Reversing the Bankruptcy Appellate Panel, the Ninth Circuit ruled that the bankruptcy court must confirm a chapter 13 plan with an estimated duration, so long as no creditor objects and all other confirmation requirements are satisfied.

The June 22 opinion is important because it permits debtors to accelerate payments and receive their discharges more quickly, and in the process avoid paying more to creditors than required. The decision also allows an accelerated exit from chapter 13 without obliging debtors to modify their plans under Section 1329.

The Old and New Model Plans

Previously, a model plan in a division of the Northern District of California permitted chapter 13 plans with estimated durations. In 2016, the judges in the division required debtors to use the district’s model plan, which called for plans with fixed durations.

Four debtors proposed plans that modified the model plan by having an estimated duration. In the four cases, unsecured creditors were to receive no recoveries. With only estimated durations, the debtors could accelerate payments and receive their discharges as soon as their payments were sufficient to cover administrative expenses, priority claims, and secured claims.

The chapter 13 trustee did not object to the plans.

The bankruptcy court nonetheless refused to confirm the plans, holding that fixed terms were required and that the debtors had not proposed their plans in good faith. The BAP upheld the bankruptcy court, telling the debtors they must modify their confirmed plans to receive discharges more quickly.

The bankruptcy court confirmed the plans after the debtors modified them to included fixed terms. The debtors appealed again, this time to district court. The district court certified a direct appeal, which the circuit accepted.

The Code Doesn’t Require Fixed Terms

In a 33-page opinion, Circuit Judge Patrick J. Bumatay reversed the BAP. With fixed terms for their plans, he said the debtors would “be stuck in bankruptcy for the length of the fixed period, even if they pay off all listed priority and secured debts before that period elapses.”

Although unsecured creditors were not entitled to any payments, Judge Bumatay said that one of the debtors was required by the fixed duration of the plan to pay $1,000 to unsecured creditors. In other words, a plan with fixed duration can compel a debtor to pay more than was necessary to confirm the plan in the first place.

Turning from practical considerations to the statute, Judge Bumatay found “no express provision of Chapter 13, even when viewed in the context of its broader structure, [that] prohibits plans with estimated lengths.”

First, Judge Bumatay noted that Section 1322(b)(11) allows a plan to contain provisions not inconsistent with chapter 13. Next, he found only two statutory provisions that informed the issue.

Section 1322 imposes three- and five-year maximum durations for plans of debtors who are above or below the median. Section 1325(b)(4) imposes a fixed minimum duration of a plan, but only if there is an objection.

Thus, Judge Bumatay said, “Neither § 1322 nor § 1325 point to an express fixed or minimum duration requirement for Chapter 13 plans absent an objection . . . . Indeed, § 1325(b)(1)(B)’s explicit imposition of a minimum duration only when an objection is raised strongly suggests that the absence of such fixed terms in other sections of Chapter 13 was intentional.”

Given the “clear implication” of the statute, Judge Bumatay held that “the Code provides no minimum fixed durations.” Section 1322(b)(11), he said, “permits a debtor to add an estimated term provision, so long as the plan does not draw an objection.” On the other hand, “the BAP read a prohibition where none exists.”

Moving beyond the statute, Judge Bumatay considered policy reasons advanced by the BAP for always requiring plans with fixed terms. In that regard, the BAP relied on the intent of the 2005 amendments to require debtors to pay as much as they can.

Judge Bumatay found other policies in chapter 13, such as allowing honest debtors to have a fresh start. Given the “wide array” of purposes in the Bankruptcy Code, he said that “we hew to the statute’s language and structure, neither of which prohibits estimated term provisions.”

Finally, Judge Bumatay vacated the bankruptcy court’s findings that the plans were not proposed in good faith. He said the lower courts “relied on their erroneous interpretation of the Code to determine that the Debtors lacked good faith.” Furthermore, he said, “Debtors do not lack good faith ‘merely for doing what the Code permits them to do,’” quoting In re Welsh, 711 F.3d 1120, 1131 (9th Cir. 2013).

There was no appellee. The chapter 13 trustee submitted an amicus brief in support of the debtors.