618 B.R. 314
Bankr. N.D. Ala.2020Background:
- Debtor Thomas Hickey filed a Chapter 13 petition on December 10, 2019; schedules list one secured creditor (a 2015 Toyota Tundra loan to SE Toyota) and substantial unsecured debt (> $58,000).
- Hickey’s amended plan proposed to pay SE Toyota directly ($456/month) rather than via the Chapter 13 Trustee; unsecured creditors are proposed to be paid 100%.
- Trustee objected to confirmation and moved to dismiss; hearing held March 5, 2020; Trustee argued trustee should act as disbursing agent and that direct pay risks creditor prejudice and discharge issues.
- Court reviewed local practice and precedent holding the trustee is generally the disbursing agent and that exceptions are rare; noted Debtor offered interest-rate savings and shorter remaining term as reasons for direct pay.
- Court concluded Debtor did not justify an exception, cited Eleventh Circuit In re Dukes on discharge risk for direct-pay claims, sustained Trustee’s objection, and denied confirmation with 14 days to file an amended plan.
Issues:
| Issue | Hickey's Argument | Trustee's Argument | Held |
|---|---|---|---|
| May the Debtor pay the auto loan directly rather than through the Chapter 13 Trustee? | Direct pay saves interest/trustee fees, shorter remaining term, and no creditor harm because unsecured creditors get 100%. | Trustee should remain disbursing agent under §§1322(a)(1) and 1326(c); trustee provides monitoring and consolidation; exceptions are rare. | Denied: general rule requires trustee disbursement; Debtor failed to show exception. |
| If paid direct, is the auto claim "provided for" by the plan and dischargeable? | Listing creditor and payment shows plan provides for the debt. | Plan does not govern repayment terms; direct-pay claims may not be "provided for." | Court follows In re Dukes: direct-pay may not be "provided for" and thus may not be discharged. |
| Do Hickey’s asserted "unique circumstances" (lower contract rate, short remaining term, 100% plan) justify deviation? | These factors make direct payment reasonable and efficient. | Those factors are insufficient; Trustee will accept contract rate paid through trustee. | Rejected: only the interest-rate point was accepted (Trustee won’t object to contract rate through trustee); other reasons insufficient. |
| Would direct payment prejudice other creditors or impair trustee oversight? | No; unsecured creditors receive full payment under the plan. | Direct pay risks diversion of funds if Debtor’s income falls, reduces Trustee’s ability to monitor/pay, and could harm creditors. | Held that direct pay creates unacceptable risk of prejudice and loss of monitoring; weighs against direct-pay exception. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (establishes method for setting interest rate on secured claims in Chapter 13)
- Rake v. Wade, 508 U.S. 464 (1993) (distinguishes arrearage payments provided for by plan from debts maintained outside the plan)
- In re Dukes, 909 F.3d 1306 (11th Cir. 2018) (plan must make provision for a debt to be "provided for" and discharged; mere maintenance outside plan may prevent discharge)
- In re Burkhart, 94 B.R. 724 (Bankr. M.D. Fla. 1988) (trustee generally should disburse plan payments; arrearages must be paid through trustee)
- In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006) (identifies multi-factor test for when direct payments may be allowed)