Annette Diaz v. Mary Viegelahn

Case Type:
Consumer
Case Status:
Reversed and Remanded
Citation:
19-50982 (5th Circuit, Aug 26,2020) Published
Tag(s):
Ruling:
A bankruptcy court's local rule requiring that all chapter 13 debtors turn over income tax returns over $2,000 is invalid because it breaches below-median income debtors' substantive rights and violates §1325(b)(2), as construed by Hamilton v. Lanning, 560 U.S. 505 (2010). Local rules are intended to govern practice and procedure, and should never alter a debtor's substantive rights.
Procedural context:
The debtor appealed the bankruptcy court's order denying confirmation of her chapter 13 plan that omitted certain language required by the court's local form chapter 13 plan.
Facts:
The United States Bankruptcy Court for the Western District of Texas adopted local rules in October 2017 that included a form chapter 13 plan. The plan includes a provision, section 4.1, requiring debtors to turn income tax returns of more than $2,000 over to their chapter 13 trustees. The refunds are treated as increases to the base amounts, and the debtors’ plans are deemed modified. A debtor may move to retain a portion of the tax refund within 21 days if the debtor’s plan provides for payment in full of all unsecured claims during the term of the plan. In December 2017, Annette Marie Diaz, a below median single mother of two minor children, filed a chapter 13 petition. Two days before the confirmation hearing, Ms. Diaz filed an amended plan that proposed variable payments for 60 months. Ms. Diaz omitted section 4.1 from her plan. Ms. Diaz also filed amended schedules that indicated that she expected to receive a $3,261 tax refund for 2017. Ms. Diaz also filed an amended Schedule J that increased her monthly expenses so that her expected tax refund would be used for living expenses. At the confirmation hearing, the chapter 13 trustee objected to Ms. Diaz’ plan because it was filed late. Ms. Diaz filed a second amended plan that did not omit section 4.1, but included a nonstandard provision that declared section 4.1 null and void. The bankruptcy court, however, did not consider Ms. Diaz’s second amended plan and denied confirmation of the amended plan. In the order denying confirmation, the court held that Ms. Diaz could not strike section 4.1 from the chapter 13 plan. In May 2018, Ms. Diaz filed another chapter 13 plan (the “Revised Plan”) that did not strike section 4.1 or contain any nonstandard provisions in section 8. In July 2018, the bankruptcy court confirmed the Revised Plan.
Judge(s):
STEWART, CLEMENT, and COSTA

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