In re Albert

634 B.R. 380

IN RE: Michael Bryan ALBERT, Debtor.

Bankruptcy Case No. 16-15128 TBM

United States Bankruptcy Court, D. Colorado.

Signed October 27, 2021.

C. Todd Morse, Denver, CO, for Debtor.

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO MODIFY

Thomas B. McNamara, United States Bankruptcy

I. Introduction.

Chapter 13 of the Bankruptcy Code¹ "affords individuals receiving regular income an opportunity to obtain some relief from their debts while retaining their property." Bullard v. Blue Hills Bank , 575 U.S. 496, 498, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015). The quid pro quo is a Chapter 13 plan. A debtor must propose and obtain Court approval of a plan under which such debtor pays creditors out of future income. 11 U.S.C. §§ 1321 - 1325 ; Bullard , 575 U.S. at 498, 135 S.Ct. 1686 ; Hamilton v. Lanning , 560 U.S. 505, 508, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). For an above-median-income debtor, "the plan may not provide for payments over a period that is longer than 5 years." 11 U.S.C. § 1322(d)(1). The time limitation was designed to avoid imposing a form of long-term involuntary servitude upon Chapter 13 debtors. If a debtor timely completes "all payments under the plan," such debtor is entitled to a discharge of most debts. 11 U.S.C. § 1328. Discharge is the raison d'etre of bankruptcy and provides a debtor with "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt." Local Loan Co. v. Hunt , 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). Chapter 13 is a very tough bargain — the vast majority of Chapter 13 cases fail because debtors either are unable to obtain confirmation of their plans or fail to complete all the required payments.²

In this bankruptcy proceeding, Debtor Michael Bryan Albert (the "Debtor") did almost everything right. He proposed a Chapter 13 Plan in which he committed to pay $541 each month for five years to the Chapter 13 Trustee for the benefit of his creditors. In 2016, the Court confirmed the Debtor's Chapter 13 Plan. Then, to his credit, even though he was struggling financially, the Debtor made all the required payments for four years and eleven months. But, he paid the last installment ($436) approximately 23 days late (according to the most common way to make such calculation).

Thereafter, the Debtor requested that the Court grant him a Chapter 13 discharge. No one objected. However, the Court determined sua sponte that the Debtor's discharge request raised numerous difficult legal issues concerning the five-year Chapter 13 plan limit. For example, there is no binding appellate precedent establishing when the five-year period actually starts. Although most courts use the date listed in the Chapter 13 plan for starting payments, some courts have ruled that the Chapter 13 plan confirmation date (usually much later) governs the calculation. And the difference could be dispositive in this case. Further, a recent appellate decision, Kinney v. HSBC Bank USA, N.A. (In re Kinney) , 5 F.4th 1136 (10th Cir. 2021), suggests that the Court might not have authority to grant the Debtor a discharge of his debts since the Debtor exceeded the five-year payment term. There are other legal complications too. To ensure due process, the Court requested that the Debtor and interested parties submit legal analysis. Subsequently, the Debtor, the Chapter 13 Trustee, and a group of bankruptcy lawyers (acting as amicus curiae ) presented arguments in favor of discharge.

However, apparently in the alternative, the Debtor also asked that the Court approve modification of his Chapter 13 plan to extend the term from 60 months to 62 months. The Debtor relied on a fairly new amendment to the Bankruptcy Code designed to protect bankruptcy debtors adversely impacted by the COVID-19 pandemic: Section 1329(d). That Section provides that if a debtor "is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic," such debtor may extend the Chapter 13 plan term from five years to no more than seven years. The Debtor set forth various circumstances arising from the COVID-19 pandemic which caused him to have difficulty completing Chapter 13 plan payments within the five-year term. His factual allegations of financial hardship were uncontested.

The Court elects, in its judicial discretion, to address the Debtor's modification request first and the discharge request second. For the reasons set forth below, the Court grants the Debtor's request for modification of his Chapter 13 plan to extend the payment period by two months under Section 1329(d). Since the Debtor already completed all required payments under the proposed modified Chapter 13 plan within that extended time frame, the Court also will grant the Debtor a discharge per Section 1328(a). Given the foregoing resolution, the Court need not address any other legal complications such as start date controversy and the application of Kinney , 5 F.4th 1136. That binding appellate precedent does not foreclose modification (and extension of the payment period) under 11 U.S.C. § 1329(d).

II. Jurisdiction and Venue.

This Court has jurisdiction to enter final judgment on the issues presented in this bankruptcy case pursuant to 28 U.S.C. § 1334. The Chapter 13 plan modification and discharge issues are core proceedings under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate), 157(b)(2)(L) (confirmation of plans), 157(b)(2)(J) (objections to discharges), and 157(b)(2)(O) (other proceedings affecting the liquidation of the assets of the estate). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. No party has contested the Court's jurisdiction or venue.

III. Procedural and Factual Background.

No party opposed the procedural and factual allegations asserted by the Debtor. And, not surprisingly, because there are no factual disputes, no party requested an evidentiary hearing on the modification and discharge issues. Accordingly, the Court relies for its factual findings on the uncontested facts advanced by the Debtor, supplemented with the record procedural background from the Court's docket. The Court makes the following findings under Fed. R. Civ. P. 52, Fed. R. Bankr. P. 7052 and Fed. R. Bankr. P. 9014(c).

The Debtor filed for relief under Chapter 13 of the Bankruptcy Code on May 23, 2016.³ At the same time, the Debtor submitted a "Chapter 13 Plan Including Valuation of Collateral and Classification of Claims" (the "Original Chapter 13 Plan").⁴ Douglas B. Kiel, the Standing Chapter 13 Trustee (the "Chapter 13 Trustee") objected to the Original Chapter 13 Plan.⁵ In order to resolve the objection, on July 20, 2016, the Debtor filed an "[Amended] Chapter 13 Plan Including Valuation of Collateral and Classification of Claims" (the "Amended Chapter 13 Plan").⁶ In section III of the Amended Chapter 13 Plan, the Debtor provided:

The Debtor submits to the supervision and control of the Trustee all or such portion of the debtor's future earnings as is necessary for the execution of the plan, including: ... [f]uture earnings of $541 per month which shall be paid to the trustee for a period of approximately 60 months, beginning 6/18/2016.

No party objected to the Amended Chapter 13 Plan. Accordingly, the Court entered an Order confirming the Debtor's Amended Chapter 13 Plan on August 1, 2016.⁷

About five years later, on August 3, 2021, the Debtor filed his "Chapter 13 Debtor's Certification to Obtain Discharge" (the "Certification to Obtain Discharge") wherein the Debtor requested a discharge and stated that he had "completed all payments and obligations required by my chapter 13 plan."⁸ A week later, the Chapter 13 Trustee submitted his "Trustee's Statement Regarding Debtor(s) Eligibility for Discharge" (the "Trustee's Statement").⁹ In the Trustee's Statement, the Chapter 13 Trustee advised:

The trustee is unaware of how this Court will calculate the timeliness of debtor payments to the trustee. However, if the plan term end date is calculated in accordance with the Humes/Kinney decisions, the final payment of $436 would appear to be twenty-three days late. The final plan payment is less than one payment. This is not a "material default" either in time or in amount; therefore, the discharge should enter. The trustee does not oppose discharge.

No party contested the entry of a discharge.

However, the Trustee's Statement (which suggested that the Debtor's final payment "would appear to be twenty-three days late") raised the legal issue of whether the Court was authorized to grant a discharge under binding appellate precedent: Kinney , 5 F.4th 1136. Therefore, the Court entered an "Order for Briefing" directing the Debtor, the Chapter 13 Trustee, and any other party in interest to file legal briefs:

... setting forth additional facts and legal argument, complete with citation to statutory, rules, and case law authority, on the following and on any other matters they believe are relevant to the Court's consideration of whether the Court may enter the Debtor's discharge pursuant to 11 U.S.C. § 1328(a) :

(1) When and how was the Debtor's final payment made and received?

(2) Did the Debtor's Plan commence on the date that the first payment under the Plan was due to be made (June 18, 2016, as set forth in the Plan), on the date that the Plan was confirmed (August 1, 2016), or some other date, and was payment completed before or after expiration of the term of the Plan?

(3) Does the Kinney decision allow the Court to enter the Debtor's discharge if the final payments due under the Plan were not made until after expiration of the 60-month term of the Plan? If so, under what circumstances?

(4) If the Court determines that, under the reasoning of Kinney and/or Humes , the Debtor is not eligible to receive a discharge under 11 U.S.C. § 1328(a), should the Court convert the case to another chapter of the

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