In re: Steven L. Swackhammer

Case Type:
Case Status:
BAP No. 22-6006 (8th Circuit, May 23,2023) Published
The U.S. Bankruptcy Appellate Panel for the Eighth Circuit (the “BAP”) affirmed the decision of the U.S. Bankruptcy Court for the Southern District of Iowa (the “Bankruptcy Court”) granting a debtor’s fourth modified plan under 11 U.S.C. § 1229, finding that section 1229 and existing Eighth Circuit case law contain an implicit requirement that a debtor prove it experienced a substantial change of circumstance. The BAP further found the Bankruptcy Court’'s factual findings relating to the plan modification were not clearly erroneous.
Procedural context:
The debtors filed a fourth motion to modify their chapter 12 plan. Farm Credit, one of the debtors’ secured creditors objected to the modification arguing that the debtors failed to prove that they had experienced an unanticipated substantial change of circumstance and Farm Credit further argued that the proposed modification lacked feasibility. Farm Credit raised the same lack of substantial change of circumstance during the previous modifications but did not appeal those modified plans. The Bankruptcy Court overruled the objection, but recognizing the feasibility concerns, ordered that in the event the debtors failed to comply with any term of the fourth modified plan the case would be dismissed. Farm Credit appealed, arguing that the Bankruptcy Court erred by confirming the debtors’ fourth modified plan without requiring the debtors show an “unanticipated and substantial change in circumstance” and further arguing that the Bankruptcy Court’s factual findings were clearly erroneous.
The debtors filed a bankruptcy petition under chapter 12 in September 2018 and confirmed a consensual second modified plan in September 2019. In February 2020 and again in February 2021, the debtors moved to modify their confirmed plan to extend the time to make payments to three secured creditors, each time alleging that they experienced a substantial change of circumstance due to abnormally wet weather, equipment failure, employee illness, or losses in farmland. The Bankruptcy Court confirmed those plans over the objection of Farm Credit, one of the secured creditors, who argued that the debtors failed to show a substantial unanticipated change in circumstance. In March 2022, the debtors filed a motion to approve a third modified plan to again extend the deadline for payments to the three secured creditors, asserting that they experienced an unforeseen loss of revenue during the previous year. Farm Credit again objected, arguing that the debtors failed to show that they experienced a substantial and unanticipated change of circumstance and it further argued that the modified plan was not feasible. The Bankruptcy Court held an evidentiary hearing in May 2022, where one of the debtors testified about several issues that prompted the modification. He testified that due to a delay in financing he lost acreage on which he could farm on his own behalf and was instead forced to farm on someone else’s behalf, which was far less profitable. He also testified that he had experienced an unexpected complication from his earlier cancer treatments that resulted in a referral to the Mayo Clinic. The debtor also indicated that he proposed to sell part of the debtors’ homestead in two transactions and would commit the sale proceeds to make plan payments. The Bankruptcy Court observed that the testimony showed an unanticipated and substantial change of circumstance but denied the motion to modify due to the plan’s lack of feasibility. The Bankruptcy Court directed the parties to meet and determine whether they could agree to the terms of a fourth amended plan. The parties proved unable to reach an agreement and the debtors filed their fourth motion to modify. Farm Credit again objected, arguing the debtors failed to prove an “unanticipated substantial change in circumstance” occurred and further argued that the proposed plan lacked feasibility. The Bankruptcy Court held a telephonic hearing on the matter where the debtors’ counsel indicated he would waive his unpaid fees to make the plan feasible and as of the hearing date the debtors had made the payments required under the first modification; paid 40% of the payments due to Farm Credit under the second modification; had timely sold one of two parts of their homestead to fund the plan; and were in the process of selling the second part of their homestead. The Bankruptcy Court confirmed the debtors' fourth modified plan. Farm Credit appealed.

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