599 B.R. 335
Bankr. D. Ariz.2019Background
- Debtors Robert and Margarita Rivera filed Chapter 13 in Dec. 2013 and confirmed an amended plan (Amended Modified Plan) that cured prepetition mortgage arrears through the trustee while directing post-petition mortgage payments to be made directly by Debtors to RoundPoint Mortgage.
- Trustee filed Rule 3002.1 Notices of Final Cure Payment in 2016 and 2018 stating prepetition arrears were cured and requesting creditor response about post-petition payment status; RoundPoint initially did not respond but later (May 1, 2018) said post-petition payments were delinquent as of Sept. 1, 2017.
- Trustee Brown received and disbursed all plan payments required to be paid to his office and marked plan payments as "current." The creditor did not attach an itemized statement as required by Rule 3002.1(g).
- Trustee moved to dismiss the case under 11 U.S.C. § 1307(c)(6) and to deny discharge under § 1328(a), arguing that missed direct post‑petition mortgage payments are "payments under the plan" and thus preclude discharge.
- Debtors did not file a written opposition; counsel argued at hearing that debtors completed all payments through the trustee. Trustee sought guidance because of split authority in other districts.
- The court found no evidence of bad faith or gamesmanship, concluded Debtors completed all payments "under the plan" (i.e., payments to the trustee), and denied the Trustee’s motion, directing completion of local discharge certification forms.
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether "payments under the plan" in §1328(a) includes direct post‑petition mortgage payments | Direct mortgage payments (even if made outside trustee) are "payments under the plan," so delinquency bars discharge | "Payments under the plan" means payments required to be paid to the trustee; direct payments outside the plan do not prevent discharge once trustee payments are complete | Held: "payments under the plan" means payments to the trustee; direct pay defaults alone do not bar discharge |
| Whether Rule 3002.1 and creditor response can convert a direct‑pay default into mandatory dismissal without discharge | Rule 3002.1 response showing post‑petition delinquency supports dismissal and denial of discharge | Rule 3002.1 is a creditor‑disclosure rule with enforcement against creditors, not a basis to automatically deny discharge to debtors | Held: Rule 3002.1 enforces creditor disclosure; it is not a procedural mechanism that automatically strips discharge when a creditor reports a direct‑pay default |
| Whether §1307(c)(6) requires dismissal where debtor materially defaulted by missing direct mortgage payments | Material default of a plan term (direct payments) permits dismissal without discharge | Completion of all payments to trustee and lack of harm/bad faith weigh against dismissal; creditor has other remedies (stay relief, foreclosure) | Held: Dismissal without discharge would be draconian here; §1307(c)(6) does not compel dismissal for direct‑pay defaults absent other factors |
| Whether courts should treat direct‑pay defaults uniformly as discharge bars or review case‑by‑case | Advocate for majority rule treating any plan‑related payments as "under the plan" | Court should apply case‑by‑case analysis considering Code, Rule 3002.1 purpose, debtor good faith, and creditor harm | Held: Court adopts case‑by‑case approach and aligns with view that "under the plan" refers to trustee‑paid obligations; deny dismissal absent misconduct or unfairness |
Key Cases Cited
- Kessler v. Kessler (In re Kessler), [citation="655 F. App'x 242"] (5th Cir. 2016) (majority‑side authority treating direct‑pay defaults as plan payments)
- Gonzales v. [Trustee] (In re Gonzales), 532 B.R. 828 (Bankr. D. Colo. 2015) (denial/revocation of discharge where undisclosed large post‑petition default harmed other lienholder)
- Gibson (In re Gibson), 582 B.R. 15 (Bankr. C.D. Ill. 2018) (held direct payments are not "payments under the plan" and denial of discharge should be case‑by‑case)
- Lopez (In re Lopez), 550 F.3d 1202 (9th Cir. 2008) (BAP/9th Circuit analysis validating direct post‑petition payments outside the trustee and distinguishing trustee compensation issues)
- Dukes v. Suncoast Credit Union (In re Dukes), 909 F.3d 1306 (11th Cir. 2018) (held plan language matters for discharge treatment of debts paid outside the plan)