In this opinion, the Court is grappling with motions to modify in several cases that seek to extend the chapter 13 plan’s term beyond five years.  The motions were filed before § 1329(d)’s sunset on March 27, 2022, but they were not yet approved before its repeal.  The Court analyzes § 1329(b)(2), which provides “[t]he plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.”  This provision means that, upon filing the motion to modify, it is immediately effective subject only to later disapproval.  But when Congress required in § 1329(d) that the modification be “approved,” it was signaling that (d) modifications are only effective upon approval.  Thus, the failure to obtain approval of the proposed modifications before the law’s sunset is fatal to the debtors’ cause.   Nevertheless, in one of these cases where the debtors had obtained approval of a seven-year term before the sunset and then later sought to change another term of the plan (the payment amount), the subsequent modification, which had been proposed but not yet approved before March 27, 2022, did not cause the debtors to lose their seven-year term. 

Shortly after the debtors had completed all plan payments as scheduled under their plan, the chapter 13 trustee discovered that they had failed to disclose a prepetition personal injury claim and their postpetition receipt of a substantial settlement payment.  Before the entry of discharge, the trustee filed a motion to dismiss for bad faith conduct under § 1307(c).  This raised the question of whether the existence of grounds for dismissal under § 1307 trumps the mandatory requirement of entry of discharge upon completion of the plan set forth in § 1328(a).  The court acknowledged that the debtors’ nondisclosure constituted cause for dismissal and that the trustee had acted diligently upon learning of it, but nevertheless § 1328(a) mandated the entry of the discharge on completion of plan payments.  It held that § 1307 is a more general chapter 13 statute that must give way to more specific chapter 13 statutes, namely § § 1328(a), 1328(e), 1329(a), and 1330(a).  Both §§ 1328(a) and 1329(a) make explicit that the final plan payment cuts off any further plan modifications and mandates the entry of discharge, with only a few express exceptions not applicable here.  And we have two more specific chapter 13 statutes that deal with debtor fraud.  Section 1330 revokes the confirmation order if the fraud is discovered within six months after the confirmation order.  And § 1328(e) revokes the discharge order but only if the fraud is discovered within a window of time that begins with the entry of discharge and ends by the one-year anniversary of the discharge.  The combination of these two revocation statutes leaves a wide loophole.  If the chapter 13 trustee or other interested party learns of a debtor’s fraud during the gap that is more than six months after the confirmation order but before the entry of the discharge order, which may not occur for many months or even years later, then neither form of revocation is possible.  Whether or not this gap was intentional, these two statutes signal that Congress has determined that, after a certain period of time, the principle of finality must outweigh the policy of rooting out abusers of the bankruptcy system.  

This case involved a determination of whether the debtor’s obligation to sell or refinance the marital home and distribute one half of the equity to his ex-spouse constituted a nondischargeable domestic support obligation or merely a property settlement debt, dischargeable upon completion of the debtor’s chapter 13 plan.  In the Tenth Circuit, the test for this determination is well settled.  But the court traced several Tenth Circuit precedents that demonstrate that a spouse’s obvious need for support at the time of the divorce is enough to presume that the obligation was intended as support even when it is otherwise identified in an agreement between the parties as a property settlement, even when the parties contemplated a delay in its payment, even though the ex-spouse would receive an additional amount labeled as maintenance, and even though the home equity would be paid in a lump sum.   Here the ex-spouse was unable to support herself and their three minor children without governmental assistance at the time of the divorce.  Her desperate need for everything the separation agreement provided to her overrode all other considerations.  Thus, the court found the equity payment was also in the nature of support and it further awarded the ex-spouse her attorney fees and costs incurred in bringing the nondischargeability action.

The Debtor, Saratoga and North Creek Railway, LLC (the “Debtor”), is a “common carrier” that filed for protection under Chapter 11 of the Bankruptcy Code.  In the Debtor’s Chapter 11 plan of liquidation, the Debtor proposed to sell through auction its largest non-cash asset:  a real property easement created by virtue of a federal stipulated judgment.  The State of New York, the New York State Department of Environmental Conservation, and the New York State Olympic Regional Development Authority (together, “New York”) contested confirmation on the basis of 11 U.S.C. §§ 1129(a)(1), (3), and (7).

The Court determined that requiring bidders to assume the common carrier obligation was a valid exercise of the Debtor’s business judgment and did not violate Section 1129(a)(1), as the Debtor had reason to believe that sale to a party willing to assume the common carrier obligation would be more readily approved by the Surface Transportation Board (“STB”).  The Court further found that the plan satisfied the good-faith requirement of Section 1129(a)(3) in that the Debtor was engaged in an honest, sincere, and non-abusive effort to promptly confirm its plan, sell the easement, pay creditors, and exit bankruptcy.  The Court further found that the plan was feasible, dismissing the argument that a prior denial, on procedural grounds, of the stalking-horse bidder’s pre-sale application to the STB, demonstrated that the plan was not feasible. 

The Court dismissed the notion that determining feasibility under Section 1129(a)(3) was impossible because the plan did not provide for sale until after confirmation, noting that such procedure was common in Chapter 11 and is contemplated in Section 1123(a)(5)(D).  While STB approval of the sale was not guaranteed, the Debtor had offered evidence that it had structured the sale with the intention of maximizing the odds that the sale would be approved, and had demonstrated that there is at least a “reasonable prospect” that the stalking horse or another bidder would be able to secure STB approval.  The Court also rejected the argument that the plan was not proposed in good faith, citing the Debtor’s extensive efforts to market and sell the easement, including its establishment of a data room for potential purchasers and its entry into nondisclosure agreements with multiple potential buyers, and its securing of a stalking-horse bidder as evidence of its good faith effort. 

The Court next rejected New York’s contention that the plan did not satisfy the best interests of creditors test of Section 1129(a)(7).  The Court found the plan did not prohibit a bid in excess of the stalking horse’s bid; it merely established the requirement, deemed necessary in the Debtor’s business judgment, that a potential purchaser assume the Debtor’s common carrier obligation.  And the plan did not propose to involve a Chapter 11 trustee in the management of the debtor’s assets, but rather an unpaid plan administrator.  Since the manager would not be compensated, the proposed plan would be less expensive than liquidation by a Chapter 7 Trustee.

Having rejected New York’s objections, the Court confirmed the Debtor’s Chapter 11 plan.