Court Opinion

ID: 9687352
Source: CourtListenerOpinion
Date Created: 2023-08-24 16:25:46.593468+00
Date Added: 2024-06-11T18:18:26.340505
License: Public Domain

ASHLAND, Bankruptcy Judge,
dissenting:
I would reverse the order granting Ms Pacana-Siler’s motion for relief from the automatic stay and I therefore respectfully dissent from the majority opinion. The facts and issues as I see them are as follows:
FACTS
The debtor filed his Chapter 13 petition and schedules on November 30, 1988. In the schedules the debtor listed child support arrearages to his former spouse in the amount of $13,900. The obligation to the former spouse was embodied in a state court judgment filed September 12, 1988. Other than that judgment, there was no requirement for the debtor to make ongoing child support payments. The debtor’s Chapter 13 plan was confirmed without objection on February 13, 1989.
The debtor’s schedules showed total unsecured indebtedness of $34,500, including the debt to his former spouse. The plan provided for secured claims totaling $9,720 and a payment to unsecured creditors of 14 percent. Subject to adjustment depending upon the amount of claims and their allowance, the plan and the order confirming the plan called for payments of $500 per month for 36 months. On December 5, 1988 the court issued an order to the debtor’s employer, the U.S. Army, to pay $500 per month of the debtor’s wages to the trustee. The plan did not provide for payment over a period longer than three years as permitted by 11 U.S.C. § 1322(c).
Ms Pacana-Siler filed a motion for relief from the automatic stay on January 20, 1989. At the post-confirmation hearing on the motion on March 3, 1989, the court modified the automatic stay to permit Ms *26Pacana-Siler to garnish $250 per month from the debtor’s wages, or any other property, in addition to the sums disbursed through the Chapter 13 plan. This appeal followed. The bankruptcy court entered a stay of its order pending appeal.
ISSUE
Whether the bankruptcy court erred in granting the debtor’s former spouse partial relief from the automatic stay in order to allow her to collect child support arrearag-es.
STANDARD OF REVIEW
An order lifting the automatic stay is reviewed for abuse of discretion. In re Can-Alta Properties, Ltd., 87 B.R. 89, 91 (9th Cir. BAP 1988) (citing In re Castlerock Properties, 781 F.2d 159, 163 (9th Cir.1986)). In applying the abuse of discretion standard, the reviewing court should reverse the trial court only if the trial court rested its conclusions on clearly erroneous factual findings or an incorrect legal standard. SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 947 (9th Cir.1985). Legal issues are subject to review de novo. Crocker Nat’l Bank v. American Mariner Indus., Inc. (In re American Mariner Indus., Inc.), 734 F.2d 426, 429 (9th Cir.1984).
DISCUSSION
The debtor contends that the court’s order renders his plan infeasible because he will have insufficient net income to pay living expenses after making plan payments. He contends in the briefs that the plan by implication provides 100 percent payment to his former spouse because she is designated as a priority claimant. No such provision was made. A child support obligation is not a priority debt under § 507(a).
Ms Pacana-Siler contends that child support obligations may not be included in a Chapter 13 plan. As a result, she asserts that the bankruptcy court properly granted her relief from stay which allowed her to proceed outside the plan to satisfy her claim for child support arrearages.
The trial judge expressed displeasure with the debtor for having arrearages in child support and then seeking to pay them over time through a Chapter 13 plan. The court, in its order, provided that in addition to what was paid through the plan to the debtor’s former spouse on her claim she could collect an additional $250 a month from the debtor to be applied against the arrearages. The trial judge referred to the claim as a priority claim.
We analyze the scheme provided for by Congress in the Bankruptcy Code despite any displeasure we might have with the result. The Ninth Circuit has held that an action for modification of a child support order is not within the exemption from automatic stay in bankruptcy for “collection of alimony, maintenance or support” in a Chapter 7 context under § 362(b)(2). In re Stringer, 847 F.2d 549 (9th Cir.1988). We know that prior to the recent amendment of § 1328(a), a restitution obligation was dischargeable in a Chapter 13, Pennsylvania Department of Public Welfare v. Davenport, — U.S. -, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990), despite the view of others that such an obligation was not dis-chargeable. See In re Heincy, 858 F.2d 548 (9th Cir.1988).

Code Analysis

If an individual meets the qualification requirements of § 109(e), that individual may file a petition under Chapter 13. Section 1321 provides that the debtor must file a plan. The plan must include some things and may include others.
Under § 1322(a) the plan must provide for the submission of all or a portion of future earnings or other future income necessary for execution of the plan, payment in full of claims entitled to priority under § 507, and, if claims are classified, the same treatment for each claim within a particular class. In this case, the former spouse is treated as an unsecured creditor. The order relieving the creditor of the stay has the effect of permitting unequal treatment.
Under § 1322(b)(2), the debtor in the plan may modify the rights of unsecured claims. *27Section 1322(b)(3) allows the plan to provide for the curing or waiving of any default. Section 1322(c) provides that a plan may not extend for a period of longer than three years unless the court, for cause, approves a longer period not to exceed five years.
Although creditors do not vote on the plan in a Chapter 13 a party in interest may object to confirmation of the plan as provided for in § 1324. Confirmation standards are defined in § 1325. Section 1325(a)(3) requires that a plan be proposed in good faith. Good faith has been discussed in a number of contexts including the proposal of a low percentage plan. See In re Goeb, 675 F.2d 1386 (9th Cir.1982).
If the trustee or the holder of an allowed unsecured claim objects to confirmation the court may not approve the plan unless, among other things, the plan provides that all of the debtor’s projected disposable income to be received in the three year period beginning on the date that the first payment under the plan is due will be applied to make payments under the plan. See 11 U.S.C. § 1325(b)(1)(B). Significantly, at any time after confirmation but before completion of payments under the plan the trustee or the holder of an allowed unsecured claim may request modification to increase payments on claims of a particular class provided for by the plan. No objection to confirmation was made in this case but the trustee or the creditor are still afforded the benefits of § 1329(a)(1). Failure to object to confirmation precludes a creditor from asserting after confirmation, any other interests than those provided for in the confirmed plan. In re Evans, 30 B.R. 530 (9th Cir. BAP 1983).
Unless the plan or the order confirming the plan provides otherwise, confirmation vests all of the property of the estate in the debtor. See 11 U.S.C. § 1327(b). In addition to property specified in § 541, under § 1306(a), property of the estate in a Chapter 13 includes earnings from services performed by the debtor after the case has commenced but before the case is closed, in other words in this case, the debtor’s army pay. Unlike a Chapter 7, § 362(b)(2) in a Chapter 13 does not permit collection of alimony, maintenance, or support from the debtor’s wages because the wages are property of the estate and the exception of § 362(b)(2) applies to property that is not property of the estate. The debtor’s wages after confirmation of a Chapter 13 plan are property of the estate.
Upon completion of all payments under the plan the debtor receives a discharge from all debts with certain exceptions noted in § 1328(a), one of which is an obligation for alimony and child support. In other words, the creditor in this case has a claim which ultimately must be paid. Under § 1327(a), confirmation of the plan is binding on the creditor whether the creditor has objected to, accepted, or rejected the plan.

Case Analysis

Courts have typically adopted three approaches to the treatment of child support arrearages in Chapter 13 cases. The first approach prohibits debtors from including payment of child support under the plan. See Caswell v. Lang, 757 F.2d 608, 610 (4th Cir.1985); In re McCray, 62 B.R. 11, 12 (Bkrtcy.D.Colo.1986); In re Nelson, 85 B.R. 731, 732 (Bkrtcy.E.D.Va.1988). As enunciated by the court in Caswell, past due child support cannot go through a plan because this “would invite a federal bankruptcy court to alter or modify a state court decision_” Caswell at 610. Asa result, the court in Caswell denied confirmation of a plan that provided 100% payment for the child support claim and 25% payment on all other unsecured claims.
The second approach allows for the provision of 100% payment of child support outside of the Chapter 13 plan and a low payout to all other unsecured creditors under the plan. See In re Haag, 3 B.R. 649 (Bkrtcy.D.Or.1980). The bankruptcy court in Haag confirmed a Chapter 13 plan which provided for 100% payment of past due child support outside of the plan and only 25% payment to all other unsecured creditors through the plan. Haag at 651.
Finally, courts allow a Chapter 13 plan to provide for full payment of child support arrearages and partial payment to all other *28unsecured creditors. For example, in In re Davidson, 72 B.R. 384, 387 (Bkrtcy.D.Colo.1987), the court held that a plan which provides for 100% payment of child support arrearages and 25% payment to the unsecured creditors, did not unfairly discriminate against those unsecured creditors. However, such a plan would only be con-firmable if the former spouse or the state, as assignee of such child support claim, expressly consented to the plan. Davidson at 389.
In its examination of the child support issue, the court in In re Warner, 115 B.R. 233, 239 (Bkrtcy.C.D.Cal.1989), found that nothing in the code specifically entitles non-dischargeable child support claims to any priority over other unsecured claims. “[0]nly the most compelling of circumstances could justify any discrimination between unsecured claims otherwise equal in priority in payment under the Bankruptcy Code.” 115 B.R. at 244. Moreover, non-dischargeability does not guarantee payment in full; rather it merely establishes “the continuing liability of the debtors for repayment of any deficiencies remaining after discharge_” Id. at 239.
Section 1322(b)(1) provides that a plan may designate a class or classes of unsecured claims, but may not discriminate unfairly against any class so designated. In granting partial relief from the automatic stay and allowing the garnishment of the debtor’s wages, the court erroneously gave preferential treatment to Ms Pacana-Siler’s non-dischargeable claim. This preferential treatment is likely to have a detrimental effect on the remaining unsecured claims due to the limited funds available for plan payment. Such treatment is unfairly discriminatory. Consequently, the bankruptcy court abused its discretion in granting Ms Pacana-Siler partial relief from the automatic stay enabling her to go outside the plan and collect additional funds on her child support claim.
CONCLUSION
The bankruptcy court abused its discretion in finding that Ms Pacana-Siler was entitled to partial relief from the automatic stay. Therefore, I would reverse the order granting the partial relief from stay and the garnishment of the debtor’s wages.