REBECCA B. CONNELLY, Bankruptcy Judge.
The question before the Court is whether the chapter 13 trustee in this case, Herbert L. Beskin, (the "Trustee") must disburse to creditors funds refunded to him by other creditors. The Trustee argues he must disburse the creditor refunds to other creditors pursuant to the confirmed plan. On the other hand, the debtor argues he should pay the creditor refunds to her. For the reasons explained below, the Court directs the creditor refunds in this case to be disbursed to other creditors and not distributed to the debtor.
Robin M. Hoffman
On February 20, 2018, the Trustee reported that Ms. Hoffman had completed all of the payments required under her plan, which resulted in a dividend on allowed unsecured claims of 4.71%. See Trustee's Mem. ¶ 7, ECF Doc. No. 59. Not long afterward, Ms. Hoffman certified compliance with Bankruptcy Code section 1328, and the Court issued a discharge order.
As it turns out, after the Court closed the case, two of the unsecured creditors who received pro rata disbursements under the plan, the U.S. Department of Education (DOE) and Education Credit Management Corporation (ECMC),
Because the Bankruptcy Court case is closed, the Trustee moved to reopen the case citing his request to disburse the creditor refunds to other creditors and file a new final report and account. See 11 U.S.C. § 350(b). The debtor responded to the Trustee's motion. In her response, the debtor consents to reopening her case but demands that the Trustee pay to her the creditor refunds.
The parties appeared before the Court and argued their respective positions. At the conclusion of the hearing, the Court permitted the parties an opportunity to file authorities in support of their respective positions and took the matter under advisement.
The Trustee filed a brief in support of his motion to reopen and disburse the creditor refunds to other creditors. The debtor filed both an amended response to the Trustee's initial motion and her brief of authorities.
In her amended response and in her brief, the debtor now requests that she be permitted to modify the plan and that the Court refrain from ruling on the Trustee's motion until "the debtor has an opportunity to file a modified plan under 11 U.S.C. § 1129." She "moves the court to determine that . . . the debtor may file a modified plan so that the Trustee may distribute the funds in the amount of $3,611.09 to the Debtor."
The Court will address the Trustee's motion and Ms. Hoffman's response, which the Court took under advisement following the scheduled hearing held on January 31, 2019. On February 21, 2019, the final day for the parties to file briefs, Ms. Hoffman amended her response to add new arguments not addressed previously in the filings or at the scheduled hearing. Because the Court finds that such additional arguments are unpersuasive and thus do not prejudice the Trustee's request, the Court will also address the amended response and the motions contained therein.
As an initial matter, the Court finds it appropriate to reopen this case to permit the Trustee to administer the creditor refunds. The request to reopen the case is unopposed; what is contested is whether the Trustee should disburse the creditor refunds to the other unsecured creditors. Accordingly, the Court will grant the Trustee's motion to reopen pursuant to section 350(b) of the Bankruptcy Code for the Trustee to administer assets. The Court now turns to the matter in controversy.
The Trustee's motion asks to reopen the closed bankruptcy case simply so that he may disburse the creditor refunds to other creditors. If he had received the creditor refunds before the debtor had completed her plan, he would not need to seek leave of court to re-disburse these plan disbursements to other creditors. Yet, at this stage, because the refunds occurred after the debtor completed her plan, received her discharge, and the Court closed her case, the Trustee seeks leave of court. The Trustee requests that the Court reopen the case to permit him to administer the assets and file a new final report and account after he has re-disbursed the plan payments. See 11 U.S.C. § 350. The debtor opposes the Trustee's request to disburse the creditor refunds to other creditors and pleads to the Court to require the Trustee to transfer the creditor refunds to her. As explained below, the Court rejects the debtor's demands because the debtor does not have a right to the creditor refunds.
A debtor's obligation to make plan payments to a chapter 13 trustee is solidified once her proposed chapter 13 plan is confirmed by order of the bankruptcy court. The order is both a finding that the plan meets all of the requirements of section 1325 of the Bankruptcy Code and a court directive to the debtor to carry out those promises made in her plan. The order, entered after notice and opportunity for hearing, binds the debtor and each creditor to the provisions of the plan; further, it is res judicata of the confirmation requirements of Bankruptcy Code section 1325. 11 U.S.C. § 1327(a).
Once Ms. Hoffman's plan was confirmed, she was bound by the confirmation order to the terms of her plan. See 11 U.S.C. § 1327. In this case, she was bound to pay 60 payments of $275 for a total of $16,500. See ECF Doc. Nos. 13, 24.
Although bound to pay a total of $16,500 as plan payments, Ms. Hoffman demands that the Court order the Trustee to return $3,611.09 of those payments to her. She asserts that the Court should order a return of $3,611.09, and hence a reduction of the required total payments, because two unsecured creditors, who would otherwise share a pro rata dividend of approximately 4% with the other unsecured creditors, have voluntarily forgiven the debtor of her debts to them.
Once a plan is confirmed, a trustee shall disburse the plan payments to creditors holding allowed claims, according to the terms and provisions of the confirmed plan. 11 U.S.C. § 1326(a)(2). When a creditor rejects a trustee's disbursements and returns those payments back to the trustee, the creditor has sent a "creditor refund" to the trustee. The creditor's refund of the plan disbursements simply places the plan payments back into the hands of the trustee to disburse according to the terms and provisions of the confirmed plan. The trustee is bound, by the confirmation order, to disburse the plan payments to the creditors until he has received the total gross payments, or the case is dismissed or converted to another chapter. 11 U.S.C. § 1327; see 11 U.S.C. §§ 1326(a)(2), 349(b)(3), 348(e). If, as is the case here, a creditor returns the disbursement back to the trustee, this action does not release the trustee from his obligation to comply with the order of confirmation and disburse the plan payments until full satisfaction of all claims or until all the plan payments have been disbursed. See 11 U.S.C. §§ 1326, 349(b)(3), 348(e).
The debtor requests this Court direct the Trustee to pay to the debtor the creditor refunds in his possession. These creditor refunds derive from her plan payments that the Trustee disbursed. What the debtor is really asking is for this Court to order the Trustee to return her plan payments back to her but allow her to retain her chapter 13 discharge.
Bankruptcy courts have addressed this question before. For example, the Honorable Paul Mannes of the United States Bankruptcy Court for the District of Maryland held that the chapter 13 trustee was required to disburse the funds returned to him to the unsecured creditors. In re Bacon, 274 B.R. 682, 686 (Bankr. D. Md. 2002). The reason a particular creditor rejected a trustee's disbursement did not make a difference. Judge Mannes also ruled that "a debtor has no right to plan payments after confirmation of a plan, except where excess funds remain after all distributions authorized by the plan have been made in full." Id. at 685 (quoting In re Pegues, 226 B.R. 328, 336 (Bankr. D. Md. 2001)). As Judge Mannes underscored, when the confirmed plan provides for unsecured creditors to be paid pro rata and not satisfied in full, "pursuant to the plan, absent modification, the unsecured creditors [are] entitled to a pro rata share of any funds remaining from [the plan base gross]." Id. at 685.
Similarly, the Honorable William Sawyer of the United States Bankruptcy Court for the Middle District of Alabama applied 11 U.S.C. § 1326(c) and held "that when distributed funds are returned to the Chapter 13 trustee after the debtor has obtained a discharge, the funds are to be redistributed pursuant to the plan until the unsecured claims provided for by the plan are fully paid, at which point any excess funds may be returned to the debtor." In re Dubose, 555 B.R. 41, 43 (M.D. Ala. 2016).
Ms. Hoffman contends that the creditor refunds held by the Trustee should be returned to her because she took action after she received a chapter 13 discharge to obtain a disability discharge of her student loan debt. Ms. Hoffman successfully completed a chapter 13 plan to receive a discharge in bankruptcy and was fortunate enough to also complete the process for an administrative discharge of her student loan debt that was not discharged through the bankruptcy process.
Ms. Hoffman argues in her amended response and in her brief that she should be allowed to modify her plan pursuant to section 1329 so that the Trustee may distribute the creditor refunds to her instead of to the unsecured creditors. Ms. Hoffman suggests that because the Trustee has requested the case be reopened, she is entitled to modify the plan pursuant to 11 U.S.C. § 1329. See Am. Resp. ¶ 11, ECF Doc. No. 60; Debtor's Br., at 2-4, ECF Doc. No 61. What the debtor has overlooked is that section 1329 only permits modification before a debtor has completed her plan payments. See 11 U.S.C. § 1329(a) ("At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified. . . ." (emphasis added)). As the debtor has frequently pointed out, this Court has already granted her a discharge for "completing all payments under the plan." See generally Debtor's Resp., ECF Doc. No. 56; Debtor's Am. Resp., ECF Doc. No. 60; Debtor's Br., ECF Doc. No. 61. Thus, she is requesting modification of the plan after she has completed all payments under the plan, not before completion. The debtor's request to modify her plan, six years after she filed her case and one year after she completed her payments to the Trustee, is simply too late. See 11 U.S.C. § 1329(a).
Not only is Ms. Hoffman too late to modify her confirmed plan, she has not provided adequate support to permit this Court to grant such reduction in her plan obligation. Once the plan is confirmed, the debtor is bound to the plan terms. 11 U.S.C. § 1327. If the debtor seeks to modify the payment terms of her plan, as confirmed by the Court, to reduce her obligation, the debtor must show an unanticipated change in financial circumstances. See In re Arnold, 869 F.2d 240 (4th Cir. 1989). The fact that filed claims are less in number or amount than those scheduled is not deemed to be a change in the debtor's financial circumstances.
After completing her plan payments to the Trustee, the debtor sought and obtained a disability discharge of her student loan debts. The student loan creditors then refunded disbursements back to the Trustee. Because her confirmed plan did not provide for a 100% dividend to general unsecured creditors, the Trustee seeks to disburse the creditor refunds to other creditors of the same class. For the reasons described above, the debtor's demand to distribute the creditor refunds to her is denied. In this case, the debtor remains bound by the terms of her confirmed plan to pay to the Trustee the total amounts required by the plan. Because she has completed her payments under the confirmed plan and has received a chapter 13 discharge, she is too late to attempt to modify her plan. Furthermore, the fact that two of her unsecured creditors voluntarily forgave her debts is not grounds to modify a confirmed plan when the confirmed plan did not provide for 100% payment to all unsecured claims.
The Court will issue a separate order granting the Trustee's motion, overruling the debtor's objection to the Trustee's motion, and denying the debtor's motion in her response.
A copy of this Memorandum Opinion shall be provided to the debtor, debtor's counsel, and the chapter 13 trustee.
