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New BAP Chapter 13 Case
Fridley v. Forsythe (In re Fridley), ---- B.R. ---- (9th Cir. BAP
December, 2007)
Issue: Can a debtor, at a given point into the chapter 13 plan,
simply pay all of the forthcoming payments under the plan at once and
receive a discharge immediately?
Holding: Not without seeking a modification of the plan through a
noticed motion and establishing good faith.
Judge Paul Snyder, Washington
Klein, Montali, Jury
Opinion by Klein
These are under-median chapter 13 debtors. "The plan confirmed in
June 2006 provided for payments of $125 per month and, in paragraph
3.E.2, that the debtors would pay their projected disposable income
of $0 for no less than the applicable commitment period of thirty-six
months." The debtors' income increased 45% that year but they did
not report that to the trustee. "In May 2007, during plan month
fourteen, the debtors paid the trustee $2,900. This prepayment
brought the total paid to slightly more than the $4,500 required by
the 36-month plan." "The debtors filed a motion for entry of
discharge pursuant to 1328(a)," which the trustee opposed. The
Bankruptcy Court denied the motion saying that the payments required
under the plan were not "complete" and that a Sunahara type
modification was required. Furthermore, the "proposed early payoff"
was not in good faith because of the increased income.
The BAP affirmed. "The narrow statutory question is whether the
phrases `completion by the debtor of all payments under the plan'
and `completion of payments under [the] plan' in 1328(a) and 1329
(a) include an implied temporal requirement that the chapter 13 plan
remain in effect for the `applicable commitment period,' as specified
in the plan." Klein wrote, "The interplay of 1328(a) and 1329(a)
invites a race whenever a debtor's income increases during the
performance of a plan. The debtor tries to reach 1328(a) payment
completion before a trustee or creditor forces a 1329(a)(1)
increase in plan payments by way of motion made between plan
confirmation and completion of payments." Rule 3015(g) requires a
noticed motion before a modification can be entered. A modification
requires "good faith." "[G]ood faith is to be assessed through the
matrix of whether the plan proponent `acted equitably' taking into
account `all militating factors' in a manner that equates with
the `totality' of circumstances." BAPCPA did not change any of
this. "After BAPCPA, the 1325(b)(1) `applicable commitment period'
continues to operate as a temporal requirement." "Thus, part of the
statutory bargain inherent in chapter 13 is that the debtors must,
for the prescribed life of the plan, run the gauntlet of exposure to
trustee or creditor requests to increase payments." "A debtor
desiring to prepay a chapter 13 plan and obtain an early discharge
without paying allowed unsecured claims in full must follow the
1329 modification procedure prescribed by Rule 3015(g)." "Since the
debtors' plan [here] would not pay all allowed unsecured claims in
full and since they committed themselves to thirty-six months, their
prepayment does not `complete' their plan for purposes of 1328(a)
or 1329."
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