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holding that the debtor's disposable income is effectively immaterial to the amount of payments "when the confirmed plan already pays unsecured creditors in full"
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No. 5:16–CV–1251–DAE Bankr. No. 16–50027–RBK
10-26-2017
Eric T. MARTINEZ and Brandy Jo Martinez, Debtors, Plaintiff–Appellants, v. Mary K. VIEGELAHN, Trustee, Defendant–Appellee.
David Christian Werner, J. Todd Malaise, Steven G. Cennamo, Teresa Kay Howard, Law Offices of J. Todd Malaise, San Antonio, TX, for Plaintiff–Appellants. Mary K. Viegelahn, San Antonio, TX, pro se. Vanessa Inez DeLeon Guerrero, San Antonio, TX, for Defendant–Appellee.
David Christian Werner, J. Todd Malaise, Steven G. Cennamo, Teresa Kay Howard, Law Offices of J. Todd Malaise, San Antonio, TX, for Plaintiff–Appellants.
Mary K. Viegelahn, San Antonio, TX, pro se.
Vanessa Inez DeLeon Guerrero, San Antonio, TX, for Defendant–Appellee.
ORDER: (1) VACATING BANKRUPTCY JUDGE'S CONDITIONAL LANGUAGE INSERTED IN CHAPTER 13 PLAN, AND (2) AFFIRMING CHAPTER 13 PLAN AS OTHERWISE CONFIRMED ON OCTOBER 11, 2016
DAVID ALAN EZRA, UNITED STATES DISTRICT JUDGE
Before the Court is an appeal from bankruptcy court arising from the confirmation of a Chapter 13 Plan ("Chapter 13 Plan Order"), filed by Eric T. Martinez and Brandy Jo Martinez (collectively, "Appellants" or "Debtors") on October 25, 2016. (Dkt. # 1 at 3–4.) The Chapter 13 Plan Order was issued on October 11, 2016, by United States Bankruptcy Judge Ronald B. King in the underlying bankruptcy proceeding. (In re Martinez, Bankr. W.D. Tex., No. 16–50027–RBK, Dkt. # 45 ; Dkt. # 1 at 7–8.) For the reasons that follow, the Court (1) VACATES the Bankruptcy Judge's conditional language, included at the request of the Trustee in the Chapter 13 Plan Order, and (2) AFFIRMS the Chapter 13 Plan Order as otherwise confirmed on October 11, 2016. (In re Martinez, Dkt. # 2.)
Final decisions in bankruptcy court can be appealed to the district court in which it sits. See Fed. R.B.P. 8013.
Unless otherwise indicated, all docket citations are to the appeal before this Court (No. 5:16–CV–1251–DAE).
Future citations to the underlying bankruptcy docket will be referred to herein as In re Martinez, Dkt. # ___.
BACKGROUND
I. Chapter 13 Bankruptcy
On January 4, 2016, Debtors filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas – San Antonio Division. (See In re Martinez, Dkt. # 1.) Under Chapter 13 bankruptcy, debtors file a proposed plan with the bankruptcy court, which must comply with all requirements set forth in 11 U.S.C. § 1322 (" Section 1322") of the Bankruptcy Code. 11 U.S.C. § 1322. Depending on the debtors' current monthly income, the plan will propose either a three year commitment period for repayment of debts or a five year commitment period. Id. In the present case, Debtors have a monthly disposable income of $2,635, and the applicable commitment period for them is five years. (See In re Martinez, Dkt. # 1.)
In their original Chapter 13 plan proposal, filed on January 4, 2016, Debtors proposed payments of $960/month for sixty months, payment of all security and priority debts in full, and, although the monthly payment was significantly lower than Debtors monthly disposable income, a 100% dividend to unsecured creditors. (In re Martinez, Dkt. # 2.) On February 22, 2016, Trustee ("Appellee") filed an objection to the proposed Chapter 13 Plan because the Debtors failed to offer the entire sum of their monthly disposable income under Section 1325(b)(1)(B) in the Plan. (In re Martinez, Dkt. # 14.) The Trustee's objection requested the inclusion of conditional language broadly stating that the Debtors forfeit the right to request a modification of the Chapter 13 Plan Order that would result in less than a 100% pay out to unsecured creditors. (In re Martinez, Dkt. # 1 ¶ 3.)
Section 1325(b)(1) provides:
"If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or (B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan."
11 U.S.C. § 1325(b)(1).
In light of the Trustee's objection, the proposed plan was denied by the bankruptcy court on April 26, 2016. (In re Martinez, Dkt. # 19.) In the order denying the plan, Debtors were required to amend their Chapter 13 Plan to include the conditional language proposed by the Trustee, or risk dismissal of their suit. Id. Debtors amended their plan and refiled their amended Chapter 13 Plan on May 9, 2016. (In re Martinez, Dkt. # 21.) A few weeks later, Debtors filed an objection to their amended Chapter 13 Plan, requesting that the Plan be confirmed without the conditional language suggested by the Trustee. (In re Martinez, Dkt. # 27.) On October 11, 2016, the bankruptcy court entered an order confirming the original Chapter 13 Plan filed on January 4, 2016, but containing the Trustee's conditional language (hereinafter, "Chapter 13 Plan Order"). (In re Martinez, Dkt. # 45.) The confirmed Chapter 13 Plan Order contains, in relevant part, the following contested language (the "Conditional Language"):
The Plan filed on January 4, 2016 [Doc. #2] is confirmed with the following condition: The Plan as currently proposed pays a dividend of 100% to allowed unsecured claims. The Debtors shall not seek modification of this Plan unless said modification also pays a dividend of 100% to allowed unsecured claim. Additionally, should this Plan ever fail to pay a dividend of 100% to allowed unsecured claims, the Debtors will modify the Plan to continue to pay a dividend of 100%. If the Plan fails to pay all allowed claims in full, the Debtors will not receive a discharge in this case.
(In re Martinez, Dkt. #45 ¶ 2.)
II. Present Case
Debtors timely filed a notice of appeal on October 25, 2016. (Dkt. # 1 at 3–4.) They appeal the Chapter 13 Plan Order as confirmed on October 11, 2016. Id. Additionally, on December 12, 2016, Debtors filed a motion for certification to the Fifth Circuit. (Dkt. # 4.) This Court denied the request for certification on December 20, 2016, finding that Debtors failed to prove the requirements of 28 U.S.C. § 158(d)(2)(A) were satisfied. (Dkt. # 5.)
Section 158 broadly outlines the requirements for certification of appellate issues directly to the Fifth Circuit. 28 U.S.C. § 158(d)(2)(A).
Pursuant to the briefing order in this case (Dkt. # 2) , on February 13, 2017, Debtors timely filed their appeal brief (Dkt. # 8), and on March 9, 2017, Trustee timely filed its response brief. (Dkt. # 9.) Following the filing of Trustee's brief, Debtors filed their reply brief on March 31, 2017. (Dkt. # 12.) Broadly, Debtors argue on appeal that the Conditional Language included in their Chapter 13 Plan Order is an improper ban on modification under the Bankruptcy Code. (Dkt. #8 at 26–34.)
The deadlines in the original briefing schedule were extended twice by this Court.
LEGAL STANDARD
When reviewing an order of the bankruptcy court, this Court functions as an appellate court, applying the standard of review generally applied in federal courts of appeals. Webb v. Reserve Life Ins. Co., 954 F.2d 1102, 1103–04 (5th Cir. 1992). Bankruptcy Rule 8013 outlines the standard of review for district courts to apply to orders and judgments issued by the bankruptcy court. Rule 8013 states:
On an appeal, the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or demand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Fed. R.B.P. 8013.
Therefore, the bankruptcy's court factual findings may only be reversed by the reviewing court if they are clearly erroneous. Sequa Corp. v. Christopher, 28 F.3d 512, 514 (5th Cir. 1994). Unlike factual findings, a district court may review a bankruptcy court's legal conclusions de novo. Matter of Foster Mortg. Corp., 68 F.3d 914, 917 (5th Cir. 1995).
DISCUSSION
The main issue on appeal is whether the bankruptcy court erred by entering the Chapter 13 Plan Order containing the following contested Conditional Language proposed by Trustee:
The Plan filed on January 4, 2016 [Doc. #2] is confirmed with the following condition: The Plan as currently proposed pays a dividend of 100% to allowed unsecured claims. The Debtors shall not seek modification of this Plan unless said modification also pays a dividend of 100% to allowed unsecured claim. Additionally, should this Plan ever fail to pay a dividend of 100% to allowed unsecured claims, the Debtors will modify the Plan to continue to pay a dividend of 100%. If the Plan fails to pay all allowed claims in full, the Debtors will not receive a discharge in this case.
(In re Martinez, Dkt. # 45 ¶ 2).
Debtors argue that the inclusion of the Conditional Language is improper because Debtors' Chapter 13 Plan fully satisfied the confirmation criteria of 11 U.S.C. § 1325 (" Section 1325"), and since confirmation of the Plan was mandatory thereunder, the bankruptcy court lacked the authority to impose additional conditions. (Dkt. # 8 at 17–26.) Debtors further argue that the Conditional Language directly contravenes 11 U.S.C. § 1329 (" Section 1329") of the Bankruptcy Code because it "impermissibly narrows the instances in which the Debtors may exercise their right to modify their plan." (Id. at 26). By contrast, Trustee argues that the inclusion of such Conditional Language was within the broad powers granted to the bankruptcy court in 11 U.S.C. § 105 (" Section 105") of the Bankruptcy Code. (Dkt. # 9 at 8–24.)
There is no controlling precedent on this issue in the Fifth Circuit, aside from an unreported district court decision affirming the bankruptcy court's rejection of a similar argument made by Chapter 13 debtors, and thus affirming identical conditional language. See, e.g., Molina v. Langehennig, No. SA-14-CA-926, 2015 WL 8494012 (W.D. Tex. Dec. 10, 2015).
To determine whether the imposition of the Conditional Language was proper, in the interest of thoroughness, the Court first reviews whether the Chapter 13 plan was properly confirmed. Then the Court determines whether the bankruptcy judge had authority under Section 105 to impose additional conditions in the Chapter 13 Plan Order as part of its confirmation. Finally, if the bankruptcy judge had authority to impose such Conditional Language on the Debtors' Chapter 13 Plan Order, the Court must determine whether the Conditional Language included here improperly contravenes any other section of the Bankruptcy Code at issue in this case (namely, Section 1329 ).
I. Bankruptcy Judge's Confirmation of the Chapter 13 Plan
Section 1325 of the Bankruptcy Code provides that the court shall confirm a plan if it meets the requirements under that section. 11 U.S.C. § 1325(a) ; Hamilton v. Lanning, 560 U.S. 505, 509, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010) (a "[b]ankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or provides that all of the debtor's projected disposable income to be received over the duration of the plan will be applied to make payments in accordance with the terms of the plan") (emphasis added) (internal quotations omitted); In re Barnes, 32 F.3d 405, 407 (9th Cir. 1994) ("[t]he logical interpretation is that if the conditions of § 1325 occur, the court must confirm the plan. On the other hand, if the conditions of § 1325(a) are not met, the court has the discretion to confirm the plan"). In this case, it is undisputed that Debtors proposed a Chapter 13 Plan that complied with all the provisions of Section 1325, it was proposed in good faith, and the value of property to be distributed under the plan to unsecured creditors was not less than the amount that would have been paid under a Chapter 7 Plan. See 11 U.S.C. § 1325(a).
Although the Plan complied with Section 1325(a), the Trustee, within her rights, filed an objection under Section 1325(b)(1)(B) . Section 1325(b)(1) allows for objection to the plan by the trustee if, "(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or (B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan." 11 U.S.C. § 1325(b)(1)(A)–(B) (emphasis added); In re Cortez, 457 F.3d 448, 457 (5th Cir. 2006) ("[b]ased upon the trustee's investigation of the debtor's financial affairs, the trustee makes a decision to support or oppose confirmation of the Chapter 13 plan"); In re Andrews, 49 F.3d 1404, 1406 (9th Cir. 1995) (noting Chapter 13 trustee has standing to object to a plan if said plan does not meet all the requirements for confirmation).
In addition to the objection under Section 1325(b)(1)(B), the Trustee also made an objection to the proposed Plan regarding Debtors' "good faith." However, the bankruptcy court found that the Plan as proposed was done in good faith. (April 25, 2016 Hrg. Tr. at 56.) This Court finds that the good faith finding made by Judge King was not erroneous. For this reason, the Court will not discuss the Trustee's good faith objection further as it is not relevant to resolution of this appeal.
However, a proposed plan should be confirmed if the bankruptcy court finds that the plan meets all of the requirements under Section 1325(a) and either one of the requirements under Section 1325(b). Hamilton, 560 U.S. at 509, 130 S.Ct. 2464. In this case, although the Debtors were not contributing 100% of their disposable income as provided by Section 1325(b)(1)(B), they were committing to pay unsecured creditors in full as required under Section 1325(b)(1)(A). (In re Martinez, Dkt. # 2 at 5–7.)
Accordingly, even though the Trustee properly and timely objected to the confirmation of the Chapter 13 Plan Order as filed by Debtors, the Court finds that it was proper for the bankruptcy judge to confirm because the Plan met all requirements under Section 1325(a), and one of the requirements under Section 1325(b).
II. Bankruptcy Judge's Broad Discretion to Include Conditions in Confirmation of Chapter 13 Plan Order
Having found confirmation of the Chapter 13 Plan was proper, the Court next determines whether the bankruptcy judge had authority to include conditions when confirming the Chapter 13 Plan. Generally, the bankruptcy judge is awarded broad judicial discretion to issue any "order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. § 105(a) ; In re Cajun Elec. Power Co-op., Inc., 185 F.3d 446, 453 (5th Cir. 1999) (finding that a bankruptcy court's decision granting or denying injunctive relief pursuant to Bankruptcy Code § 105(a) is reviewed only for abuse of discretion). On appeal, Debtors argue that the bankruptcy court did not have authority at all to impose additional conditions on the Chapter 13 Plan. (See Dkt. # 8 at 17–26.) But, this argument is incorrect.
Under Section 105(a), the bankruptcy court may clearly issue any order it sees fit to carry out the provisions of the Bankruptcy Code. See 11 U.S.C. § 105(a). Here, it was within the bankruptcy court's broad judicial discretion to determine that the Chapter 13 Plan would be better served if the Conditional Language was added. It is well-established that Section 105 is construed liberally, so long as the action taken by the bankruptcy court does not contravene the provisions of the Bankruptcy Code. Law v. Siegel, 571 U.S. 415, 134 S.Ct. 1188, 1194, 188 L.Ed.2d 146 (2014) (a "[b]ankruptcy court may not contravene specific statutory provisions"); In re Zale Corp., 62 F.3d 746, 760 (5th Cir. 1995) (holding that the decisions made in reliance of the discretion afforded in Section 105 must be consistent with the Bankruptcy Code); United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986) ("[t]he powers granted by statute may be exercised only in a manner consistent with the provisions of the Bankruptcy Code") (emphasis added). The question then becomes whether the Conditional Language improperly contravenes any other provision of the Bankruptcy Code.
III. Conditional Language at Issue
Having determined that (1) the Chapter 13 Plan Order complies with Section 1325, and (2) the bankruptcy judge has the authority to impose conditions within a Chapter 13 plan, the Court turns to the crux of this appeal. Debtors argue that the Conditional Language contained in their confirmed Chapter 13 Plan Order improperly contravenes Sections 1325 and 1329 of the Bankruptcy Code. (Dkt. # 8 at 20, 26–32.) Trustee argues otherwise. Each pertinent section of the Bankruptcy Code— Section 1325 and Section 1329 —will be addressed in turn.
A. Section 1325
The plain language of Section 1325 merely states that the court shall confirm the debtors' proposed plan if the Chapter 13 Plan meets all of the requirements of the section. 11 U.S.C. § 1325(a) (emphasis added). Debtors argue that because Section 1325 states only a limited set of conditions that must be met for plan confirmation, the bankruptcy court had no discretion to impose additional conditions. (Dkt. # 8 at 20.) However, as previously noted, the bankruptcy court has broad discretion under Section 105(a) to impose conditions on Chapter 13 plans. Although Congress clearly listed specific confirmation requirements in Section 1325, the language drafted by Congress in Section 105 does not, as Debtors argue, "close the door to other judicially-imposed conditions." See Dkt. # 8 at 20; see also In re Walker, 165 B.R. 994, 1000 (E.D. Va. 1994) ("The bankruptcy court's authority to impose conditions on the confirmation of a plan is grounded in 11 U.S.C. § 105."); In re Garcia, No. 07-50226-RJL-13, 2007 WL 3355650, *2 (Bankr. N.D. Tex. Nov. 9, 2007) (finding sufficient authority under Section 105 to allow inclusion of release-of-lien language in debtors' Chapter 13 plan during confirmation hearing).
Here, the Conditional Language in the Chapter 13 Plan Order does not contravene the requirements of Section 1325. Simply, Section 1325 lists the requirements for confirmation of a Chapter 13 Plan and outlines how the judge should proceed in the case of a trustee objection. 11 U.S.C. § 1325. Thus, the Conditional Language included in the Chapter 13 Plan Order here does not and cannot contravene any portion of Section 1325 because Section 1325 does not contain any modification provisions. See id. If, for instance, the Conditional Language here had stated that additional requirements prior to confirmation were necessary or had attempted to redefine the term "disposable income" as outlined in Section 1325(b)(2), then there is a possibility that the language would be found to contravene the express provisions in Section 1325. See, e.g., Petro v. Mishler, 276 F.3d 375, 378 (7th Cir. 2002) (finding improper a condition imposed on the debtors by the bankruptcy court, which required debtors to periodically present sworn affidavits with income statements to their Trustee as a requirement prior to plan confirmation).
For reference purposes, Section 1325 broadly provides that the court shall confirm a Chapter 13 plan so long as the plan complies with a list of nine enumerated requirements, including the requirement that the plan comply with the provisions of the Code and that the plan be proposed in good faith. See generally 11 U.S.C. § 1325(a).
However, the Conditional Language here does no such thing. Rather, the Conditional Language in the Chapter 13 Plan Order focuses on the modification rights awarded to Debtors and the possible effects a later modification would have on discharge. Nothing in this Conditional Language comments on any provisions included in Section 1325, and therefore, the Conditional Language does not improperly contravene Section 1325. In coming to this conclusion, the Court finds it necessary to address the decision in Molina v. Langehennig. No. SA-14-CA-926, 2015 WL 8494012 (W.D. Tex. Dec. 10, 2015). Upon review of Molina, the court there similarly noted that the inclusion of the exact same conditional language did not contravene Section 1325, and therefore, the inclusion of the conditional language in that case was affirmed. Id. at *2. However, while the reasoning in Molina is instructive, the Court finds additional analysis is needed to determine whether the Conditional Language at issue contravenes any other provision of the Bankruptcy Code.
Specifically, "[w]hile the bankruptcy courts have fashioned relief under Section 105(a) in a variety of situations, the powers granted by that statute may be exercised only in a manner consistent with the provisions of the Bankruptcy Code." United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986). The discretion of the bankruptcy courts goes as far as the Code will allow, and it is well-established that the inclusion of any conditions that contravene the express provisions of the Bankruptcy Code are not appropriate. See Matter of Sadkin, 36 F.3d 473, 478 (5th Cir. 1994) ("[t]he powers granted by [ Section 105(a) ] must be exercised in a manner that is consistent with the Bankruptcy Code. [Section 105(a) ] does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law"). For this reason, it is necessary to continue the analysis to determine whether the included Conditional Language in the Chapter 13 Plan Order contravenes any other section of the Bankruptcy Code.
B. Section 1329
As discussed above, a Chapter 13 plan cannot contravene any provisions of the Bankruptcy Code. Debtors alternatively argue that the Conditional Language in the Chapter 13 Plan Order improperly contradicts Section 1329. (Dkt. # 8 at 26–32.) Section 1329 states that, "[a]t any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified. " 11 U.S.C. § 1329(a) (emphasis added). Section 1329 specifically outlines four circumstances in which modification of a confirmed plan may be warranted, although only one is at issue in this case: the condition under Section 1329(a)(1). Section 1329(a)(1) allows modification in order for the debtor, trustee, or creditor to "increase or reduce the amount of payments on claims of a particular class provided for by the plan." 11 U.S.C. § 1329(a)(1).
11 U.S.C. § 1329(a)(2) is not relevant because the conditional language does not reference an inability to modify for the purpose of extending or reducing the debtor's payment timeline. 11 U.S.C. § 1329(a)(3) is not relevant because the conditional language does not reference an inability to modify for the purpose of payment's made outside the plan. 11 U.S.C. § 1329(a)(4) is also not relevant because the conditional language does not reference an inability to modify the Chapter 13 Plan for the purpose of health insurance payments.
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Section 1329(a) is broad and allows the debtor, trustee, or holder of an allowed unsecured claim to bring a request for modification. 11 U.S.C. § 1329(a). The purpose of Section 1329 is to allow modification of a confirmed plan should circumstances change during the life of the plan. In re Meza, 467 F.3d 874, 877 (5th Cir. 2006) (internal citations omitted). The Fifth Circuit has freely granted requests for modification, so long as all requirements under Section 1329 are met, and it has held that a request for modification can be brought even without a substantial or unanticipated change because Section 1329 does not provide for any threshold requirement in order to modify. Id. at 877–78. The Supreme Court has also stated that Section 1329(a)(1) may be used by the trustee to modify a plan in the event that financial circumstances change for a debtor. Ransom v. FIA Card Servs., 562 U.S. 61, 79, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011) ("An unsecured creditor may move to modify the plan to increase the amount the debtor must repay.") (emphasis added).
In the same vein, the Fifth Circuit has noted that modification of Chapter 13 plans often occurs when debtors can no longer afford to make their monthly payments and they are seeking to reduce their payment plan. In re Meza, 467 F.3d at 878 (emphasis added); see also In re Nowlin, 576 F.3d 258, 267 (5th Cir. 2009) (holding that, should debtor's financial circumstances improve, a trustee may seek amendment under 11 U.S.C. § 1329 to modify the confirmed plan); Germeraad v. Powers, 826 F.3d 962, 971 (7th Cir. 2016) ("[I]f the debtor loses her job and can no longer afford the payments required under the original plan, then she may request modification to have the plan payments reduced."). For instance, in Barbosa v. Soloman, a Chapter 13 trustee requested modification of a confirmed plan to increase the distribution to unsecured creditors following the sale of the debtor's investment property. Barbosa v. Solomon, 235 F.3d 31, 33–34 (1st Cir. 2000). The First Circuit held that the modification requested by the trustee should be granted, raising the total payout to unsecured creditors from ten percent in the original Chapter 13 plan, to 100% in the modified order after accounting for the new funds received by debtors. Id. at 41. Therefore, the clear purpose of Section 1329(a)(1) is to allow debtors, trustees, and approved unsecured creditors to request modification of the total amount paid should financial circumstances change following confirmation of the Chapter 13 plan.
Debtors argue that the Conditional Language included in their Chapter 13 Plan Order contravenes these express provisions of Section 1329 because the Conditional Language narrows the instances in which Debtors may exercise their right to modify. (Dkt. # 8 at 26.) The Conditional Language states, "[t]he debtors shall not seek modification of this Plan unless said modification also pays a dividend of 100% to allowed unsecured claim[s]. " (In re Martinez, Dkt. # 45 ¶ 2) (emphasis added). The Court finds that the plain meaning of this language provides that the debtors cannot seek modification of the Plan, unless the modification will continue to result in a 100% dividend paid to their unsecured claims. The Conditional Language goes on to state that, "[i]f the Plan fails to pay all allowed claims in full , the Debtors will not receive a discharge in this case. " Id. (emphasis added). This language clearly provides that the Debtors cannot modify their plan to pay any less than 100% to unsecured creditors, and should they fail to pay all of the claims in full, they will not receive a discharge of their unpaid, unsecured debt. By including this Conditional Language in the Chapter 13 Plan Order—language that clearly prohibits modification because the total payout is required to be the same—the Court finds that the bankruptcy court directly contravened the Debtors' right to modify a plan, which is an express right granted to the Debtors in Section 1329(a)(1).
Section 1329(a)(1) has been interpreted to allow for both debtors and trustees to raise or lower their monthly payments and their overall dividend should financial circumstances change throughout the pendency of their Chapter 13 claim. See Ransom, 562 U.S. at 79, 131 S.Ct. 716 ; In re Meza, 467 F.3d at 878 ; Germeraad, 826 F.3d at 971 ; Barbosa, 235 F.3d at 33–34. Specifically, Section 1329 allows for the Debtors to continue receiving the benefits of filing for Chapter 13 bankruptcy, as opposed to Chapter 7 bankruptcy, and allows them to receive a discharge of a portion of their unpaid, unsecured debt, so long as they are meeting the requirements for plan confirmation under Section 1325. See 11 U.S.C. § 1329(b)(1) ("[T]he requirements of section 1325(a) of this title apply to any modification."); In re Meza, 467 F.3d at 877 ("Chapter 13 permits wage-earning debtors to reorganize with a repayment plan as an alternative to seeking a complete discharge of debts through the Chapter 7 bankruptcy liquidation process"). Thus, in the event Debtors here later request modification of their Chapter 13 Plan, they will have to meet all requirements under Section 1325, including the requirement to either pay 100% of their monthly disposable income towards the plan, or continue to pay their unsecured creditors in full. See 11 U.S.C. § 1325(b) ; 11 U.S.C. § 1329(b)(1).
The Court acknowledges the Trustee's argument that, without the inclusion of the Conditional Language, the unsecured creditors bear the majority of the risk should Debtors' financial circumstances change. (See Dkt. # 9 at 25–29.) The Trustee argues that it has a duty to protect the unsecured creditors and to ensure maximum payment of the debtor's unsecured claims. (Id. ) While the Court recognizes the duty imposed on the Trustee under Section 1302 of the Bankruptcy Code, the Trustee herself points out a solution to this issue in her brief. (See id. at 30.) Should Debtors later seek modification of their Chapter 13 Plan Order under Section 1329, Debtors will still have to meet all of the requirements listed under Section 1325(a), including the requirement of good faith. Id. at 35. If Debtors eventually did file a request for modification, the Trustee would then have a strong argument against modification due to a lack of good faith on the part of the Debtors, because it is undisputed that Debtors are presently failing to pay 100% of their disposable income to unsecured creditors. See, e.g., In re Pautin, 521 B.R. 754, 762 (Bankr. W.D. Tex. 2014) (finding that the court is able to consider disposable income in the context of good faith under Section 1329 ).
Therefore, the Court finds that the ability to modify a Chapter 13 Plan Order at a later date is expressly provided to debtors, creditors, and trustees in Section 1329 of the Bankruptcy Code, and to order that a plan cannot be modified to change the applicable discharge rate directly, as the Conditional Language does here, contravenes the provisions outlined in Section 1329(a)(1).
C. Conclusion
In conclusion, the Court finds that, although the Conditional Language included in the Chapter 13 Plan Order does not improperly contravene the provisions of Section 1325, it does directly contravene the express right to modification granted to both debtors and trustees as outlined in Section 1329(a)(1). Accordingly, the Court VACATES the Conditional Language included in the Chapter 13 Plan Order.
IV. Trustee's Additional Arguments
The Trustee also argues that the Conditional Language is not a violation of Section 1329 because Debtors have waived any right to modify outside of the 100% contribution mark. (Dkt. # 9 at 27.) This argument is not persuasive because Debtors clearly objected to the inclusion of the Conditional Language throughout the pendency of this case. (See, e.g., In re Martinez, Dkt. # 27.) This is evident in the Debtors' Objection to Confirmation of Debtors' Chapter 13 Plan, filed prior to confirmation of the Chapter 13 Plan, and their similar objections to the Conditional Language at the original hearing for Confirmation of the Chapter 13 Plan. (See, e.g., In re Martinez, Dkt. # 14; April 25, 2016 Hrg. Tr. at 11–17.) Because Debtors have continuously objected to the inclusion of the Conditional Language, they have not waived their right to modify the Chapter 13 Plan. See Thompson & Wallace of Memphis, Inc. v. Falconwood Corp., 100 F.3d 429, 433 (5th Cir. 1996) (noting that arguments are only waived if the party has failed to preserve the argument in the lower court). It is clear from the record that Debtors believe the Conditional Language should not have been included and they should retain their right to modify.
Trustee additionally argues that Debtors have suffered no injury and that they have received exactly what they wanted in their Chapter 13 Plan Order, albeit with conditions. (Dkt. # 9 at 28–29.) This Court has already determined that Debtors did not waive their right to file a modification under Section 1329(a)(1), and preventing the Debtors from filing a modification, as they are expressly allowed by the Code under Section 1329, could cause injury to the Debtors. See, e.g., Germeraad, 826 F.3d at 971 ("If the debtor loses her job and can no longer afford the payments required under the original plan, then she may request modification to have the plan payments reduced."). If the Debtors lose their job and cannot afford to make the payments required under the original Chapter 13 Plan Order, and if the Debtors are unable to modify their plan, they will be injured due to the inability to receive a discharge of their debt, a benefit awarded to them under Section 1328 of the Bankruptcy Code. See 11 U.S.C. § 1328 ("[A]s soon as practicable after completion by the debtor of all payments under the plan ... the court shall grant the debtor a discharge of all debts provided for by the plan").
Trustee's final argument focuses on the calculation of disposable income and the "means test." (Dkt. # 9 at 29–30.) The "means test" "applies to debtors whose income over the six months preceding bankruptcy is in excess of their state's median income and determines the amount of income a debtor must commit to confirm a Chapter 13 plan." In re Oltjen, No. 07-60534-RCM, 2007 WL 2329695, at *2 (Bankr. W.D. Tex. Aug. 13, 2007). This test was implemented in Section 707 of the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") to assist the court in determining the total amount of income a debtor must commit to a Chapter 13 plan in order for the plan to be confirmed. 11 U.S.C. § 707 (" Section 707"). "By incorporating Section 707(b)(2)'s means test into Section 1325 for above the median income debtors, the deductions allowed by its provisions from current monthly income drive the level of disposable income a debtor must commit to confirm a chapter 13 plan." In re Devilliers, 358 B.R. 849, 856 (Bankr. E.D. La. 2007). Although the means test has become a valuable tool to aid the court in determining whether or not a debtor has paid enough of his disposable income to unsecured creditors, the means test determination is not necessary when debtors are already paying 100% of the amount due and owing to unsecured creditors, as the Debtors are here. See, e.g., In re DeLuna, No. BR 11-53444-C, 2012 WL 4679170, at *4 (Bankr. W.D. Tex. Oct. 2, 2012) ("The purpose of the means test is to find out how much, if anything, will be left over after one's living expenses to pay unsecured debts.").
Thus, the means test is used to calculate the projected disposable income of the parties; it is not necessary to use the means test to calculate the amount due and owing when the confirmed plan already pays unsecured creditors in full. See, e.g., In re Crawford, No. 15-53097-CAG, 2016 WL 4089241, at *4 (Bankr. W.D. Tex. July 22, 2016) (" Section 1325(b)(2) was amended to alter the method of determining a debtor's income and § 1325(b)(3) was added to require above median debtors to calculate their reasonably necessary expenses using the means test formula in § 707(b)(2)(A) and (B)"). In light of this relevant case law, the Trustee's "means test" argument here is irrelevant. Because the Debtors are paying 100% to unsecured creditors, the means test is not applicable to the instant analysis regarding confirmation of the Chapter 13 Plan Order and the contested Conditional Language.
Most pertinently, the bankruptcy court in the District of New Hampshire summarized the application of Section 1325 well:
The Debtors' Plan provides for payment of all unsecured claims in full during a
five year term through payments of approximately one-half of their disposable income. Thus, the Debtors' Plan complies with § 1325(b)(1)(A). While the Debtors could pay off their unsecured creditors in a shorter period of time if they contributed all of their monthly disposable income to plan payments, they are not required to do so under the plain unambiguous language of the Bankruptcy Code.
In re Richall, 470 B.R. 245, 249 (Bankr. D.N.H. 2012). There is no duty on the part of the Debtors under the current language in the Code to pay 100% of their monthly disposable income if, at the time the plan is confirmed, the Debtor is paying 100% of the amount due and owing to unsecured creditors.
V. Effect of this Decision
Finding no defect with the Chapter 13 Plan Order aside from the Conditional Language improperly imposed by the bankruptcy judge, this Court will not reverse and remand the Chapter 13 Plan Order to be reconsidered in full by Judge King. Other decisions finding it necessary to reverse and remand contained substantial defects in the Chapter 13 plans that required rehearing. See, e.g., Viegelahn v. Essex, 452 B.R. 195, 202 (W.D. Tex. 2011) (reversing and remanding to the bankruptcy court to amend the Chapter 13 plan, taking into consideration the Trustee's proper bad faith objection); see also In re Sanders, 403 B.R. 435, 444–45 (W.D. Tex. 2009) (reversing and remanding to the bankruptcy court to amend the classification of secured and unsecured claims in the Chapter 13 plan); In re Dale, No. H-07-32451, 2008 WL 4287058, *4 (S.D. Tex. Aug. 14, 2008) (reversing and remanding to the bankruptcy court to recalculate amount of secured debt in Chapter 13 plan).
This Court finds that no substantial defects exist or have even been addressed on appeal regarding the Chapter 13 Plan Order that merit remanding the case. Accordingly, the Court VACATES the Conditional Language contained in the Chapter 13 Plan Order and otherwise AFFIRMS the Chapter 13 Plan Order. See, e.g., Univest–Coppell Village, Ltd. v. Nelson, 204 B.R. 497, 500 (E.D. Tex. 1996) (declining to remand the case to the bankruptcy court, and instead reversing only the included allowance for unreasonable living expenses in the Chapter 13 plan).
CONCLUSION
For the reasons set forth, the Court VACATES the Conditional Language included in the Chapter 13 Plan Order, which states as follows:
The Plan filed on January 4, 2016 [Doc. #2] is confirmed with the following condition: The Plan as currently proposed pays a dividend of 100% to allowed unsecured claims. The Debtors shall not seek modification of this Plan unless said modification also pays a dividend of 100% to allowed unsecured claim. Additionally, should this Plan ever fail to pay a dividend of 100% to allowed unsecured claims, the Debtors will modify the Plan to continue to pay a dividend of 100%. If the Plan fails to pay all allowed claims in full, the Debtors will not receive a discharge in this case.
The Court AFFIRMS the remainder of the Chapter 13 Plan Order as filed in bankruptcy court on January 4, 2016, and as otherwise confirmed on October 11, 2016. (In re Martinez, Dkt. # 2.)