Daily Development for
Tuesday, May 24, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Here are two more cases reported by Jim Stillman of Murphy, Weir & Butler that address the interesting (to the creditor) issue of accretions to the wealth of the bankrupt.

BANKRUPTCY; CHAPTER 13; PLAN-MODIFICATION; POST-CONFIRMATION WEALTH. A creditor has an absolute right to seek to modify a Chapter 13 plan based on the debtor's increased income.

In re Than, 215 B.R. 430 (9th Cir. BAP 1997).

After buying up the largest unsecured claims in a Chapter 13 case, the claims acquirer applied to have the Chapter 13 plan modified to increase the number of payments, to result in a higher percent payment. The Appellate Panel held that there is no threshold test for a motion to modify under section 1329, such as a showing of unanticipated and/or substantial change in the debtor's financial condition. When the motion is made, the court should then consider all circumstances.

Reporter's Comment: Because of the procedural setting, the Appellate Panel (fn 12) decided "not to see this appeal as a 'test case' for the legality of percentage plans versus pot plans." In a "pot plan," the debtor pays some percent of all its earnings over an agreed number of months into a pot for creditors. In a percentage plan, the creditor promises to pay x cents on the dollar to each creditor, and projects how many months that should take. See In re Witkowski, 16 F.3d 739, 746 & n.11 (7th Cir. 1994).

BANKRUPTCY; PROPERTY OF THE ESTATE; REVOCABLE TRUST: The Bankruptcy Court did not abuse its discretion in approving a compromise with the debtor by which only a small portion of her beneficial interest in a revocable trust settled by the debtor's aunt and uncle was paid over.

In re Schmitt, 215 B.R. 417 (9th Cir. BAP 1997).

Because the settlors retained the right to revoke for life, and one of the settlors was still living, the beneficial interest had no value. Applying state law to the question of property interests, the Appellate Panel held that any change in ownership in favor of the beneficiary would occur only when the trust become irrevocable. The debtor's strident refusal to produce more than just a few redacted pages of the trust instrument was excusable, insofar as no one disputed that the trust was revocable.

Reporter's Comment: Bankruptcy Judge Russell, dissenting, found this to be "a very troubling case, carefully orchestrated by both the debtor and the [subject trust] to conceal material facts and to force a compromise..." Certainly the debtor's decision not to produce the whole trust instrument seems needlessly provocative. Be that as it may, to the extent the subject assets came from the aunt and uncle, so that the revocable trust was in nowise self-settled, then "the amount the Debtor personally will receive from the Trust is a question of no consequence," the majority correctly concluded.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Woodward at the ABA. (312) 988 5260 or woodwars@staff.abanet.org

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