Opinion
22-cv-1266-bhl
12-12-2022
WILFREDO RAMOS, Appellant, v. SCOTT LIESKE, Appellee.
OPINION SUPPORTING CERTIFICATION OF APPEAL
Brett H. Ludwig United States District Judge
Chapter 13 bankruptcy gives wage earners a chance to repay their debts over time according to court-approved plans. But these plans are subject to statutory limitations, including limits on plan duration. Under Section 1322(d)(1) of the Bankruptcy Code, a debtor's Chapter 13 repayment plan “may not provide for payments over a period that is longer than 5 years.” (emphasis added). And, while a debtor can later seek the bankruptcy court's permission to modify a confirmed plan, Section 1329(c) provides that the modification similarly cannot provide for payments extending more than five years “after the time that the first payment under the original confirmed plan was due.” 11 U.S.C. §1329(c). A bankruptcy court's application of these provisions during normal times is relatively straightforward.
But the last few years have been anything but normal. In 2020, faced with a global pandemic, Congress relaxed the five-year limit on plan duration to accommodate debtors' anticipated financial hardships. Accordingly, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress temporarily added a new provision to the Bankruptcy Code-11 U.S.C. Section 1329(d). This amendment permitted Chapter 13 debtors to modify their confirmed plans, if certain conditions were satisfied, to spread repayments across a period of up to seven years, rather than the five years ordinarily permitted under 11 U.S.C. Section 1329(c). See Pub. L. No. 116-136, §1113(b)(1)(C) (Mar. 27, 2020).
By its terms, Section 1329(d) was expressly temporary; it expired on March 27, 2022. See Pub. L. No. 117-5, 135 Stat 249 (Mar. 27, 2021). The question in this case is whether, after Section 1329(d)'s expiration, a debtor who previously modified his plan to take advantage of the extended repayment period can obtain a new modification that retains that extended repayment period but changes his monthly plan payment amount. The Bankruptcy Court held that the plain terms of Section 1329(c) precluded confirmation of such a proposed modification. Because this purely legal issue is likely to affect many Chapter 13 debtors who previously modified their plans during Section 1329(d)'s effective period, and those debtors, their creditors, and United States Trustee all need a prompt ruling from a precedent-setting court, this Court will certify this matter for direct appeal to the Seventh Circuit.
FACTUAL BACKGROUND
Debtor Wilfredo Ramos filed his initial Chapter 13 plan on February 28, 2020. (ECF No. 1-1 at 20.) The Bankruptcy Court confirmed the plan two days later. (Id.) Not long after, Deutsche Bank National Trust Company filed a motion for relief from the automatic stay based on Ramos' failure to make his post-petition mortgage payments. (Id.) The Bankruptcy Court denied the motion but permitted Deutsche Bank to file a supplemental claim in the amount of $9,605.60 and gave the bank the right to renew its motion by affidavit in the event of a future default. (Id.) To accommodate the new claim without increasing his monthly payments, Ramos asked to stretch his payment period to 76 months under Section 1329(d). (Id.) The Bankruptcy Court approved this modification and confirmed Ramos' amended plan on July 20, 2021. (Id.)
On January 5, 2022, after Ramos defaulted again, Deutsche Bank filed an affidavit of default to renew its request for relief from the stay. (ECF No. 1-1 at 11.) On May 24, 2022, after a series of hearings, the parties stipulated to allowing Deutsche Bank another supplemental claim, this time for $2,111.52. (Id. at 14.) Because his existing plan payments would not retire this debt within the time provided in the confirmed plan, Ramos proposed a further modified plan. (Id. at 21.) The proposed modification would have raised Ramos' monthly payments from $468 to $520 while maintaining the previously approved 76-month repayment period. (Id.) No one opposed the modification, but the Bankruptcy Court set a hearing to consider whether its approval violated Section 1329(c) because the proposed amendment would have extended Ramos' payment period more than five years after the date that the first payment under his original confirmed plan was due. (Id.) On October 11, 2022, the Bankruptcy Court issued a decision, concluding that it was bound to apply the letter of Section 1329(c), even to debtors who had previously invoked the now-repealed Section 1329(d). (Id. at 34-35.) As a result, the Bankruptcy Court held it could not approve Ramos' proposed modification. (Id. at 35.) On October 25, 2022, Ramos appealed. (ECF No. 1.)
LEGAL STANDARD
This Court may, on its own motion, certify a judgment, order, or decree of a bankruptcy court for appeal to the Seventh Circuit where “the judgment, order, or decree involves a question of law as to which there is no controlling decision of the [Seventh Circuit] or of the Supreme Court of the United States.” 28 U.S.C. §158(d)(2)(i). Under Bankruptcy Rule 8006(e), this is accomplished by serving on the parties the certification and an accompanying opinion that includes the facts necessary to understand the question presented; the question itself; the relief sought; the reasons why the direct appeal should be allowed, including which circumstance specified in Section 158(d)(2) applies; and a copy of the relevant judgment, order, or decree and any related opinion or memorandum. Parties then have 14 days to file an optional, short, supplemental statement regarding the merits of certification. Fed.R.Bankr.P. 8006(e)(2). Once that period has elapsed, the court of appeals “has discretion to hear the matter.” Bullard v. Blue Hills Bank, 575 U.S. 496, 508 (2015).
ANALYSIS
Resolution of this appeal turns on a question of law that neither the Seventh Circuit nor the United States Supreme Court has addressed. See 28 U.S.C. §158(d)(2)(A)(i). The question is whether 11 U.S.C. Section 1329(c), by its plain terms, forecloses a debtor's ability to modify the monthly payment amounts of a Chapter 13 repayment plan while maintaining the extended repayment period previously approved under the now-repealed Section 1329(d).
On July 20, 2021, the Bankruptcy Court approved debtor Wilfredo Ramos' modified repayment plan, which required him to repay his debt in $468 monthly installments spread across 76 months. (ECF No. 1-1 at 20.) The greater-than-five-year length of the repayment period was only permissible because of the CARES Act and its temporary adoption of 11 U.S.C. Section 1329(d). But that provision expired on March 27, 2022. After the statute expired, Ramos sought to modify the monthly payment amounts of his plan while maintaining the previously approved 76-month repayment period. The Bankruptcy Court concluded that it could not approve this modification because Section 1329(c) now controlled, and that provision prohibits modifications that would result in a payment period lasting longer than five years “after the time that the first payment under the original confirmed plan was due.” Given the short life of Section 1329(d), it is unsurprising that neither the Seventh Circuit nor the Supreme Court has addressed whether the benefits of that section survive its repeal in the context of a debtor who attempts to modify only his monthly payment amount while maintaining a plan of greater than five-year duration.
Ramos and the Chapter 13 trustee argue that restricting debtors with extended plan periods approved under Section 1329(d) to a 60-month plan on subsequent modification undermines the Bankruptcy Code's animating purpose, which is to aid Chapter 13 debtors in repaying their debts. The Bankruptcy Court held that it was bound by the letter of the only provision currently in effect-Section 1329(c)-and could not, therefore, grandfather in an extended plan period approved under Section 1329(d) upon later modification, even if that modification sought only to alter monthly payments. This Court could venture a guess as to how the Seventh Circuit might resolve the dispute, but for efficiency's sake, it makes more sense to certify the dispositive question of law for interlocutory appeal and await further instruction. Indeed, while the exact number of modifications granted under Section 1329(d) is unknown, there were 16,002 non-business Chapter 13 bankruptcy filings in the Seventh Circuit last year alone. Administrative Office of U.S. Courts, U.S. Bankruptcy Courts-Business and Nonbusiness Cases Filed, by Chapter of the Bankruptcy Code, District, and County-During the 12-Month Period Ending September 30, 2022, https://www.uscourts.gov/statistics/table/f-5a/bankruptcy-filings/2022/09/30. Modification of Chapter 13 plans is quite common. Reed Allmand, 5 Reasons You Can Modify Your Chapter 13 Bankruptcy Plan , ALLMAND LAW, (Dec. 7, 2010) https://allmandlaw.com/5-reasons-you-can-modify-your-chapter-13-bankruptcy-plan/. And debtors had increased incentives to seek modification while Section 1329(d) was in effect. Thus, the question presented in this case is likely to recur across the Seventh Circuit as debtors who modified their plans to take advantage of the CARES Act's extended repayment period seek subsequent modifications to their monthly liabilities. The sooner lower courts receive precedential guidance from the Seventh Circuit on this matter, the better. No matter how this Court rules, this case is almost certain to be appealed. Others like it will follow the same trajectory. The Seventh Circuit can stem the tide of such appeals by resolving the question in this matter and providing binding guidance for lower courts to follow. This will ensure consistent treatment of debtors and application of a single, confirmed rule of law.
Attached to this opinion is a copy of the relevant Bankruptcy Court Order.