Kevin R. Huennekens, UNITED STATES BANKRUPTCY JUDGE
Before the Court is a Motion to Dismiss the Debtor's chapter 13 case, submitted by HSBC Bank, USA ("HSBC"). For the reasons set forth below, the Court finds that 11 U.S.C. § 1127(e) does not prevent the Debtor from filing a subsequent chapter 13 case after substantial consummation of the Debtor's prior chapter 11 plan (the "Chapter 11 Plan"). The Debtor experienced a substantial and unanticipated change in her financial condition and her chapter 13 bankruptcy case was filed in good faith. Therefore, the Court denies HSBC's Motion to Dismiss.
HSBC is a creditor of Diana Elizabeth Lemus (the "Debtor"). The claim held by HSBC is evidenced by a promissory note (the "Note") dated October 15, 2001, in the original principal amount of $450,800.00. The Note is secured by a Deed of Trust on real and personal property held by the Debtor. On April 20, 2010 (the "Chapter 11 Petition Date"), the Debtor filed a Voluntary Petition under chapter 11 of the Bankruptcy Code
The Debtor filed a Voluntary Petition under chapter 13 of the Bankruptcy Code
The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
HSBC contends in its Motion to Dismiss that the Debtor cannot modify her Chapter 11 Plan once it has been substantially consummated.
HSBC is correct that modification of a chapter 11 plan following substantial consummation of the plan is generally prohibited by Bankruptcy Code § 1127(b). However, an exception exists in Bankruptcy Code § 1127(e) when the debtor is an individual. Congress added subsection (e) to § 1127 through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8, 119 Stat. 23 (2005). That subsection reads as follows:
11 U.S.C. 1127(e).
There is a relatively small amount of case law interpreting § 1127(e) of the Bankruptcy Code. Additionally, the legislative history pertaining to § 1127(e) is sparse. The few courts that have considered the amendment have looked to Bankruptcy Code §§ 1229(a) and 1329(a) for guidance. These sections are substantially analogous to § 1127(e). In fact, "[s]ection 1127(e) was added to the Bankruptcy Code in 2005 for the purpose of making the provisions for postconfirmation of chapter 11 plans when the debtor is an individual similar (but not identical) to the provisions for postconfirmation modifications of chapter 12 or chapter 13 plans." 7 Collier on Bankruptcy ¶ 1127.04 (16th ed. 2014) (internal footnote omitted).
The United States Court of Appeals for the Fourth Circuit has held that res judicata
In Murphy, the Fourth Circuit considered whether a Chapter 13 Trustee could modify the plans in two separate unrelated chapter 13 cases in order to increase the dividend paid to unsecured creditors. Discussing the modification standard in the Fourth Circuit, the court held that "the bankruptcy court must first determine if the debtor experienced a substantial and unanticipated change in his post-confirmation financial condition." Murphy, 474 F.3d at 150. This initial inquiry is necessary to determine if res judicata prevents modification of the plan. "If the change in the debtor's financial condition was either insubstantial or anticipated, or both, the
In Mercer, an unsecured creditor sought to modify the debtor's confirmed chapter 11 plan pursuant to § 1127(e). The United States Bankruptcy Court for the Eastern District of North Carolina, relying on the Fourth Circuit's analysis in Murphy, found that the unsecured creditor could not modify the debtor's plan post-confirmation. Mercer, 2013 WL 6507585 at *4-5. Reciting the post-confirmation modification standard in chapter 13 cases, the court in Mercer stated "[t]he right of the trustee or the holder of an unsecured claim should be limited to situations in which there has been an unanticipated substantial change in the debtor's income or expenses that was not anticipated at the time of the confirmation hearing." Id. at *4 (quoting 8 Collier on Bankruptcy ¶ 1329.03 (16th ed. 2013)).
HSBC's contention is that under Mercer and Murphy the Debtor cannot use Bankruptcy Code § 1127(e) to modify her confirmed Chapter 11 Plan by filing a subsequent chapter 13 case absent a substantial and unanticipated change in circumstances. What has occurred here, however, is not a modification of the Debtor's confirmed Chapter 11 Plan in the context of the prior Chapter 11 Bankruptcy Case, but rather a subsequent filing of an entirely new bankruptcy case. Further financial reorganization in a subsequent bankruptcy case does not constitute a plan modification in the prior case. New parties, new debt, new assets, and new circumstances may be present in this subsequent case that were entirely absent in the first. A new order for relief has been issued. Section 1129(a)(11) of the Bankruptcy Code contemplates the possibility that an unlikely need for further reorganization or liquidation could possibly arise. The res judicata standard that was applicable to a plan modification initiated by the Chapter 13 Trustee in Murphy is not applicable here. This is simply a new case. Nothing in the Bankruptcy Code prohibits a debtor from having successive chapter 11 and chapter 13 cases. The case law does require, however, that the subsequent chapter 13 case be filed by the debtor in good faith.
The United States Bankruptcy Court for the Southern District of Texas considered whether the Bankruptcy Code would permit a debtor to file a new chapter 13 case before the debtor had received a discharge in a prior chapter 11 case.
The appropriate issue for the Court to address in the case at bar is whether the Debtor has filed her subsequent Chapter 13 Bankruptcy Case in good faith. This Court has previously addressed the issue of good faith, applying a totality of the circumstances approach to its consideration of the confirmation requirements for a chapter 13 plan.
Deans v. O'Donnell, 692 F.2d 968, 972 (4th Cir.1982) (quoting 9 Collier on Bankruptcy ¶ 9.20 at 319 (14th ed. 1978)). The Court must examine and determine in this context whether the Debtor's new Chapter 13 Bankruptcy Case violates the spirit of the Bankruptcy Code, is a ploy to frustrate creditors, or is a "sincere effort on the part of the debtor to advance the goals and purposes of chapter 13." Chaney, 362 B.R. at 694. The court may consider in this context whether the debtor has experienced a substantial change in his or her financial affairs. Id. There is no precise, enumerated test the Court must employ for determining whether the Debtor has engaged in good faith. In fact, "courts may consider any factors that evidence `intent to abuse the judicial process' or factors that show `a petition was filed to delay or frustrate legitimate efforts of a secured creditor to enforce his rights.'" McMahan, 481 B.R. at 915 (quoting MacElvain v. I.R.S., 180 B.R. 670, 673 (M.D.Ala.1995)).
Here, the Court finds that the Debtor is making a good faith effort to repay creditors and has not filed this subsequent Chapter 13 Bankruptcy Case with the intent to delay or frustrate the efforts of secured creditors to enforce their rights. The facts in this case are distinguishable from those in McMahan, where the court found the debtor was not proceeding in good faith. In McMahan, the debtor filed the subsequent chapter 13 case with essentially the sole purpose of frustrating the efforts of a creditor pursuing foreclosure. See id. at 920-21. That is not the Debtor's purpose for filing her chapter 13 in this case.
The evidence before the Court in this case comes from the testimony of the Debtor at the Hearing, as well as from documents filed with the Court. The first factor that supports a finding that the Debtor is proceeding in good faith is that she has, in fact, experienced a substantial and unanticipated change in her financial condition. While debtors generally experience a negative change in their financial condition prior to modifying their existing
In addition to payment of the Note held by HSBC, the Debtor's Second Amended Chapter 13 Plan provides for the payment of numerous secured debts including debts owed to the City of Richmond for delinquent rental property taxes. The Second Amended Chapter 13 Plan provides for the payment of tax claims filed by the Internal Revenue Service. It also provides for payment of a portion of the Debtor's unsecured debt such as that owing for unpaid utility bills. The Debtor's Second Amended Plan proposes to pay a total of $419,825.00 to creditors over sixty months. The Court is persuaded by the evidence that the Debtor is not proceeding with the intent to either frustrate the legitimate efforts of secured creditors or to impinge upon the goals and purposes of chapter 13. Rather, the Debtor's proposed plan is indicia of the Debtor filing her Chapter 13 Bankruptcy Case in good faith.
The Court holds that Bankruptcy Code § 1127 does not prevent the Debtor from filing a subsequent chapter 13 case after substantial consummation of her Chapter 11 Plan. The Court finds that the Debtor has experienced a substantial and unanticipated change in her financial condition and that she is proceeding in her Chapter 13 Bankruptcy Case with a good faith effort to repay her creditors. Thus, HSBC's Motion to Dismiss will be denied.
A separate order shall issue.
11 U.S.C. § 1101(2).
