FILED AUG 15 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. CC-21-1249-TLG YOSHIHIRO TAJIMA and TOMOKO NAKAJIMA, Bk. No. 2:21-bk-14177-SK Debtors.
SWARNJIT SINGH SAHNI, Appellant, v. MEMORANDUM∗ YOSHIHIRO TAJIMA; TOMOKO NAKAJIMA; KATHY A. DOCKERY, Chapter 13 Trustee, Appellees.
Appeal from the United States Bankruptcy Court for the Central District of California Sandra R. Klein, Bankruptcy Judge, Presiding
Before: TAYLOR, LAFFERTY, and GAN, Bankruptcy Judges.
Memorandum by Judge Taylor. Concurrence by Judge Lafferty.
∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION
Creditor Swarnjit Singh Sahni (“Sahni”) appeals the bankruptcy
court’s order confirming the first amended chapter 131 plan proposed by
Yoshihiro Tajima and Tomoko Nakajima (“Debtors”). Pre-confirmation,
Debtors filed an objection to Sahni’s $385,926.55 proof of claim and an
adversary proceeding challenging the amount and validity of Sahni’s
junior lien on their residence. But in their first amended plan, the Debtors
identified Sahni’s claim as secured and proposed to pay a portion of the
claim amount, with interest at a non-note rate, over the 5-year life of the
plan. The plan also provided for unspecified modification or dismissal if
Debtors’ claim objection failed. Sahni objected to this treatment. At the
confirmation hearing, the Debtors proposed an additional lump sum
payment in month 24 which would purportedly allow payment of the
Sahni’s claim in full over five years at an amount that assumed litigation
success. Sahni continued to object, but the bankruptcy court, with almost
no findings, confirmed the plan. Given the lack of adequate findings and
the plan’s facial failure to comply with §§ 1322 and 1325(a), we VACATE
and REMAND.
FACTS 2
A. Debtors’ chapter 13 petition
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532. “Rule” references are the Federal Rules of Bankruptcy Procedure. 2 Where necessary, we have exercised our discretion to take judicial notice of the
2 Debtors’ chapter 13 schedules, plan, and claims docket evidence only
one serious financial problem. They owe a small priority tax debt and a
single unsecured credit card claim. Their plan pays these claims in full.
And while two trust deeds encumber their residence (the “Home”), the
senior secured debt is neither in default nor paid under their plan. But the
Debtors listed Sahni’s fully matured claim as “disputed,” and they filed
their chapter 13 petition on the eve of Sahni’s foreclosure under the junior
trust deed encumbering the Home.
B. The dispute with Sahni
Sahni’s second trust deed secures a note evidencing a $300,000 hard-
money, high-interest, short-term loan (the “Loan”). The note bears non-
default interest at 10% and matured pre-petition, approximately one year
after origination.
The Debtors were unable to repay the Loan as required, and Sahni
pursued foreclosure. When the Debtors filed bankruptcy, Sahni filed a
proof of secured claim in the amount of $385,926.55, all of which was
characterized as arrearage in the form of unpaid principal, interest, late
fees, and pre-petition attorneys’ fees. Further, the schedules reflected that
Sahni was over-secured, so contractual interest would continue over the
dockets and imaged papers filed in Debtors’ bankruptcy case and the related adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 3 course of the chapter 13 case. Debtors’ schedules evidence no ability to pay
the claim amount in full in equal monthly installments over 60 months.
But the Debtors’ situation is far from hopeless. They objected to
Sahni’s claim, alleging that he failed to provide disclosures as required by
the Truth in Lending Act, 15 U.S.C. § 1601 et seq.(“TILA”), and the Real
Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2601 et seq.
(“RESPA”), when making the Loan; they requested rescission and argued
that Sahni, at best, held an unsecured claim in a vastly reduced amount.
Specifically, the Debtors allege that they are entitled to a statutory
reduction of the debt by 200% of the loan charges of $79,939.73 or
$159,879.46. They also assert that the interest rate is usurious and is an
unenforceable penalty, at least in part. After giving credit for the $30,000
interest prepayment, removal of the asserted pre-petition fees and costs
and certain other reductions, they conclude that Sahni has an unsecured
claim of no more than $132,089.07.
The Debtors also filed an adversary proceeding on the same theories
seeking a determination of the validity, priority, or extent of Sahni’s lien,
objecting to Sahni’s claim, and requesting a reduction of the interest rate to
7.89%. 3
In response, Sahni conceded that he did not make TILA and
RESPA disclosures but argued that he is not a “creditor” under these
3 Debtors computed interest as the “Average Prime Offer Rate of 4.39% plus 3.5% interest for subordinate lien under 12 CFR 1026.35(a)(iii).” 4 statutes and therefore had no disclosure obligations. He also argued that
the rescission notice was untimely, that the statute of limitations had run,
and that the Debtors had not and could not tender the rescission amount.
As a result of this dispute and until its resolution, formulation of a
chapter 13 plan and confirmation consistent with § 1325(a) was necessarily
complicated.
C. The initial chapter 13 plan process
Debtors’ original plan paid nothing to Sahni. But after it drew
objections from the chapter 13 trustee as well as Sahni, Debtors filed an
amended plan. The amended plan increased monthly plan payments from
$43.98 to $1,112 per month in months five through sixty and provided for
$869.00 in monthly payments to Sahni.
The amended plan placed Sahni’s claim in class 2 which is reserved
for secured obligations maturing after the plan term. This is curious
because no one disputes that the claim matured pre-petition even as the
Debtors hotly dispute that it should be treated as secured. It then provided
that the arrearage on the Sahni claim was $132,089.07 and called for an
interest rate of 7.89%. And this was odd because the amended plan paid
Sahni only $52,140 and obviously problematic because it does not pay the
specified arrearage in equal monthly installments as required by
§ 1325(a)(5)(B)(iii)(I).
And contained in the amended plan were other facial problems. Plan
payments for the first four months were only $43.98 so it is mathematically
5 impossible for the trustee to pay $869.00 in each of 60 months – even as we
assume there is no problem if she is able to advance the required payments
at confirmation. The plan was confirmed a little over five months into the
case. At that point, five months of payments at $869.00 would equal $4,345.
But the total amount actually paid under the plan, four months of $43.98
payments plus one month of $1,112 payments equaled only $1,287.92 at
confirmation. The amended plan would be in default immediately.
Also, the amended plan provided that the amount of arrearage in the
proof of claim ($385,926.55) controls over the amount of arrearage in the
plan ($132,089.07). This further complicates the ability to make payments as
required by the Code.
Section IV.D. of the amended plan attempted to remedy some of the
amended plan’s problem through a non-standard provision that allowed
for a final calculation of the amount owed to Sahni after conclusion of the
claim objection and adversary proceeding litigation. It provided that the
amended plan’s terms did not have claim preclusive effect, required Sahni
to file an amended proof of claim after litigation concluded, and allowed
the Debtors, within an unspecified timeframe, to file a motion to further
modify the amended plan if it became “infeasible” as a result of this
litigation. Section IV.D. also allowed the chapter 13 trustee, but not Sahni,
to seek dismissal if the Debtors failed to file a modification motion. But this
language didn’t resolve the facial problems in the amended plan. And it is
silent as to the impact of any post-litigation appeal.
6 Lengthy comments and calculations of the estimated amount owed to
Sahni based on the alleged TILA and RESPA violations followed. The
explanation stated: “[t]he principal amount for the sole purpose of
disbursement of funds in this matter is $132,089.07.” There was no
explanation regarding the proposed amended plan payment of only
$52,140.
Sahni objected to confirmation of the amended plan on several
grounds including: its failure to pay his claim in full; its failure to pay even
$132,089.07; feasibility; the allegedly arbitrary and inappropriate reduction
in the interest rate; and bad faith.
D. Confirmation of the amended plan as modified
At the third continued confirmation hearing, the chapter 13 trustee
proposed, and Debtors’ counsel agreed, to modify the amended plan to
provide for a balloon payment of $119,395 in month 24.4 Sahni objected to
the proposal and requested time to do discovery and a Rule 2004 exam.
The bankruptcy court, however, confirmed the amended plan as so
modified (hereafter, the “Confirmed Plan”) at the hearing. It noted that the
Debtors had significant equity in the Home and posited that Debtors
would easily qualify for a refinance if necessary to meet their obligations
under the Confirmed Plan. The bankruptcy court made no findings
4 The confirmation order states that this equates to total plan payments of $180,730.92. 7 regarding how the Confirmed Plan met the confirmation requirements of
§ 1325 beyond the reference to feasibility.
The confirmation order omitted the language outlining the impact of
TILA and RESPA on the Sahni claim. Consistent with this deletion, the
record reflects a total absence of any attempt to resolve or even consider
the Debtors’ TILA/RESPA claims before confirmation. The claim objection
and adversary proceeding remain pending.5 The bankruptcy court has not
held a status conference, and the parties appear to have made little
progress towards resolution. This is perplexing.
Both Debtors’ claims and Sahni’s defenses are plausible, but the
dispute appears capable of prompt and perhaps summary resolution after
applying the law to the undisputed or easily determined facts. At bottom,
the first question is whether TILA disclosures were required. And the
controlling statutes and regulations are clear. Sahni became subject to TILA
if he made five or more loans during the relevant time period or a lesser
number of loans having certain characteristics such as high costs. 15 U.S.C.
§ 1602(g); 12 C.F.R. § 1026.2(a)(17).6 Next, if TILA is controlling, resolution
of the statute of limitation and timing issues probably requires little beyond
5 The parties stipulated to continue the claim objection motion status conference to July 26, 2022, pending the outcome of this appeal. The bankruptcy court continued the adversary status conference to that date as well. Thereafter, the bankruptcy court further continued the status conferences. 6 As the parties’ respective briefs focus on TILA, we cite only the TILA sections
and regulations at issue in the pending litigation. 8 reference to a calendar. See 15 U.S.C. § 1635(f). And if rescission is available,
the bankruptcy court has some discretion as to whether and how the
tender of the rescission amount will occur. See 15 U.S.C. § 1635(b).
Significant factual disputes do not appear likely to complicate this analysis.
Sahni timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(L). Subject to the discussion below, we have jurisdiction under
28 U.S.C. § 158.
ISSUES
1. Is the bankruptcy court’s order confirming the Confirmed Plan
a final order giving the Panel jurisdiction over this appeal?
2. Did the Confirmed Plan properly treat Sahni’s claim such that
confirmation was appropriate?
STANDARD OF REVIEW
Whether the order on appeal is a final order over which we have
jurisdiction under § 158(a)(1) is a question of law we assess de novo. E.g.,
Jue v. Liu (In re Liu), 611 B.R. 864, 870 (9th Cir. BAP 2020). “Under the
de novo standard of review, we do not defer to the lower court’s ruling but
freely consider the matter anew, as if no decision had been rendered
below.” United States v. Silverman, 861 F.2d 571, 576 (9th Cir.1988) (citing
Exner v. FBI, 612 F.2d 1202, 1209 (9th Cir. 1980)).
9 We review de novo a bankruptcy court’s interpretation of the
Bankruptcy Code. Meruelo Maddux Props.-760 S. Hill St. LLC v. Bank of Am.,
N.A. (In re Meruelo Maddux Props., Inc.), 667 F.3d 1072, 1076 (9th Cir.2012).
A bankruptcy court’s decision concerning confirmation of a
chapter 13 plan is reviewed for abuse of discretion. Bank of Am. Nat’l Tr. and
Savs. Ass’n (In re Slade), 15 B.R. 910, 913 (9th Cir. BAP 1981). A bankruptcy
court abuses its discretion if it applies the wrong legal standard, or
misapplies the correct legal standard, or if it makes factual findings that are
illogical, implausible, or without support in inferences that may be drawn
from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1262
(9th Cir. 2009) (en banc).
DISCUSSION
A. Jurisdiction
1. The confirmation order is a final order.
The Debtors assert that the confirmation order is not final for appeal
purposes and that this appeal should be dismissed. We disagree.
“[A] bankruptcy order is appealable where it 1) resolves and
seriously affects substantive rights and 2) finally determines the discrete
issue to which it is addressed.’” Wiersma v. Bank of the West (In re Wiersma),
483 F.3d 933, 939 (9th Cir. 2007) (cleaned up); see, Ritzen Gr., Inc. v. Jackson
Masonry, LLC, 140 S.Ct. 582, 588 (2020) (“Only plan approval . . . ‘alters the
status quo and fixes the rights and obligations of the parties.”). (cleaned
up). Section 1327(a) provides that the “provisions of a confirmed plan bind
10 the debtor and each creditor, whether or not the claim of such creditor is
provided for by the plan, and whether or not such creditor has objected to,
has accepted, or has rejected the plan.”
Debtors argue that the appeal is not “ripe” pointing to the paragraph
in the Confirmed Plan which states that it is not “res judicata [nor does it]
bind Creditor, SWAR[N]JIT SINGH SAHNI, to the amount proposed
[therein] within the meaning of 11 U.S.C. § 1327 or the calculation of
Amended Claim No. 6.” But the confirmation order clearly determined the
discrete issue of the confirmability of the Confirmed Plan. And it seriously
affected and fixed the substantive rights and obligations of all relevant
parties and the creditor body as a whole. Sahni will be paid as provided by
the Confirmed Plan, and he is bound by its injunction. The fact that there is
a potential for changed treatment based on a future contingency does not
make the confirmation order less than final. And this is particularly true
where this contingency is provided for by the Confirmed Plan.
2. The appeal is not moot.
The Debtors also argue that the appeal is moot because “the issues
presented are no longer live, and no case or controversy exists. The test for
mootness is whether the Court can still grant effective relief to the
prevailing party if the Court decides the merits in their favor,” citing Pilate
v. Burrell (In re Burrell), 415 F.3d 994, 998 (9th Cir. 2005).
Mootness is a basis to dismiss an appeal. See North Carolina v. Rice,
404 U.S. 244, 246 (1971) (“federal courts are without power to decide
11 questions that cannot affect the rights of litigants in the case before them.”)
(citation omitted). But this appeal is not moot.
The Debtors do not explain why the bankruptcy court cannot grant
effective relief to either party upon remand or why this is not “a real and
substantial controversy admitting of specific relief through a decree of a
conclusive character.” Id. Put bluntly, this is essentially a two-party case
where the issues between Debtors and Sahni can be easily adjusted
through a new plan and a change in payment terms, if feasible, or case
dismissal or conversion, if a payment change is not feasible and a plan
cannot be confirmed.
B. The Code’s confirmation requirements relating to secured claims applied to the Sahni claim and were not met in the Confirmed Plan. 1. The bankruptcy court did not estimate the Sahni claim for purposes of plan confirmation. Debtors argue at length that the bankruptcy court estimated Sahni’s
claim at $132,089.07 for the purpose of chapter 13 plan confirmation.
Section 502(c) states:
(c) There shall be estimated for purpose of allowance under this section— (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case. 11 U.S.C. § 502(c).
“‘Estimation’ simply means that the bankruptcy court may use its
discretion in determining the allowability of claims in bankruptcy.” Falk v.
12 Falk (In re Falk), BAP No. NC-12-1385-DJuPa, 2013 WL 5405564, at *5 (9th
Cir BAP Sept. 26, 2013) (citations omitted); see also, In re Pac. Gas & Elec. Co.,
295 B.R. 635, 642 (Bankr. N.D. Cal. 2003) (“estimation under section 502(c)
may be for broad or narrow purposes.”); In re N. Am. Health Care, Inc. 544
B.R. 684 (Bankr. C.D. Cal.2016) (“[e]stimation can take various forms and
can be made for different purposes.”) But there are several problems with
the assertion that estimation occurred here.
First, neither § 502(c) nor estimation in general were discussed either
at the confirmation hearing or in any of the plan-related documents, nor
did the Debtors request estimation by motion or otherwise. The estimation
argument is totally unsupported by the record.
Second, as the Bankruptcy Code states, a claim may be estimated
only when the claim is contingent or unliquidated. The claim here is
obviously not contingent and neither party argues otherwise. True, Debtors
assert on appeal that the claim is unliquidated but it is a contract claim and
the amount owed, albeit disputed, is readily discernable. Nicholes v. Johnny
Appleseed of Wash. (In re Nicholes), 184 B.R. 82, 89 (9th Cir. BAP 1995). And
Debtors contradict their own position on this point because in their
amended schedule D, they listed the Sahni debt as “disputed” but the box
“unliquidated” is not checked.
Finally, estimation is appropriate only where the time required to
complete the allowance process “would unduly delay the administration of
the case.” See 11 U.S.C. § 502(c). The bankruptcy court commented at the
13 confirmation hearing that it expected the pending issues to be “resolved
well before [two years].” We agree; the record supports that the Sahni
claim issues can be very promptly resolved. Absent a finding of undue
delay based on the facts of this case, estimation was not appropriate.
2. If the bankruptcy court estimated the claim, it became an allowed secured claim. As stated, § 502(c) provides that a claim “shall be estimated for
purpose of allowance under this section.” If the bankruptcy court actually
estimated the Sahni claim at $132,089.07, it became an allowed secured
claim for purposes of plan confirmation. As an allowed secured claim, the
Confirmed Plan must pay it in accordance with § 1325(a)(5)(B). It doesn’t.
3. The Sahni claim must be paid as required by the Code. Where a chapter 13 plan identifies a claim as secured and interest
bearing, it must pay it in accordance with § 1325(a)(5)(B). The Confirmed
Plan classified the Sahni claim as a class 2 secured claim and proposed to
pay it in an amount calculated by Debtors with interest. Confusingly, the
Confirmed Plan facially required payment of the proof of claim amount as
it states that: “[t]he arrearage amount stated on the proof of claim controls
over any contrary amount listed below.” But we need not resolve this facial
inconsistency because the Confirmed Plan pays neither the arrearage
expressly stated in the Confirmed Plan nor the arrearage in the Sahni proof
of claim as required by the Code.
14 Debtors argue that Sahni had no right to a payment that met the
requirements of §1325(a)(5)(B) because of their pending objection to the
Sahni claim. But this argument is contrary to the plain language of their
own plan. And it is otherwise not supportable as a matter of law. See de la
Salle v. U.S. Bank (In re de la Salle), 461 B.R. 593, 602 (9th Cir. BAP 2011). A
pending objection does not allow a chapter 13 debtor to ignore the Code’s
requirements for plan treatment of secured claims.
4. The Sahni claim is not paid as required by § 1325(a)(5)(B). Section 1325(a)(5)(B)(iii)(I) provides that the arrearage on an allowed
secured claim must be paid in equal monthly payments over the life of the
plan. Again, Debtors’ argument that their claim objection renders this
provision inapplicable lacks merit.
Even using the Debtors’ arrearage amount, the Confirmed Plan does
not comply with § 1325(a)(5)(B)(iii)(I). It makes monthly payments
designated at the confirmation hearing as “interest-only adequate
protection payments” and a one-time payment of some or all of $119,395.
Absent Sahni’s consent, and until receipt of the balloon payment,
§ 1325(a)(5)(B)(iii)(I) required Debtors, at a minimum, to pay the amount
necessary to amortize their self-selected secured claim amount, $132,780,
over the plan term. This required monthly payments of more than $2,213 at
confirmation; the Confirmed Plan pays only $869.00.
15 And again, the Confirmed Plan’s language stating that the actual
arrearage to be paid is the amount in the Sahni proof of claim would
require a much greater monthly payment to Sahni.
There is no finding or anything in the record that supports this
deviation from the chapter 13 plan confirmation requirements. 7
We assume that in proposing the balloon payment the chapter 13
trustee was trying to be an honest broker of a plan that had a chance of
garnering secured creditor consent. But when consent is not forthcoming,
neither the chapter 13 trustee nor the bankruptcy court should overlook a
plan’s noncompliance with the Code. And the chapter 13 trustee’s consent
to a plan should not support deviation from the correct application of
§ 1325(a)(5). Expediency has a place, but if the related litigation does not
support a prompt imposition of a litigation injunction, if creditor consent
cannot be obtained to interim plan treatment pending litigation outcomes,
or if payment pursuant to § 1325(a)(5) is not possible, then case dismissal or
conversion may be the appropriate route. In this case, Debtors should
consider an injunction request; they might well be able to establish
likelihood of success on the merits.
5. We cannot determine that the Confirmed Plan complies with § 1325(a)(1) because it does not comply with § 1322(a).
And, as already discussed, other facial problems with the Confirmed Plan’s 7
payment structure exist. 16 Because the Sahni debt is secured by the Debtors’ principal residence,
it cannot be modified. See 11 U.S.C. § 1322(b)(2) (the plan may “modify the
rights of holders of secured claims, other than a claim secured only by a
security interest in real property that is the debtor’s principal residence . .
.”). And because, as the bankruptcy court noted, it is oversecured, until the
claim objection is resolved, Sahni has the right under § 506(b) to
postpetition interest under his contract.
The Confirmed Plan does not comply with § 1322(b)(2) because it
treats Sahni’s claim as secured by the Home and modifies his contractual
interest rate. The non-default contractual interest rate is 10%. The
Confirmed Plan purports to pay 7.89%.
6. Feasibility under § 1325(a)(6) is not established. Section 1325(a)(6) requires a judicial determination that the debtor
can make plan payments and comply with the plan. Here, the bankruptcy
court observed that a refinance or sale was feasible and would allow
payment of the month-24 balloon payment. But the Confirmed Plan
requires neither sale nor refinance. And it establishes no timeline that
allows for reasonable certainty as to the accomplishment of these acts.
Further, it does not explain how Debtors would make payments on this
new debt while concurrently paying their remaining obligations.
Of more concern is the fact that the Confirmed Plan makes no
meaningful provision for payment of the claim if Sahni prevails in
defending his claim. It, in effect, says that the Debtors will try to do
17 something, on a schedule entirely of their own choosing, and will attempt a
further modified plan. But at that point sale or refinance may not work.
First, while the implication is that the Debtors will do something
promptly, again there is no particular timing requirement. And unless
Debtors can almost immediately produce either payment in full or a
regular payment stream that would amortize the debt in regular monthly
installments over the life of the remaining plan term, plan modification is
impossible over Sahni’s opposition if he wins the litigation. Again, a plan
must comply with § 1325(a)(5)(B). See 11 U.S.C. § 1329(b)(1). And a plan
that indefinitely delays appropriate payments on this secured claim after
an objection is overruled is unconfirmable.
Finally, the Ninth Circuit has determined that the impact of pending
litigation must be evaluated when determining the feasibility of a
chapter 11 plan. See Sherman v. Harbin (In re Harbin), 486 F.3d 510, 519
(9th Cir. 2007). The Ninth Circuit stated, “we cannot conclude, without the
benefit of the bankruptcy court’s analysis of the issue, whether the plan
was in fact feasible when confirmed.” Id. at 520. In Harbin, this required
consideration of the impact of a successful appeal. We see no reason why
the result in this chapter 13 case should be different.
Given the total lack of findings and the problems obvious from the
known facts, we cannot conclude that feasibility exists on this record.
C. The matter must be remanded because there are no findings of fact or conclusions of law.
18 We cannot discern, from the transcript of the hearing or the record,
the factual or legal basis on which the bankruptcy court confirmed the
plan. It appears that the bankruptcy court believed that there was
significant equity in the Home and therefore no risk to Sahni in waiting for
the claim litigation to conclude. Findings might identify a different basis
for decision but we are left to mere speculation.
An objection to confirmation is a contested matter under Rule 9014.
Rule 7052 applies, and the bankruptcy court is required to make separate
findings of fact and conclusions of law in support of an order granting or
denying confirmation over a party’s objection. See, e.g., 550 W. Ina Rd. Tr. v.
Tucker (In re Tucker), 989 F.2d 328, 330 (9th Cir. 1993) (good-faith objection
to confirmation requires findings of fact by the bankruptcy court.); accord
Spokane Ry. Credit Union v. Gonzales (In re Gonzales), 172 B.R. 320, 325 (E.D.
Wash. 1994) (remanding because the bankruptcy court “provided no
findings of fact, conclusions of law, or analysis in reaching its decision“).
Here we confront a facially nonconfirmable plan. And absent some
resolution or reasoned consideration of the claim objection, we cannot see a
path to affirmance. And the lack of fact finding also makes it impossible for
us to do other required analysis.
If the bankruptcy court, in fact, estimated the claim, findings would
so establish. Findings might also clarify how the claim at the estimated
amount is paid in full, whether the claim objection is likely to be successful,
19 and whether a feasible plan that complies with § 1325 is possible if it does
not. But absent such findings we cannot find compliance with § 1325(a).
CONCLUSION
We acknowledge the pragmatism in the bankruptcy court’s
approach. It appears likely that Sahni will be paid in full if he successfully
defends his claim given the equity in his collateral. And the Debtors are
likely to facilitate this payment through refinance, if possible, to save the
Home. But the provisions of § 1325(a) must be met before a chapter 13 plan
is confirmed and the plan injunction binds creditors. Pragmatism and an
understandable desire to get a plan confirmed quickly are not a substitute
for compliance with the Code. The fact that Sahni may be able to obtain
payments in full through foreclosure in a few years does not meet the
requirements of § 1325(a).
Instead, the record supports that the Confirmed Plan’s injunction is a
substitute for a preliminary injunction in the adversary proceeding and
that Debtors obtained this injunctive relief without a determination
regarding the likelihood of success on the merits of the TILA/RESPA claims
and a consideration of other required factors. Nothing in the current record
supports the appropriateness of injunctive relief because there is nothing
suggesting that the bankruptcy court considered the injunction standards.
And this push to confirm a place-holder chapter 13 plan is unfair to
at least one of the parties and maybe both. Sahni may not be paid as
required by chapter 13 while he is barred from access to his claimed
20 collateral. And this is true even though no one was required to prove that
Debtors’ attack on his claim is likely successful. And, as to the Debtors,
they have significantly more flexibility under chapter 13 if Sahni’s claim is
unsecured and reduced. Yet they were required to propose a plan that may
be generous before they were allowed to pursue their litigation.
Finally, we recognize that litigation claims often conflict with the
reasonable desire for prompt confirmation of a chapter 13 plan. And we
also acknowledge that a court may determine that the resulting delay is
unreasonable within the meaning of § 1307(c)(1). But dismissal, not
confirmation of a place-holder plan, is the appropriate result of such a
decision. And before dismissing the case, a bankruptcy court must find that
a delay to accommodate required litigation is not appropriate. No such
findings exist on this record. And, we emphasize, this is not a case where
the litigation claims are facially frivolous, repetitive of litigation already
lost in another court, or likely in bad faith. Debtors assert a claim objection
that deserves prompt and serious attention.
Based on the foregoing, we VACATE and REMAND to the
bankruptcy court for further proceedings consistent with this
memorandum.
Concurrence begins on next page.
21 LAFFERTY, Bankruptcy Judge, Concurring.
I concur with my colleagues’ careful and well-reasoned disposition of
this challenging matter.
I write separately because in my view this case presents, starkly, a
scenario that highlights a tension in chapter 13 between the implicit but
unmistakable policy of confirming plans as soon as practicable, and the
uncertainty of how to resolve and work into the confirmation process
litigation issues, the outcome of which are confirmation (and feasibility)
determinative.
On the speedy confirmation side, though chapter 13 does not
explicitly set forth a deadline for confirmation of a plan and does not
expressly empower the bankruptcy court to set such a deadline, the policy
in favor of such an outcome resonates implicitly throughout the statute.
Indeed, (i) the requirement that only “individuals with regular income”
may be debtors under chapter 13; (ii) the relatively modest (in the context
of economic realities in some jurisdictions) debt limits for chapter 13 filings;
and (iii) the move to nationalize forms for chapter 13 plans, collectively
indicate, strongly, that chapter 13 is set up to help regular folks with certain
“regularized” problems and is not meant to promote or indulge the three-
ring circus that chapter 11 can sometimes appear to be. Also, the
requirement that a chapter 13 debtor file a plan essentially immediately
upon filing the petition, and the provision that the court may convert or
22 dismiss based on “unreasonable delay by the debtor” are strong indicators
that, in the view of the drafters, in most cases chapter 13 “works” only if it
works expeditiously, i.e., plans are confirmed and become effective as soon
as practicable. The speedy confirmation policy expressed in these
provisions recognizes that it’s important for chapter 13 debtors promptly to
propose and commit themselves to a plan, and, given that payments to
most creditors start only after confirmation, that plans get confirmed
promptly.
None of this plays out easily when a debtor’s case presents a complex
litigation-based problem, whether an objection to a claim or the debtor’s
assertion of a claim against a creditor. And the problem is exacerbated
when the debtor’s reasons for not dealing with challenging confirmation
issues are litigation based, but vague and imprecise, and not easily
evaluated (or maybe easily evaluated so long as one may indulge some real
world cynicism). As the Memorandum points out, such does not appear to
be the case here—the debtor’s objections to Sahni’s claim appear to be quite
precise, and capable of a relatively expeditious determination.
In any event, the Code doesn’t give a lot of guidance about how to
integrate litigation problems into chapter 13 plans or into the confirmation
process, so courts do lots of different things in such situations—sometimes
they delay confirmation until the litigation issues are resolved, sometimes
they prescribe alternative treatments based on the outcome of the litigation,
and sometimes they try to “confirm around” the problem via other means.
23 None of these approaches are expressly prohibited by the Code or the
Rules, and thus they are all theoretically supportable—provided that, as
the Memorandum instructs, they are based not on a general but imprecise
sense of sufficient value available for creditors, and an unspoken
determination of when or how an allowed claim may eventually be paid,
but rather on a fair application of confirmation standards (including
feasibility, treatment of creditors in line with the Code’s requirements and,
where delay may be involved, a fair application of injunctive relief
principles), and provided that those standards and that reasoning are fairly
and plainly articulated.