Plan Amendment and Modification: Differences
10/16/14
On May 9, 2014, the U.S. District Court of the Southern District of Florida issued its decision in In re Claudio Lorenzo, Case No. 13-23100 (S.D. Florida 2013) which affirmed the Bankruptcy Court's order in Case No. 09-28532. The issue in this case involved what expense standards applied in a modification of a chapter 13 plan. The Court upheld the Bankruptcy Court's ruling that 11 U.S.C. §1329 incorporates the requirements of section 1325(a) but not the requirements of section 1325(a), which incorporates the provisions of section 707(b)(2)(A) [the standardized IRS collection standard expense]. The Court agreed with other courts that have held that section 1325(b) only comes into effect in the confirmation of a plan, but not in the modification of a plan.
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On May 9, 2014, the U.S. District Court of the Southern District of Florida issued its decision in In re Claudio Lorenzo, Case No. 13-23100 (S.D. Florida 2013) which affirmed the Bankruptcy Court's order in Case No. 09-28532. The issue in this case involved what expense standards applied in a modification of a chapter 13 plan. The Court upheld the Bankruptcy Court's ruling that 11 U.S.C. §1329 incorporates the requirements of section 1325(a) but not the requirements of section 1325(a), which incorporates the provisions of section 707(b)(2)(A) [the standardized IRS collection standard expense]. The Court agreed with other courts that have held that section 1325(b) only comes into effect in the confirmation of a plan, but not in the modification of a plan. Modification vs. Amendment
In upholding the Bankruptcy Court's decision, the District Court found that the plain meaning of section 1329 of the Bankruptcy Code supported its decision as Section 1329 only incorporates the provisions of four provisions, and "implicitly excluded other provisions" (expressio unius est exclusio alterius) - that is, it included Section 1325(a), but not 1325(b) [which refers to the IRS collection standards used in the "means test"). The Court favorably cited In re David, 439 BR 863 (Bankr. N.D. Ill. 2010).
The Court explained that modification is not a type of confirmation, but is instead "a process that takes place after confirmation." The Court cited a 9th Cir. BAP decision that held that "[s]ection 1329 (b) expressly applies certain specific Code sections to plan modifications but does not apply §1325(b). Period." In re Sunahara, 326 B.R. 768, 781 (BAP 9th Cir. 2005).
The Court further states that the exclusion of the application of the IRS standards for the calculation of expenses could not lead to absurd results as the "good-faith" requirement of §1325(a)(3) would apply in the context of the modification of a chapter 13 plan.
Judge Lundin Weighs In
In his treatise Judge Keith M. Lundin, Chapter 13 Bankruptcy, 4th Edition, 255, states that the Bankruptcy Code is "unclear whether the disposable income 1325 (b) applies at modification, that different rules of statutory construction lead to contrary results and that the legislative history is not illustrative. Judge Lundin opines that the language of sections 1329 and 1325 "somewhat favors" the interpretation that section 1325(b) applies at plan modification as well as plan confirmation. But Judge Lundin further noted that some courts hedge the application of section 1325(b) to only "egregious" or "extraordinary" facts.
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