In re Heinzle
511 B.R. 69
Bankr. W.D. Tex.2014Background
- Michael and Katherine Heinzle filed Chapter 13 on Oct. 3, 2008; plan confirmed requiring $560/mo for 36 months later modified to 60 months to cure mortgage arrears.
- Debtors were required to pay post‑petition mortgage payments directly to lender (Countrywide/BAC) and cure pre‑petition arrears through the plan; debtors fell substantially behind on post‑petition mortgage payments (~$33,467).
- Trustee paid cure amounts to lender and filed a Rule 3002.1 Notice of Final Cure Payment; lender agreed cure was paid but said post‑petition payments were delinquent.
- Trustee moved to deny discharge and dismiss the case based on debtors’ failure to maintain post‑petition mortgage payments; debtors argued “payments under the plan” means only payments to the trustee and thus they had completed plan payments.
- Parties stipulated facts; court treated matter as core proceeding and took no live evidence.
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether direct post‑petition mortgage payments made by debtor are “payments under the plan” | Direct mortgage payments are part of the plan treatment; they are effectively payments under the plan (debtor can act as disbursing agent) | “Payments under the plan” means only payments to the Chapter 13 trustee; direct mortgage payments are outside the plan | Held: Direct post‑petition mortgage payments are payments under the plan (Foster controlling) |
| Whether failure to make those payments is a material default warranting dismissal/denial of discharge | Failure to maintain post‑petition mortgage payments is a material default of the confirmed plan under §1307(c)(6) | Debtors: nonpayment is not a material default; discharge should be granted because trustee received all trustee‑directed plan payments; dismissal not in creditors’ best interest | Held: Failure to maintain mortgage payments is a material default; dismissal appropriate absent conversion to Chapter 7 |
| Effect of Trustee’s Rule 3002.1 Notice (final cure) — does it estop Trustee from contesting completion of plan payments? | Notice certifies cure payments made by Trustee; Trustee lacks knowledge of debtor’s direct monthly payments and thus can still contest completeness | Debtors: Trustee’s Rule 3002.1(f) notice (filed after completion) admits all plan payments were completed and estops Trustee | Held: No estoppel — Rule 3002.1(f) covers cure payments the Trustee made; creditor must respond on post‑petition status under Rule 3002.1(g) |
| Remedy when debtor completed trustee payments but not direct mortgage payments after full plan term | Trustee sought denial of discharge and dismissal because plan term ended and plan cannot be modified further (§1329) | Debtors sought discharge and argued plan language deems plan complete when trustee receives required funds | Held: Denial of discharge denied; Trustee’s dismissal motion granted — debtors given 14 days to convert to Chapter 7 or case will be dismissed |
Key Cases Cited
- In re Foster, 670 F.2d 478 (5th Cir. 1982) (payments made directly to mortgagee can be treated as plan payments; debtor may be disbursing agent; semantics do not control treatment)
- In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006) ("under the plan" includes payments made pursuant to plan whether through trustee or direct by debtor)
- Cohen v. Lopez (In re Lopez), 550 F.3d 1202 (9th Cir. 2008) (Code does not require mortgage payments be made through trustee)
- Roberts v. Boyajian, 279 B.R. 396 (1st Cir. BAP 2000) (failure to pay an allowed post‑petition claim provided for in plan is material default)
- In re Land, 82 B.R. 572 (Bankr. D. Colo. 1988) (if creditor’s claim is modified under §1322(b)(5), postpetition payments are considered under the plan)