Joseph J. Detweiler

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
IN RE:
JOSEPH J. DETWEILER,
Debtor.
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CHAPTER 11
CASE NO. 09-63377
JUDGE RUSS KENDIG
MEMORANDUM OF OPINION
(NOT FOR PUBLICATION)
This case is before the court for confirmation of Debtor’s amended chapter 11 plan, filed
on July 26, 2012. 	The United States Trustee (“UST”) and FirstMerit Bank (“FirstMerit”)
objected to the plan. 	FirstMerit’s objection was resolved by agreement without hearing. 	The
court held a hearing on UST’s objection on September 13, 2012. 	Anthony J. DeGirolamo,
counsel for Debtor, and Linda M. Battisti, attorney with the UST’s office, appeared at the hearing.
The issue presented is whether 11 U.S.C. § 1141(d)(5)(A) prevents Debtor from obtaining a
discharge at confirmation as contemplated in his plan?
The court has jurisdiction of this case under 28 U.S.C. § 1334 and the general order of
reference entered in this district on July 16, 1984, now superseded by General Order 2012-7 dated
April 4, 2012. 	In accordance with 28 U.S.C. § 1409, venue in this district and division is proper.
This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L).
This opinion is not intended for publication or citation. 	The availability of this opinion, in
electronic or printed form, is not the result of a direct submission by the court.
time and date indicated, which may be materially different from its entry on the record.
of this court the document set forth below. This document was signed electronically at the
The court incorporates by reference in this paragraph and adopts as the findings and orders
Dated: 01:34 PM November 27, 2012
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DISCUSSION
Debtor filed a chapter 11 petition on August 17, 2009. 	On July 26, 2012, he filed an
amended chapter 11 plan that contains the following provision: 	“Except as provided in this Plan
or the Confirmation Order, Confirmation will (a) discharge the Debtor from all Claims or other
debts that arose before the Confirmation Date . . . .” 	(Am. Plan, ECF No. 267) 	UST argues that
this plan provision violates 11 U.S.C. § 1141(d)(5)(A), which states
(d)(5) 	In the case in which the debtor is an individual—
(A) 	unless after notice and a hearing, the court orders
otherwise for cause, confirmation of the plan does
not discharge any debt provided for in the plan until
the court grants a discharge upon completion of all
payments under the plan.
Section 1141(d)(5)(A) was added to the bankruptcy code through the 2005 amendments. 	Before
BAPCPA, an individual debtor could obtain a discharge at confirmation, which remains the
general discharge rule for non-individual chapter 11 debtors. 	See 11 U.S.C. § 1141(d)(1)(A).
Several of BAPCPA’s chapter 11 amendments were made by with the intent of modeling
chapter 13 in individual chapter 11 cases. 	See In re Shat, 424 B.R. 854 (Bankr. D. Nev. 2010).
Arguably, § 1141(d)(5) falls in that category. 	Now, entry of discharge is premised on the
completion of payments, which parallels 11 U.S.C. § 1328(a). 	However, § 1141(d)(5)(A) is not
entirely coextensive because it contains an exception, an option to obtain discharge before
payments are complete, the “for cause” exception at issue in this case.
UST’s arguments against applicability of the exception in this case are twofold. 	First,
UST presents a procedural objection. 	It contends that even if Debtor can establish cause for
discharge at confirmation, he cannot do so by simple insertion of a statement in the plan. 	UST
argues that a separate motion and notice are required. 	Debtor argues that the plan was properly
noticed to parties and no additional or special notice is required. 	In a previous opinion, this court
recognized that other courts suggest more notice is required than what Debtor provided in this
case. 	See In re Haines, 2012 WL 1790219 (Bankr. N.D. Ohio 2012) (acknowledging In re
Kirkbride, 2010 WL 4809334 (Bankr.E.D.N.C.2010); In re Sheridan, 391 B.R. 287
(Bankr.E.D.N.C.2008); In re Belcher, 410 B.R. 206 (Bankr.W.D.Va.2009); In re Brown, 2008 WL
4817505 (Bankr.D. Col.2008); Fla. Dep't of Revenue v. Davis (In re Davis), 465 B.R. 309
(M.D.Fla.2011)).
The Sheridan case is the touchstone for several courts. 	According to Sheridan, to satisfy
the “notice and hearing” requirement of § 1141(d)(5)(A), “creditors [must] be given actual notice
that a discharge prior to completion of all plan payments is being requested.” 	Sheridan, 391 B.R.
at 290. 	In Sheridan, notice was accomplished through the debtors’ inclusion, on the first page of
the disclosure statement, of a statement in bold, capital letters that the debtor sought discharge at
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confirmation coupled with a notice of the confirmation hearing, issued by the court, that
referenced debtor’s intent to obtain discharge at confirmation and provided an opportunity to
object. 	Id. at 291. 	The combination of the conspicuous language in the disclosure statement and
the language in the notice of the confirmation hearing was deemed to fulfill the procedural
requirements of § 1141(d)(5)(A). 	Id.; see also In re Kirkbride, 2010 WL 4809334. 	The court
approved discharge at confirmation upon finding the “debtors have followed the court’s
procedures for requesting that their discharges take effect prior to completion of their plan
payments and have shown cause why their request should be granted.” 	Sheridan, 391 B.R. at 288.
Not every court has found conspicuous notice of this nature is sufficient to meet the
requirements of § 1141(d)(5)(A). 	The Bankruptcy Court for the District of Colorado requires a
separate notice and motion:
[I]f the debtor wishes to alter the usual statutory rule that
would delay entry of a discharge until all payments under
the plan have been completed, the debtor should file a
motion seeking to alter the usual statutory rule, with notice
to creditors of the opportunity to oppose the motion. Because
the issue would be academic if no plan is confirmed, the
debtor’s notice should indicate that the motion will be heard
at the confirmation hearing. 	To minimize postage expense,
the separate notice of the motion may be served with the
proposed plan and disclosure statement.
Brown, 2008 WL 4817505, * 2. 	Sheridan and Brown serve to demonstrate the competing views
of what satisfies “notice and hearing” for the purposes of § 1141(d)(5)(A).
It is important to emphasize that Debtor’s discharge is keyed not to confirmation, but to the
completion of payments. 	Under the amendments, confirmation is immaterial. 	The court reads
§ 1141(d)(5)(A) to state that if a debtor wants a discharge before plan payments are complete, the
debtor must establish cause. 	Under this reading, a request for early discharge could occur any
time from plan confirmation to before the completion of payments. 	But see In re Necaise, 443
483 (Bankr. S.D. Miss. 2010) (stating that the time to request an early discharge is at
confirmation); Brown, 2008 WL 4817505. 	If it occurs post-confirmation, a debtor has no choice
but to provide separate notice and hearing for the request.
Debtor argues that since the confirmation hearing was noticed and the court held a hearing,
the “notice and hearing” requirement in § 1141(d)(5)(A) is met. 	This argument actually is more
of a harm than a help to Debtor. 	He is correct that the confirmation notice and hearing were
provided in accordance with § 1128 but his interpretation renders one of the “notice and hearing”
requirements superfluous. 	If a debtor can establish cause through the confirmation hearing, the
notice and hearing requirement in § 1141(d)(5)(A) would be unnecessary. 	As a result, to import
meaning to the notice and hearing requirement in this section, the court finds that separate notice is
required.
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Additionally, the court finds that inconspicuously slipping a “discharge at confirmation”
provision into a plan is not consistent with the bankruptcy code, violates § 1123(b)(6), and renders
the plan unconfirmable under § 1129(a)(1). 	Some may argue that since the code allows for
discharge before payments are complete, the provision is an exception to the general rule, not an
inconsistency. 	The court disagrees. 	Functionally, the court sees such an attempt as comparable
to insertion of an undue hardship finding for a student loan in a chapter 13 plan, a practice that is
now impermissible. 	See United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct 1367 (2010).
These types of provisions can be traps for unwary creditors. 	See In re Miller, 2012 WL 3647129
(Bankr. C.D. Cal. 2012) (recognizing potential to mislead creditors with “discharge at
confirmation” language in plan and amending the original confirmation order to eliminate the
language). 	The court cannot support discharge by stealth.
This case is particularly troubling because Debtor provided for his discharge at
confirmation without any foundation in the plan specifying cause for discharge prior to completion
of payments. 	Section § 1141(d)(5)(A) places a burden on debtor to demonstrate cause. 	For this
reason, the court cannot accept that conspicuous notice in a disclosure statement and notice of a
confirmation hearing meets Debtor’s obligations. 	Any notice must include some identification of
the cause. 	Only then can a creditor credibly assess whether an objection is warranted.
As a result of these conclusions regarding the “notice and hearing” requirement in
§ 1141(d)(5)(A), the court finds that the approach in Brown is procedurally more acceptable than
the mechanism utilized in Sheridan. 	The court will require a separate motion, with appropriate
notice, to obtain a discharge before payments are complete. 	In this case, Debtor’s notice was not
adequate and he has not satisfied the procedural requirements under § 1141(d)(5)(A). 	Until
rectified, the court cannot enter a confirmation order that proposes to discharge Debtor at
confirmation. 	UST’s objection to confirmation is sustained on this procedural ground.
In its second argument, UST presents a substantive argument, contending Debtor has not
demonstrated the requisite cause for discharge at confirmation. 	Debtor disagrees. 	According to
Debtor, the confirmed plan in his related business case requires him to refinance debt in a few
years and he contends that if he does not receive a discharge in this case, he will be disadvantaged
when he needs to refinance that debt. 	Both parties concede that the burden is on Debtor, but UST
says that to establish cause, Debtor should prove, with a high degree of certainty, that payments
will be made. 	In turn, Debtor posits that the court should look at the totality of the circumstances
to make the determination. 	In this case, he urges the court to find that he can make the plan
payments based on his unchallenged liquidation and feasibility analyses.
Cause for § 1141(d)(5)(A) purposes is undefined. 	In re Draiman, 450 B.R. 777, 823
(Bankr. N.D. Ill. 2011) (citing In re Beyer, 433 B.R. 884, 888 (Bankr. M.D. Fla. 2009)). 	Since
discharge is premised on the completion of payments under a plan, the ability to make payments is
an inherent essential. 	Additionally, the ability to make payments is part of the feasibility
foundation required for confirmation. 	Consequently, the court cannot conclude that an ability to
make payments, on its own, constitutes cause for entry of an early discharge. 	If this were enough,
there would have been no reason to amend the code. 	Further, 11 U.S.C. § 1141(d)(5)(B), the
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chapter 11 “hardship discharge” provision, provides for discharge when payments cannot be
completed. 	Thus, the “cause” provision is premised on completed payments.
Collier’s suggests that an early discharge is intended
for example, for an individual debtor who did not expect to
make plan payments primarily from future earnings, consis-
tent with the ordinary chapter 13 model, but rather contem-
plated a plan more consistent with the ordinary chapter 11
model, such as by distributions of property or, in the unusual
case, by the issuance of securities by the debtor’s business,
perhaps from a new corporation to be formed by the debtor
under the plan.
8 Collier on Bankruptcy ¶ 1141.05[2][a], 1141-25 (16th ed. 2012). 	Draiman furthered this
thought:
[f]actors that courts look to are the likelihood that the debtor
will make all of the payments under the plan and the assurance,
in the form of collateral, that the creditors will be paid the sum
they have been promised even if the plan payments are not made.
Sheridan, 391 B.R. at 290. 	In addition, the debtor must show
substantial consummation of the plan. 	Beyer, 433 B.R. at 888.
The burden is on the debtor to show that he will and can make
all future plan payments with a high degree of certainty. 	Id.
Draiman, 450 B.R. 777, 823.
Only a handful of courts have considered what constitutes cause under § 1141(d)(5)(A),
but most link early discharge to some level of plan consummation. 	In denying confirmation, the
Draiman court found no cause for entry of an early discharge because not only was the plan not
substantially consummated, the debtor had not even started making payments to creditors. 	Id. at
824. 	In Beyer, the debtor moved, post-confirmation,1 for an early discharge, arguing that he
needed the discharge to avoid paying income tax on forgiven debt. 	The court denied the request
because the plan was not substantially consummated, citing the debtor’s failure to identify which
properties were to be retained and which would be surrendered, lack of payments to unsecured
creditors, and an absence of a demonstrated ability to make payments to the unsecured creditors.
Beyer, 433 B.R. 884, 888. 	The court also stated that “[a]n individual debtor, however, must show
more than just substantial consummation to receive an early discharge . . . The debtor must
convince the Court that he or she will and can make all future payments with a high degree of
certainty.” 	Id. (emphasis original).
1 Debtor moved for an early discharge at confirmation, which the court denied based on inadequate notice. 	The
confirmation order left the door open for the debtor to file a motion to obtain an early discharge.
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In a similar “consummation” vein, other courts find cause when only payments on
long-term debt remain. 	See, e.g., In re Belcher, 410 B.R. 206 (Bankr. W.D. Va. 2009) (citing
Brown, 2008 WL 4817505). 	Sheridan, in turn, suggests that when “assurance, in the form of
collateral, that creditors will receive the amount they have been promised even if the plan
payments are not made,” cause exists. 	391 B.R. 287, 291.
The court finds that substantial consummation may constitute cause but it is not the
exclusive benchmark. 	Cause must be determined, as it always has been, upon the facts and
circumstances of each case. 	This is the manner in which the term “cause” has been used
historically. 	See, e.g., In re Underwood, 457 B.R. 635 (Bankr. S.D. Ohio 2011) (requiring a
showing of cause based on the totality of the circumstances to examine debtor); In re Shultz, 325
B.R. 197 (Bankr. N.D. Ohio 2005) (finding that § 362 relief is premised on cause as demonstrated
by the totality of the circumstances); 	Simpson v. Rodgers (In re Rodgers), 266 B.R. 834 (Bankr.
W.D. Tenn. 2001) (using the totality of the circumstances to show cause for reopening under
§ 350(b)); In re Great Am. Pyramid Joint Venture, 144 B.R. 780 (§ 1112(b) cause determined
through the totality of the circumstances).
In any consideration of cause for entry of an early discharge, the court will be mindful that
discharge is a benefit that is earned, not given. 	In exchange for a discharge, a debtor is expected
to complete payments. 	This protects creditors, who may be receiving very little, from the expense
of revoking a discharge. 	The court is mindful that when a discharge is entered, it may also pave
the way for the final decree. 	If the final decree is entered, a creditor who is not receiving
payments not only has to revoke the discharge, but may also need to reopen the case. 	These
considerations must be balanced against the debtor’s need for an early discharge and the debtor’s
ability to complete the proposed payments.
In this case, the record is simply not developed to an extent to allow the court to determine
whether cause exists. 	Debtor bases “cause” on the need to have a discharge in order refinance
debt in his related corporate case. 	The foundation is too scant for the court to affirmatively agree,
or disagree, with Debtor’s position. 	It is not clear when the corporate debt is to be refinanced,
how much debt is involved, whether any collateral will be available, or whether Debtor will be the
sole signator and fully liable on the refinanced debt. 	Debtor needs to develop the facts to apply to
the law.
In light of the above, the court finds that Debtor has not demonstrated cause for entry of an
early discharge. 	The plan may be confirmed without this provision. 	Debtor may renew his
request for an early discharge by separate motion in accordance with this provision.
An order will be entered immediately.
# 	# 	#
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Service List:
Anthony J DeGirolamo
116 Cleveland Ave., N.W.
Suite 307
Canton, OH 44702
Linda Battisti
Office of the US Trustee
H.M. Metzenbaum U.S. Courthouse
201 Superior Avenue East
Suite 441
Cleveland, OH 44114-1240
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