The Supreme Court’s Espinosa decision enabled Bankruptcy Judge Robert L. Jones of Lubbock, Tex., to present the debtors with a sizeable and unexpected gift alongside their chapter 13 discharges.
The couple had confirmed a five-year, chapter 13 plan in 2017 with an expected 15% dividend for unsecured creditors. As Judge Jones said in his January 7 opinion, a “large portion” of their debts were student loans that would not be discharged.
The husband’s mother and father both died in 2020, before the completion of plan payments. The parents’ wills gave the husband a portion of the proceeds from sale of the parents’ home. Judge Jones didn’t venture a guess as to the value of the bequest.
The debtors’ counsel informed the chapter 13 trustee about the bequest. After the debtors made their last plan payment, the trustee filed a motion to modify the plan. The proposed modified plan called for the debtors to make a balloon payment of some $66,000 about six months after the debtors made their last plan payment.
The additional payment would pay unsecured creditors in full. The debtors supported the amendment because it would pay their student loans in full. Naturally, no creditor objected to the amended plan, because they too would be paid in full.
But wait, Judge Jones said, “bankruptcy courts have an independent duty to ensure that plan modifications comply with the requirements of the Bankruptcy Code regardless that no objections are filed. Cf. United Student Aid Funds Inc. v. Espinosa, 559 U.S. 260, 277 n.14 (2010).”
Judge Jones began by citing Section 1329(a), which allows modification of a plan “at any time after confirmation but before the completion of payments under such plan.” He said that the section “plainly” has a temporal limitation on when the plan may be amended, but the statute does not say “whether ‘completion of payments’ refers to payments from the debtor to the trustee or payments from the trustee to creditors.”
Judge Jones found the answer in dicta from the Fifth Circuit. See Meza v. Truman (In re Meza), 467 F.3d 874, 878 (5th Cir. 2006). He read Meza as saying “that § 1329(a) prohibits a trustee from amending a plan to account for newly acquired funds after he has received all plan payments from the debtor.” [Emphasis in original.]
Judge Jones found support for the circuit court’s dicta in Section 1328(a), which says that the court “shall” grant a discharge “as soon as practicable after completion by the debtor of all payments under the plan.”
Judge Jones concluded that “the only interpretation of § 1329(a) that remains true to the text and in harmony with the broader context of chapter 13 is that the phrase ‘completion of payments’ refers exclusively to payments made by the debtor to the trustee.”
Section 1329(c) also barred approval of the plan amendment. The section provides that the court “may not approve” a plan where the payment period extends beyond five years. In the case before him, Judge Jones said that the amendment would extend the plan to 68 months.
“Allowing the [debtors’] plan to extend beyond sixty months and delaying their discharges contravenes the plain language of § 1329(c),” Judge Jones ruled. He rejected reliance on cases where bankruptcy courts had allowed debtors to make final payments later than 60 months when there were arrears. In the case before him, there were no arrears.
Judge Jones also rejected the idea that the inheritances were estate property to be included in the plan.
Section 541(a)(5) only takes inheritances into estate property if received within 180 days of filing. However, Section 1306(a)(1) takes in “all property of the kind specified in” Section 541 “that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted.”
The Fifth Circuit, Judge Jones said, has not decided whether Section 1306(a)(1) overrides Section 541(a)(5) to include inheritances received more than 180 days after filing. Other courts are divided on the issue.
Judge Jones decided that he was not required to take sides on the question, because “property [that] becomes estate property does not necessarily mean it must be paid to creditors under a plan.” He also said, “it is an open question whether the inheritances are property of the estate and had to be reported to the Trustee at all.”
Judge Jones denied the trustee’s motion to modify the plan and said that the debtors were entitled to their chapter 13 discharges. He said that his “decision does not prevent them from paying their creditors on their own volition outside of the plan, which they stated is their desire.”
The Supreme Court’s Espinosa decision enabled Bankruptcy Judge Robert L. Jones of Lubbock, Tex., to present the debtors with a sizeable and unexpected gift alongside their chapter 13 discharges.
The couple had confirmed a five-year, chapter 13 plan in 2017 with an expected 15% dividend for unsecured creditors. As Judge Jones said in his January 7 opinion, a “large portion” of their debts were student loans that would not be discharged.
The husband’s mother and father both died in 2020, before the completion of plan payments. The parents’ wills gave the husband a portion of the proceeds from sale of the parents’ home. Judge Jones didn’t venture a guess as to the value of the bequest.