FILED 1 ORDERED PUBLISHED APR 05 2012 SUSAN M SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL O F TH E N IN TH C IR C U IT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 6 In re: ) BAP No. WW-11-1478-JuHKi ) 7 ROBBYN DALE MATTSON and RENEE ) Bk. No. 10-50455 DIANE MATTSON, ) 8 ) Debtors. ) 9 ______________________________) ) 10 ROBBYN DALE MATTSON; RENEE ) DIANE MATTSON, ) 11 ) Appellants, ) 12 v. ) O P I N I O N ) 13 DAVID M. HOWE, Chapter 13 ) Trustee, ) 14 ) Appellee. ) 15 ______________________________) 16 Argued and Submitted on March 23, 2012 at Seattle, Washington 17 Filed - April 5, 2012 18 Appeal from the United States Bankruptcy Court 19 for the Western District of Washington 20 Honorable Brian D. Lynch, Bankruptcy Judge, Presiding. _____________________________________ 21 Appearances: Matthew J.P. Johnson, Esq. argued for appellants 22 Robbyn Dale Mattson and Renee Diane Mattson; Michael G. Malaier, Esq. argued for appellee, 23 David M. Howe, Chapter 13 Trustee. ____________________________________ 24 25 Before: JURY, HOLLOWELL, and KIRSCHER, Bankruptcy Judges. 26 27 28 1 JURY, Bankruptcy Judge: 2 Chapter 131 above-median debtors, Robbyn Dale Mattson and 3 Renee Diane Mattson (“Debtors”), moved to modify their confirmed 4 plan under § 1329 due to their post-confirmation increase in 5 income. Debtors proposed to increase plan payments and shorten 6 the term of their plan from five years to three years. The 7 chapter 13 trustee and appellee, David M. Howe, objected to the 8 shortened term, contending that Debtors were above-median and 9 required to contribute their increased income to a five year 10 plan. 11 The bankruptcy court granted Debtors’ motion to increase 12 their payments under the plan, but denied their request to 13 shorten the term. The court held that in addition to satisfying 14 the good faith requirement under § 1325(a)(3), which applies to 15 modified plans by reference in § 1329(b)(1), Debtors also had to 16 show a substantial, unanticipated change in their circumstances 17 since the time of confirmation and that their proposed 18 modification correlated to their change in circumstances. The 19 bankruptcy court found that Debtors’ proposed reduction in the 20 term of their plan did not correlate with their change in 21 circumstances (i.e., the increase in their income), nor did they 22 offer any justification for reducing the length of their plan 23 payments. This appeal followed. 24 Although the reasoning of the bankruptcy court for denying 25 26 1 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 27 and “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure.
-2- 1 the shortened term deviates from our precedent, for the reasons 2 stated below we nevertheless AFFIRM. 3 I. FACTS 4 The facts in this appeal are not in dispute and are 5 adequately summarized in the bankruptcy court’s published 6 decision, In re Mattson, 456 B.R. 75 (Bankr. W.D. Wash. 2011). 7 We incorporate the relevant facts below and supplement them when 8 needed. 9 On December 21, 2010, Debtors filed their chapter 13 10 petition. Their schedules listed assets including a house, four 11 vehicles, various funds in bank accounts, personal and household 12 furnishings and over $83,000 in a retirement account, most of 13 which were exempted. Debtors’ Schedule F listed $163,367 in 14 unsecured debt. 15 Schedule I showed that Debtors were employed by the Camas 16 School District. Ms. Mattson was a teacher, earning an average 17 of $3,067 per month; Mr. Mattson was listed as a “substitute 18 janitor” from which he had no earnings yet per month and also 19 showed an average $1,200 per month from operation of a business. 20 Debtors’ combined average monthly income totaled $4,267 per 21 month. Debtors’ Schedule J reflected expenses of $4,117 per 22 month, leaving a monthly net income of $150 per month. 23 Schedule I stated that Mr. Mattson had just been hired as a 24 substitute janitor within a week before the bankruptcy filing, 25 and while he had not commenced work yet, he anticipated getting 26 $16.50 per hour for what work he would be given. That was 27 expected to reduce his other income from “operation of a 28 business.” Mr. Mattson’s businesses were not identified in the
-3- 1 schedules, but the bankruptcy court noted that the case was 2 filed as “f/d/b/a Robbyn D. Mattson Insurance” and “d/b/a East 3 County Battery Doctors.” Debtors’ Statement of Financial 4 Affairs Number 18 identified prior businesses as “insurance 5 sales” and “reconditioning/sales of automotive batteries.” 6 Schedule I further noted that Mr. Mattson also earned 7 approximately $2,760 a year coaching sports but this income was 8 excluded from Schedule I as it was only for two months of the 9 year and would not be available during an average month. 10 Debtors’ Form B22C indicated they were above-median debtors 11 and reflected a projected disposable income of $253 per month, 12 although the Form B22C also noted that it didn’t accurately 13 reflect Debtors’ projected income because it reflected the 14 income from Mr. Mattson’s previous job and his seasonal income. 15 Looking to the prior six-month period, Debtors argued, showed a 16 substantially higher amount than their average income would be 17 going forward, given Mr. Mattson’s lower income from the new job 18 and the unavailability of the seasonal income. 19 Debtors filed a chapter 13 plan which proposed a $150 per 20 month payment for 60 months, for total payments of $9,000. 21 Those payments went to Debtors’ attorney and unsecured 22 creditors, who were expected to receive 2% on their claims. 23 Debtors proposed to pay directly the secured creditors on their 24 home and one vehicle. The bankruptcy court confirmed Debtors’ 25 plan by order entered on March 2, 2011. 26 Just over two and a half months later, on May 24, 2011, 27 Debtors filed amended Schedules I and J. On amended Schedule I, 28 Mr. Mattson was now listed as a “janitor” (rather than
-4- 1 substitute) and the average monthly income for both Debtors had 2 increased to a total of $5,936 per month. Ms. Mattson’s income 3 had increased slightly more than $400 a month, and Mr. Mattson’s 4 income had doubled, to over $2450 per month. The amended 5 Schedule J listed higher expenses totaling $4,906 per month, 6 nearly $800 per month higher than the original schedule. While 7 the amended Schedule J no longer reflected business operation 8 expenses of $288 per month, indicating Debtors’ apparent 9 abandonment of Mr. Mattson’s previous business, expenses in 10 nearly every other category increased. Some of the increases 11 reflected potentially expected changes due to Mr. Mattson’s 12 increase to full time employment as a janitor (increases in 13 transportation and clothing, for example). However, the amended 14 Schedule J also included increased expenses in other areas (for 15 example, electricity and heating fuel for Debtors’ home, home 16 maintenance, food, medical and dental expenses, vehicle 17 maintenance and licensing, and recreation and entertainment). 18 In total, though, the amended Schedule I and Schedule J showed 19 an overall increase in monthly excess income to $1,030 per 20 month. 21 Approximately three weeks after the amended schedules were 22 filed, or just over three months after the plan had been 23 confirmed, Debtors filed their amended plan and a motion for 24 modification on June 15, 2011. In their motion to modify, 25 Debtors stated that modification was necessary because their 26 income had increased. Under the amended plan and motion, 27 Debtors’ plan would be modified to provide for increased 28 payments of $900 per month in June 2011 and then $1,000 per
-5- 1 month beginning with the July 2011 payment and the term of the 2 plan would be reduced from 60 to 36 months. Debtors’ amended 3 plan proposed to pay their attorney and unsecured creditors, who 4 would receive a payout increasing from $4,000 to $30,000. 5 The chapter 13 trustee objected to Debtors’ motion, arguing 6 that Debtors should be required to pay the increased $1,000 7 monthly payment for the confirmed commitment period of 60 8 months. Under the originally filed means test, from which 9 Debtors had increased their income, Debtors had a positive 10 monthly disposable income of $253 per month. Given the positive 11 disposable income figure, the trustee argued, Debtors were not 12 permitted under the Ninth Circuit’s decision in Maney v. 13 Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), to 14 seek a deviation from the 60 month commitment period and Debtors 15 cited no authority in their motion which would allow them to do 16 so. The trustee maintained that because Debtors’ income had 17 increased there was no reason why Debtors could not make 18 payments for 60 months. Lastly, the trustee argued that 19 Congress clearly intended that above-median debtors propose and 20 complete a 60 month plan. 21 Debtors replied that they were not bound to any 22 predetermined commitment period because income based 23 calculations under § 1325(b) were not applicable to 24 modifications under § 1329 under our holding in Sunahara v. 25 Burchard (In re Sunahara), 326 B.R. 768 (9th Cir. BAP 2005). 26 Debtors argued that as long as their proposed amended plan was 27 filed in good faith and met the other requirements of chapter 13 28 incorporated into § 1329, they could reduce the duration of the
-6- 1 plan, without consideration of the applicable commitment period 2 in the confirmed plan. Debtors also cited other bankruptcy 3 court decisions in the Ninth Circuit which they contended 4 authorized the debtor to amend his or her plan to less than 60 5 months. In re Hall, 442 B.R. 754, 760-61 (Bankr. D. Idaho 6 2010); In re Ewers, 366 B.R. 139, 143 (Bankr. D. Nev. 2007). 7 After a hearing on July 5, 2011, the matter was submitted 8 and the bankruptcy court issued its published opinion. In it, 9 the court decided that a predictable test for crafting and 10 reviewing plan modifications was preferable to the good faith 11 analysis espoused in In re Sunahara. Accordingly, the court 12 held that, in addition to the Sunahara good faith analysis, plan 13 modification under § 1329 also requires the moving party to show 14 that there has been a substantial change in the debtor’s 15 circumstances after confirmation “which was unanticipated or 16 otherwise could not be taken into account at the time of the 17 confirmation hearing, and that the change in the plan 18 correlate[s] to the change in circumstances.” In re Mattson, 19 456 B.R. at 82 (emphasis in original). In light of this 20 standard, the bankruptcy court found that Debtors’ proposed 21 modification to shorten the term of their plan did not correlate 22 with the change in circumstances——their increased income. Id. 23 The bankruptcy court also addressed the relevance of the 24 applicable commitment period to plan modifications. The court 25 found that § 1329(c), which states that a plan “modified under 26 this section may not provide for payments over a period that 27 expires after the applicable commitment period under section 28 1325(b)(1)(B),” suggested that the applicable commitment period
-7- 1 did not go away with modification, but was fixed at 2 confirmation. Id. at 83. In other words, “[t]he plan may be 3 extended by the Court for good cause, though not beyond five 4 years, but the applicable commitment period from § 1325(b) 5 cannot be altered.” Id. However, the bankruptcy court did not 6 accept the trustee’s position that, unless a debtor proposed to 7 pay the unsecured creditors in full, the length of the plan 8 could not be reduced under § 1329(a)(2). The court acknowledged 9 that a debtor’s financial circumstances may change in a way that 10 justified a reduction in plan length as demonstrated by In re 11 Ewers, 366 B.R. 139.2 12 The bankruptcy court entered the Memorandum Decision on 13 August 26, 2011. Debtors timely appealed. 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. ISSUE 19 Whether the bankruptcy court abused its discretion in 20 21 2 In Ewers, the debtors’ income went down when they retired after confirmation of their plan. They moved to reduce the term 22 of their plan from five years to three years. The bankruptcy 23 court held that the term of a modified plan is not restricted to the applicable commitment period that was first established 24 under § 1325(b). The court found that the debtors’ chapter 13 plan may be modified to a three-year plan without paying their 25 unsecureds in full, if the plan otherwise satisfied the 26 requirements of § 1329(b), which included the requirement of good faith under § 1325(a). In the end, the bankruptcy court 27 allowed the trustee to provide further briefing on the issue of the debtors’ good faith with respect to the timing of their 28 retirement.
-8- 1 denying Debtors’ request to shorten the term of their plan from 2 five years to three years. 3 IV. STANDARDS OF REVIEW 4 Modification under § 1329 is discretionary. In re 5 Sunahara, 326 B.R. at 772; Powers v. Savage (In re Powers), 202 6 B.R. 618, 623 (9th Cir. BAP 1996). A bankruptcy court abuses 7 its discretion if it applies the wrong legal standard or its 8 findings are illogical, implausible or without support in the 9 record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 10 832 (9th Cir. 2011). 11 While the bankruptcy court’s decision whether to allow 12 modification is reviewed for abuse of discretion, whether the 13 bankruptcy court was correct in its interpretation of the 14 applicable statutes is reviewed de novo. Towers v. United 15 States (In re Pac.-Atlantic Trading Co.), 64 F.3d 1292, 1297 16 (9th Cir. 1995). 17 Whether a plan modification has been proposed in good faith 18 by the debtor is a question of fact, and the bankruptcy court’s 19 findings on that issue are reviewed for clear error. Downey 20 Sav. & Loan Ass’n v. Metz (In re Metz), 820 F.2d 1495, 1497 (9th 21 Cir. 1987). A factual finding is clearly erroneous if it is 22 illogical, implausible, or without support in inferences that 23 can be drawn from the facts in the record. United States v. 24 Hinkson, 585 F.3d 1247, 1262–63 (9th Cir. 2009) (en banc). 25 We may affirm on any ground supported by the record. 26 Siriani v. Nw. Nat’l Ins. Co. (In re Siriani), 967 F.2d 302, 304 27 (9th Cir. 1992). 28
-9- 1 V. DISCUSSION 2 Chapter 13 plan modification is governed by § 1329. 3 Section 1329(a) provides for post-confirmation plan 4 modifications under four delineated circumstances, two of which 5 are relevant here: 6 At any time after confirmation of the plan but before the completion of payments under such plan, the plan 7 may be modified, upon request of the debtor . . ., to—— 8 (1) increase . . . the amount of payments on claims of 9 a particular class provided for by the plan; 10 (2) extend or reduce the time for such payments[.] 11 When a debtor’s proposed modifications fall within one or 12 both of these provisions, the bankruptcy court must then decide 13 whether the proposed modification complies with § 1329(b)(1). 14 That section states: “[s]ections 1322(a), 1322(b), and 1323(c) 15 of this title and the requirements of § 1325(a) of this title 16 apply to any modification under subsection (a) of this section.” 17 The statute’s reference to § 1325(a) means that the plan as 18 modified must be proposed in good faith under § 1325(a)(3). In 19 this Circuit, bankruptcy courts make good faith determinations 20 under § 1325(a)(3) on a case-by-case basis, after considering 21 the totality of the circumstances. See Leavitt v. Soto (In re 22 Leavitt), 171 F.3d 1219, 1224–25 (9th Cir. 1999); 550 W. Ina Rd. 23 Trust v. Tucker (In re Tucker), 989 F.2d 328, 330 (9th Cir. 24 1993); Goeb v. Heid (In re Goeb), 675 F.2d 1386, 1390 & n.9 (9th 25 Cir. 1982); see also Smyrnos v. Padilla (In re Padilla), 213 26 B.R. 349, 352 (9th Cir. BAP 1997). 27 Notably missing from § 1329 is any express requirement that 28 a substantial and unanticipated change in the debtor’s financial
-10- 1 circumstances is a threshold requirement to overcome the res 2 judicata effect of a confirmed plan under § 1327(a).3 However, 3 concerns over the finality of a confirmed plan led to the 4 judicially developed substantial and unanticipated change test 5 to inform the court on the initial question of whether the 6 doctrine of res judicata prevented modification of a confirmed 7 plan. See Murphy v. O’Donnell (In re Murphy), 474 F.3d 143, 149 8 (4th Cir. 2007). The Fourth Circuit, which is the only Court of 9 Appeals to apply the substantial and unanticipated change test, 10 explained the multi-step analysis for plan modification using 11 the test: 12 [W]hen a bankruptcy court is faced with a motion for modification pursuant to §§ 1329(a)(1) or (a)(2), the 13 bankruptcy court must first determine if the debtor experienced a substantial and unanticipated change in 14 his post-confirmation financial condition. This inquiry will inform the bankruptcy court on the 15 question of whether the doctrine of res judicata prevents modification of the confirmed plan. If the 16 change in the debtor’s financial condition was either insubstantial or anticipated, or both, the doctrine of 17 res judicata will prevent the modification of the confirmed plan. However, if the debtor experienced 18 both a substantial and unanticipated change in his 19 3 20 Section 1327(a) addresses the finality of chapter 13 plan confirmation orders: “The provisions of a confirmed plan bind 21 the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such 22 creditor has objected to, has accepted, or has rejected the 23 plan.” We have observed that “‘[t]he purpose of § 1327(a) is the same as the purpose served by the general doctrine of res 24 judicata. There must be finality to a confirmation order so that all parties may rely upon it without concern that actions 25 which they may thereafter take could be upset because of a later 26 change or revocation of the order . . . .’” Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916, 923 (9th 27 Cir. BAP 1998), aff’d 193 F.3d 1083 (9th Cir. 1999). We use the term res judicata in its generic sense to encompass the claim 28 preclusion and issue preclusion doctrines.
-11- 1 post-confirmation financial condition, then the bankruptcy court can proceed to inquire whether the 2 proposed modification is limited to the circumstances provided by § 1329(a). If the proposed modification 3 meets one of the circumstances listed in § 1329(a), then the bankruptcy court can turn to the question of 4 whether the proposed modification complies with § 1329(b)(1). 5 6 Id. at 150 (citing Arnold v. Weast (In re Arnold), 869 F.2d 240, 7 243 (4th Cir. 1989). 8 The First, Fifth and Seventh Circuits have rejected this 9 approach and do not impose on parties seeking to modify a 10 confirmed plan the threshold requirement of the substantial 11 unanticipated change test. See Barbosa v. Soloman, 235 F.3d 31, 12 41 (1st Cir. 2000), Meza v. Truman (In re Meza), 467 F.3d 874, 13 878 (5th Cir. 2006), and In re Witkowski, 16 F.3d 739, 746 (7th 14 Cir. 1994) all holding that no change in circumstances is 15 required. The Ninth Circuit has not directly ruled on the issue 16 but in Anderson v. Satterlee (In re Anderson), 21 F.3d 355, 358 17 (9th Cir. 1994) suggested in dicta that the substantial and 18 unanticipated change test applies.4 See Pak v. eCast Settlement 19 Corp. (In re Pak), 378 B.R. 257, 268 (9th Cir. BAP 2007). 20 Although dicta from the Ninth Circuit is persuasive, we are 21 bound only by the Ninth Circuit’s holdings and not by the 22 court’s election, whether express or implied, to leave open 23 24 4 In In re Anderson, which was not a plan modification 25 case, the Ninth Circuit stated that the trustee can request a 26 modification under § 1329(a), but bears “the burden of showing a substantial change in debtor’s ability to pay since the plan was 27 confirmed and that the prospect of that change had not already been taken into account at the time of confirmation.” 21 F.3d 28 at 358.
-12- 1 particular legal questions.5 However, in interpreting a 2 statute, we have been instructed to follow the plain meaning 3 rule and apply a statute according to its terms unless to do so 4 would lead to absurd results. U.S. Trustee v. Lamie, 540 U.S. 5 526, 534 (2004). As a consequence, we have traditionally taken 6 a plain meaning approach to statutory interpretation questions. 7 For this reason, in In re Powers, Max Recovery, Inc. v. Than (In 8 re Than), 215 B.R. 430, 435 (9th Cir. BAP 1997), and McDonald v. 9 Burgie (In re Burgie), 239 B.R. 406, 409 (9th Cir. BAP 1999), we 10 held that the res judicata doctrine did not apply to plan 11 modifications and, therefore, the substantial and unanticipated 12 change test was unnecessary as a threshold requirement because 13 the plain language of § 1329 did not support this judicially 14 created requirement.6 See also Ledford v. Brown (In re Brown), 15 219 B.R. 191, 195 (6th Cir. BAP 1998) (same). 16 Despite our not adopting the substantial and unanticipated 17 5 For this same reason, we are not convinced that the 18 Supreme Court’s dicta in Ransom v. FIA Card Servs., N.A., ___ 19 U.S. ___, 131 S. Ct. 716 (2011) fares any better. The issue in Ransom also was not about plan modification but whether the 20 debtor was entitled to a car-ownership deduction for purposes of the means test when he owned his car free and clear. The 21 Supreme Court held that the debtor was not entitled to a 22 deduction expense for a vehicle which he did not have. The court further held that “[t]he appropriate way to account for 23 unanticipated expenses like a new vehicle purchase is not to distort the scope of a deduction, but to use the method that the 24 Code provides for all Chapter 13 debtors (and their creditors): modification of the plan in light of changed circumstances.” 25 Id. at 730. 26 6 We are bound by these prior decisions. Ball v. 27 Payco–Gen. Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir. BAP 1995) (holding that the Panel is bound by 28 decisions of prior Panels).
-13- 1 change test as a prerequisite to plan modification, we have 2 held, as did the Seventh Circuit in In re Witkowski, that the 3 bankruptcy court may consider a change in circumstances in the 4 exercise of its discretion. In re Powers, 202 B.R. at 623. In 5 the end, in evaluating plan modifications, it may make little 6 practical difference whether the bankruptcy court applies the 7 substantial and unanticipated change test as a threshold 8 requirement or uses it as a discretionary tool.7 9 In light of this background, and the purpose behind the 10 substantial and unanticipated change test, we conclude that to 11 the extent the bankruptcy court applied the test it was harmless 12 error given that Debtors did experience a substantial and 13 unanticipated change in their post-confirmation income. Thus, 14 15 7 As the bankruptcy court in In re Klus, 173 B.R. 51, 58 16 (Bankr. D. Conn. 1994) noted:
17 There may be little practical difference between those two positions. The plain language of subsection (3) 18 of § 1329(a) requires a post-confirmation change in 19 circumstances, i.e. payment on the claim outside of the plan. While subsections (1) and (2) contain no 20 such requirement, the significance of that fact is limited by § 1329(b)(1), which requires that the 21 modified plan comply with § 1325(a). If, for example, a creditor seeks to modify the plan to increase 22 payments to the unsecured creditor class under 23 § 1329(a)(1), the modification cannot be approved unless the debtor has the ability to make the 24 increased payments. See § 1325(a)(6). If the debtor has satisfied the obligation to use all disposable 25 income to fund the plan, see § 1325(b), the creditor’s 26 modification will be disapproved unless there has been a post-confirmation improvement in the debtor’s 27 financial circumstances. Conversely, any effort by the debtor to reduce payments is circumscribed by the 28 good faith requirement of § 1325(a)(3) . . . .
-14- 1 even under the Fourth Circuit’s more stringent standard, the 2 doctrine of res judicata did not prevent Debtors from modifying 3 their plan under § 1329(a)(1) or (2).8 Nevertheless, the 4 bankruptcy court was still required to determine whether 5 Debtors’ proposed modification to reduce the term of their plan 6 complied with § 1329(b)(1) and its cross reference to the good 7 faith requirement under § 1325(a)(3). 8 In this regard, the bankruptcy court acknowledged our 9 holding in In re Sunahara that § 1329(b)(1) does not reference 10 or otherwise incorporate the provisions concerning the 11 disposable income test and applicable commitment period 12 contained in § 1325(b).9 See also In re Hall, 442 B.R. at 761 13 (holding because § 1329 does not include any reference to 14 § 1325(b), even though § 1329 includes specific reference to 15 16 8 Whether Debtors should have been allowed to modify their 17 plan by increasing plan payments under § 1329(a)(1) is not at issue in this appeal. 18 9 19 Section 1325(b)(1) states:
20 If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then 21 the court may not approve the plan unless, as of the effective date of the plan—— 22 23 (A) the value of the property to be distributed under the plan on account of such claim is not less than the 24 amount of such claim; or 25 (B) the plan provides that all of the debtor’s 26 projected disposable income to be received in the applicable commitment period beginning on the date 27 that the first payment is due under the plan will be applied to make payments to unsecured creditors under 28 the plan.
-15- 1 other Code sections, the requirements of § 1325(b) should not be 2 applicable to § 1329 modifications).10 As a result, if a 3 debtor’s plan modification was challenged, he or she need not 4 show that all of their projected disposable income was devoted 5 to making plan payments under the modified plan. In re 6 Sunahara, 326 B.R. at 781-82. 7 However, as the bankruptcy court aptly observed, In re 8 Sunahara did not leave a wide open field for modifications to be 9 approved. In re Mattson, 456 B.R. at 79; see also Barbosa, 235 10 F.3d at 41 (noting that “as a practical matter, parties 11 requesting modifications of Chapter 13 plans must advance a 12 legitimate reason for doing so”); In re Powers, 202 B.R. at 622 13 (“Although a party has an absolute right to request modification 14 between confirmation and completion of the plan, modification 15 under § 1329 is not without limits.”); In re Meeks, 237 B.R. 16 856, 859-60 (Bankr. M.D. Fla. 1999) (“[T]he Debtors need not 17 demonstrate a substantial, unanticipated change in circumstances 18 in order to modify their confirmed chapter 13 plan. However, 19 neither can Chapter 13 debtors simply modify their plans willy 20 nilly.”). 21 The Sunahara Panel held that 22 [I]mportant components of the disposable income test are employed as part of a more general analysis of the 23 total circumstances militating in favor of or against the approval of modification, without requiring 24 tortured and illogical statutory interpretations (where the outcome differs depending upon which party 25 26 10 Although there is a split of authority on this issue, the 27 majority of courts hold that post-confirmation modifications are not governed by § 1325(b). In re Grutsch, 453 B.R. 420, 424 & 28 n.14 (Bankr. D. Kan. 2011) (collecting cases).
-16- 1 is seeking modification, whether a certain party has objected, or whether ‘extraordinary circumstances’ 2 exist, etc.). 3 326 B.R. at 781. Thus, the Panel instructed the bankruptcy 4 court to “carefully consider whether modification has been 5 proposed in good faith.” Id. (citing § 1325(a)(3)). We 6 reasoned that a good faith determination 7 necessarily requires an assessment of a debtor’s overall financial condition including, without 8 limitation, the debtor’s current disposable income, the likelihood that the debtor’s disposable income 9 will significantly increase due to [greater] income or decreased expenses over the remaining term of the 10 original plan, the proximity of time between confirmation of the original plan and the filing of 11 the modification motion, and the risk of default over the remaining term of the plan versus the certainty of 12 immediate payment to creditors. 13 Id. at 781-82; see also In re Grutsch, 453 B.R. at 427 (“‘The 14 good faith requirement of § 1325(a)(3) fills the gap that would 15 otherwise exist, allowing all parties to object to inappropriate 16 payment terms——whether excessive or inadequate——in a proposed 17 modification.’”). 18 Here, the bankruptcy court believed that the good faith 19 test lacked predictability and therefore added the requirements 20 of the substantial and unanticipated change test and that the 21 change in the plan correlate to the change in circumstances. 22 456 B.R. at 82. We conclude that the bankruptcy court’s second 23 requirement——that the proposed modification correlate to 24 Debtors’ change in circumstances——necessarily implicates a good 25 faith analysis. See In re Savage, 426 B.R. 320, 324 & n.3 26 (Bankr. D. Minn. 2010) (in order to comply with the “good faith” 27 requirement of § 1325(a)(3), “the required change in financial 28 circumstances should be directly resonant with the nature of the
-17- 1 proposed modification”).11 Indeed, we view the bankruptcy 2 court’s correlation requirement as simply another factor that 3 may be considered under the totality of circumstances approach 4 to a good faith analysis in this Circuit. We emphasize, 5 however, that no single factor is determinative of the lack of 6 good faith. 7 Contrary to the bankruptcy court’s belief that the good 8 faith test lacks predictability, we continue to accept that a 9 good faith analysis under § 1325(a)(3), although not an exact 10 science, adequately guides the exercise of the court’s 11 discretion for deciding plan modification issues. 12 [O]ur reliance in Sunahara on the § 1325(a)(3) good faith standard is vulnerable to criticism that it 13 introduces a level of subjectivity that could yield disparate results. That subjectivity, however, is 14 constrained by settled law of the circuit that good faith is to be assessed through the matrix of whether 15 the plan proponent ‘acted equitably’ taking into account ‘all militating factors’ in a manner that 16 equates with the ‘totality’ of circumstances. 17 Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 543 (9th Cir. 18 BAP 2007) (citation omitted). Thus, the Fridley Panel dismissed 19 the argument that adopting the reasoning in In re Sunahara would 20 license “circumvention of § 1325(b) by the ploy of confirming a 21 plan that complies with § 1325(b) and then promptly modifying 22 11 23 Similar to the bankruptcy court here, the bankruptcy court in In re Savage required that any modification that would 24 reduce a debtor’s payment obligations and creditors’ distribution rights to be supported by a material, adverse 25 change in the debtor’s financial circumstances, that took place 26 after the confirmation of the original plan. 426 B.R. at 324. Recently, the Eighth Circuit Bankruptcy Appellate Panel in 27 Johnson v. Fink (In re Johnson), 458 B.R. 745, 749 (8th Cir. BAP 2011) has cited with approval the holdings in In re Savage and 28 In re Mattson.
-18- 1 the plan in a manner that does not comply with § 1325(b). Such 2 a stratagem plainly would be an unfair manipulation of the 3 Bankruptcy Code, which is a factor named in Goeb as indicative 4 of a plan proponent not acting equitably and, hence, not in good 5 faith.” Id. 6 The “settled law” in this Circuit referred to by In re 7 Fridley demonstrates that the good faith test under § 1325(a)(3) 8 is neither ill-defined nor does it lack a predictable base. In 9 In re Goeb, the Ninth Circuit set forth a generalized test for 10 good faith that includes consideration of the substantiality of 11 proposed plan payments; whether the debtor has misrepresented 12 facts in the plan; whether the debtor has unfairly manipulated 13 the Bankruptcy Code; and whether the plan is proposed in an 14 equitable manner. 675 F.2d at 1390. At the very least, these 15 factors direct attention away from the amorphous good faith 16 concept, bringing relevant facts to the foreground. Moreover, 17 the standards set forth in In re Goeb offer a solid framework 18 for evaluating a variety of circumstances, which is consistent 19 with the discretionary aspect of plan modifications. At bottom, 20 determinations of good faith are made on a case-by-case basis, 21 after considering the totality of the circumstances. Id. 22 Finally, bankruptcy courts are not free to ignore the concept of 23 good faith in plan modifications given that § 1329 specifically 24 references § 1325(a) and its good faith requirement. 25 The bankruptcy court’s holding and the facts of this case 26 fit within a conventional good faith analysis. The burden of 27 establishing that a plan is submitted in good faith is on the 28 debtor. Fid. & Cas. Co. of N.Y. v. Warren (In re Warren), 89
-19- 1 B.R. 87, 93 (9th Cir. BAP 1988); see also In re Hall, 442 B.R. 2 at 758 (moving party bears the burden of showing sufficient 3 facts to indicate that modification of debtors’ confirmed 4 chapter 13 plan is warranted). Further, the bankruptcy court 5 has an independent duty to determine whether a chapter 13 plan 6 is proposed in good faith. Villanueva v. Dowell (In re 7 Villanueva), 274 B.R. 836, 841 (9th Cir. BAP 2002). 8 Here, the record shows Debtors failed to meet their burden 9 of proving that the shortened term of their plan was made in 10 good faith under the Goeb standards. Those standards clearly 11 require more than a showing of Debtors’ subjective good faith. 12 Simply put, Debtors’ contribution of a portion of their 13 increased income to their plan for a three year period does not 14 amount to per se good faith. 15 Indeed, the bankruptcy court considered whether Debtors’ 16 proposal was made in good faith in light of the relevant 17 militating factors. The court found Debtors were not retiring, 18 leaving the employment market or changing jobs in some other way 19 nor did they contend they had health issues. Debtors do not 20 dispute these findings on appeal nor do they point to any facts 21 in the record which showed they would be unable to continue 22 their increased payments beyond the 36 month period that they 23 proposed. Although the doctrine of res judicata did not prevent 24 Debtors from shortening the term of their plan, they advanced no 25 legitimate reason for doing so under the circumstances. 26 As a consequence, in light of Debtors’ increased income, 27 allowing them to shorten the term for their plan would be an 28 inequitable result under In re Goeb. See also In re Stitt, 403
-20- 1 B.R. 694, 703 (Bankr. D. Idaho 2008) (noting that the “good 2 faith requirement of § 1325(a)(3) gauges the overall fairness of 3 a debtor’s treatment of creditors under a plan”). In addition, 4 Debtors’ proposed modification to shorten the term of the plan 5 when their income significantly increased is inconsistent with 6 the overall policies of chapter 13 and the enactment of BAPCPA, 7 which “has been read to tighten, not loosen, the ability of 8 debtors to avoid paying what can reasonably be paid on account 9 of debt.” In re Kamell, 451 B.R. 505, 508 (Bankr. C.D. Cal. 10 2011). As the bankruptcy court aptly noted, “there is clearly 11 more that could——in ‘good faith’——be paid to their creditors.” 12 In re Mattson, 456 B.R. at 79. 13 Finally, we emphasize that the continued absence from 14 § 1329(b)(1) of any reference to § 1325(b) is conclusive as to 15 whether a debtor may modify his or her plan to reduce the term 16 below the applicable commitment period required for an original 17 plan. “Congress is presumed to act intentionally and 18 purposefully when it includes language in one section of the 19 Bankruptcy Code, but omits it in another section.” In re Ewers, 20 366 B.R. at 143. Congress, aware of the function of the means 21 test in chapter 13 relating to confirmation of original plans, 22 did not amend § 1329(b)(1) to incorporate § 1325(b). As noted 23 by the bankruptcy court in In re Ewers, “BAPCPA added the term 24 [applicable commitment period] in § 1329(c), which deals with 25 the maximum length of a modified plan, obviously as a conforming 26 amendment. . . . ‘Three years’ in § 1329(c) was switched to 27 ‘the applicable commitment period under section 1325(b)(1)(B),’ 28 no doubt, to be harmonious with § 1325(b).” Id. at 143. Having
-21- 1 taken the opportunity to amend § 1329(c), Congress’s decision 2 not to amend § 1329(b) may be seen as deliberate. 3 Therefore, the plain language of § 1329(a)(2), which 4 authorizes modifications to extend or reduce the time for 5 payments under the plan, continues to control. As the 6 bankruptcy court correctly acknowledged, a debtor’s 7 circumstances may justify a reduction in plan length. Mattson, 8 456 B.R. at 83 (citing In re Ewers, 366 B.R. 139).12 In the end, 9 the appropriateness of any particular modification is subject to 10 the court’s discretion, as limited by § 1329. 11 VI. CONCLUSION 12 For the reasons stated, we conclude that the bankruptcy 13 court did not abuse its discretion in denying Debtors’ proposed 14 modification to shorten the term of their plan. Accordingly, we 15 AFFIRM. 16 17 18 19 20 21 22 23 12 Although the trustee cites Maney v. Kagenveama (In re 24 Kagenveama), 541 F.3d 868 (9th Cir. 2008), we do not find this decision persuasive for purposes of this appeal. As the 25 bankruptcy court in In re Stitt observed, “while Kagenveama 26 guides bankruptcy courts in interpreting certain new terms in the Code, it does not require them to retreat from the pointed, 27 case-by-case analysis used to determine whether a plan has been proposed in good faith as formulated in its earlier decisions.” 28 403 B.R. at 702.
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