N.C. Court Says 1325(b) Requirements Not Applicable to 1329 Modifications

In Max’s recent case, In re William Bernard White, Debtor, the U.S. Bankruptcy Court, W.C. North Carolina, Charlotte Division determined that the §1325(b)(1)(B) requirement that an above-median debtor devote all projected disposable income over a 60-month period to payment of unsecured claims did not apply in a post-confirmation modification triggered by a substantial and unanticipated change in debtors financial situation.

Debtor experienced a series of setbacks resulting in loss of income, destruction of a vehicle and loss of his home to foreclosure.  As a result, the secured claims relating to his vehicle and mortgage loan were satisfied and removed from the plan.  Debtor proposed a modification that would reduce his plan payments and also reduce the scheduled number of payments from 60 to 41. The net effect of the proposed modification was that unsecured creditors would receive the same payment they would have under the original confirmed plan, and would receive it in a shorter period of time.

The trustee, however, asserted that the proposed modification might not comply with the requirements of §1525(b)(1)(B) because White, as an above-median debtor, was subject to the 60 month commitment period.

Although the 4th Circuit has not ruled on whether a post-confirmation modification pursuant to §1329 must comply with the applicable commitment period required under §1325(b)(1)(B), the court looked to two previous 4thCircuit cases, In re Arnold, 869 F.2d 240 (4th Cir. 1989) and In re Murphy, 474 F.3d 143 (4th Cir. 2007). Both cases addressed modifications pursuant to §1329, and neither considered the requirements of §1325(b)(1)(B) in its analysis.

In addition, the court cited as persuasive authority In re Ireland, 366 B.R. 27 (Bankr. W.D.Ark. 2007) in which the court stated:

Absent a clear statutory command that 1325(b) applies to modifications under 11 U.S.C. § 1329, the court is not inclined to adopt a tortured view of this statute in order to reach an absurd result. There is no indication that with the enactment of BAPCPA, Congress intended to repeal, by implication, the provisions of 11 U.S.C. § 1329 that give the Bankruptcy Court flexibility to deal with changed circumstances after a plan has been confirmed.

The court thus concluded that the debtor’s post-confirmation modification need not comply with the requirements of §1325(b)(1)(B) and so was not subject to the 60 month commitment period requirement.

This ruling is consistent with Max’s argument in his 2007 article, The Blind Leading the Blind, wherein he pointed out that Congress had not incorporated the Chapter 13 means test in §1325(b) into the Chapter 13 modification rules of §1329.

The full opinion can be found on Westlaw, citation 411 B.R. 268