2015 WL 3611136
Bankr. D. Colo.2015Background
- Debtors filed Chapter 13 (Aug 21, 2009) listing a residence encumbered by two BAC Home Loans deeds of trust; schedules valued the property below total liens.
- Debtors’ confirmed plan (Dec 7, 2009) provided for curing prepetition arrearage and maintaining regular monthly payments on the first mortgage; plan also contemplated a § 506 valuation motion to strip the second lien if plan completed.
- Trustee filed a Rule 3002.1 Notice of Final Cure Payment (Oct 7, 2014) stating the Trustee paid the prepetition arrearage to BAC and asking BAC to confirm cure and current status.
- BAC responded (Oct 28, 2014) agreeing the arrearage was cured but asserting the Debtors had not made post-petition direct mortgage payments and alleged unpaid post-petition amounts of about $49,000.
- Debtors certified they had completed all plan payments (Oct 21, 2014); Trustee requested entry of discharge and the court entered a § 1328(a) discharge (Jan 14, 2015).
- Court found Debtors had not completed payments required by the confirmed plan (specifically direct payments to BAC), concluded discharge was improvidently granted, and vacated the discharge.
Issues
| Issue | Debtors/Trustee Argument | BAC/Respondent Argument | Held |
|---|---|---|---|
| Whether "payments under the plan" in § 1328(a) excludes direct payments made by the debtor to creditors | Debtors (and initially Trustee) treated completion of payments to Trustee as sufficient; Trustee suggested narrower interpretation | BAC argued post-petition direct payments required by plan are "under the plan" and must be completed before discharge | Court held payments required to be made directly to creditors under a confirmed plan are "payments under the plan" for § 1328(a); discharge vacated |
| Whether Trustee acted appropriately in requesting discharge after receiving BAC’s Rule 3002.1 response alleging large post-petition default | Trustee argued she need not police direct-payment creditors and contemplated a narrower interpretation | Court: Trustee received specific notice of a substantial default and should not request discharge without addressing it | Court found Trustee’s request improper under these facts and faulted her decision to request discharge after receiving BAC’s response |
Key Cases Cited
- Rake v. Wade, 508 U.S. 464 (1993) (construing phrase "provided for by the plan" broadly for § 1328(a))
- In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006) (payments made directly to creditors pursuant to plan are "under the plan")
- In re Russell, 458 B.R. 731 (Bankr. E.D. Va. 2010) (same: direct payments are still payments "under" the plan)
- In re Heinzle, 511 B.R. 69 (Bankr. W.D. Tex. 2014) (debtors’ direct-pay defaults found to be material and justified denial/dismissal related relief)