interpret the
statute to grant bankruptcy courts discretion to deny dismissal
and allow a grace period, so that if such payment is made
within that grace period, the debtor will then have completed
“all payments under the plan” and only then would be
statutorily entitled to a discharge. 11 U.S.C. § 1328(a).

                               19
it lasts for an indentifiable [sic] period, and does not provide
the relief and fresh start for the debtor that is the essence of
modern bankruptcy law.” Id. In response to Congress’s
evident concern about debtors being forced to remain in
repayment plans indefinitely, the Act capped the plan term at
five years, an amendment the District Court here aptly
described as intended to provide “a shield” for debtors rather
than “a sword” for creditors. Klaas IV, 555 B.R. at 513.
Interpreting §§ 1307 and 1328 to mandate dismissal and
preclude a completion discharge thus would be contrary not
only to the language of the Bankruptcy Code but also to the
purpose of the five-year cap.

       In view of the statutory language and purpose, we find
Creditor’s remaining two objections unpersuasive. First,
Creditor points out that 11 U.S.C. § 1329(c) prohibits courts
from approving a plan modification that would provide for
payments beyond five years. Creditor contends that the
bankruptcy court may not grant forgiveness where it could
not otherwise grant permission, and that allowing debtors to
make a plan payment after five years would constitute an
informal modification of the plan beyond the five years
permitted by § 1329(c). Debtors in this situation, however,
are not seeking to modify their commitments and create a
new plan, but instead to complete the payments owed under
their confirmed plan. We therefore agree with the Seventh
Circuit’s observation, albeit dictum, that allowing such
curative payments would not modify the plan because the
payments at issue “would not be payments ‘provide[d] for’ by
[a] modified plan; rather, they would be payments made to
cure a default … i.e., payments made because the debtors did
not make the payments ‘provide[d] for’ by the plan in the first
place.” Germeraad v. Powers, 826 F.3d 962, 968 (7th Cir.

                              20
2016). Moreover, as the Bankruptcy Court noted, given that
debtors who default early in the case can cure the default
without requesting formal modification, denying that
opportunity to debtors after a lengthy track record of good
faith payments would “impose a standard of perfection at the
conclusion of the plan term that does not exist at any other
point in the case.” Klaas I, 533 B.R. at 487.

       Second, Creditor asserts that a hardship discharge,
pursuant to 11 U.S.C. § 1328(b), is the exclusive remedy for a
debtor who fails to make all payments within the five-year
plan period, foreclosing a completion discharge by way of a
late curative payment. Section 1328(b) gives a bankruptcy
court discretion to grant a hardship discharge when a debtor
fails to complete all payments under the plan “due to
circumstances for which the debtor should not justly be held
accountable.” 11 U.S.C. § 1328(b). That section, however,
provides a stop-gap for debtors who tried in good faith to
complete all payments and find themselves at the end of the
plan term unable to do so. That bankruptcy courts may grant
a partial discharge in that situation has no bearing on whether
they may decline to dismiss the bankruptcy proceeding and
may grant a completion discharge for debtors who are able
and willing at the end of their plan term to complete their plan
funding.

        Creditor’s argument would also produce absurd
results. Where, as here, debtors substantially complied with
the Plan and acted in good faith to make a prompt payment as
soon as they were notified of an arrearage, it would hardly
make sense to deny them the benefit of Chapter 13
bankruptcy by dismissing the entire proceeding. Nor would it
make sense to require such debtors to seek a hardship
discharge, i.e., to withhold the remainder of the plan funding

                              21
that they have at their disposal and deprive creditors of those
distributions simply because the payment is late. On the
contrary, that would contravene the Code’s goal of
“provid[ing] for the efficient and equitable distribution of an
insolvent debtor’s remaining assets to its creditors,”
Westmoreland Human Opportunities, Inc. v. Walsh, 246 F.3d
233, 251 (3d Cir. 2001), and we decline to interpret § 1328 in
such a manner, see United States v. Am. Trucking Ass’ns,
Inc., 310 U.S. 534, 543 (1940) (instructing courts to construe
the language of statutes to avoid results that are “absurd” or
“at variance with the policy of the legislation as a whole”).

       B.     The Bankruptcy Court’s Exercise of Discretion

       Having concluded that bankruptcy courts have
discretion to allow a grace period for a late curative payment
and thus to deny dismissal and issue a completion discharge,
we turn to the question whether the Bankruptcy Court here
exercised that discretion properly. Before we can make that
determination, however, we must first identify what factors
should inform the exercise of that discretion.

       While none of our sister Circuits have yet examined
this threshold question, the bankruptcy courts that have
addressed this question consistently rely on In re Brown,
which identified four factors as relevant: “[(1)] How much
longer is it going to take to complete the plan?[; (2)] Has the
debtor been diligently making plan payments?[; (3)] How
much time has elapsed since confirmation before dismissal is
sought?[; and (4)] If the plan cannot be completed on time

                              22
due to a large prepetition claim, was the debtor culpable in
failing to properly schedule the claim?” 296 B.R. at 22.10

       We agree that In re Brown offers a helpful starting
point, but it does not account for certain additional factors we
deem relevant, such as the materiality of the default or
whether allowing a cure would prejudice any creditors—two
considerations that the Code expressly identifies as relevant
to a motion to dismiss. See 11 U.S.C. § 1307(c). In addition,
we draw helpful guidance from our case law concerning the
circumstances in which a district court, in the exercise of its
discretion, may set aside a default judgment. In that context,
we also have instructed district courts to consider any
prejudice the plaintiff will suffer if the default is lifted, as
well as the defaulting defendant’s ability to present a
meritorious defense, the excusability or culpability of the

       10
          See, e.g., In re Henry, 368 B.R. 696, 701–02 (N.D.
Ill. 2007) (affirming a bankruptcy court’s application of the In
re Brown factors and its exercise of discretion to allow a
cure); In re Hill, 374 B.R. 745, 749–50 (Bankr. S.D. Cal.
2007) (allowing a cure based on the debtors’ history of
consistent payments and lack of culpability); cf. In re Black,
78 B.R. 840, 843 (Bankr. S.D. Ohio 1987) (noting that a cure
was appropriate because creditors would receive a sufficient
dividend). Bankruptcy treatises likewise cite In re Brown,
see, e.g., Hon. W. Homer Drake, Jr., et al., Chapter 13
Practice & Procedure, § 4:9 Maximum Duration of Plan (2d
ed. 2016); Francis C. Amendola, et al., 8A C.J.S. Bankruptcy
§ 152 What Constitutes Cause (2017), or advise that a cure
should be permitted if the debtor is “substantially complying
with the plan,” 8 Collier on Bankruptcy (16th Ed.), ¶
1322.18[2].

                              23
defendant’s conduct, and the effectiveness of applying
alternative sanctions. See Emcasco Ins. Co. v. Sambrick, 834
F.2d 71, 73 (3d Cir. 1987).

       Building on In re Brown, and taking into account
considerations relevant to § 1307(c) and the analogous default
judgment context, we conclude the non-exhaustive list of
factors a bankruptcy court should consider in deciding
whether to allow a grace period include: (1) whether the
debtor substantially complied with the plan, including the
debtor's diligence in making prior payments; (2) the
feasibility of completing the plan if permitted, including the
length of time needed and amount of arrearage due; (3)
whether allowing a cure would prejudice any creditors; (4)
whether the debtor's conduct is excusable or culpable, taking
into account the cause of the shortfall and the timeliness of
notice to the debtor; and (5) the availability and relative
equities of other remedies, including conversion and hardship
discharge.

       Applying these factors, we have no trouble concluding
that the Bankruptcy Court here properly exercised its
discretion. First, the Bankruptcy Court found that Debtors
had diligently and timely made each of the sixty monthly
payments called for in their plan, had promptly augmented
their payments when the mortgage payment increased mid-
term, and had not violated any other plan terms. Klaas I, 533
B.R. at 484–85, 488–89; Klaas III, 548 B.R. at 417.

       Second, the Bankruptcy Court found that a cure was
feasible: the arrearage was small relative to the plan base;
Debtors were financially able and willing to cure; and
Debtors did so promptly once notified, making payment even

                             24
before the hearing on the motion. Klaas I, 533 B.R. at 488–
89.

       Third, crucial to the Bankruptcy Court’s conclusion
and ours today, that court found the tardiness of the curative
payment did not adversely affect any creditor. Klaas III, 548
B.R. at 425. On the contrary, it completed the plan base and
enhanced the funds available for distribution. Even Creditor
does not contend that her rights under the plan were
prejudiced.

        Fourth, the Bankruptcy Court found that the shortfall
was not the result of an unreasonable or culpable delay by
Debtors, and the only cause for the arrearage identified in the
record or by the parties at argument was the Trustee’s own
fee increase that the Trustee did not call to Debtors’ attention
until after the end of the plan term. Id. at 424. Creditor has
not suggested that Debtors had knowledge of the arrearage
before that point, and the record indicates that the reason they
did not was the approach taken by the Trustee of filing a
Motion to Dismiss in the sixty-first month and withdrawing it
instead of, e.g., conducting an audit and giving notice to
Debtors before the plan term had ended. Had Debtors
received such notice, their prior conduct in diligently making
all payments, including the interim increase, indicates they
likely would have completed the plan base before sixty
months if given the opportunity.

       Finally, conversion and hardship discharge would be
nonsensical in this situation, and modification was no longer
permitted. Considering the consequences to Creditor of
allowing a cure and the consequences to Debtors of
disallowing it in these circumstances, the equities weigh in

                              25
favor of Debtors, and the Bankruptcy Court reasonably
concluded that allowing a cure would further the goals of the
Bankruptcy Code and the plan.

      Under these circumstances, the Bankruptcy Court was
well within its discretion to decline to dismiss and to grant
summary judgment and a discharge to Debtors.

V.    Conclusion

      For the foregoing reasons, we will affirm the order and
judgment of the District Court, and by extension the
Bankruptcy Court.

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