587 B.R. 492
Bankr. N.D. Ill.2018Background
- Debtor Anthony Miceli filed Chapter 13 and proposed an amended plan using Official Form 113; Associated Bank filed a secured proof of claim asserting a $23,943.42 mortgage arrearage.
- The plan proposes debtor continue direct contractual mortgage payments (~$477.83) and have the trustee pay the arrearage from plan funds, but lists $0.00 monthly for the arrearage while estimating total arrearage distributions of $23,943.42.
- Under the plan trustee distributions would pay administrative expenses (including attorney fees estimated at $1,800) first; arrearage distributions to Associated Bank would be deferred and increase after attorney fees are paid.
- Associated Bank objected, arguing §1325(a)(5)(B)(iii)(I) requires equal monthly periodic payments to secured creditors and the plan’s two-stage (smaller then larger) payments violate that requirement.
- The Chapter 13 trustee took no position; the court heard briefs and oral argument and found the plan ambiguous about monthly arrearage payments.
- The court sustained the objection, concluding the plan’s pro rata two-stage payment scheme did not satisfy the equal-monthly-payment requirement and denied confirmation, giving the debtor time to amend the plan.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Associated Bank) | Held |
|---|---|---|---|
| Whether §1325(a)(5)(B)(iii)(I) bars a plan that pays smaller periodic amounts to a secured creditor initially and larger amounts later to expedite payment of attorney fees without creditor consent | §1325(a)(5)(B)(iii)(I) does not prohibit pro rata or staged distributions; requirement targets depreciating personal property or payments to trustee, not creditor | The statute requires periodic payments on an allowed secured claim be in equal monthly amounts unless the creditor consents | Court held the statute requires equal monthly payments to the creditor (or creditor consent); plan violates §1325(a)(5)(B)(iii)(I) and cannot be confirmed |
| Whether the equal-monthly requirement applies to payments made through the trustee vs direct payments by the debtor | Equal-payment rule applies only to debtor’s payments to the trustee, not trustee distributions to creditors (so staged trustee distributions are permissible) | The requirement applies to payments "with respect to each allowed secured claim" regardless of payment conduit; trustee must follow plan and equal-payment rule | Court rejected Erwin line; held the equal-monthly requirement applies to payments on the secured claim (whether direct or via trustee) |
| Whether §1322(b)(5) curing/maintenance of mortgage arrears is exempt from §1325(a)(5)(B)(iii)(I) | §1325(a)(5)(B)(iii)(I) was meant for depreciating collateral; cure under §1322(b)(5) need not meet equal-monthly rule | §1322(b)(5) does not exempt arrearage cures from §1325(a)(5)(B)(iii)(I) except for the amount necessary to cure under §1322(e) | Court held §1322(b)(5) does not remove arrearages from the equal-payment requirement; §1322(e) only addresses amount necessary to cure, not applicability of §1325(a)(5) |
| Whether the plan’s disclosure and form are ambiguous re: monthly arrearage payment amount | Debtor clarified intent in response (arrearage to be paid pro rata from trustee distributions after attorney fees) | Bank argued plan is ambiguous (shows $0/month yet lists total arrearage distribution) and therefore defective | Court agreed the plan was confusing/ambiguous and noted nonstandard provisions belong in section 8; sustained objection partly on statutory grounds and noted ambiguity |
Key Cases Cited
- Rake v. Wade, 508 U.S. 464 (Sup. Ct.) (pre-BAPCPA interpretation that §1325 applied to cure payments; later limited by Congress)
- Lamie v. U.S. Trustee, 540 U.S. 526 (Sup. Ct.) (statutory interpretation principles; courts should follow plain statutory language)
- In re DeSardi, 340 B.R. 790 (Bankr. S.D. Tex. 2006) (held equal-monthly requirement did not apply to adequate-protection/initial payments)
- In re Erwin, 376 B.R. 897 (Bankr. C.D. Ill. 2007) (held equal-payment rule applies to debtor-to-trustee payments, not trustee-to-creditor distributions)
- In re Williams, 583 B.R. 453 (Bankr. N.D. Ill.) (rejecting Erwin/DeSardi approaches; holding equal payments must be made to creditor)
- In re Romero, 539 B.R. 557 (Bankr. E.D. Wis.) (disagreed with Erwin; equal-payment requirement applies to creditor payments)