Schlegel v. Billingslea, Jr. (In re Schlegel)

In re Schlegel, No. SC-14-1132-KiKuJu (9th Cir. B.A.P. Feb. 25, 2015).
As a matter of first impression, a chapter 13 case may be dismissed for the debtors’ failure to pay the required percentage dividend to unsecured creditors, even if they make all required plan payments.
Procedural context:
The confirmed chapter 13 plan required plan payments of $812 for 60 months and a 48% dividend to unsecured nonpriority creditors. On the eve of the 60th month of the plan, the debtors moved for a hardship discharge due, in part, to the need for an additional 96 months of payments to satisfy the plan’s percentage-dividend requirement. While the hardship motion was pending, the trustee moved to dismiss the case under section 1322(d) for the debtors’ failure to complete plan payments within five years from commencement of the case. The debtors failed to timely object to the trustee’s motion to dismiss. The court entered orders granting the motion to dismiss and denying the hardship discharge. The debtors appealed only the order dismissing the case, and the BAP affirmed.
The bankruptcy court had discretion to deem the debtors’ lack of a written opposition to the motion to dismiss to be consent to that motion. The bankruptcy court appropriately dismissed the case under section 1307(c)(6) for the debtors' failure to complete their plan payments within five years from the commencement of the case—even though they had made all their monthly plan payments. Because the debtors did not seek to continue their plan payments beyond 60 months but instead sought a hardship discharge, the BAP did not opine whether section 1322(d) limits a bankruptcy court’s ability to allow a debtor to continue making plan payments beyond the applicable commitment period. The bankruptcy court did not consider the best interest of creditors in deciding whether to dismiss, which is required, but the BAP found that dismissal was in creditors’ best interest.
Ralph B. Kirscher, Frank L. Kurtz, and Meredith A. Jury, Bankruptcy Judges.

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