Court: United States Bankruptcy Court, N.D. Texas; May 12, 2017; Us Bankruptcy; United States Bankruptcy Court
The Court denied the Trustee’s Motion to Modify the Chapter 13 Plan, which was filed by Tim Truman on December 16, 2016. The Debtor responded to this motion, and a hearing took place on February 27, 2017, where both parties were allowed to submit further briefs. The undisputed background includes the Debtor's Chapter 13 bankruptcy filing on March 7, 2013, followed by the submission of an Original Chapter 13 Plan and Schedules on April 2, 2013. The Debtor disclosed an interest in an unliquidated lawsuit, referred to as the 'White Lawsuit,' but did not assign a value to it, maintaining its status as 'unknown' through multiple amendments to the Schedules and the Chapter 13 Plan.
In a proposed first amended plan from May 8, 2015, the Debtor initially included a provision to increase the plan base upon winning the lawsuit; however, this provision was ultimately removed from subsequent amended plans, including the Confirmed Plan filed on December 16, 2015, which was confirmed on January 26, 2016. As a result, the White Lawsuit’s proceeds vested in the Debtor after confirmation, meaning it was no longer part of the estate.
After the Confirmation Date, on August 18, 2016, the Debtor’s interest in the White Lawsuit was liquidated into a judgment valued at approximately $44,000. The Debtor amended his Schedule B on October 4, 2016, to reflect this judgment but claimed the ability to collect on it remained 'unknown.' The Trustee sought to modify the Confirmed Plan to have the judgment proceeds included in the plan base for creditor distribution. The Court found sufficient reasons to deny this modification, concluding that the Judgment had vested in the Debtor and was not subject to the Trustee's claims.
Trustee argues for the modification of the Chapter 13 plan based on two points: (i) sections 1329(a)(1) and 1322(b)(8) permit the modification funded by property of Debtor, including property that revested post-confirmation under section 1327; and (ii) the doctrine of res judicata does not bar the modification. Conversely, Debtor contends the modification should be denied for three reasons: (i) it improperly seeks to take possession and control of the White Lawsuit and its proceeds, which vested in Debtor free of creditor claims upon confirmation; (ii) res judicata applies to bar the modification; and (iii) it should be denied on equitable grounds at the Court’s discretion.
The initial legal question is whether the White Lawsuit judgment is part of the Chapter 13 bankruptcy estate or belongs to Debtor. Under section 541, all legal interests of the debtor at the filing date are included in the estate. Since Debtor's interest in the White Lawsuit existed before filing, it became estate property at that time. Section 1306(a) states that property acquired by the debtor post-filing but pre-close is also estate property, but it is undisputed that the White Lawsuit was Debtor's property before filing.
Section 1327 indicates that all estate property vests in the debtor upon plan confirmation, free of creditor claims, unless stated otherwise in the plan or confirmation order. In this case, neither the Confirmed Plan nor the Confirmation Order excluded the White Lawsuit or its proceeds from vesting in Debtor. Despite Trustee’s claim of changed circumstances regarding the White Lawsuit after confirmation, the fact that it was not a judgment until after does not alter its status as property of Debtor.
Trustee acknowledges that the White Lawsuit is the property of the Debtor and re-vested in the Debtor upon confirmation of the Chapter 13 plan. Consequently, the lawsuit and any proceeds from it are no longer part of the Chapter 13 estate as of the Confirmation Date. Trustee's attempt to modify the Confirmed Plan to require the Debtor to turn over proceeds from the lawsuit is unsupported by Bankruptcy Code sections 1329 and 1322(b)(8). Section 1329(a)(1) permits modifications but does not authorize a trustee to compel a debtor to contribute property that has vested in the debtor post-confirmation. Section 1321 restricts plan filing to the debtor, while Section 1322 outlines the permissible content of a debtor's plan. Although a debtor can use exempt property to fund a plan, a trustee cannot propose or enforce such requirements. The relevant sections affirm that the White Lawsuit vested in the Debtor free of creditor claims upon confirmation; thus, Trustee cannot use a modification to revert this vested property to the estate or compel its contribution.
The Court denies Trustee’s proposed Plan Modification that seeks to utilize Debtor’s free-and-clear property. A plan modification represents an alteration of the contractual agreement established at confirmation, which must be assessed for fairness based on the specific facts and circumstances. In this case, the Court evaluated the entirety of the situation, including the various plans submitted by Debtor, the extensive negotiations leading to the Confirmed Plan, and the terms of that Plan, which allowed the White Lawsuit to belong to Debtor free from creditor claims as of the Confirmation Date under 1327(b). Even if the White Lawsuit could be considered property of the estate subject to modification, the Court would still exercise its discretion to deny the Trustee’s request to alter the established contractual terms agreed upon by Debtor, creditors, and other parties involved concerning the White Lawsuit and its proceeds.
The Court has denied the Trustee's motion to modify the Chapter 13 Plan, citing its findings of fact and conclusions of law. Key documents referenced include the Trustee's motion (ECF No. 393), the Debtor's response (ECF No. 395), and various briefs supporting both sides (ECF Nos. 427, 428, 434). The Court noted that under 11 U.S.C. § 1327(b) and (c), estate property vests in the debtor upon confirmation, and motions regarding property after confirmation must demonstrate that the property is part of the bankruptcy estate. The Court highlighted General Order 2016-01, effective October 1, 2016, which stipulates that property of the estate does not vest in the debtor until discharge or case dismissal. If this order had been in effect during the confirmation, the property in question would have been considered estate property at the time of the modification request. Ultimately, the Court found no statutory or equitable basis for the Trustee's modification, rendering further exploration of res judicata unnecessary.
