NCBRC REPORT those months had come and gone, the impact of a ruling permitting the modification would have the practical effect of putting the debtors in default for which they could be denied discharge, have their case dismissed, or be converted to chapter 7. Or the bankruptcy could permit the Powers to remedy the default by paying the amount owed as payments under the plan rendered to cure a default. The court found, however, that any perceived inequity in the result would not affect the matter of whether the issue was moot.
Turning to the merits, the court looked to whether a bankruptcy court may grant a trustee’ s motion to modify based on a post-confirmation increase in income. The court found the trustee’ s modification satisfied the three requirements set forth in section 1329 in that it would: 1) increase the plan payments, 2) comport with section 1322( a) –( c) and section 1325( a), and 3) not provide for payments beyond five years.
In so holding, the court rejected the bankruptcy court’ s finding that a modification could not be equitably based, but must be supported by one of the provisions listed in section 1329( b)( 1). The court found that a post-confirmation change in a debtor’ s ability to pay is adequate justification for modification and, in fact, harmonizes with the dual purpose of chapter 13 of giving the debtor an opportunity for a fresh start while maximizing payments to creditors. It noted that it had previously rejected the notion that an increase in post-confirmation income could only support a modification if it was substantial and unanticipated.
The court found the bankruptcy court’ s decision was based on a misinterpretation of its decision in Witkowski, 16 F. 3d 739( 7th Cir. 1994), under which the ability to modify was limited by a requirement that the modification be consistent with sections 1322( a), 1322( b), and 1323( c) and the requirements of section 1325( a). While a modification must not conflict with those provisions, they do not establish requirements upon which modification must be based. Rather, the court found that the question of whether to grant a motion to modify was one of discretion and a balance of equities.
Finally, the court rejected the debtor’ s argument that while a plan may be modified upon a change in the debtor’ s financial circumstances, section 1325( a)( 3) imposes a requirement that the modification be granted only if“ good faith... required the increase.” Section 1325( a)( 3) requires that the proposed modification not be made in bad faith but the good faith requirement applies to the debtor when he proposes a plan and is inapplicable to a trustee-proposed modification. The court disagreed with Ms. Owens- Powers that the bankruptcy court
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have been made in bad faith.
The court turned to the bankruptcy court’ s alternate reason for denial: that the Powers’ actual financial circumstances did not support the modification. Because the district court did not address this factual claim the court remanded for review.
Powers 7th Cir opinion June 2016
National Association of Consumer Bankruptcy Attorneys Summer 2016 CONSUMER BANKRUPTCY JOURNAL 31