Modification of Chapter 12 Plan Requires Substantial Change in Circumstances

Modification of Chapter 12 Plan Requires Substantial Change in Circumstances

The Bankruptcy Appellate Panel for the Eighth Circuit held that, at a minimum, a substantial change in circumstances is required to modify a plan under Chapter 12 of the Bankruptcy Code.

It did not address whether the substantial change in circumstances needs to be unforeseeable (as other courts have held) since, in the case before it, the bankruptcy court determined that the change in circumstances was unforeseeable (determination which was not clearly erroneous, according to the BAP).

The BAP noted that the plain language of the Bankruptcy Code (11 U.S.C. § 1229) does not condition a modification of a Chapter 12 plan on a substantial change in circumstances.

However, given that the language in Section 1229 is “nearly identical” to the analogous provision under Chapter 13 (11 U.S.C. § 1329), the BAP concluded that it was bound by a previous decision in which it held that modification of a confirmed Chapter 13 plan should be limited to situations in which there has been a substantial change in circumstances.

The BAP also said it as compelled to defer to the Eighth Circuit’s dicta in Educ. Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987), where the court of appeals said that a Chapter 13 plan could be modified by the creditor if a substantial change in the debtor’s ability to pay could be shown.

As a result, the BAP explicitly rejected the reasoning of other circuits, including the First, which have held that a modification of a Chapter 13 plan does not require a showing of a substantial change in circumstances. See Barbosa v. Solomon, 235 F.3d 31 (1st Cir. 2000).