Even though an injury occurred within the three-year commitment period, a chapter 13 debtor can keep the proceeds of a personal injury settlement received after the three-year period, according to a June 22 opinion by Bankruptcy Judge Dwight H. Williams, Jr. of Montgomery, Ala.
The debtor, who had below-median income, confirmed a five-year chapter 11 plan committing all of her disposable income to pay only the lender on her auto. Unsecured creditors got nothing.
Two years after confirmation, the debtor was in an auto accident. Slightly less than three years after confirmation, the bankruptcy court approved a $12,000 settlement. Less than three years after confirmation, the trustee filed a motion that would have required the debtor to turn over the settlement proceeds for distribution to unsecured creditors. The debtor conceded that she would have been compelled to turn over the proceeds had they been received within her three-year commitment period.
Judge Williams denied the trustee’s turnover motion. On the trustee’s motion for rehearing, Judge Williams wrote his June 22 opinion adhering to his original ruling because the settlement proceeds were not actually received until the three-year commitment period ran out.
The plain language of the statutes compelled the result, Judge Williams said. For a below-median-income debtor, the applicable commitment period “shall be” three years from the commencement of payments, according to Section 1325(b)(4)(A)(i). A modified plan for a below-median-income debtor can extend the period under Section 1329(c) beyond three years, but only “for cause,” and not for more than five years.
Judge Williams said that increasing payments to unsecured creditors “is not sufficient cause to extend the plan term beyond three years.” He cited cases holding that cause is shown when the debtor needs an extension beyond three years to cure a default, pay priority creditors or save a home.
The judge also said that requiring turnover beyond the three years would run counter to public policy by discouraging use of chapter 13. Judge Williams’ opinion appears to stand for the proposition that cause is debtor-centric, not creditor-centric.