Bankruptcy

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7^th Circuit Court of Appeals

Case Name: John Germeraad v. Myrick Powers et al

Case No.: 15-3237

Officials: BAUER and WILLIAMS, Circuit Judges, and ADELMAN, District Judge. *

Focus: Bankruptcy

Trustee files motion to modify bankruptcy plan to increase debtor payments due to increase in debtor income.

“Perhaps the debtor means to argue that a plan may be modified to increase payments only when modification is necessary to bring the debtor into compliance with the good‐ faith requirement. But § 1325(a)(3), by its terms, applies only to the proponent of a plan, which obviously will not be the debtor when the modification is requested by the trustee or an unsecured creditor. Although the debtor’s good faith will have been at issue when the debtor proposed the original plan, and will be at issue when it is the debtor who requests modification under § 1329, the debtor’s good faith is not at is‐ sue when the modification is proposed by the trustee or an unsecured creditor. We also reject Owens‐Powers’s suggestion that the bankruptcy court actually denied the trustee’s modification be‐ cause he had failed to show that good faith required the in‐ crease in plan payments. Although the bankruptcy court referenced the good‐faith standard three times in its opinion, two references were merely observations that the standard applies to modification under § 1329(b)(1). See Powers, 507 B.R. at 273, 274. In the third reference, the bankruptcy court stated that “[m]odification requests, whether made by a trustee or a debtor, must be proposed in good faith, and moving to modify to circumvent the original confirmation requirements may suggest bad faith.” Id. at 272. Here, the court did not find that the trustee had, in fact, proposed the modified plan in bad faith. Rather, the court made this statement during the course of a larger discussion in which the court rejected the trustee’s suggestion that modification could be based on equitable grounds rather than on an express Code

provision. See id. at 270–73. At no point did the court suggest that it would have approved the modification if the trustee had shown that good faith “required the increase,” as the debtor suggests.”

Vacated and Remanded

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.