Although the Supreme Court held in Bullard that an order denying confirmation of a chapter 13 plan is not a final, appealable order, District Judge Brendan A. Hurson of Baltimore held that denial of a motion to modify a chapter 11 plan is an appealable order. See Bullard v. Blue Hills Bank, 575 U.S. 496 (2015).
In his December 19 opinion, Judge Hurson also held that the Fourth Circuit’s “substantial and unanticipated” test for modification of a chapter 13 plan applies equally to modification of a chapter 11 plan.
A couple confirmed a plan in 2013 after slogging through chapter 11 for more than two years. They were periodically unemployed but owned a home and 11 rental properties. After confirmation, they soon encountered financial difficulties and fell behind on their plan payments.
In late 2020, the debtors filed a motion to modify and extend their plan. Several creditors objected to the modification. Bankruptcy Judge Thomas J. Catliota sustained the objections and entered an order denying confirmation of the modified plan.
Finality
On appeal, creditors contended that denial of confirmation of an amended plan was not a final order appealable under 28 U.S.C. § 158(a).
Judge Hurson said that it “is well accepted that approval of a post-confirmation motion to modify constitutes a final order from which a party may appeal as of right.” Citing Germeraad v. Powers, 826 F.3d 962, 966 (7th Cir. 2016), he observed that “[s]everal district and circuit courts across the country have found that a denial of a postconfirmation motion to modify also constitutes an appealable final decision.” To read ABI’s report on Germeraad, click here.
On the other hand, Judge Hurson cited the Eighth Circuit Bankruptcy Appellate Panel for holding that denial of a plan modification motion is no more appealable than denial of confirmation. See In re Vincent, 301 B.R. 734, 738 (B.A.P. 8th Cir. 2003).
Focusing on the Fourth Circuit, Judge Hurson cited pre-Bullard decisions where the Richmond-based appeals court ruled on denials of plan modifications, but without analyzing jurisdiction. He found jurisdiction to entertain the appeal, observing:
[T]hough there is precedent from at least one other circuit indicating that a denial of a post-confirmation motion to modify does not constitute an appealable order, there is considerably more out-of-circuit caselaw that supports the opposite finding, and Fourth Circuit caselaw suggests that such an order constitutes an appealable final decision in this circuit.
The Test for Plan Modification
The debtors contended on appeal that the bankruptcy court erred by failing to approve the plan modification, thus raising the question of the test to be applied.
To modify plans in chapter 13 cases, Judge Hurson cited the Fourth Circuit for holding that debtors “must first show that they ‘experienced a substantial and unanticipated change in [their] post-confirmation financial condition’ and then demonstrate that they meet the statutory requirements for such a modification.” In re Murphy, 474 F.3d 143, 150 (4th Cir. 2007).
Like the bankruptcy court, Judge Hurson held that Murphy states the proper test for chapter 11 plan modifications. Murphy, he said, is based on the idea that res judicata bars plan modifications to provide finality and prevent “parties from seeking to modify plans when minor and anticipated changes in the debtor’s financial condition take place.” Id. at 149.
Judge Hurson applied the Murphy test to modifications of chapter 11 plans, saying that it applies “to post-confirmation modifications proposed under § 1329(a) . . . with at least as much vigor [as] to post-confirmation modifications proposed under § 1127(e).”
Applying the Murphy test to the appeal, Judge Hurson agreed with the bankruptcy court’s conclusion that the changes in the debtors’ financial condition were neither substantial nor unanticipated. For example, he said that the debtors were managers of 10 properties and had a “a level of sophistication that should have rendered financial fluctuation anticipated.”
Judge Hurson also observed that financial difficulties were not unanticipated because the debtors’ income was not sufficient to fund the plan when the plan was first confirmed.
The debtor argued that a $15,000 tax bill was unanticipated. Additional taxes resulted because the debtors were unable to pay mortgages and thus had higher net income. Judge Hurson said that additional taxes “cannot be said to be unanticipated, as it was a result of Debtors’ own failure to meet their mortgage obligations.”
Judge Hurson affirmed denial of the motion to modify the plan.
Although the Supreme Court held in Bullard that an order denying confirmation of a chapter 13 plan is not a final, appealable order, District Judge Brendan A. Hurson of Baltimore held that denial of a motion to modify a chapter 11 plan is an appealable order. See Bullard v. Blue Hills Bank, 575 U.S. 496 (2015).
In his December 19 opinion, Judge Hurson also held that the Fourth Circuit’s “substantial and unanticipated” test for modification of a chapter 13 plan applies equally to modification of a chapter 11 plan.
A couple confirmed a plan in 2013 after slogging through chapter 11 for more than two years. They were periodically unemployed but owned a home and 11 rental properties. After confirmation, they soon encountered financial difficulties and fell behind on their plan payments.
In late 2020, the debtors filed a motion to modify and extend their plan. Several creditors objected to the modification. Bankruptcy Judge Thomas J. Catliota sustained the objections and entered an order denying confirmation of the modified plan.