United States District Court, E.D. Michigan, Southern Division
IN RE David Brian Touroo, Debra Sue Touroo, Debtors.
TAMMY L. TERRY, CH. 13 STANDING TRUSTEE, Appellee. DAVID BRIAN TOUROO and DEBRA SUE TOUROO, Appellants,
OPINION AND ORDER REVERSING DECISION OF BANKRUPTCY
CARAM STEEH UNITED STATES DISTRICT JUDGE.
and Debra Touroo (“Debtors”) appeal the
bankruptcy court's final order dismissing their Chapter
13 case. The court found that Debtors defaulted by failing to
make all of the required payments under their plan before the
plan expired. The court determined that it did not have
discretion to allow the Debtors to cure their default after
the expiration of the plan. As explained below, this court
concludes that the Bankruptcy Code gives the court discretion
to allow Debtors a grace period to cure their default and
does not mandate dismissal under these circumstances. The
bankruptcy court's decision is reversed and this case is
remanded for further proceedings.
filed their Chapter 13 bankruptcy petition on April 18, 2013.
On April 26, 2013, they filed a plan proposing payments of
$283 per month, for sixty months. Debtors amended their plan
on June 21, 2013, reducing the plan length from sixty to
fifty months, among other changes, including weekly instead
of monthly payments. The bankruptcy court confirmed the plan
on July 31, 2013. The first plan payment under the confirmed
plan was made on August 6, 2013.
proposed a plan modification extending the plan length from
fifty to sixty months, which was approved by the bankruptcy
court on July 25, 2017. The plan called for a total of $8,
911.37 to be distributed to unsecured creditors. The plan
also required Debtors to remit their 2017 federal income tax
refund to the Trustee.
made all their weekly payments under the plan through payroll
garnishment. On August 23, 2018, the Trustee filed a motion
to dismiss based upon Debtors' failure to remit their
2017 tax refund and because of the expiration of the plan.
Shortly thereafter, the Debtors submitted their $1, 417 tax
refund to the Trustee, who received it on August 27, 2018.
Debtors opposed the motion to dismiss, arguing that the
bankruptcy court had discretion to allow them to cure their
bankruptcy court disagreed, noting that the Bankruptcy Code
does not allow for the confirmation of a plan that extends
longer than sixty months. The court conditionally granted the
Trustee's motion to dismiss, allowing Debtors fourteen
days to file a plan modification to excuse the obligation to
remit the 2017 tax refund or to file a motion for a hardship
discharge. The order provided that if Debtors did not file
either item, the court “will enter an order dismissing
this case, without further notice or hearing.” Doc. 3
at PageID 67.
filed a proposed plan modification on October 8, 2018, which
did not excuse the obligation to remit the tax refund.
Rather, Debtors sought to retroactively make their first plan
payment due on August 31, 2013, a month after the original
order confirming the plan was entered, thus changing the
expiration date of the plan to August 31, 2018, and
consequently making the tax refund payment timely. The
bankruptcy court entered an order disapproving the plan
modification and dismissing the case on October 12, 2018. The
court stated that “the first payment in fact was due
under the confirmed plan no later than August 7, 2013, and
that means that the five year period described in 11 U.S.C.
§ 1329(c) expired no later than August 7, 2018. . . .
[T]he Debtors admittedly did not make all the payments
required by their confirmed plan until after August
7, 2018. These are historical facts that cannot be changed
retroactively by a plan modification now. To rule otherwise
would itself violate § 1329(c).” Doc. 3 at PageID
filed a timely notice of appeal of the bankruptcy court's
final order dismissing the case. District courts have
“jurisdiction to hear appeals . . . from final
judgments, orders, and decrees . . . of bankruptcy
judges.” 28 U.S.C. § 158(a). This court reviews
the bankruptcy court's interpretation of the Bankruptcy
Code de novo. In re Dow Corning Corp., 456 F.3d 668,
675 (6th Cir. 2006). When “statutory language is
unambiguous, our inquiry both begins and ends with the text
itself.” United States v. Bedford, 914 F.3d
422, 427 (6th Cir.), cert. denied, 139 S.Ct. 1366
to 11 U.S.C. § 1322(d), the bankruptcy court may not
approve a plan that provides for payments over a
“period that is longer than five years.”
Id. Once a plan is confirmed by the court, the
debtor and his creditors are bound by its terms. 11 U.S.C.
§ 1327. If a debtor meets his obligations under the
plan, he is entitled to “a discharge of all debts
provided for by the plan, ” often referred to as a
“completion discharge.” 11 U.S.C. § 1328.
Section 1328 provides for a completion discharge if the
debtor has completed “all payments under the
plan.” This section does not contain “an express
requirement that such payments were made within five
years.” In re Klaas, 858 F.3d 820, 829 (3d
Cir. 2017). In the event the debtor materially defaults on
the plan requirements, the court has discretion to dismiss
the cause for cause. Id. (noting that the court
“may” dismiss a case for cause, which is
“permissive language”); 11 U.S.C. § 1307.
11 U.S.C. § 1329, a debtor may modify a plan after it
has been confirmed. A debtor may modify a plan to
“extend or reduce the time for . . . payments, ”
11 U.S.C. § 1329(a)(2), but may not modify the plan to
extend its length beyond five years, 11 U.S.C. §
1329(c). This time limitation for Chapter 13 plans reflects
congressional concern that debtors were being forced into
lengthy payment terms, which it viewed as “the closest
thing there is to indentured servitude” because such
plans do not “provide the relief and fresh start for
the debtor that is the essence of modern bankruptcy
law.” Klaas, 858 F.3d at 830 (citing H.R. Rep.
No. 95-595 at 117 (1977)); see also In re Black, 78
B.R. 840, 841-42 (S.D. Ohio 1987).
filed for Chapter 13 relief on April 18, 2013, and filed
their original plan on April 26, 2013. The court confirmed
the plan on July 31, 2013, determined that the first weekly
payment under the confirmed plan was due no later than August
7, 2013, and concluded that the plan expired no later than
August 7, 2018. Doc. 3 at PageID 183.
submitted their 2017 tax refund to the Trustee on August 27,
2018. The bankruptcy court declined to allow the Trustee to
apply this late payment to the plan, reasoning that allowing
payment after the expiration of the five-year period would
contravene the limit set forth in 11 U.S.C. § 1329(c).
The court granted the Trustee's motion to dismiss
pursuant to 11 U.S.C. § 1307(c), which provides that the
bankruptcy court may dismiss a case “for ...