John Michael Petro and Sharon Kay Petro v. Tedd E. Mishler, Trustee

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-2217
John Michael Petro and Sharon Kay Petro,
Plaintiffs-Appellants,
v.
Tedd E. Mishler, Trustee,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:00-CV-691--Robert L. Miller, Jr., Judge.
Argued December 7, 2001--Decided January 10, 2002
Before Flaum, Chief Judge, and Manion, and
Diane P. Wood, Circuit Judges.
Flaum, Chief Judge. The appellants, two
debtors who have filed for protection
from their creditors under Chapter 13 of
the Bankruptcy Code, have filed the
instant appeal contesting a ruling by the
district court which requires them to
periodically present sworn affidavits
with statements of their income and check
stubs to the standing Chapter 13 Trustee,
as a condition of bankruptcy protection.
For the reasons stated herein, we reverse
the decision of the district court and
remand this case for proceedings not
inconsistent with this opinion.
I. BACKGROUND
John and Sharon Petro filed for
bankruptcy under Chapter 13 of the
Bankruptcy Code on March 6, 2000. With
the filing of their bankruptcy petitions,
the Petros also filed a joint Chapter 13
plan, which proposed a series of payments
to be made to their creditors through the
standing Chapter 13 bankruptcy trustee.
On April 19, 2000, the bankruptcy
trustee, Tedd E. Mishler ("the Trustee"),
filed an objection to the Petros’ Chapter
13 Plan. The Trustee’s objection was not
filed pursuant to any statutory provision
contained in the Bankruptcy Code (namely
sections 1325(a) or (b)). Rather, the
Trustee filed the objection pursuant to

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local rules which have been developed in
the bankruptcy court of the Northern
District of Indiana, South Bend Division.
Specifically, the Trustee requested that,
as condition of confirmation of their
plan, the Petros "starting October 15,
2000, and every six months thereafter
until October 15, 2002, . . . send the
Standing Chapter 13 Trustee at his
offices both an affidavit which shows ALL
income in the previous six months for
both debtors and . . . attach[ ] ALL
check stubs for both debtors for the
previous six months." (emphasis in
original). The Trustee filed the above
objection because he was concerned that
the Petros, due to their ages and
potential to find work, might earn extra
income not factored into the payment
schedules contained in their proposed
Chapter 13 plan.
The bankruptcy court held hearings on
the Trustee’s objections. On September
26, 2000, in its Memorandum of Decision,
the bankruptcy court noted that the
Trustee did not "raise any objection to
the confirmation of the [Petros’] plan
pursuant to section 1325(a) or (b)" of
the Bankruptcy Code. Memorandum of
Decision at 6. Furthermore, the
bankruptcy court stated that there was
"no evidence . . . to demonstrate that
the debtors’ plan should not be
confirmed." Id. at 7-8. However, in spite
of these statements, the bankruptcy
court, in its Order, "condition[ed]
confirmation of the debtors’ plan on the
debtors’ furnishing of periodic financial
reports [in the form of affidavits and
check stubs] to the Trustee." See
Bankruptcy Order.
The Petros objected to the bankruptcy
court’s order and sought review by the
district court. According to the Petros,
their proposed Chapter 13 plan met the
six requirements set forth by section
1325(a) of the Bankruptcy Code. Section
1325(a) states that, absent a Trustee’s
objection under 1325(b), the bankruptcy
court "shall confirm a [Chapter 13] plan
if . . . the plan complies with the [six]
provisions" listed in that section. The
Petros also noted that the Trustee did
not object to the confirmation of their
plan pursuant to section 1325(b) of the
Code, which provides a vehicle for stand
ing Chapter 13 Trustees to object to a
debtor’s payment plan when it, inter

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alia, fails to accord an appropriate
amount of that debtor’s disposable income
to the payment of creditors. The Petros
argued that, in light of the fact their
plan adhered to statutory requirements,
the bankruptcy court did not have the
discretion to impose a reporting
requirement as a condition of Chapter 13
protection.
The district court disagreed and
affirmed the Order (including the
reporting requirement) imposed by the
bankruptcy court. According to the
district court, the broad equitable
powers conferred upon bankruptcy judges
by the Bankruptcy Code enables them to
fashion non-statutory conditions like the
reporting requirement in the instant
case.
The Petros have appealed the district
court’s decision to this court.
II. DISCUSSION
In reviewing the bankruptcy court’s
order in this case, the district court
accorded a considerable amount of
deference to the lower court’s "findings"
and examined the bankruptcy court’s Order
for clear error. It is our view that the
district court should not have accorded
that amount of deference to the
bankruptcy court, as the bankruptcy
court, in imposing the reporting
requirement, engaged in a significant
measure of statutory and legal
interpretation. According to circuit
precedent, we review a lower court’s
interpretation of the bankruptcy statutes
de novo. See Matter of Siebert, 914 F.2d
102, 105 (7th Cir. 1990). After review of
the district court’s decision in this
case, we find that it should be reversed.
Section 1325(a) of the Bankruptcy Code
unequivocally states that, barring an
objection from a bankruptcy Trustee
pursuant to 1325(b), a "court shall
confirm a [debtor’s proposed] plan if" it
meets the six requirements set forth in
that section. 11 U.S.C. sec. 1325(a). In
this case, the Trustee did not object to
the Petros’ plan pursuant to 1325(b) and
the district court found that the Petros’
proposed plan met the requirements of
section 1325(a). However, in spite of the
Petros’ statutory compliance, the

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district court affirmed the imposition of
a reporting requirement because section
105(a) of the Bankruptcy Code permits
courts to "tak[e] any action or mak[e]
any determination necessary or
appropriate to enforce or implement court
orders or rules, or to prevent an abuse
of process." 11 U.S.C. sec. 105(a). The
district court concluded that such
language allows for the imposition "of
requirements not specifically included in
11 U.S.C. sec. 1325(a)" and that "[a]
reporting requirement can be, and has
been, seen as just such" an extra
requirement. District Court Opinion at 6.
We do not agree.
The language of section 1325(a) sets
forth the specific and limited universe
of requirements that must be met by a
debtor in his or her proposed Chapter 13
plan. If those requirements are met, and,
as here, the Trustee fails to object to
the plan pursuant section 1325(b), the
statute states that the plan "shall" be
approved. The Supreme Court has
consistently held that Congress’s use of
the word "shall" acts as a command to
federal courts. See, e.g., Anderson v.
Yungkau, 329 U.S. 482 (1947) ("shall" is
the "language of command"). Furthermore,
by creating a finite list of six
affirmative requirements necessary for a
plan’s confirmation, we assume that
Congress intended to exclude other
requisites from being grafted onto
section 1325(a). See In the Matter of
Aberegg, 961 F.2d 1307, 1308 (7th Cir.
1992) ("The bankruptcy court must confirm
the Chapter 13 plan if it meets the six
requirements of section 1325(a).").
Absent exceptional circumstances, to
permit a bankruptcy court to exercise
undefined equitable powers to supplement
the requirements of 1325(a) would alter
that section beyond the scope that
Congress intended, transforming the
finite list of requirements a debtor must
meet to receive bankruptcy protection
into a potentially infinite list.
If the Trustee in this case suspected
that the Petros were not acting in good
faith in proposing their Chapter 13 plan
or that they had failed to allocate a
significant portion of their disposable
incomes to the payment of their
creditors, he could have objected under
sections 1325(a) or (b). However, he took
no such step. Therefore, as the Petros’

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plan met the requirements of section
1325(a), the district court should, on
remand, approve their plan without the
reporting requirement proposed by the
Trustee.
As a final note, we understand the
concerns that motivated the Trustee (and
the diligent trial courts) to craft the
reporting mechanism discussed above. The
idea that a debtor might artificially
deflate his or her income at the time of
plan confirmation to avoid higher
payments to creditors and then, after
confirmation, seek lucrative employment,
causes us concern. However, the Trustee
retains a remedy to insure that any
fortuitous increase in the debtors’
income becomes reflected in their
payments to their creditors. Section 1329
of the Bankruptcy Code allows a Trustee
to move to amend the provisions of a
debtor’s Chapter 13 plan if circumstances
warrant an alteration. If the Trustee,
after examining the Petros’ income tax
returns- which, in this case, are to be
submitted to him as a condition of plan
approval, discovers that the Petros’
incomes have increased, he may (and
indeed should) move to alter their plan
pursuant to that statutory authorization.
III. CONCLUSION
For the foregoing reasons, we Reverse the
decision of the district court and Remand
this case for further proceedings not
inconsistent with this opinion.

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