Eighth Circuit BAP Holds Substantial Change of Circumstances is Necessary to Modify Chapter 12 Plan

In re Swackhammer, — B.R. —, 2023 WL 3591920 (8th Cir. May 23, 2023)

On May 23, 2023, the U.S. Bankruptcy Appellate Panel for the Eighth Circuit upheld the ruling of the U.S. Bankruptcy Court for the Southern District of Iowa approving a debtor’s fourth modified repayment plan under Bankruptcy Code § 1229. The BAP found that according to § 1229 and Eighth Circuit case law, a debtor is implicitly required to demonstrate that they’ve undergone a significant change in circumstance. It also agreed with the Bankruptcy Court’s factual findings related to the modification of the plan, indicating they were not clearly erroneous.

In the original case, the debtors had put forth a fourth request to adjust their chapter 12 repayment plan. Farm Credit, a secured creditor of the debtors, opposed this modification. They argued that the debtors hadn’t proven any substantial and unanticipated change in circumstances and claimed that the proposed adjustment lacked feasibility.

The Bankruptcy Court overruled Farm Credit’s objections but acknowledged concerns about the plan’s feasibility. As a result, the court determined that if the debtors failed to meet any term of the fourth revised plan, their case would be dismissed. Displeased with this outcome, Farm Credit appealed.

The case began in September 2018 when the debtors filed a bankruptcy petition under chapter 12 and confirmed a consensual second modified plan a year later. Over the following years, they proposed multiple modifications to extend payment deadlines, citing unanticipated changes such as wet weather, equipment failure, employee illness, and farmland losses. Each time, Farm Credit opposed the modifications but failed to prevent their approval.

Eventually, the Bankruptcy Court ordered all parties to convene and agree on the terms of a fourth amendment, which was confirmed following a telephonic hearing. Despite objections from Farm Credit, the court held that the evidence of a substantial change in circumstances and measures to improve feasibility, such as the waiver of unpaid fees by the debtors’ counsel, made the fourth modified plan viable.

On appeal, the BAP upheld the lower court’s ruling, stating it had not abused its discretion. The opinion analyses § 1229 and compares it to § 1329, which governs modification of chapter 13 plans.  The BAP noted a split among courts over the interpretation of § 1229(a) and § 1329(a), which hasn’t been directly addressed by the Eighth Circuit. At least one case states that modification of a confirmed chapter 13 plan should only happen when substantial changes in circumstances occur. Another suggests the possibility of later creditor-driven modifications should the debtor’s ability to pay undergo significant changes. Ultimately, the BAP concluded that a “significant change in circumstances” is necessary to justify a modification to the repayment plan.

The opinion discusses how the bankruptcy court found the Swackhammers successfully demonstrated an unanticipated, substantial change in their circumstances. It also notes that the fourth modified plan was deemed feasible and confirmable. Therefore, the Bankruptcy Appellate Panel for the Eighth Circuit affirmed the decision of the lower court, asserting that it had exercised its discretion appropriately.

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