Mr. Rouse filed a Chapter 12 bankruptcy in November 2017, with a plan negotiated with his creditors, including Nutrien, being confirmed on May 23, 2017, with general unsecured creditors to receive $50,687.
Then on June 27, 2020, Mr. Rouse was shot multiple times by an assailant who murdered two other people before killing himself. Due to his devastating injuries, Mr. Rouse spent more than a month hospitalized, required multiple surgeries and on-going physical therapy, all of which will prevent him from farming for the foreseeable future.
Mr. Rouse, who had paid $43,465.64 to general unsecured creditors, then sought a hardship discharge pursuant to 11 U.S.C. § 1228(b) and Nutrien objected, arguing that Mr. Rouse was $7,221.36 short of meeting the liquidation test. Mr. Rouse urge a reanalysis of the liquidation test, taking into account the $18,000 paid to his attorneys. The bankruptcy court rejected this argument, as $10,000 in attorney's fees had already been incorporated into the liquidation test at confirmation, and denied the hardship discharge finding that Mr. Rouse owed $11,339.62 to general unsecured creditors, which included accrued interest.
The district court affirmed, finding that "the statutory language recognizes the timing of the confirmation of a plan of reorganization, i.e., before the plan's effective date, versus a motion for discharge from that plan, i.e., after the plan's effective date." Accordingly, the liquidation test for both confirmation and hardship discharge look at the assets at the time of confirmation.
It is unclear from the Claims Registry how much of the $11,339.62 that Mr. Rouse owed would have been paid to Nutrien, but it hopefully is enough to justify opposing this hardship discharge for a victim of traumatic violence.
That aside, this decision should help both Chapter 12 and Chapter 13 debtors with hardship discharges, as an increase in the value of assets during the case should likewise not be considered.
For a copy of the opinion, please see: