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Germeraad v. Powers, No. 14-CV-03128 (7th Cir. June 23, 2016) (unpublished).

Germeraad v. Powers, No. 14-CV-03128 (7th Cir. June 23, 2016) (unpublished).
A bankruptcy court has discretion to modify a Chapter 13 plan based on an increase in the Debtors’ post-confirmation income.
Procedural context:
The bankruptcy court denied the Trustee’s motion to modify the Debtors’ plan to increase monthly payments based on post-confirmation increase in the Debtors’ income, and following appeal by the Trustee, the district court affirmed. Both courts held that, as a matter of law, the Bankruptcy Code did not contain a provision that would allow modification of a Chapter 13 plan based on a debtor’s post-confirmation increase in income. On appeal, the Seventh Circuit disagreed with the bankruptcy and district courts. First, the court briefly addressed the Debtor’s contentions (only one of the two Debtors participated on appeal) that a bankruptcy court’s order denying a motion to modify a Chapter 13 plan is not “final” as required under 28 U.S.C. § 158, and that the appeal of the order denying modification is moot. As to the finality argument, the court noted that, in bankruptcy, an order is final if it brings to end a single “proceeding” that exists within the larger bankruptcy case. Unlike an order denied on a technical defect which may be cured by filing an amended motion, the order here was based on a conclusion of law and was therefore final. In addition, the court disagreed with the Debtor’s contention that the appeal of the order is moot because five years have elapsed since the first payment made under the original plan. The court reasoned that the modified plan would have required the Debtors to make increased payments for the remaining 23 months under the plan, and while those months have since come and gone without such increased payments, allowing modification would still impact the parties’ rights. Specifically, the debtors would be deemed in default for failure to pay the increased amount, and the bankruptcy court may deny their discharge, dismiss their case, or allow them to cure their default by paying the difference between the payments required under the modified plan and the payments they actually made during those 23 months. Finally, the court addressed the trustee’s arguments on the merits, which involve the legal standard governing the bankruptcy court’s discretion in deciding a trustee’s motion to modify a confirmed plan. The court agreed with the trustee’s contention that a bankruptcy court has discretion to grant such a motion where the trustee shows that, because of an increase in income, the debtor can afford to pay more to the unsecured creditors than the original plan. The court noted that the bankruptcy court was correct in that the Bankruptcy Code does not explicitly permit modification under these circumstances; however, in the absence of congressional guidance, it is a matter for the courts to decide. And, as the Seventh Circuit pointed out, courts have long recognized that a trustee may seek modification when a debtor’s financial circumstances after confirmation result in the debtor’s having the ability to pay more.
Myrick Powers and Elvie Owens-Powers (the “Debtors”) filed Chapter 13 bankruptcy in 2010, and their plan was confirmed in 2011. Under the plan, the Debtors were to pay certain amounts monthly to the trustee over a 60 month period, from which the trustee would pay the claims of secured creditors and distribute roughly $22,000 to unsecured creditors. The Debtors’ income increased by $50,000 in 2012, and the trustee filed a motion to modify the plan to increase the Debtors’ monthly payments for the 23 months that remained under the plan at the time the motion was filed.
Bauer, Williams, and Adelman (District Judge of the Eastern District of Wisconsin, sitting by designation)

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