In re: DENNIS MICHAEL ESCARCEGA NANETTE MARIE SISK, Dba About Face Skin Care EUGENE EDWARD VICK MARK IRVIN CANDALLA JERI LYLE SALDU

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: September 6, 2017
• Docket: NC-16-1333-JuFB NC-16-1334-JuFB NC-16-1335-JuFB NC-16-1336-JuFB NC-16-1358-JuFB
• Status: Published

Opinion

FILED SEP 06 2017 1 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 ORDERED PUBLISHED 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP Nos. NC-16-1333-JuFB ) NC-16-1334-JuFB 6 DENNIS MICHAEL ESCARCEGA; ) NC-16-1335-JuFB NANETTE MARIE SISK, dba About ) NC-16-1336-JuFB 7 Face Skin Care; ) NC-16-1358-JuFB EUGENE EDWARD VICK; ) 8 MARK IRVIN CANDALLA; ) Bk. Nos. 16-50368-SLJ JERI LYLE SALDUA MERCADO, ) 16-50548-SLJ 9 ) 16-50401-MEH Debtors. ) 16-50659-SLJ 10 ______________________________) 16-50651-SLJ DENNIS MICHAEL ESCARCEGA; ) 11 NANETTE MARIE SISK, dba About ) Face Skin Care; ) 12 EUGENE EDWARD VICK; ) MARK IRVIN CANDALLA; ) 13 JERI LYLE SALDUA MERCADO, ) ) 14 Appellants. ) ______________________________) O P I N I O N 15 Argued and Submitted on June 22, 2017 16 at San Francisco, California 17 Filed - September 6, 2017 18 Appeals from the United States Bankruptcy Court for the Northern District of California 19 Honorable M. Elaine Hammond, Bankruptcy Judge, Presiding 20 Honorable Stephen L. Johnson, Bankruptcy Judge, Presiding _____________________________________ 21 Appearances: James J. Gold of Gold and Hammes argued for 22 appellants Dennis Michael Escarcega, Nanette Marie Sisk, dba About Face Skin Care, and Mark 23 Irwin Candalla; James S.K. Shulman of the Law Offices of James S.K. Shulman argued for 24 appellants Eugene Edward Vick and Jeri Lyle Saldua Mercado; Ben A. Ellison of Cairncross & 25 Hempelmann, P.S. argued for National Association of Consumer Bankruptcy Attorneys, as Amicus 26 Curiae, by special leave of the Panel, supporting the appellants’ position. 27 _______________________________________ 28 Before: JURY, FARIS, and BRAND, Bankruptcy Judges. 1 JURY, Bankruptcy Judge: 2 3 When Congress enacted the Bankruptcy Abuse Prevention and 4 Consumer Protection Act of 2005 (BAPCPA), a primary purpose was 5 to help ensure that debtors who can pay creditors do pay them 6 the maximum they can afford. Ransom v. FIA Card Servs., N.A., 7 131 S. Ct. 716, 721 (2011); see also Whaley v. Tennyson (In re 8 Tennyson), 611 F.3d 873, 879 (11th Cir. 2010) (“‘The heart of 9 [BAPCPA’s] consumer bankruptcy reforms . . . is intended to 10 ensure that debtors repay creditors the maximum they can 11 afford.’”). The Ninth Circuit in Danielson v. Flores (In re 12 Flores), 735 F.3d 855 (9th Cir. 2013), embraced this ideal by 13 ruling that if the provisions of § 1325(b)(1)(B)1 are triggered 14 by an objection, debtors must commit to a fixed plan term 15 (either 36 or 60 months) because “[a] minimum duration for 16 Chapter 13 plans is crucial to an important purpose of § 1329’s 17 modification process: to ensure that unsecured creditors have a 18 mechanism for seeking increased (that is, non-zero) payments if 19 a debtor’s financial circumstances improve unexpectedly.” Id. 20 at 860 (citing Fridley v. Forsyth (In re Fridley), 380 B.R. 538, 21 543 (9th Cir. BAP 2007)). 22 Notwithstanding this background and purpose, debtors in the 23 24 1 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and 25 “Rule” references are to the Federal Rules of Bankruptcy 26 Procedure. References to various sections of the bankruptcy court’s Model Plan are indicated by “section __ of the Model 27 Plan.” 28 -2- 1 Northern District of California, San Jose Division sought to 2 modify the district’s mandatory Model Plan, which required a 3 fixed plan term, so that the plan would be for an indeterminate 4 duration. Such plan therefore could be completed without 5 further modification and debtor discharged as soon as all 6 priority and secured debt was repaid, insuring that the 7 unsecured creditors would never receive any payment on their 8 claims. Not only did the debtors propose such plans, but their 9 chapter 13 trustee devised a mechanism by which she could avoid 10 filing an objection to the proposed plan — an act which would 11 trigger the mandatory imposition of the applicable commitment 12 period under Flores2 — by providing debtors’ attorneys with a 13 “draft objection” which allowed them to make required amendments 14 to the plan outside the court proceeding. The brash purpose of 15 the “draft objection” was to create a work-around of the impact 16 of Flores for the local debtors’ bar so that debtors could avoid 17 paying unsecured creditors what they might be entitled to 18 receive. 19 Two bankruptcy judges sitting in the San Jose Division 20 challenged the propriety of these debtors’ attempts to modify 21 the Model Plan and issued a joint decision denying confirmation 22 of such plans. Their well-reasoned ruling found that these plan 23 provisions were inconsistent with the statutory requirements of 24 25 2 The appellee/en banc appellant in Flores was the chapter 26 13 trustee, seeking to ensure that unsecured creditors would receive payments on their claims if, during a plan’s duration, 27 debtors could afford to pay them. 28 -3- 1 §§ 1328 and 1329 which, read together, accord a discharge to 2 debtors only if their plans could be modified upon motion by an 3 unsecured creditor when debtors’ circumstances changed and they 4 became able to pay a return to such creditors — i.e., a return 5 of more than the zero dollars debtors wanted to ensure they 6 would receive - at some point during the plan’s fixed duration. 7 They also held that such plans were not proposed in good faith, 8 because they unfairly manipulated the Bankruptcy Code and were 9 proposed in an inequitable manner. 10 We AFFIRM the rulings of the bankruptcy court in these 11 cases and in doing so endorse its conclusions that such plans 12 are inconsistent with the statutory requirements of §§ 1328 and 13 1329. We also agree the such provisions are not proposed in 14 good faith, as a blatant attempt to avoid the consequences of 15 modification under § 1329 which would compel debtors to pay 16 their creditors what they are able to afford during the term of 17 their chapter 13 plans. Moreover, we seriously question the 18 tactics of this chapter 13 trustee who essentially colluded with 19 the debtors’ bar to avoid the consequence that filing an 20 objection would have under controlling Ninth Circuit case law. 21 Her role in insuring that unsecured creditors would never 22 receive a dividend in these cases strikes the Panel as 23 inconsistent with the diligence required of such trustees. 24 I. FACTS 25 A. Debtors and Counsel 26 Dennis Michael Escarcega (Escarcega), Nanette Marie Sisk 27 (Sisk), Eugene Edward Vick (Vick), Mark Irvin Candalla 28 (Candalla), and Jeri Lyle Saldua Mercado (Mercado)

-4- 1 (collectively, Debtors), each filed a chapter 13 petition in the 2 San Jose Division of the United States Bankruptcy Court with the 3 assistance of counsel from one of two different law firms — Gold 4 and Hammes (G&H) or the Law Offices of James S.K. Shulman 5 (Shulman) (collectively, Counsel). 6 Sisk is an above-median income debtor while the others are 7 below-median income debtors. Debtors each proposed zero percent 8 plans to unsecured creditors.3 Neither the chapter 13 trustee 9 (Trustee) nor any creditor objected to Debtors’ plans. 10 B. The Model Plan 11 Bankruptcy Local Rule (BLR) 1007-1 provides: 12 The Court may approve and require the use of pre-printed practice forms. The Court may also 13 approve practice forms which are not pre-printed but the format of which is required to be followed. 14 Practice forms may be adopted on a district-wide or division-wide basis. Required forms will be available 15 in the Clerk’s office, on the Court’s website (http://www.canb.uscourts.gov) and, with respect to 16 Chapter 13 practice, in the office of the Chapter 13 Trustee or on the Chapter 13 Trustee’s website. 17 Consistent with this rule, beginning February 1, 2016, the San 18 Jose bankruptcy court orally announced that chapter 13 debtors 19 were required to use the Model Plan posted on the court’s 20 website.4 21 22 3 Although the orders denying confirmation vary from debtor 23 to debtor due to their unique circumstances, those differences are not relevant to the issues raised in this appeal. In each 24 order denying confirmation, the bankruptcy court stated that it was denying confirmation of the debtor’s plan for the reasons 25 stated in the memorandum decision entered on September 26, 2016. 26 The court then provided additional reasons for denying confirmation with respect to some of the debtors. 27 4 In August 2013, the Oakland and San Francisco Divisions 28 (continued...)

-5- 1 Under section 5 of the Model Plan, debtors may propose 2 additional provisions that modify the plan: 3 [A]s long as consistent with the Bankruptcy Code, the Debtor may propose additional provisions that modify the 4 preprinted text. All additional provisions shall be on a separate piece of paper appended at the end of this 5 plan. Each additional provision shall be identified by a section number beginning with section 5.01 and 6 indicate which section(s) of the standard plan form have been modified or affected. 7 8 Debtors used the Model Plan and attached a separate page of 9 additional plan provisions which modified the language in 10 sections 1.01(a) and 2.12 of the Model Plan and others not at 11 issue in this appeal.5 Counsel developed additional provisions 12 5.02(a) and 5.03 based on their belief that the Model Plan 13 substantively abridged Debtors’ rights without them. Set forth 14 below are the objectionable Model Plan provisions and Counsels’ 15 arguments regarding those objections: 16 1. Section 1.01(a) of the Model Plan: 17 Plan payments. To complete this plan, Debtor shall: 18 a. Pay to Trustee $______ per month for ____ months 19 from the following sources: (describe, such as wages, rental income, etc.):_____________________________. 20 Debtor shall after ___ months, increase the monthly payment to $____ for _____ months. 21 22 4 (...continued) 23 implemented the Model Plan. At the same time, the Santa Rosa Division allowed, but did not require, its use. 24 5 Counsel also found sections 4.01, 4.04 and 4.05 of the 25 Model Plan objectionable and added corrective language with 26 respect to these sections. In its memorandum decision, the bankruptcy court allowed the additional provisions which modified 27 those sections of the Model Plan and indicated that Counsel could include those modifications in future chapter 13 plans without 28 the need for an evidentiary hearing.

-6- 1 Objection to section 1.01(a) of the Model Plan: Counsel 2 interpret subsection (a) to require not only a specific dollar 3 amount for the monthly payments, but also the precise number of 4 months for those payments.6 They contend that most debtors 5 cannot precisely calculate the exact number of months it will 6 take for the proposed monthly payment to complete the plan due 7 to many factors, including fluctuations in the trustee’s fee 8 percentage throughout the term of the plan. They also argue 9 that unless an unsecured creditor objects to the plan under 10 § 1325(b), the term of the plan will be of no concern to the 11 creditor. Zero dollars paid over 48 months or zero dollars over 12 60 months have the same impact on the creditor. According to 13 Counsel, neither term is more meaningful than the other - zero 14 dollars is still zero dollars. 15 Corrective Language: To correct the perceived problems 16 with section 1.01(a), G&H added additional provision 5.02(a) 17 which provides: “The length of the plan as reflected in the 18 cumulative terms of the monthly payments provided in section 19 1.01(a) [of the Model Plan] is the estimated length of the 20 plan.” (Escarcega, Sisk, and Candalla plans). 21 Mr. Shulman added: “Notwithstanding [s]ection 1.01(a) [of 22 the Model Plan], once the debtor has paid all allowed secured 23 and priority claims and administrative expenses as provided for 24 in this plan, the plan shall be deemed completed and no further 25 6 26 In section 1.01(a) of the Model Plan, Candella proposed a 60 month plan, Escarcega proposed a 50 month plan (although the 27 term of the plan is somewhat ambiguous), Mercado proposed a 36 month plan, Sisk proposed a 60 month plan, and Vick proposed a 59 28 month plan.

-7- 1 payment to the Trustee shall be required.” (Vick and Mercado 2 plans). 3 2. Section 2.12 of the Model Plan 4 This section provides: 5 Class 7: All other unsecured claims. These claims, including the unsecured portion of secured 6 recourse claims not entitled to priority, total approximately $________. The funds remaining after 7 disbursements have been made to pay all administrative expense claims and other creditors provided for in 8 this plan are to be distributed on a pro-rata basis to class 7 claimants. 9 [select one of the following options:] 10 ____Percent Plan. Class 7 claimants will receive 11 no less than __% of their allowed claims through this plan. 12 ____Pot Plan. Class 7 claimants are expected to 13 receive __% of their allowed claims through this plan. 14 Objection to section 2.12 of the Model Plan: Counsel 15 complain that rather than offering the options of: “will 16 receive ___% of their allowed claims” and “will receive an 17 aggregate dividend of $_____,” which would make clear or 18 determinable the precise dividend the creditors will receive, 19 the Model Plan required the debtor to select between two 20 nebulous ideas. According to Counsel, based on the provided 21 choices, neither the creditors nor the debtor knew how much the 22 dividends will be at the time the case is filed. Counsel 23 contend that the two provisions to select from, which specify 24 the dividend on general unsecured claims, require the debtor to 25 convert the actual dollar amount intended to be the aggregate 26 dividend into a calculated percentage of the estimate of the 27 general unsecured claims. 28 Counsel further complain that both provisions allow the

-8- 1 dividend to be increased: the percent plan provides “no less 2 than ____%” and the pot plan states: “expected to receive 3 ____%.” According to Counsel, no one should be authorized to 4 make that decision, but at some point the plan must be declared 5 completed, or not. Counsel argue that the vagueness of this 6 language leaves it open to a trustee to make arbitrary judgments 7 about what the dividend is. Counsel thus contend that the Model 8 Plan substantively abridges Debtors’ rights by requiring them to 9 make payments to general unsecured creditors in excess of the 10 amounts required by the Bankruptcy Code. 11 Corrective Language: To correct these perceived problems 12 in section 2.12 of the Model Plan, G&H added additional 13 provision 5.03, which states: 14 Section 2.12 is modified to add the following, if checked here: 15 T Class 7 claimants shall receive an aggregate 16 dividend of $0, which amount can be increased up to $1.00 to an amount sufficient for the trustee to 17 administer payments on these claims, which shall be shared pro-rata based on the amounts of their 18 respective allowed nonpriority unsecured claims. (Escarcega, Sisk, Candalla plans). 19 Mr. Shulman added: 20 Section 2.12 of the plan is modified to add the 21 following: 22 Class 7 claimants shall receive an aggregate dividend of $0. (Vick, Mercado plans). 23 24 C. The Confirmation Procedure for Debtors’ Plans 25 The San Jose bankruptcy court has on its website a chapter 26 13 calendar procedure packet along with forms.7 The procedures 27 7 Under Fed. R. Evid. 201, we can take judicial notice of 28 the bankruptcy court’s website, www.canb.uscourts.gov, which contains a link to the chapter 13 calendar procedure packet. See (continued...)

-9- 1 provide that chapter 13 cases ready for confirmation will be 2 confirmed expeditiously. Confirmation hearings are initially 3 set on a “Chapter 13 Uncontested Confirmation Calendar.” Absent 4 timely objection and upon finding that the requirements of 5 § 1325(a) are satisfied, the bankruptcy court will confirm the 6 plan at the confirmation hearing. The procedures state that 7 cases will be considered ready for confirmation when (1) the 8 § 341(a) meeting of creditors has concluded; (2) no objections 9 to confirmation have been filed, or such objections have been 10 resolved or withdrawn without judicial intervention; 11 (3) payments under the proposed plan are current; and (4) there 12 are no other unresolved deficiencies. 13 Cases that are not ready for confirmation are placed on 14 Trustee’s pending list (TPL). It is generally up to Trustee to 15 monitor the cases on the TPL. If the deficiencies have been 16 cured, outstanding objections resolved, and payments are 17 current, the matter is restored to the “Uncontested Confirmation 18 Calendar.” However, when matters are not resolved, parties are 19 instructed to follow the same rules that apply to any motion in 20 a bankruptcy case as provided by BLR 9014-1(a). Matters may be 21 set for hearing on any available contested confirmation calendar 22 date. 23 Because Debtors attached additional provisions to the 24 Model Plan, the bankruptcy court directed Trustee to move their 25 7 26 (...continued) Daniels–Hall v. Nat’l Educ. Ass’n., 629 F.3d 992, 998-99 (9th 27 Cir. 2010) (taking judicial notice of information on the websites of two school districts because they were government entities); 28 New Mexico v. Bureau of Land Mgmt., 565 F.3d 683, 702 (10th Cir. 2009) (courts may take judicial notice of government websites).

-10- 1 cases to the TPL so that the court would have the opportunity to 2 determine if the additional provisions complied with the 3 Bankruptcy Code. Counsel then filed motions for confirmation of 4 the five uncontested plans, prepared supporting declarations and 5 set hearings for the motions on the bankruptcy court’s earliest 6 contested confirmation calendars and served all creditors. 7 At the initial confirmation hearings, the bankruptcy court 8 expressed its concerns about the additional provisions and made 9 some preliminary comments about the plans’ confirmability.8 10 Each case was then set for an evidentiary hearing or trial on 11 confirmation. In advance of the hearings, the bankruptcy court 12 issued scheduling orders directing Counsel to address certain 13 legal issues raised by the additional provisions. Debtors filed 14 initial and supplemental briefs addressing those questions. 15 G&H, counsel in the Candalla, Escarcega, and Sisk cases, 16 objected to the procedure described above, contending that it 17 violated the Bankruptcy Code. It argued that the initial 18 hearing for each Debtor did not qualify as a confirmation 19 hearing under § 1324(b) since confirmation of the plan was not 20 substantively considered by the court at that hearing. G&H 21 further asserted that all of the evidentiary hearings were held 22 after the 45-day limit in § 1324(b) for a confirmation hearing. 23 Accordingly, G&H maintained that the court violated § 1324(b) by 24 failing to provide a procedure to calendar and hold timely and 25 substantive confirmation hearings for its clients’ proposed 26 27 8 The bankruptcy court perceived that the practice in the San Jose Division was the routine early termination of chapter 13 28 plans without formally modifying the plan and without providing notice to anyone.

-11- 1 chapter 13 plans — all of which were uncontested.9 2 After the evidentiary hearings or trials for all Debtors, 3 the bankruptcy court took the matters under submission. 4 D. The Bankruptcy Court’s Joint Memorandum Decision 5 The bankruptcy court issued its joint memorandum decision 6 on September 26, 2016, which was signed by the two judges 7 assigned to Debtors’ cases. 8 Addressing the procedural argument first, the bankruptcy 9 court overruled G&H’s argument that the multiple hearings on 10 confirmation failed to comply with the 45-day time limit for 11 confirmation under § 1324(b). The court noted that nothing in 12 the statute required a substantive or conclusive hearing within 13 the 45-day period. The court further found that placing 14 Debtors’ cases on the TPL was not tantamount to a de facto local 15 rule that violated federal law. Rather, the bankruptcy court 16 explained that it had a duty to consider whether a chapter 13 17 plan complied with the Bankruptcy Code and it adopted a 18 procedure to decide that question. 19 Next, the bankruptcy court disallowed additional provisions 20 5.02(a) and 5.03 on the ground that those provisions violated 21 §§ 1328(a) and 1329(b) and, therefore, rendered the plans 22 unconfirmable under § 1325(a)(1) as a matter of law. In 23 reaching its decision, the court relied upon a number of cases 24 in this Circuit to support its holding that Debtors were 25 9 26 G&H was also concerned that the delay in confirming the plans would delay the start of the payment of attorney’s fees. 27 G&H asked the bankruptcy court to consider authorizing or ordering Trustee to start paying fees on these cases or ones 28 similarly situated prior to confirmation.

-12- 1 required to specify the length of their plans and, absent 2 modification, perform for that time period. See Anderson v. 3 Satterlee (In re Anderson), 21 F.3d 355, 358 (9th Cir. 1994) 4 (self-modifying plans are not authorized under the Code); In re 5 Flores, 735 F.3d 855 (bankruptcy court may confirm a chapter 13 6 plan only if the plan’s duration is at least as long as the 7 applicable commitment period, even if the debtor has no 8 projected income); In re Fridley, 380 B.R. at 546 (“[T]he 9 statutory concept of ‘completion’ of payments [under §§ 1328 and 10 1329] includes completion of the requisite period of time 11 . . . . ”); Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 12 (9th Cir. BAP 2005) (Bankruptcy Code allows a debtor to modify a 13 confirmed chapter 13 plan to complete the plan in less than 36 14 months without paying all claims in full, so long as Bankruptcy 15 Code requirements for plan modification are satisfied; i.e., 16 good faith); In re Keller, 329 B.R. 697 (Bankr. E.D. Cal. 2005) 17 (early payoff with lump sum payment preempts the right of the 18 trustee and the unsecured creditors to propose a modified plan 19 during the remaining term of the plan should the circumstances 20 warrant a modification). The court construed these cases 21 collectively as standing for the proposition that a debtor who 22 proposes a plan must perform under that plan over the term of 23 the plan and, if the debtor’s circumstances change, the debtor, 24 creditors, or the chapter 13 trustee are entitled to ask that 25 the plan be modified. 26 The bankruptcy court also observed that under the prior San 27 Jose form plan, any additional funds received above the stated 28 percent or amount were returned to debtors unless Trustee

-13- 1 obtained an order modifying the plan authorizing distribution of 2 the additional funds. The court stated that Debtors hoped to 3 “perpetuate this practice” by adding additional provisions 4 5.02(a) and 5.03. 5 The bankruptcy court concluded that Debtors’ modifications 6 to the Model Plan were deliberately calculated to prohibit the 7 Trustee from distributing excess funds. Accordingly, the 8 bankruptcy court found that Debtors’ plans were not proposed in 9 good faith. 10 Debtors each filed a timely notice of appeal from the 11 bankruptcy court’s orders denying confirmation of their plans. 12 As the orders were interlocutory, the Panel granted Debtors’ 13 leave to appeal on November 29, 2016. 14 II. JURISDICTION 15 The bankruptcy court had jurisdiction over this proceeding 16 under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction 17 under 28 U.S.C. § 158. 18 III. ISSUES 19 A. Whether the bankruptcy court’s procedure for 20 considering confirmation of Debtors’ plans was tantamount to a 21 de facto rule which abridged Debtors’ substantive rights and 22 violated § 1324(b). 23 B. Whether the bankruptcy court erred by finding that 24 Debtors’ additional provisions 5.02(a) and 5.03 violated the 25 Bankruptcy Code. 26 C. Whether the bankruptcy court erred in finding that 27 Debtors did not file their plans in good faith. 28

-14- 1 IV. STANDARDS OF REVIEW 2 The validity of a local court rule is a question of law 3 reviewed de novo. Pham v. Golden (In re Pham), 536 B.R. 424, 4 430 (9th Cir. BAP 2015). 5 The bankruptcy court’s conclusions of law and 6 interpretation of the Bankruptcy Code are reviewed de novo. 7 Boukatch v. Midfirst Bank (In re Boukatch), 533 B.R. 292, 294 8 (9th Cir. BAP 2015). 9 The standard of review for a denial of confirmation is two 10 part: (1) factual questions are reviewed for clear error; and 11 (2) legal questions are reviewed de novo. Fid. & Cas. Co. of 12 N.Y. v. Warren (In re Warren), 89 B.R. 87, 90 (9th Cir. BAP 13 1988). An exercise of discretion based on an incorrect 14 conclusion of law is also reviewed de novo. Id. 15 A bankruptcy court’s decision that a debtor’s plan was not 16 proposed in good faith is a finding of fact reviewed for clear 17 error. Mattson v. Home (In re Mattson), 468 B.R. 361, 367 (9th 18 Cir. BAP 2012) (citing Downey Savs. and Loan Ass’n v. Metz (In 19 re Metz), 820 F.2d 1495, 1497 (9th Cir. 1987)). A factual 20 finding is clearly erroneous if it is illogical, implausible, or 21 without support in inferences that can be drawn from the facts 22 in the record. United States v. Hinkson, 585 F.3d 1247, 1262–63 23 (9th Cir. 2009) (en banc). 24 V. DISCUSSION 25 A. The Framework of Chapter 13: Plan Confirmation and Discharge 26 27 The chapter 13 plan confirmation process implicates a 28 number of different Bankruptcy Code sections and rules. Chapter

-15- 1 13 debtors must file a plan under which they agree to make 2 monthly payments to a trustee from their future income which 3 will be distributed to pay their creditors’ claims in part or 4 full. See § 1321 (“The debtor shall file a plan.”). Section 5 1322(a) contains a list of provisions that must be contained in 6 a chapter 13 plan and § 1322(b) contains a list of provisions 7 that may be contained in plan. Section 1322(b)(11) provides 8 that the plan may “include any other appropriate provision not 9 inconsistent with this title.” 10 Section 1325 contains the requirements for confirmation of 11 a chapter 13 plan. Among the requirements is that the plan must 12 comply with the provisions of chapter 13 and with other 13 applicable provisions of the Bankruptcy Code. See § 1325(a)(1). 14 The plan must also have “been proposed in good faith and not by 15 any means forbidden by law.” § 1325(a)(3). 16 A plan that includes the required components of § 1322, and 17 satisfies the general confirmation requirements of § 1325(a), is 18 generally confirmed. However, when the chapter 13 trustee or an 19 unsecured creditor objects to plan confirmation, § 1325(b) 20 applies. That section provides in relevant part: 21 (1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the 22 plan, then the court may not approve the plan unless, as of the effective date of the plan — 23 . . . . 24 (B) the plan provides that all of the debtor’s 25 projected disposable income to be received in the applicable commitment period beginning on the 26 date that the first payment is due under the plan will be applied to make payments to unsecured 27 creditors under the plan. 28 For purposes of this subsection, the “applicable commitment

-16- 1 period” (ACP) shall be — 2 (i) 3 years; or 3 (ii) not less than 5 years, if [the debtor is above median]; and ... may be less than 3 or 5 years, 4 whichever is applicable ..., but only if the plan provides for payment in full of all allowed unsecured 5 claims over a shorter period. 6 §1325(b)(4). 7 Whether the plan is objected to or not, bankruptcy courts 8 must make an independent determination that a chapter 13 plan 9 satisfies the requirements of the Bankruptcy Code. United 10 Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 278 (2010) 11 (Section 1325(a) “instructs a bankruptcy court to confirm a plan 12 only if the court finds, inter alia, that the plan complies with 13 the ‘applicable provisions’ of the Code. . . . [T]he Code makes 14 plain that the bankruptcy courts have the authority - indeed, 15 the obligation - to direct a debtor to conform his plan to the 16 requirements of . . . [the Code].”). 17 Section 1329(a) provides for modification of the plan after 18 confirmation but before completion: “Any time after 19 confirmation of the plan but before the completion of payments 20 under such plan, the plan may be modified, upon request of the 21 debtor, the trustee, or the holder of an allowed unsecured 22 claim....” A plan may be modified to extend or reduce the time 23 for payments under the plan. § 1329(a)(2). Plan modifications 24 are subject to the plan requirements set forth in §§ 1322(a), 25 1322(b), and 1323(c), as well as the requirements of § 1325(a). 26 See § 1329(b)(1). Rule 3015(g) requires that not less than 21 27 days notice of proposed plan modifications be sent to the 28 debtor, the chapter 13 trustee and all creditors fixing the time

-17- 1 for filing objections. 2 Debtors who complete all payments required by a confirmed 3 chapter 13 plan are eligible for a discharge. See § 1328(a). 4 B. The bankruptcy court’s confirmation procedure for Debtors’ plans did not amount to a de facto local rule or violate 5 § 1324(b). 6 G&H argues on appeal that by subjecting its clients to the 7 more burdensome confirmation procedures, the bankruptcy court 8 established an unwritten de facto local rule which abridged its 9 client’s substantive rights contrary to 28 U.S.C. § 207510 and 10 violated § 1324(b). We disagree. 11 Section 1324(b) provides: 12 (b) The hearing on confirmation of the plan may be held not earlier than 20 days and not later than 45 13 days after the date of the meeting of creditors under section 341(a), unless the court determines that it 14 would be in the best interests of the creditors and the estate to hold such hearing at an earlier date and 15 there is no objection to such earlier date. 16 The initial plan confirmation hearings were held within 45 17 days of the § 341(a) meeting. As the bankruptcy court properly 18 found, § 1324(b) requires that the court convene a hearing on 19 confirmation of the plan between 20 and 45 days after the 20 meeting of creditors under § 341, but nothing in the statute 21 requires a substantive or conclusive hearing within this period. 22 See In re Jones, 2017 WL 1364967, at *1 (Bankr. D. Maine, Apr. 23 10 24 28 U.S.C. § 2075 provides in relevant part: 25 The Supreme Court shall have the power to prescribe by 26 general rules, the forms of process, writs, pleadings, and motions, and the practice and procedure in cases 27 under title 11.

28 Such rules shall not abridge, enlarge, or modify any substantive right.

-18- 1 12, 2017) (agreeing with In re Escarcega, 557 B.R. 755, 762-63 2 (Bankr. N.D. Cal. 2016), and contrasting § 1324 with § 1224); In 3 re Barajas, 2006 WL 3254483, at *8 (Bankr. E.D. Cal. Nov. 8, 4 2006) (Section 1324(b) does not require that a plan be confirmed 5 within 45 days of the § 341(a) meeting of creditors, but 6 requires only a hearing). Section 1224 states: 7 After expedited notice, the court shall hold a hearing on confirmation of the plan. A party in interest, the 8 trustee, or the United States trustee may object to the confirmation of the plan. Except for cause, the 9 hearing shall be concluded not later than 45 days after the filing of the plan. 10 11 (Emphasis added.) Notably, there is no such language in 12 § 1324(b). Accordingly, there was no violation of § 1324(b). 13 Further, we do not construe the confirmation procedure used 14 by the bankruptcy court in these cases as a de facto rule which 15 delayed confirmation of Debtors’ plans.11 Although the 16 confirmation procedure may have imposed additional burdens on 17 G&H’s clients, bankruptcy courts must make an independent 18 determination that a chapter 13 plan satisfies the requirements 19 of the Bankruptcy Code even if no creditor raises the issue. 20 Espinosa, 559 U.S. at 278. Thus, to ensure that it confirms 21 plans that in are full compliance with the Bankruptcy Code, the 22 bankruptcy court here found it necessary to conduct multiple 23 11 24 Even if the procedure used amounted to a de facto rule, courts generally agree that “there is a strong presumption that 25 substantive rights are not abridged or modified by adoption of 26 rules of procedure.” In re Beaton, 211 B.R. 755, 763 (Bankr. N.D. Ala. 1997) (citing In re Decker, 595 F.2d 185, 188–89 (3rd 27 Cir. 1979)); Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 699 (5th Cir. 1977). Here, the bankruptcy court’s 28 chapter 13 procedure utilized Rule 9014, which pertains to contested matters, and Counsel used that procedure.

-19- 1 hearings to avoid confirming plans which fail to comply with 2 § 1325(a). 3 In sum, the bankruptcy court’s confirmation procedure was 4 neither tantamount to a de facto rule nor did it violate 5 § 1324(b). Accordingly, contrary to G&H’s arguments, none of 6 its clients’ substantive rights under the Bankruptcy Code were 7 abridged by the confirmation procedure used by the court. 8 C. The Trustee’s decision not to object under § 1324(b) is questionable. 9 10 An objection by the chapter 13 trustee or an unsecured 11 creditor would have doomed all of the proposed special 12 provisions. But the standing chapter 13 trustee took the view 13 that it was not her job to raise objections under § 1325(b)(1). 14 We disagree with the trustee’s limited conception of her duties. 15 We begin by identifying those duties. 16 Congress’s use of the label “trustee” suggests that a 17 standing chapter 13 trustee owes all of the traditional 18 fiduciary duties of a trustee at common law. But holding a 19 chapter 13 trustee to all of the standard duties of a trustee 20 would create insoluble problems. For example, at common law, 21 trustees owe a fiduciary duty of loyalty to the trust 22 beneficiaries. See Pegram v. Herdrich, 530 U.S. 211, 224 (2000) 23 (stating that “the common law . . . charges fiduciaries with a 24 duty of loyalty to guarantee beneficiaries’ interests”). But a 25 chapter 13 trustee could not possibly fulfill a duty of loyalty 26 to all of the creditors, the debtor, and other parties in 27 interest who are beneficiaries of the chapter 13 estate, because 28 there are always conflicts of interest among those

-20- 1 beneficiaries. The debtor’s interests inevitably conflict with 2 those of the creditors: the debtor wishes to pay as little as 3 possible to creditors, while the creditors wish to receive as 4 much as possible from the debtor. There are also conflicts of 5 interest among creditors. Unless the funding of a chapter 13 6 plan is sufficient to pay all claims in full, every creditor has 7 an incentive to maximize the amount and priority of his own 8 entitlements and to minimize the amount and priority of all 9 other creditors’ entitlements. In these circumstances, a 10 standing chapter 13 trustee could not possibly protect the 11 individual interests of the debtor and each and every creditor, 12 as the fiduciary duty of loyalty would require him to do. 13 Therefore, a chapter 13 trustee does not owe all of the duties 14 of a traditional trustee at common law. 15 It is sometimes said that a chapter 13 trustee owes 16 fiduciary duties primarily to unsecured creditors, but this is a 17 mistake. Andrews v. Loheit (In re Andrews), 49 F.3d 1404, 1407 18 (9th Cir. 1995) (“the primary purpose of the Chapter 13 trustee 19 is not just to serve the interests of the unsecured creditors, 20 but rather, to serve the interests of all creditors.”). It is 21 more accurate to say that, “the trustee’s role spans the many 22 competing interests in Chapter 13 cases. The trustee in a 23 Chapter 13 case works with everyone and for no one.” Keith M. 24 Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Edition, 25 § 58.1, www.Ch13online.com. 26 Instead of looking to the common law, we turn to the duties 27 which the Code imposes on chapter 13 trustees. In relevant 28 part, the Code provides that, “The trustee shall . . . appear

-21- 1 and be heard at any hearing that concerns . . . confirmation of 2 a plan . . . .” § 1302(b). 3 The Ninth Circuit has held that § 1302(b) permits the 4 chapter 13 trustee to object to plan confirmation on any ground, 5 including grounds that protect specific groups of creditors 6 rather that the entire creditor body. In re Andrews, 49 F.3d at 7 1407-08 (“in order for a plan to be confirmed, each of the 8 requirements of section 1325 must be present . . . . Thus, in 9 reviewing the plan for confirmation, the Chapter 13 trustee may 10 object if the plan fails to conform to all requirements in the 11 Bankruptcy Code, not just § 1325(a)(5).” (citations and 12 quotation marks omitted)). 13 This panel has gone one step further and held that, “The 14 chapter 13 trustee has an affirmative statutory duty to appear 15 and be heard on the question of plan confirmation. . . . The 16 trustee is charged with serving the interests of all creditors, 17 secured and unsecured. . . . Thus, not only did the trustee 18 have the right to appear, he had the obligation to appear and to 19 object.” Meyer v. Hill (In re Hill), 268 B.R. 548, 554-55 (9th 20 Cir. BAP 2001); see also Searles v. Riley (In re Searles), 317 21 B.R. 368, 374 (9th Cir. BAP 2004) (“the chapter 13 trustee has a 22 duty to appear and be heard on plan confirmation . . .”); In re 23 Jordan, 555 B.R. 636, 655 n.15 (Bankr. S.D. Ohio 2016) (citing 24 and quoting In re Hill). 25 One court has explained why chapter 13 trustees must take a 26 position on plan confirmation: 27 Unsecured creditors often have such small claims and such a low expectation of any payment that they do not 28 retain counsel and they do not object to confirmation. The Chapter 13 standing trustee is paid from the

-22- 1 bankruptcy estate, and the trustee has fiduciary duties to creditors. The trustee is clearly required 2 to “appear and be heard” at any confirmation hearing . . . . [T]he requirement that the trustee “be heard” 3 suggests that the trustee must make a recommendation for or against confirmation. . . . The trustee may 4 not equivocate about confirmation. The trustee must either recommend confirmation or object to 5 confirmation. The Chapter 13 standing trustee should thus review all Chapter 13 plans in detail and should 6 file objections to confirmation and claimed exemptions where warranted. 7 8 In re Foulk, 134 B.R. 929, 931 (Bankr. D. Neb. 1991). 9 Imposing a duty on chapter 13 trustees to object to plans 10 whenever appropriate is necessary to permit the bankruptcy court 11 to do its job. The Supreme Court has held that the bankruptcy 12 court should not approve a plan providing for the discharge of 13 student loans without making a determination of “undue 14 hardship,” even if the student loan creditor does not object to 15 plan confirmation. United Student Aid Funds, Inc. v. Espinosa, 16 559 U.S. 260, 278 (2010) (“to comply with § 523(a)(8)’s 17 directive, the bankruptcy court must make an independent 18 determination of undue hardship before a plan is confirmed, even 19 if the creditor fails to object or appear in the adversary 20 proceeding”). As we have noted above, this suggests that the 21 bankruptcy court has an independent obligation, even in the 22 absence of any creditor objection, to ascertain that all plan 23 confirmation requirements are met. The bankruptcy court could 24 not effectively carry out this responsibility without the 25 chapter 13 trustee’s assistance. Unlike the court, the trustee 26 can ask questions of the debtor informally and at the meeting of 27 creditors under § 341. The trustee, and not the court, is in a 28 position to ask the questions that test the confirmability of

-23- 1 the debtor’s plan. 2 The chapter 13 trustee in these cases made a deliberate 3 decision not to raise any objections under § 1325(b). If the 4 Trustee had done so, these debtors would have had to propose 5 plans with three- or five-year minimum durations. The Ninth 6 Circuit’s en banc decision in Flores, holds that a debtor’s plan 7 must provide for payments for the entire “applicable commitment 8 period” even if the debtor has no “disposable income.” 9 The Trustee in these cases accurately described Flores as 10 “impactful,” because it means that, if the trustee or an 11 unsecured creditor objects, debtors must remain in chapter 13 12 longer. If the debtor truly has no “disposable income,” the 13 extended duration would not require the debtor to pay anything 14 to unsecured creditors. But, as we point out above, the test 15 has a powerful indirect effect; as long as the debtor’s plan 16 term continues, the plan is subject to modification under 17 § 1329. This means that, if the debtor’s net income rises, the 18 trustee or a creditor could move for a modification of the plan 19 that would require the debtor to pay more to unsecured 20 creditors. Therefore, debtors have an interest in keeping the 21 duration of their plans as short as possible, while unsecured 22 creditors want maximum plan durations. 23 Faced with this conflict of interest, the Trustee chose to 24 take the side of the debtors. She told the chapter 13 debtors’ 25 bar that she would prepare and send to Debtors’ counsel a “draft 26 objection” to the plan, so that Debtors’ counsel could resolve 27 her concerns and induce her to recommend confirmation. She did 28 not file her objections precisely because “my objections trigger

-24- 1 a commitment period under 1325(b)(1)(B).” 2 As far as we can tell from the record, the chapter 13 3 Trustee never explained why she made this choice. She evidently 4 is careful to raise informally any objection that is available 5 under § 1325(a), but has simply decided that it is not her job 6 to raise objections under § 1325(b). In fact, she employed the 7 draft objection procedure in order to avoid the risk of 8 inadvertently triggering § 1325(b), even though that procedure 9 requires her and her staff to do more work.12 We do not think 10 that the Trustee’s choice can be justified. 11 A respected commentator argues that: 12 Creditors are responsible for representing their own interests in Chapter 13 cases, including objecting to 13 confirmation when appropriate. The Chapter 13 trustee cannot substitute for diligent creditor policing of 14 Chapter 13 plans. That the trustee shall appear and be heard with respect to confirmation should not be 15 misinterpreted to mean that the Chapter 13 trustee has the duty to identify all objections to confirmation 16 and to raise those objections without regard to whether creditors are protecting themselves. 17 18 Chapter 13 Bankruptcy § 58.5. We agree that chapter 13 trustees 19 have a difficult job and that creditors are well advised to 20 protect their own interests. We cannot agree, however, that a 21 chapter 13 trustee should decide on a categorical basis, for no 22 apparent reason, not to raise an important objection which could 23 24 25 12 26 We encourage trustees, debtors, and creditors to attempt to resolve disputes without court intervention, because that 27 saves the parties time and money. We cannot agree, however, that a standing chapter 13 trustee should agree with debtors’ counsel 28 to adopt a special procedure for the express purpose of depriving unsecured creditors of the benefits of a § 1325(b) objection.

-25- 1 benefit unsecured creditors.13 2 D. The bankruptcy court did not err in finding that Debtors’ additional provisions 5.02(a) and 5.03 violated the 3 Bankruptcy Code. 4 The bankruptcy court found that Debtors’ additional 5 provisions 5.02(a) and 5.03 did not comply with §§ 1328(a) and 6 1329(a) and thus rendered the plans unconfirmable under 7 § 1325(a)(1) as a matter of law. 8 1. Counsel’s Arguments 9 Counsel argue that the bankruptcy court erred by finding 10 that initial chapter 13 plans must have a fixed duration prior 11 to completion and discharge. They assert that the holdings in 12 Fridley and Sunahara do not support the bankruptcy court’s 13 decision because those cases involved confirmed plans whereas 14 Debtors in this appeal are contesting the bankruptcy court’s 15 requirement that they include a temporal requirement in their 16 initial plans. According to Counsel, this is a critical 17 distinction; if Debtors’ initial plans do not draw any § 1325(b) 18 objections, Debtors need only comply with §§ 1322 and 1325(a). 19 Neither of those sections requires a minimum duration for a plan 20 which has not been objected to. 21 Counsel further contend that Flores supports their position 22 that Debtors were not required to perform under their plans for 23 13 24 Arguably, the bankruptcy court could raise the § 1325(b) issue itself. See § 105(a) (“No provision of this title 25 providing for the raising of an issue by a party in interest 26 shall be construed to prevent the court from, sua sponte, taking any action or making any determination necessary or appropriate 27 to enforce or implement court orders or rules, or to prevent an abuse of process.”). Because the bankruptcy court did not 28 address this issue, we will not discuss it in the first instance on appeal.

-26- 1 a fixed duration of time. In Flores, the Ninth Circuit noted: 2 Our interpretation of § 1325(b)(1)(B) does not render that provision redundant with § 1322(d), which sets 3 forth the maximum periods of time for a chapter 13 bankruptcy, because § 1325(b)(1)(B) concerns the 4 plan’s minimum duration. . . . Furthermore, § 1325(b) is triggered only if the trustee or a creditor 5 objects, whereas § 1322(d) applies in all cases, a distinction that suggests that Congress intended the 6 sections to serve different functions. 7 In re Flores, 735 F.3d at 858 n.5. Relying on this footnote, 8 Counsel argue that only an objection under § 1325(b) can prevent 9 a debtor from exercising the debtor’s right to propose and 10 receive the benefits of a plan that, by its own language, may 11 complete before or even after its initially estimated term, due 12 to the many variables that make it impossible to predict the 13 plan’s exact duration at the plan’s outset. 14 Finally, Counsel assert that “probable or expected plan 15 durations” have long been typical in initial proposed plans. In 16 United States v. Estus (In re Estus), 695 F.2d 311, 317 (8th 17 Cir. 1982), the court held that in applying the Code’s 18 § 1325(a)(3)’s good faith requirement, a list of factors should 19 guide the court, including consideration of “the probable or 20 expected duration of the plan.” See also Brown v. Gore (In re 21 Brown), 742 F.3d 1309, 1316 (11th Cir. 2014); Meyer v. Lepe (In 22 re Lepe), 470 B.R. 851, 857 (9th Cir. BAP 2012); In re Warren, 23 89 B.R. at 93; Villanueva v. Dowell (In re Vallanueva), 274 B.R. 24 836, 841 (9th Cir. BAP 2002). This “traditional good faith 25 factor,” Counsel argue, is irreconcilable with a durational 26 requirement that must be included in all proposed chapter 13 27 plans. Based on these cases, and due to the lack of a statute 28 mandating a fixed term for chapter 13 plans which have not been

-27- 1 objected to, Counsel assert that Debtors could modify the Model 2 Plan by “estimating” the length of their plans or providing 3 early termination language.14 4 2. Analysis 5 We are not persuaded by any of these arguments. Granted, 6 there is no language in §§ 1322 and 1325(a) that requires a 7 chapter 13 plan to provide a fixed term or a minimum duration 8 before completion or discharge in the absence of an objection. 9 Counsel imply that the statutes’ silence must be construed to 10 mean that Debtors have unfettered discretion to pay off their 11 plans earlier than the time period specified in section 1.01(a) 12 of the Model Plan, thereby completing their plans for purposes 13 of obtaining an early discharge and emerging from chapter 13. 14 After all, they cannot state the length of the plans with any 15 accuracy due to multiple variables, including the chapter 13 16 trustee’s fee percentage. This math problem only exists, 17 however, because Counsel for these Debtors want to ensure that 18 Debtors will never pay a single penny to nonpriority unsecured 19 creditors without having to file their own plan modification. 20 Under statutory interpretation principles, the absence of 21 any express reference in §§ 1322 or 1325(a) to a fixed term or 22 14 23 The National Association of Consumer Bankruptcy Attorneys as Amicus Curiae support Counsel’s position. Amicus Curiae 24 argues that in the absence of an objection, the plain language of the Bankruptcy Code indicates no specific time period is required 25 for chapter 13 plans and thus the bankruptcy court erred in 26 judicially creating an implied temporal requirement for plan confirmation. Amicus Curiae further assert that the flexibility 27 of chapter 13 should not be compromised by the court’s legislation and manipulation of the Bankruptcy Code so as to 28 impose a rigid durational requirement.

-28- 1 minimum duration of time pertaining to a chapter 13 plan which 2 has not been objected to cannot be taken as conclusive evidence 3 of Congress’s approval of Debtors’ additional provisions 5.02(a) 4 and 5.03. “An inference drawn from a legislature’s silence 5 certainly cannot be credited when it is contrary to all other 6 textural and contextual evidence of congressional intent.” 7 Burns v. United States, 501 U.S. 129, 136 (1991) (abrogated on 8 other grounds by United States v. Booker, 543 U.S. 220 (2005)). 9 Therefore, we give no credence to Counsel’s reliance on 10 Congress’s silence in §§ 1322 and 1325(a) regarding a fixed or 11 minimum term for chapter 13 plans which have not been objected 12 to. 13 Looking at the statutory scheme as a whole, §§ 1328 and 14 1329 governing discharge and plan modifications, respectively, 15 are clearly material to the issues at hand. These statutes are 16 applicable to all chapter 13 debtors whether a party has 17 objected to their plans or not. Section 1328 provides that “as 18 soon as practicable after completion by the debtor of all 19 payments under the plan, . . . the court shall grant the debtor 20 a discharge of all debts provided for by the plan. . . .” 21 Section 1329 provides in relevant part: 22 (a) At any time after confirmation of the plan but before the completion of payments under such plan, the 23 plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, 24 to — 25 (1) increase or reduce the amount of payments . . . . 26 (2) extend or reduce the time for such payments. . . . 27 Under the plain language of § 1329(a)(1), a trustee or 28 unsecured creditor can seek to modify the initial plan by

-29- 1 increasing the amount of payments if a debtor experiences an 2 increase in income postconfirmation.15 Subsection (a)(2) 3 explicitly allows a debtor to extend or shorten the term of his 4 or her initial plan. What principled basis would there be for 5 including subsections (a)(1) and (2) in § 1329 if a debtor, 6 whose plan had not been objected to, had unfettered discretion 7 to decide whether to pay off his or her plan early, thereby 8 “completing” payments under the plan for purposes of discharge 9 and plan modification - and without complying with the 10 requirements for plan modification? There is none. Counsel 11 would effectively have us read § 1329 out of existence. 12 Additional provisions 5.02(a) and 5.03 essentially give 13 Debtors the right to pay off their plans and emerge from chapter 14 13 prior to the expiration of the term of their plan set forth 15 in § 1.01(a) of the Model Plan without the necessity of going 16 through the plan modification process or giving notice to 17 Trustee or unsecured creditors (who receive nothing under 18 Debtors’ plans). Yet, Trustee and unsecured creditors have the 19 right to seek modification after confirmation of Debtors’ plans, 20 but before completion of payments. The early termination 21 language in additional provision 5.02(a)16 effectively cuts off 22 the rights of Trustee and unsecured creditors to seek 23 24 15 Likewise, a debtor could seek to reduce the amount of his 25 or her payments if his or her income decreased postpetition. 26 16 Section 5.02(a) states: “Notwithstanding [s]ection 27 1.01(a) [of the Model Plan], once the debtor has paid all allowed secured and priority claims and administrative expenses as 28 provided for in this plan, the plan shall be deemed completed and no further payment to the Trustee shall be required.”

-30- 1 modification should Debtors’ income increase postconfirmation.17 2 Estimating a plan length produces the same result, as neither 3 Trustee nor unsecured creditors would know when the plan is 4 complete for purposes of seeking modification. See In re 5 Keller, 329 B.R. at 700 (“[W]hen a debtor makes an accelerated 6 lump sum payment rather than the regular monthly payments 7 required by the plan, the debtor is preempting the right of the 8 trustee and the unsecured creditors to propose a modified plan 9 should circumstances (such as an increase in the debtor’s 10 income) warrant a modification.”). 11 Debtors cannot unilaterally skirt the specific procedural 12 safeguards that apply to plan modifications: 13 Plan modification requires that notice and an opportunity to be heard be provided to the chapter 13 14 trustee and all concerned creditors. Rule 3015(g). The plan modification process also allows for the 15 court to consider the debtor’s good faith in proposing early payoff modifications, as well as issues as to 16 the debtor’s overall financial circumstances, future earnings and income, and the elimination of future 17 risks of nonperformance. In re Sunahara, 326 B.R. at 781–82. What it does not allow is for the debtor to 18 pay off a chapter 13 plan in a lump sum and present the trustee and creditors with the payoff as fait 19 accompli, with no notice or opportunity for hearing. 20 In re Schiffman, 338 B.R. 422, 435 (Bankr. D. Or. 2006). 21 In sum, allowing additional provisions 5.02(a) and 5.03 22 would render § 1329 a nullity at least insofar as it allows 23 17 24 The bankruptcy court’s reference to the Mercado case underscores the point. The Mercados proposed a 36 month plan. 25 At the evidentiary hearing, Mr. Mercado testified that Mrs. 26 Mercado, although not presently working due to the birth of the couple’s child, planned to resume working as a nurse within the 27 36 month period. Therefore, the early termination language would have eliminated any opportunity for unsecured creditors to 28 receive a distribution despite the Mercados’ increased income.

-31- 1 parties other than the debtor to seek to modify a plan. We 2 cannot construe statutes in a way which renders them a nullity. 3 Cty. of Santa Cruz v. Cervantes (In re Cervantes), 219 F.3d 955, 4 961 (9th Cir. 2000). In this Circuit, a plan provision which 5 amounts to a plan modification without notice to the chapter 13 6 trustee or unsecured creditors and without otherwise complying 7 with the plan modification provisions under § 1329 is not 8 authorized. In re Schiffman, 338 B.R. at 435; see also In re 9 Anderson, 21 F.3d at 357-58. 10 Fridley supports this analysis. In Fridley, this panel 11 considered the interplay between discharge, plan modification, 12 and plan duration in connection with the phrase “completion” of 13 payments in §§ 1328 and 1329. To constitute “completion” of 14 payments for purposes of discharge or plan modification, the 15 Fridley panel confirmed that payments under a plan have to 16 continue for the duration provided for in the initial plan, 17 absent modification, before being considered “complete” for 18 purposes of modification and discharge. Fridley, 380 B.R. at 19 543-44. 20 In Fridley, the below median income debtors proposed a plan 21 with a 36-month applicable commitment period (ACP) with no 22 payment to unsecured creditors. The debtors’ income increased 23 postconfirmation, enabling them to pay off their plan in 14 24 months. The debtors filed a motion seeking a discharge and the 25 chapter 13 trustee objected, contending that the debtors’ plan 26 required that they remain in chapter 13 for the minimum 36 27 months. This would give the trustee time to modify the plan and 28 capture payments for unsecured creditors not anticipated by the

-32- 1 confirmed plan. The bankruptcy court denied the debtors’ motion 2 for entry of discharge. 3 This panel affirmed, concluding that the debtors’ confirmed 4 plan required a 36-month duration. The panel reasoned that the 5 confirmed plan specified that length and to shorten the plan’s 6 length, a motion to modify under § 1329(a) would be required. 7 In addition, the panel found that §§ 1328(a) and 1329(a) 8 conferred an implied temporal requirement that a plan remain in 9 effect for its designated duration unless formally modified. 10 In reaching its conclusion, the panel considered 11 §§ 1328(a) and 1329(a) in connection with the ACP under 12 § 1325(b)(1). The panel decided that the three year ACP in 13 § 1325(b)(1) operated as a temporal requirement. 380 B.R. at 14 546. Accordingly, the panel interpreted the phrases “completion 15 by the debtor of all payments under the plan” and “completion of 16 payments under [t]he plan” in §§ 1328(a) and 1329 respectively, 17 finding that those phrases included an implied temporal 18 requirement that a chapter 13 plan remain in effect for the ACP 19 as specified in the plan. The panel concluded that “the 20 statutory concept of ‘completion’ of payments [under §§ 1328 and 21 1329] includes the completion of the requisite period of time.” 22 Id. at 546. In the end, the Fridley panel observed: 23 A debtor desiring to prepay a chapter 13 plan and obtain an early discharge without paying allowed 24 unsecured claims in full must follow the § 1329 modification procedure prescribed by Rule 3015(g). In 25 exchange for a § 1328(a) discharge of more debts than can be discharged in chapter 7, the debtor’s increases 26 in income are exposed to the risk of being captured by way of § 1329 modifications proposed by the trustee or 27 an unsecured creditor. The debtor cannot short- circuit that exposure merely by prepayment, but rather 28 must obtain a § 1329 plan modification after having given the notice required by Rule 3015(g).

-33- 1 Id. at 544. Cf. In re Sunahara, 326 B.R. at 781 (“In 2 determining whether to authorize modification that reduces a 3 plan term to less than 36 months without full payment of allowed 4 claims, the bankruptcy court should carefully consider whether 5 the modification has been proposed in good faith.”). 6 Fridley’s reasoning in support of its holding is equally 7 applicable to these cases. Carefully parsed, the phrases 8 referring to the “completion” of payments in §§ 1328 and 1329 9 are linked to the duration of the plan which is either fixed by 10 the statutory ACP or, in the absence of an objection, by the 11 debtor. In other words, the “completion” of payments in §§ 1328 12 and 1329, which apply to all chapter 13 debtors, relates to the 13 time period set forth in the initial plan and not the amount of 14 the payments. It follows that for “completion” of payments to 15 relate to a time period, that time period must be specifically 16 stated in the plan. 17 In addition, Fridley underscores the necessity of seeking 18 plan modification to shorten the length of a plan before the 19 “completion” of payments. The BAP emphasized: In exchange for 20 the benefits of filing chapter 13 (over chapter 7), the debtor 21 must pay a price - the debtor’s increases in income are exposed 22 to the risk of being captured by the trustee or an unsecured 23 creditor. The possibility of capturing increases in income 24 necessitates that the chapter 13 trustee or unsecured creditors 25 are apprised of the term of the plan so that they can seek 26 modification if the Debtor’s income increases. That term cannot 27 be undefined simply because Debtors’ plans offered to pay 28 unsecured creditors nothing. See In re Schiffman, 338 B.R. at

-34- 1 434 (“[E]arly payoff proposals . . . present opportunities for 2 abuse by the less than forthcoming debtor.”). 3 The reasons for holding a chapter 13 debtor to a plan for a 4 definite period of time were addressed by the Ninth Circuit in 5 Flores. Again, the analysis in Flores was intertwined with plan 6 modification under § 1329. The Flores court held that “a 7 bankruptcy court may confirm a Chapter 13 plan under . . . 8 § 1325(b)(1)(B) only if the plan’s duration is at least as long 9 as the applicable commitment period provided by § 1325(b)(4).” 10 735 F.3d at 862 (overruling Maney v. Kagenveama (In re 11 Kagenveama), 541 F.3d 868 (9th Cir. 2008)).18 The court 12 observed: “A minimum duration for Chapter 13 plans is crucial 13 to an important purpose of § 1329’s modification process: to 14 ensure that unsecured creditors have a mechanism for seeking 15 increased (that is, non-zero) payments if a debtor’s financial 16 circumstances improve unexpectedly.” Id. at 860. If debtors 17 were not bound to a minimum plan duration, “[c]reditors’ 18 opportunity to seek increased payments that correspond to 19 changed circumstances would be undermined.” Id. 20 These cases, taken together, establish that Debtors’ plans 21 must specify a length and cannot contain provisions which 22 essentially amount to plan modifications shortening that length 23 without complying with the procedural requirements of § 1329 and 24 without obtaining a court order. There is nothing in the 25 18 26 Counsel’s reliance on footnote 5 in Flores is without merit. That footnote is not a holding and simply states that 27 § 1325(b)(1)(B) is triggered only if the trustee or a creditor objects, whereas § 1322(d) applies in all cases, a distinction 28 that suggests that Congress intended the two sections to serve different functions.

-35- 1 reasoning or rationale of Anderson, Fridley, Sunahara, or Flores 2 which limits the holdings in those cases to debtors whose plans 3 have been objected to and thus subject to the ACP under 4 § 1325(b)(1). For each class of debtors - those bound to the 5 statutory ACP and those who are not - the payments under the 6 plan cannot be shortened and payments cannot be “completed,” 7 absent modification, before the end of a definite period of time 8 designated in the plan whether or not that period of time is 9 fixed by the ACP or the debtor himself or herself. 10 Counsel have not articulated any Congressional intent nor 11 any policy reason why debtors who have no ACP can terminate 12 their plans before the expiration of a plan term which they have 13 chosen by inserting additional provisions to the Model Plan. 14 Nowhere do Counsel discuss § 1329 or the requirements for plan 15 modification. 16 Moreover, the result the bankruptcy court reached is 17 consistent with Congress’s intent in enacting BAPCPA which was 18 to ensure that debtors repay creditors the maximum they can 19 afford. Ransom, 131 S. Ct. at 728; see also Baud v. Carroll, 20 634 F.3d 327, 356 (6th Cir. 2011) (“[T]he focus of Congress in 21 enacting BAPCPA was on maximizing the amount of disposable 22 income that debtors would pay to creditors. And there are 23 numerous circumstances in which disposable income might become 24 available to [a debtor] after confirmation . . . .”); In re 25 Tennyson, 611 F.3d at 879. It is not for this panel to 26 contravene that policy. 27 Counsel argue that whether § 1325(a)(1) imports §§ 1328(a) 28 and 1329(a) is the question to be considered here. They contend

-36- 1 that § 1329 applies only to plans that have already been 2 confirmed. Therefore, according to Counsel, § 1325(a)(1) does 3 not import § 1329 into the confirmation analysis in these case. 4 Counsel are mistaken. Section 1325(a)(1) requires compliance 5 with “the provisions of this chapter and with other applicable 6 provisions of [Title 11]” - no provisions are excluded. Because 7 Debtors’ additional provisions 5.02(a) and 5.03 effectively 8 provide for early termination and “completion” of payments 9 without complying with the procedure or requirements for 10 modification under § 1329 and Rule 3015(g), these additional 11 provisions violate §§ 1328 and 1329 and thus render Debtors’ 12 plans unconfirmable as a matter of law. 13 Finally, the case law which uses the “probable or expected 14 duration” of a plan for purposes of a good faith analysis are of 15 little assistance to Debtors. None of the decisions cited by 16 Counsel addressed whether, in the absence of an objection, an 17 initial chapter 13 plan has to have a fixed or minimum term or 18 whether debtors can modify plan forms to give themselves a right 19 to pay off a chapter 13 plan early without adhering to the 20 formal requirements for modification under § 1329. Therefore, 21 the cases that use the “probable or expected duration” for 22 purposes of a good faith analysis are neither controlling nor 23 instructive on that issue. See Engebretson v. Mahoney, 724 F.3d 24 1034, 1040 (9th Cir. 2013) (prior rulings are not binding 25 precedent on issues that were not squarely addressed). 26 E. The bankruptcy court did not err in finding that Debtors’ plans violated § 1325(a)(3). 27 28 All chapter 13 plans must be proposed in good faith and no

-37- 1 objection is necessary to raise the issue. The “probable or 2 expected duration” of a plan is but one factor to use in a 3 totality of circumstances analysis for purposes of determining 4 good faith under § 1325(a)(3). “[N]o single factor is 5 determinative of the lack of good faith. . . . . 6 [D]eterminations of good faith are made on a case-by-case basis 7 after considering the totality of the circumstances.” In re 8 Mattson, 468 B.R. at 371-72 (citing Goeb v. Heid (In re Goeb), 9 675 F.2d 1386 (9th Cir. 1982)). 10 In Goeb, the Ninth Circuit set forth a generalized test for 11 good faith: “whether the debtor has misrepresented facts in his 12 plan, unfairly manipulated the Bankruptcy Code, or otherwise 13 proposed his Chapter 13 plan in an inequitable manner.” 675 14 F.2d at 1390. The Goeb court emphasized that the scope of the 15 good faith inquiry should be quite broad. Id. at 1390 n.9. 16 “[T]he standards set forth in In re Goeb offer a solid framework 17 for evaluating a variety of circumstances. . . .” In re 18 Mattson, 468 B.R. at 372. Finally, the Ninth Circuit has stated 19 that a good faith analysis under § 1325(a)(3) may consider “the 20 legal effect of the confirmation of a Chapter 13 plan in light 21 of the spirit and purposes of Chapter 13.” Chinichian v. 22 Campolongo (In re Chinichian), 784 F.2d 1440, 1444 (9th Cir. 23 1986). 24 Here, the bankruptcy court found that Debtors’ plans were 25 not proposed in good faith based on additional provisions 26 5.02(a) and 5.03 which violated §§ 1328 and 1329. The court 27 concluded that the plans were deliberately calculated to 28 prohibit the Trustee from distributing excess funds. The record

-38- 1 amply supports the lack of good faith. Debtors’ modifications 2 to the Model Plan put unsecured creditors at a disadvantage and 3 thus amount to an unfair manipulation of the Bankruptcy Code. 4 Moreover, the modifications violated one of the primary purposes 5 behind enactment of BAPCPA which was to maximize payments to 6 unsecured creditors. Debtors’ additional provisions, which make 7 an end run around the modification procedure under § 1329 and 8 provide for early discharge under § 1328, blatantly violate that 9 purpose. Accordingly, since the additional provisions violate 10 the Bankruptcy Code and are inconsistent with the overall spirit 11 and policies of chapter 13 and the enactment of BAPCPA, there is 12 no basis to reverse the bankruptcy court’s finding on good 13 faith. 14 F. The Model Plan does not exceed the court’s rule-making authority. 15 16 Due to our conclusions, we reject Counsel’s argument that 17 the Model Plan as written exceeds the bankruptcy court’s rule- 18 making authority because it is contrary to the Bankruptcy Code. 19 The Model Plan and its required use do not abridge Debtors’ 20 substantive rights. Although the bankruptcy court declined to 21 confirm the plans, its decision does not close the door on 22 Debtors’ ability to seek a good faith modification of a 23 confirmed plan with a definite term at a later date pursuant to 24 § 1329. Requesting modification to extend or reduce the time 25 for payments under a plan is permitted by statute. In addition, 26 by disallowing additional provisions 5.02(a) and 5.03, the 27 bankruptcy court ensured that Trustee and unsecured creditors 28 are not foreclosed from seeking modification before completion

-39- 1 of Debtors’ plans if Debtors’ income increases 2 postconfirmation.19 3 VI. CONCLUSION 4 For the reasons stated, we AFFIRM. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 19 22 Although G&H raises other issues with respect to the bankruptcy court’s criticisms of documents filed by Escarcega and 23 Candalla, those issues are not material to the resolution of this appeal. Accordingly, it is unnecessary to address them. See 24 Dehart v. Lopatka (In re Lopatka), 400 B.R. 433, 440 (Bankr. M.D. 25 Pa. 2009) (“The doctrine of judicial restraint suggests that a court should decide the fewest issues necessary to resolve the 26 subject dispute.”) (citing Morse v. Frederick, 551 U.S. 393, 431 (2007)); PDK Labs., Inc. v. Drug Enf’t Admin., 362 F.3d 786, 799 27 (D.C. Cir. 2004) (“[T]he cardinal principle of judicial restraint is that if it is not necessary to decide more, it is necessary 28 not to decide more.”).

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