## Facts

- Two Chapter 13 cases were consolidated on appeal, each involving a trustee’s motion under 11 U.S.C. § 1329(a) to modify a confirmed plan to increase distributions to unsecured creditors.
- In Murphy, after plan confirmation the debtor obtained court approval to sell a condominium that had substantially appreciated post-confirmation, yielding net proceeds exceeding $80,000.
- The Chapter 13 trustee sought to modify Murphy’s confirmed plan to require that part of the sale proceeds be paid to unsecured creditors.
- The bankruptcy court granted the trustee’s motion; the district court affirmed; Murphy appealed.
- In Goralski, after plan confirmation the debtors experienced a sharp income reduction (earned income cut approximately in half).
- The Goralskis obtained court approval to refinance their home, receiving cash from equity while incurring corresponding additional secured debt, to manage expenses and maintain plan payments.
- The trustee sought to modify the Goralskis’ plan to require that part of the refinancing cash be paid to unsecured creditors.
- The bankruptcy court denied the trustee’s motion; the district court affirmed; the trustee appealed.

## Issues

1. When may a court modify a confirmed Chapter 13 plan under 11 U.S.C. § 1329(a) based on post-confirmation changes in a debtor’s financial condition?
2. How should courts reconcile § 1327(a)’s binding effect of confirmation with § 1329’s authorization of post-confirmation modification?
3. May § 1329 be used to increase payments to unsecured creditors based on (a) proceeds from sale of post-confirmation appreciated property, and (b) cash obtained through refinancing undertaken to address reduced income?

## Decision

- The Fourth Circuit affirmed in both consolidated appeals.
- In Murphy, the court upheld modification requiring the debtor to devote part of the post-confirmation sale proceeds from appreciated property to unsecured creditors.
- In Goralski, the court upheld denial of modification because the refinancing cash was offset by corresponding debt and was undertaken to maintain feasibility given reduced income.
- The court treated § 1329 modification as discretionary and dependent on the debtor’s overall post-confirmation circumstances, including ability to pay and plan feasibility.

## Legal Principles

- Section 1329 is a limited statutory exception to the binding effect of confirmation under § 1327(a), permitting adjustment of plan payments before completion when circumstances materially change post-confirmation.
- Post-confirmation plan modification generally requires a meaningful post-confirmation change bearing on the debtor’s ability to pay; whether modification is warranted is a fact-specific determination.
- A significant, unexpected post-confirmation increase in value realized through sale of an asset may support modification to increase payments to unsecured creditors.
- Cash obtained through refinancing does not automatically reflect increased ability to pay; where it is exchanged for corresponding debt and used to keep the plan workable after an income loss, a court may deny modification.
- A modified plan under § 1329(b) must satisfy incorporated confirmation requirements (including feasibility and good faith under § 1325(a)).
- Although § 1325(b) is not expressly incorporated into § 1329(b), courts may consider post-confirmation changes in income and assets when evaluating whether a proposed modification is equitable and consistent with § 1325(a).

## Conclusion

The Fourth Circuit held that § 1329 permits, but does not require, post-confirmation increases in payments to unsecured creditors; courts may approve modification to capture a debtor’s post-confirmation windfall from appreciated property, while refusing modification where refinancing proceeds merely restructure debt to preserve feasibility after an income decline.


In re Murphy, 474 F.3d 143 (4th Cir. 2007)