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Bankruptcy Bulletin: Eighth Circuit BAP Holds Chapter 12 Plan Modification After Confirmation Under Section 1229(a) Requires a Substantial Change in Circumstances

By David Tanabe posted 06-02-2023 09:34 AM

  

BANKRUPTCY BULLETIN

Contributing Author: David M. TanabeWinthrop & Weinstine, P.A.

In In re Swackhammer, 2023 WL 3591920 (B.A.P. 8th Cir. May 23, 2023), the United States Bankruptcy Appellate Panel of the Eighth Circuit (“BAP”) held that Chapter 12 plan modification after confirmation under 11 U.S.C. § 1229(a) requires a showing, at a minimum, of a “substantial change in circumstances.” Further, the BAP held the bankruptcy court did not abuse its discretion by confirming the debtors’ fourth modified plan under § 1229, and the bankruptcy court’s factual findings were not clearly erroneous.

The debtors filed a petition for Chapter 12 bankruptcy relief. On several occasions, the debtors successfully modified their Chapter 12 plan after confirmation over the objections of Farm Credit Services of America, PCA (“Farm Credit”). For the present appeal, Farm Credit requested the BAP to reverse the bankruptcy court’s order confirming the debtors’ fourth modified Chapter 12 plan.

Farm Credit argued that modification of a Chapter 12 plan after confirmation pursuant to § 1229 should be only permitted if the debtor can show an “unanticipated, substantial change in circumstances.” Section 1229(a) provides, “At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified . . . .” Section 1229 does not expressly state a standard to determine whether to grant the request for modification. Thus, an issue before the BAP was the standard applicable to post-confirmation plan modification under § 1229. 

In its analysis on the issue, the BAP noted the language of § 1229 is nearly identical to that governing modification of Chapter 13 plans under 11 U.S.C. §  1329. As such, the BAP looked to its prior holding that modification of a confirmed Chapter 13 plan should be limited to situations in which there has been “a substantial change in circumstances.” In re Johnson, 458 B.R. 745, 748 (B.A.P. 8th Cir. 2011). Further, the BAP pointed to a similar holding in an earlier Eighth Circuit case, Educ. Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987). 

Based on these previous holdings, the BAP held that plan modification under § 1229(a) requires a showing, at a minimum, of a “substantial change in circumstances.” 

Applying this standard, the BAP held that the debtors met their burden for plan modification under § 1229(a). In support, the BAP cited to delay in financing that caused the debtors to lose acreage they could farm on their own behalf. The BAP found the loss of acreage constituted a substantial change in circumstances. 

Further, the BAP held that the bankruptcy court did not clearly error in finding the fourth modified plan was feasible and confirmable. Section 1229(b) provides, in part, that the feasibility test under 11 U.S.C. § 1225(a)(6) applies to the post-confirmation modification of a Chapter 12 plan. Section 1129(a)(6) states, in part, that the court shall confirm the plan if “the debtor will be able to make all payments under the plan and to comply with the plan.” 

In support of the feasibility of the fourth modified plan, the BAP cited the debtors’ previous performance under prior plan modifications, the seasonality of the debtors’ revenue, and social security and insurance proceeds. 

The BAP held that the bankruptcy court did not abuse its discretion by confirming the debtors’ fourth modified plan under § 1229, and the bankruptcy court’s factual findings were not clearly erroneous. Thus, the BAP affirmed the bankruptcy court. To read the BAP’s decision, click here.

Editors-in-Chief:

C.J. Harayda, Stinson LLP
David M. TanabeWinthrop & Weinstine, P.A.

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