James A. Fiddler and Joyce A. Fiddler

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: )
)
JAMES A. FIDDLER and ) Case No. 04-4213
JOYCE A. FIDDLER )
)
Debtors. ) Chapter 13
MEMORANDUM OPINION
This case comes before the court on the motion of the Chapter 13 trustee (the “Trustee”) to modify
the confirmed Chapter 13 plan of James and Joyce Fiddler (the “Debtors”) to pay all filed claims 100%.
The Trustee alleges that a substantial change in circumstances has occurred in that the Debtors’ real
property, which they valued at $112,000 as of their November 30, 2004 petition date, has increased in
value to at least $204,000, as evidenced by the sum the Debtors received from a partial sale of their real
property and from the proceeds received from a subsequent refinancing.
The court held a hearing on the Trustee’s motion in Martinsburg, West Virginia on October 5,
2007, at which time the court afforded the parties the opportunity to supplement their positions with regard
to the proposed modification. That briefing is now complete, and for the reasons stated herein, the court
will deny the Trustee’s motion.
I. BACKGROUND
When the Debtors filed their November 30, 2004 Chapter 13 bankruptcy petition, they stated that
they jointly owned a house and lot at 125 E. Park Avenue in Ranson, West Virginia. The Debtors declared
that the current market value of their 100% ownership interest was $112,000, and that the property was
subject to a deed of trust granted in favor of Deutche Bank Trust Company Americas (“Deutche Bank”),
Dated: Tuesday, December 18, 2007 1:35:19 PM
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that secured a note in the approximate amount of $88,151. The Debtors real property consists of five
contiguous lots, and the Debtors’ manufactured home occupies only one of those five lots.
On June 8, 2005, this court confirmed the Chapter 13 pot-plan of reorganization proposed by the
Debtors. Pursuant to the plan, the Debtors agreed to pay a total of $22,503 over 60 months, which was
enough to pay the costs of administration, the pre-petition arrearage on the secured debt owed to Deutche
Bank, and about 1% to the Debtors’ unsecured creditors. Ongoing monthly payments to Deutche Bank
on the Debtors’ note and deed of trust were to be made directly by the Debtors and not through the
Trustee.
Meanwhile, on May 10, 2005, Deutche Bank filed a motion for relief from the automatic stay on
the grounds that the Debtors had failed to pay their post-petition monthly secured debt obligations. The
Debtors and Deutche Bank were able to resolve their differences pursuant to an agreed order; however,
the Debtors failed to fulfill the terms of the agreed order and Deutche Bank filed a notice of default on
December 23, 2005. In response to the notice of default, the Debtors filed a motion to sell a portion of
their real property for about $70,000 to pay off the arrearage and to pay down a portion of the remaining
secured debt. The Debtors further related that they believed their entire property (all five lots and the
mobile home) to be worth $180,000.
Concurrent with the motion to sell, on January 24, 2006, the Debtors filed a motion to refinance
their home for $130,000, and to use those proceeds to payoff the note owed to Deutche Bank and to
payoff their Chapter 13 plan pursuant to the terms of the confirmation order. The Trustee objected to the
motion on the basis that, should the Debtors obtain the refinancing, all creditors should be paid 100% of
their filed claims rather than the 1% set forth in the Debtors’ confirmed plan.
Thereafter, the Debtors abandoned their motion to refinance, and moved forward on the sale of
a portion of their real property. Pursuant to the court’s October 26, 2006 order, the Debtors were
authorized to sell part of their real estate for $87,000, nearly $3,000 of which was reimbursement for the
Debtors’ costs in rerouting a sewer line, meaning that the value of the real property sold by the Debtors
was about $84,000.
The proceeds of the sale, however, were insufficient to pay off the deed of trust in favor of Deutche
Bank, and when the Debtors failed to make further payments following the sale, Deutche Bank filed a
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second motion for relief from the automatic stay on April 4, 2007. In response to the new motion, the
Debtors again proposed to refinance the remaining portion of their real property by obtaining a new loan
in the amount of $78,000, which was approved by the court on July 9, 2007.
When the Debtors refinanced their property, however, the new loan amount was for $120,000 –
not the $78,000 authorized by the court. After the costs of the refinancing were paid, and after the note
secured by the deed of trust in favor of Deutche Bank was satisfied, the Trustee received about $80,369
in proceeds. The Debtors seek to have the Trustee payoff the remainder of the Debtor’s confirmed
Chapter 13 plan ($10,971), but the Trustee has filed a motion to modify the Debtors confirmed plan to
require all creditors be paid 100%, which would require the Debtors to pay the Trustee $23,155 of the
refinancing proceeds.
II. DISCUSSION
The Trustee asserts that a substantial and unanticipated change in circumstances has occurred since
confirmation of the Debtors’ plan on June 9, 2005, such that the Trustee’s motion to modify the Debtors’
plan pursuant to 11 U.S.C. § 1329 is proper. More specifically, pursuant to § 1329(a)(1), the Trustee
seeks to “increase . . . the amount of payments on claims of a particular class provided by the plan” based
on the fact that the Debtors’ real property increased in value from $112,000 in November 2004 to about
$204,000 by July 2007.
The Debtors respond that money received from a mortgage refinance is not income that can be
captured by the Trustee and that there has not been any change in their circumstances to warrant a
modification.
In the Fourth Circuit, res judicata applies to motions to modify confirmed plans; therefore, there
must be an unanticipated, substantial change in circumstances before a confirmed plan may be modified.
In re Arnold, 869 F.2d 240, 243 (4th Cir. 1989) (“The doctrine of res judicata bars an increase in the
amount of monthly payments only where there have been no unanticipated, substantial changes in the
debtor's financial situation.”); In re Butler, 174 B.R. 44, 47 (Bankr. M.D.N.C. 1994) (“[T]here is no
reason why either a creditor or a debtor should be permitted to relitigate issues which were decided in the
confirmation order or which were available at the time of confirmation but not raised by the parties.”). A
determination of whether modification is appropriate is a three-part inquiry: (1) did “the debtor experience
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a substantial and unanticipated change in his post-confirmation financial condition”; (2) if so, then is the
proposed modification “limited to the circumstances provided by § 1329(a)”; and (3) if so, “then the
bankruptcy court can turn to the question of whether the proposed modification complies with §
1329(b)(1).” Murphy v. O'Donnell (In re Murphy), 474 F.3d 143, 150 (4th Cir. 2007). The Chapter
13 trustee, as the party moving for modificaiton, bears the burden of proof. E.g., Max Recovery v. Than
(In re Than), 215 B.R. 430, 434 (B.A.P. 9th Cir. 1997) (stating that the moving creditor “bore the burden
of proof to show facts supporting modification . . . .”); In re Osborne, No. 05-27728, 2007 Bankr. LEXIS
451 at *3 (Bankr. N.D. Ohio Feb. 5, 2007) (“The Trustee bears the burden of proof on his request to
modify Debtors' confirmed plan.”); In re Krapf, 355 B.R. 545, 548 (Bankr. D.S.C. 2006) (same).
To have an unanticipated, substantial change in circumstances between the date of confirmationand
the date of modification means that the debtor’s current circumstances must have been unknown at the time
of the confirmation – it is an objective test. E.g., In re Murphy, 474F.3d 143, 152 (4th Cir. 2007) (holding
that the increase in value of a condominium from $155,000 to $235,000 in eleven months – a 51.6%
increase – was both substantial and unanticipated given pre-existing, local real estate market trends);
Arnold, 869 F.2d at 243 (finding that a $120,000 increase in income over two years was an unanticipated
and substantial change in circumstances); In re Furgeson, 263 B.R. 28, 37-38 (Bankr. N.D.N.Y. 2001)
(“In the instant proceeding, the acquisition of $5,800 by the Furgesons is clearly both unanticipated,
considering it was not possible at confirmation for the Trustee to foresee the prosecution of the Debtors'
§ 362(h) claim . . . and substantial, considering . . . . the increase in the dividend received by the unsecured
creditor class from 5% to 31% . . . .”).
In this case the Trustee has demonstrated that the value of the Debtors’ property has substantially
increased in value from the petition date. The Debtors’ real property had a value of $112,000 as of their
November 30, 2004 petition. The Debtors sold a portion of that real property for about $84,000 in the
Fall of 2006, and refinanced the remaining portion of their real property in the summer of 2007 for
$120,000. Thus, it appears that after the Debtors filed bankruptcy the value of their real property
increased to approximately $204,000. This represents an increase of about $95,000 or 82% between
November 30, 2004 and July 2007.
However, the Trustee, who as the moving party bears the burden of proof, has failed to establish
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that the change in the value of the Debtors’ real property was unanticipated. There is no evidence in the
record of the real estate trends in Ranson, West Virginia in the years leading up to the Debtors’ November
2004 bankruptcy petition to demonstrate that an 82% increase over roughly 32 months (appreciation at
an annual rate of about 25%) was unanticipated. In fact, it is generally known within the territorial
jurisdiction of this court that from 2003-05 real estate prices were sharply rising in the Eastern Panhandle
of West Virginia, which includes the Debtors’ hometown of Ranson, which is located a short distance from
both Martinsburg, West Virginia, and Washington, D.C. For example, the State Journal reported on
December 1, 2005 that “[t]he Hagerstown, Md., Martinsburg, W. Va. MSA, where house prices were
rising at just under booming levels by the end of 2004, posted its own record gains in the four quarters
ending June 2005 of 24.5%.” Pam Kasey, Some West Virginia Housing Prices Remain Strong, The
S t a t e J o u r n a l ( D e c . 1 , 2 0 0 5 ) , a v a i l a b l e a t
http://www.statejournal.com/story.cmf?func=viewstory&storyid=7026 (visited Dec.17, 2007); see also
Office of Federal Housing Enterprise Oversight, OFHEO House Price Index: House Price Gains
Continue to Accelerate, p. 21 (December 1, 2004), available at www.ofheo.gov (visited November 27,
2007) (stating that in the one-year period preceding the end of the Third Quarter of 2004, real property
values in Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area increased
24.01%.).
The Trustee is charged with knowledge of real estate market trends in the district. Murphy, 474
F.3d at 151. The Trustee did not act to capture any substantial increase in real property value under the
terms of the confirmation order, and is now – under the res judicata effect of confirmation – precluded
from relitigating issues that could have been litigated at the time of confirmation. See, e.g., id. at 152
(finding that a 51.6% increase over eleven months in the value of real property was an unanticipated change
in circumstances when in the two years preceding confirmation the historical increase in local property
values was only ten to thirteen percent per year); In re Brumm, 344 B.R. 795, 803-04 (Bankr. N.D.W.
Va. 2006) (finding that a 15% increase in the value of real property over 2 ½ years was not an
unanticipated change in circumstances); In re Fitak, 121 B.R. 224, 228 (Bankr. S.D. Ohio 1990) (holding
that the “suggestion that an increase in real estate values over a fifty-seven month period could not be
reasonably anticipated lacks credulity and merit.”).
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Of course, the Trustee does not have the benefit of prevision so as to determine future real estate
trends, and the Trustee may well have contemplated that the real estate price increase of 2004 was
threaded together with strings of gossamer. In this court’s view, however, it is enough that in the twelve-
monthperiod preceding the Debtors’ bankruptcy petition (and in the eighteen-month period preceding their
confirmation hearing) real estate values were experiencing substantial increases, and based on this trend,
it was not unanticipated that real estate values may rise even further following the Debtors’ November 30,
2004 petition date and June 8, 2005 plan confirmation date.
III. CONCLUSION
In sum, because the post-confirmation increase in value of the Debtors’ real property was
anticipated by the parties before confirmation, and because neither the Debtors’ plan nor the confirmation
order captures post-petition appreciation in real property for the benefit of the Debtors’ creditors, the
Trustee is precluded from seeking modification of the Debtors’ plan. The court will enter a separate order
pursuant to Fed. R. Bankr. P. 9021.
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