TERRY L. MYERS, Bankruptcy Judge.
On January 30, 2015, Cesar Alcaraz ("Debtor") commenced this chapter 13 case
On October 31, 2016, Debtor filed a motion under § 1329 to modify the confirmed plan. Doc. No. 58. That motion contended that Debtor and his spouse experienced negative changes in income and that other circumstances warranted modification including falling behind on a mortgage obligation. Debtor proposed to reduce his monthly plan payments. He also proposed to turnover all net tax refunds from tax year 2016 forward to Trustee for distribution.
Debtor then filed an amended modification motion. Doc. No. 67 ("Motion"). It again noted the decreased income and defaulted mortgage obligation as in the preceding motion. It also explained that Debtor's spouse had acquired different employment post confirmation, which required additional travel and triggered a need to replace an older vehicle with extensive mileage. Debtor proposed to reduce his monthly plan payments from $750.00 to $159 for his 21st (November 2016) through 26th monthly payment, and then increase the payment to $365.00 per month for the remainder of the plan. He still proposed turnover of all net tax refunds from 2016 through the end of the plan. And Debtor removed the prior request to eliminate the 3% interest on unsecured claims. Debtor asserted his modification was proposed in good faith and he was still paying all allowed unsecured claims in full with interest. Debtor explained that while his revised budget reflected some funds available monthly, these were necessary for the replacement vehicle for Debtor's spouse so she could meet the requirements of her employment and generate the income contributed to the plan.
Trustee objected to the Motion. Doc. No. 69 ("Objection"). Trustee argued that the modification was not proposed in good faith. Additionally, though conceding that the requirements of § 1325(b) are not applicable to modifications under § 1329, Trustee argued that IRS allowances used for disposable income analysis are nonetheless "guidelines" relevant in determining whether budget expenses are reasonable. Trustee further argued Debtor did not propose adequate plan payments, and stated, "Creditors should not have to bear the risk that Debtor will maintain employment and his health for the duration of 60 months when debtor has sufficient funds to pay them off sooner." Id. at 2.
Following Debtor's reply to the Objection, the matter was set for an evidentiary hearing on February 13, 2017, and the Motion and Objection were taken under advisement.
In addition to the matters noted above, the evidence at hearing also established the following.
Debtor is 31 years old and works as a mechanic. His spouse recently obtained a job as an account representative. Toward the end of 2016, Debtor experienced medical problems, and he has since received advice and follow up care. He will at some point need surgery.
Though amended schedules I and J filed in mid-December 2016 suggested monthly net income of $506.15, an amended schedule J filed shortly before hearing reduced that projected monthly net income to $186.15. Exs. 100, 101. The amended amount reflects a $320.00 monthly payment on a used vehicle acquired by Debtor and his spouse. Ex. 102.
In addition to cross-examining Debtor, Trustee introduced exhibits reflecting IRS transportation and living expense allowances for bankruptcy cases filed after November 2016. Exs. 210, 211.
A modification to a confirmed chapter 13 plan must comply with § 1329 and with Fed. R. Bankr. P. 3015(g). Anderson v. Satterlee (In re Anderson), 21 F.3d 355, 358 (9th Cir. 1994); Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 542-44 (9th Cir. BAP 2007). An objection to a proposed modification creates, pursuant to Rule 3015's language, a contested matter governed by Rule 9014. Thus, Court ruling—and approval—of a modification is required. Unless and until a § 1329 modification is granted, the plan as confirmed is binding on all parties. See § 1327(a).
Despite dispute over (and less than crystalline record regarding) certain factual matters, the fundamental propositions that control the outcome of this matter are clear.
• Debtor is an above-median income debtor and subject to a 60 month applicable commitment period. The plan, even as modified, is for 60 months.
• Though Debtor's amended plan did not propose to contribute all projected disposable income on a monthly basis, his alternative of committing to 100% payment of all allowed unsecured claims, plus 3% interest on such claims, was expressly agreed to and accepted by Trustee. The plan providing for that treatment and approach was confirmed without objection.
• Debtor's Motion proposes precisely the same approach as Trustee accepted at the time of confirmation, to wit: a plan that pays allowed unsecured claims 100% plus 3% interest. Debtor also now proposes to provide, in addition to monthly payments, all net tax refunds received during the plan's term (and not just amounts exceeding $3,600/year as in the confirmed plan), starting with the refund for the 2016 tax year.
Trustee's singular Objection is that the modification is not proposed "in good faith" and thus fails to meet the requirements of § 1329(a) and (b).
To obtain a modification under § 1329(a), a debtor must show that the proposed modification meets the requirements of § 1325(a). See § 1329(b)(1) ("the requirements of section 1325(a) of this title apply to any modification under subsection (a) of this section."). Thus, the good faith requirement of § 1325(a)(3) applies. Good faith is determined on a case-by-case basis after reviewing the totality of the circumstances. Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1224-25 (9th Cir. 1999).
However, while § 1325(a)(3) is applicable to modifications under § 1329, the projected disposable income requirements of § 1325(b) are not similarly incorporated. Sunahara v. Burchard (In re Sunahara), 326 B.R. 768, 775-82 (9th Cir. BAP 2005). The Panel there stated that § 1329(b) "expressly applies certain specific Code sections to plan modifications but does not apply § 1325(b). Period." Id. at 781.
Sunahara recognizes, however, that a determination of a debtor's good faith in proposing a modification:
Id. at 781-82.
Thus Trustee is entitled to note and call attention to any and all features of Debtor's post-confirmation budget, even if those observations otherwise relate to projected disposable income requirements. But a failure to meet § 1325(b) guidelines does not establish ipso facto an inability to modify nor establish a lack of good faith. Whether a plan modification has been proposed in good faith is a question of fact. Mattson v. Howe (In re Mattson), 468 B.R. 361, 367 (9th Cir. BAP 2012) (citing Downey Sav. & Loan Ass'n v. Metz (In re Metz), 820 F.2d 1495, 1497 (9th Cir. 1987)).
Mattson, 468 B.R. at 371.
In considering the Leavitt factors, the Court finds two (the history of filings and dismissals, and filing solely to defeat state court litigation) to be totally irrelevant. Nor was there any evidence or credible argument to establish Debtor's conduct was "egregious." Similarly, there was no evidence of any misrepresentation of fact or unfair manipulation of the Code. At best, Trustee's Objection suggests her view that the proposed modified plan is "inequitable."
The good faith test "should examine the intentions of the debtor and the legal effect of the confirmation of a Chapter 13 plan in light of the spirit and purposes of Chapter 13." Chinichian v. Campolongo (In re Chinichian), 784 F.2d 1440, 1444 (9th Cir. 1986). The spirit and purposes of chapter 13 allow for shared success. Debtors can deal with the challenges they face and restructure their financial affairs. Creditors can receive more than they would in chapter 7 and, in certain circumstances, full payment of their claims. Such is the situation here under both the confirmed and the proposed modified plan.
In light of employment changes, unanticipated medical issues, and other challenges, Debtor has adjusted his budget, but he has not reduced the proposed distributions to unsecured creditors. If successful, he and his spouse win, and so do his creditors. If he fails, he will be faced with the need for additional modification, or potential dismissal—a result which would reflect that he, as well as his creditors, will lose the benefit of chapter 13. The evidence, including Debtor's testimony, reflects Debtor's sincerity in proposing an approach that meets his and his spouse's needs as well as pays all his creditors. And, to counter Trustee's criticism, Debtor made clear that the changes in his budget were designed to ensure that he and his spouse could continue to make ends meet and successfully complete performance of their proposed modified plan.
Trustee argues that creditors should not bear the risk that Debtor will fail. No creditor has appeared or raised such concerns. Perhaps the promise of full payment plus interest, and the consequence of dismissal and lack of discharge if Debtor cannot meet that promise, is enough for the creditors.
As noted, Trustee also points to the fact that Debtor's budget, in certain areas, exceeds IRS guidelines applicable under § 1325(b).
The Court finds and concludes that the Objection will be overruled and the Motion will be granted. Debtor may prepare a form of order so providing, which shall be submitted with Trustee's endorsement as to form.
