Opinion
No. 13-97-16926 MA
April 22, 2004
Jennie Deden Behles, Albuquerque, NM, for Debtors
William R. Keleher, Albuquerque, NM, for Western Commerce Bank
MEMORANDUM
Debtors Robert Welch and Wanda Welch, by and through their attorneys of record, Behles Law Firm, P. C., (Jennie Deden Behles), and Western Commerce Bank (Western Bank), Debtors largest unsecured creditor, by and through its attorneys of record, Modrall Sperling Roehl Harris Sisk, P. A. (William R. Keleher), dispute the meaning of Debtors confirmed chapter 13 plan. At issue is whether Debtors confirmed chapter 13 plan requires a 2% payout to unsecured creditors, or whether, by virtue of having made all payments called for under the plan, Debtors have completed their obligations under the plan and are entitled to a discharge. The Court heard oral argument on March 15, 2004 , and directed counsel to submit letter memoranda on this issue by April 5, 2004 . Having considered the arguments of counsel and the letter memoranda, and being otherwise sufficiently informed, the Court finds that the Debtors have complied with the terms of their confirmed chapter13 plan and are entitled to receive a discharge. In reaching this determination, the Court FINDS:
1. Debtors filed a voluntary petition under chapter13 of the bankruptcy code on November 27, 1997.
2. Debtors filed their proposed chapter 13 plan of reorganization on December 23, 1997. (See Docket # 15).
3. Western Bank objected to Debtors proposed chapter 13 plan. (See Docket # 17).
4. The Debtors chapter 13 plan provides for monthly payments of $1,000.00 per month for thirty-six months, beginning December 17, 1997. See Chapter 13 Plan, ¶ 1(a). Specifically, paragraph 1(a) of Debtors chapter 13 plan provides:
The Debtors shall pay to the trustee a periodic payment of $1,000.00 ever[y] month. The payments specified herein shall be for a period of thirty-six (36) months beginning December 27, 1997 and on the same each subsequent month or up to sixty (60) months. . . . Debtors reserve the right to prepay all amounts required to be paid under the Plan.
5. After payment of administrative and priority claims, Debtors chapter 13 plan provides for payment of unsecured claims as follows:
Third, pro rata, to timely filed and allowed non-priority unsecured claims, the amounts required by 11 U.S.C. § 1325(b)(1). These creditors will receive approximately 2.0% of their allowed claims. This percentage will vary depending on the amount of total creditors claims filed. Chapter 13 Plan, ¶ 2(c).
6. Debtors chapter 13 plan provides further that In the event claims required to be paid through the Plan in paragraph 2 are greater than the amount set forth therein or cannot be paid within the time period set forth in paragraph 1(a), then first, the amounts paid to unsecured claimants shall decrease, but not to an amount less than such claimants would receive in a Chapter 7 liquidation. Chapter 13 Plan, ¶ 2.
7. Western Bank filed a proof of claim for an unsecured claim in the amount of $1,084,538.80 (Claim # 23), which was later amended and reduced to $427,013.44. (Claim # 49).
8. Debtors objected to Western Banks claim. (See Docket #100 and Docket # 150 — Second Objection to Claims).
9. Western Bank withdrew its objection to Debtors proposed Chapter 13 plan, and an Order Confirming Chapter 13 Plan Filed December 23, 1997, Valuing Collateral, and Avoiding Liens (Confirmation Order) was entered on May 25, 2000. (See Docket # 53 — Withdrawal of Objection and Motion; and Docket # 75 — Confirmation Order).
10. The Confirmation Order recites that Western Bank withdrew its objection, and provides further that: The value, as of the effective date of the Plan, of property to be distributed under the Plan on account of each allowed unsecured claim, is not less than the amount that would be paid on such claims if the estate of the debtors were liquidated under Chapter 7 of this title on such date.
Confirmation Order, ¶ 7.
11. Debtors have paid $39,680.00 into the plan over a period of sixty months. See Chapter 13 Trustees Annual Report dated November 17, 2003 — last payment made January 2, 2003 . 13. All administrative and priority claims have been paid in full. See Chapter 13 Trustees Annual Report dated November 17, 2003. 14. Unsecured creditors have received no distribution under the plan. See Chapter 13 Trustees Annual Report dated November 17, 2003 .
DISCUSSION
The starting point for resolving the dispute now before the Court is the language of the plan itself, for once a plan has been confirmed, its terms are binding on the debtor and all creditors. 11 U.S.C. § 1327(a). This principle holds true even when a provision contained within a confirmed plan is contrary to the provisions of the bankruptcy code. Andresen v. UNIPAC-NEBHELP (In re Andresen), 179 F.3d 1253, 1258 (10 th Cir. 1999). Western Bank asserts that because the Debtors confirmed chapter 13 plan provides for a distribution to unsecured creditors of approximately 2% of their allowed claims, and because no distribution has been made to unsecured creditors under the plan, that Debtors have not completed their plan. The plain language of the confirmed plan states that unsecured creditors will receive approximately 2% of their allowed claim. Chapter 13 Plan, ¶ 2(c) (emphasis added). A plan with language providing for an approximate percentage distribution does not mandate a 2% payout. The language in the plan indicates that Debtors proposed plan is a pot plan, under which a debtor pays in a specified amount into the estate, not a percentage plan under which a debtor makes as many payments as it takes to reach a specified percentage payout to unsecured creditors. See In re Than, 215 B.R. 430, 432 n. 2 (B. A. P. 9 th Cir. 1997) (A percentage plan provides that each creditor will receive a set percentage of the allowed claim while leaving the exact amount the debtor will pay in flux until all claims are approved. . . . A pot plan provides that the debtor will pay a fixed amount, thus the percentage creditors receive will depend on the total amount of approved claims.) (citing In re Witkowski, 16 F.3d 739, 741 n. 11 (7 th Cir. 1994)). The language in the plan also indicates that the plan will be extended up to sixty months if necessary to pay priority claims. (See Finding No. 6). This language should indicate to any unsecured creditors examining the plan that they should not expect much of a distribution under the plan, if any, since, under the terms of the plan, it might be necessary to extend the plan to sixty months just to satisfy priority claims.
In fact, it appears from the Chapter 13 Trustees annual report that this is what happened. All priority and administrative claims have been paid in full over sixty months, and no additional sums are left to pay anything to unsecured creditors. Thus, even though it is difficult to say that a zero-dividend equals the approximately 2% that the plan indicates unsecured creditors will receive, the Court concludes that language in the confirmed plan does not require Debtors to pay a certain percentage amount before the plan is complete. Cf. In re Edwards, 51 B.R. 792, 793 (Bankr. D. N.M. 1984) (finding that [low] percentage of dividends to unsecured creditors is insufficient grounds in and of itself to deny confirmation, provided that creditors will receive as much as they would have received in a liquidation proceeding); In re Meyers, 178 B.R. 518, 519, n. 4 (Bankr. W. D. Okla. 1995) (noting that nothing in the bankruptcy code prohibits confirmation of a zero-percent plan, provided the plan is not otherwise filed in bad faith).
Western Bank also points out that completion of payments under a plan is not determined by whether a debtor has made all payments, but rather when the trustee has made all required distributions to creditors under the plan, citing In re Chancellor, 78 B. R 529 (Bankr. N. D. Ill. 1987). Because the Court finds that the language of the plan does not require the Debtors to make payments until the unsecured creditor have received a set percentage amount, this distinction between payments made by the Debtors and distributions made by the trustee does not affect the conclusion that the Debtors have completed their confirmed chapter 13 plan in accordance with its terms. Finally, Western Bank argues that the plan requires Debtors to pay unsecured creditors at least what they would have received had the estate been liquidated under chapter 7 of the bankruptcy code, and that, based on the non-exempt amounts listed in Debtors schedules, they have not complied with this requirement. The Court disagrees. Paragraph 7 of the Confirmation Order does not state that Debtors are required to make additional payments under their chapter 13 plan until they have met the best interest of creditors test. Rather, paragraph 7 in the Confirmation Order constitutes a stipulation that the plan meets the best interest of creditors test and otherwise complies with the requirements under the bankruptcy code. The time to assert that a debtors proposed chapter 13 plan fails to meet the requirements of 11 U.S.C. § 1325(a)(4) is at confirmation, not more than three years after the proposed plan has been confirmed. See 11 U.S.C. § 1325(a)(4) (best interest of creditors test is a requirement for confirmation of a proposed chapter 13 plan); See Andersen, 179 F.3d at 1258 (noting that it is incumbent upon creditor to complain about an offending provision at confirmation; failure to raise an objection at confirmation precludes subsequent attack on confirmed plan) (citing Lawrence Tractor Co. v. Gregory, 705 F.2d 1118, 1121 (9 th Cir. 1983). Absent a timely appeal from the Confirmation Order, the confirmed plan is res judicata, and the binding effect of the plan extends to any issue actually litigated and any issue necessarily determined by the confirmation order. Andersen, 179 F.3d at 1258 (citing In re Battle, 164 B.R. 394, 397 (Bankr. M. D. Ga. 1994). Paragraph 7 of the Confirmation Order stating that the value . . . of property to be distributed under the Plan on account of each allowed unsecured claim, is not less than the amount that would be paid . . . if the estate . . . were liquidated under Chapter 7 . . . necessarily determines that the plan meets the requirements of 11 U.S.C. § 1325(a)(4). Based on the foregoing, the Court concludes that Debtors have completed their confirmed chapter 13 plan in accordance with its terms. Debtors are, therefore, entitled to receive a discharge, and the case can be closed. The Debtors objection to the claim of Western Bank is, therefore, moot.
Section 1325(a)(4) is often referred to as the best interest of creditors test. That section provides: The value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date. 11 U.S.C. § 1325(a)(4).
I hereby certify that a true and correct copy of the foregoing was either electronically transmitted, faxed, delivered, or mailed to the listed counsel and parties, on the date file-stamped above.