In chapters 12 and 13, the courts are divided on whether a debtor must show “a substantial and unanticipated change in circumstances” to modify a confirmed plan.
Following Eighth Circuit dicta, the Eighth Circuit Bankruptcy Appellate Panel held that a chapter 12 debtor must, “at a minimum, [show] a ‘substantial change in circumstances’” to modify a confirmed plan.
A couple were family farmers in chapter 12. After contested proceedings with secured creditors, they confirmed a plan in 2019. Over opposition from their primary secured creditor in 2020 and 2021, they confirmed modified plans to extend the time for payments to secured creditors. In both instances, the debtor said that they had substantial, unanticipated changes in their financial circumstances.
One year after the 2021 modification, the debtor moved to modify the plan once again. The chapter 12 trustee advocated confirmation of the amended plan.
This time, the debtors contended that Section 1229 did not require a showing of a substantial, unanticipated change in their circumstances. The bankruptcy court agreed.
If the amendment did require substantial and unanticipated changes, the bankruptcy court found as a fact that the debtors had met the higher standard. Confirming the amended plan, the bankruptcy court included a proviso saying that the court would dismiss the case on certification by the chapter 12 trustee that the debtor had missed a payment.
The primary lender appealed confirmation of the amended plan.
In her first opinion for the Eighth Circuit BAP on May 23, Bankruptcy Judge Cynthia A. Norton laid out the standards of appellate review. The review of confirmation of a modified plan is for abuse of discretion. Factual findings are reviewed for clear error.
The governing statute is Section 1229(a). “At any time after confirmation of the plan but before the completion of payments under such plan,” the section provides that “the plan may be modified, on request of the debtor, the trustee, or the holder of an allowed unsecured claim.” Among other things, the amendment may “increase or reduce the amount of payments on claims of a particular class provided for by the plan” or “extend or reduce the time for such payments.”
Interpreting Section 1229, Judge Norton said that “numerous courts” require “unanticipated, substantial changes in circumstances.” On the other hand, she said there were also “numerous bankruptcy courts that apply § 1229 on its terms without reading any additional requirements into the statute.” She said that Section 1229 is “nearly identical” to Section 1329 and is “similar to” Section 1127(b) regarding the modification of plans in chapters 13 and 11, respectively.
Judge Norton said that the Eighth Circuit has not spoken “directly” on the split. However, the Eighth Circuit BAP had ruled on modification of a chapter 13 plan. See In re Johnson, 458 B.R. 745 (B.A.P. 8th Cir. 2011). In Johnson, she said that the BAP had held that modification of a confirmed chapter 13 plan should be limited to situations in which there has been “a substantial change in circumstances. Id. at 748 (emphasis added).”
Judge Norton pointed out how Johnson cited dicta from the Eighth Circuit in Educ. Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987). There, she said that the appeals court “commented that the plan could later be modified by the creditor if ‘a substantial change in [the debtor’s] ability to pay’ could be shown. Id. at 1226.”
“Appellate courts in the Eighth Circuit are directed to give deference to a higher court’s dicta,” Judge Norton said. Moreover, “this panel is bound by our previous decisions,” she said.
Judge Norton therefore held “that plan modifications under § 1229(a) require a showing, at a minimum, of a ‘substantial change in circumstances,’ based on our deference to Zellner and our previous holding in Johnson construing the identical language in § 1329(a).”
If “a showing of unanticipated, substantial changes in circumstances is required,” Judge Norton said that the debtors “met their burden,” because the bankruptcy court’s “alternate” finding of “an unanticipated substantial change in circumstances was not clearly erroneous.”
Similarly, Judge Norton analyzed the record on appeal to rule that the bankruptcy court had not “clearly erred” in finding the amended plan to be feasible.
Judge Norton upheld confirmation of the amended plan.
In chapters 12 and 13, the courts are divided on whether a debtor must show “a substantial and unanticipated change in circumstances” to modify a confirmed plan.
Following Eighth Circuit dicta, the Eighth Circuit Bankruptcy Appellate Panel held that a chapter 12 debtor must, “at a minimum, [show] a ‘substantial change in circumstances’” to modify a confirmed plan.
A couple were family farmers in chapter 12. After contested proceedings with secured creditors, they confirmed a plan in 2019. Over opposition from their primary secured creditor in 2020 and 2021, they confirmed modified plans to extend the time for payments to secured creditors. In both instances, the debtor said that they had substantial, unanticipated changes in their financial circumstances.
One year after the 2021 modification, the debtor moved to modify the plan once again. The chapter 12 trustee advocated confirmation of the amended plan.
This time, the debtors contended that Section 1229 did not require a showing of a substantial, unanticipated change in their circumstances. The bankruptcy court agreed.