Todd Joseph Bethe and Jill Marie Bethe
11-25388
Bankr. E.D. Wis.Sep 8, 2017Background
- Todd and Jill Bethe filed a Chapter 13 plan in April 2011 that required (1) trustee payments to cure an existing mortgage arrearage and (2) the debtors to make postpetition mortgage payments directly to the mortgage creditor.
- U.S. Bank, as trustee, filed a secured claim and later identified Select Portfolio Servicing (Select Portfolio) as its agent for notices.
- The chapter 13 trustee filed a Notice of Completion (Nov. 21, 2016) reporting the debtors had made all plan payments; the court entered a §1328(a) discharge the same day.
- The trustee served a Rule 3002.1(f) Notice of Final Cure Payment; U.S. Bank/Select Portfolio responded that the trustee had cured the prepetition arrearage but the debtors remained delinquent on postpetition mortgage payments (totaling substantial arrears) that began Jan. 1, 2015.
- The court discovered the postpetition delinquencies when reviewing the trustee’s final report and questioned whether the debtors had completed “all payments under the plan.” The debtors acknowledged missed postpetition payments but obtained a loan modification in early 2017.
- The court concluded the debtors did not qualify for a §1328(a) discharge because they failed to make postpetition maintenance payments required by the confirmed plan, but declined to vacate the discharge as an equitable matter under Rule 60(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether postpetition direct mortgage payments required by a plan count as "payments under the plan" for §1328(a) discharge eligibility | Debtors: their failure to make some postpetition payments should not bar discharge, especially where loan modification cured delinquencies | U.S. Bank/Select Portfolio: postpetition maintenance payments required by the plan are payments under the plan and must be completed for discharge | Court: postpetition direct-pay maintenance payments are "payments under the plan" for §1328(a); debtors did not complete all payments and thus were ineligible for discharge |
| Whether the court may revoke the discharge under 11 U.S.C. §1328(e) | Debtors: discharge should remain because no fraud and equitable factors favor leaving it intact | Trustee/Bank: discharge was improperly granted because plan payments were not completed | Court: §1328(e) revocation requires fraud; no fraud here, so §1328(e) cannot be used to revoke discharge |
| Whether Rule 60(b) (via Rule 9024) permits vacatur of the erroneously granted discharge | Debtors: error is not grounds to vacate given cure via modification and the trustee’s longstanding administrative practice; equities favor leaving discharge intact | Trustee/Bank: court erred in granting discharge despite unpaid postpetition obligations; Rule 60(b) permits relief for mistake | Court: the discharge was granted by mistake and Rule 60(b) provides authority to vacate, but equitable discretion applies; the court declines to vacate the discharge in this case |
| Whether a loan modification that restores creditor’s view of current status makes prior postpetition defaults immaterial | Debtors: modification effectively cured the default, so the missed payments were not material | Creditor: regardless of later modification, plan-required postpetition payments remain "payments under the plan" that must be completed before discharge | Court: modification does not change the legal conclusion that the debtors failed to complete all plan payments; however, equity (the modification plus trustee practice) counsels against vacating the discharge here |
Key Cases Cited
- Rake v. Wade, 508 U.S. 464 (supports reading plan payments broadly for discharge analysis)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (statutory interpretation principles cited in support of holistic reading of chapter provisions)
- Penn. Dept. of Public Welfare v. Davenport, 495 U.S. 552 (canon against rendering statutory provisions superfluous)
- Hall v. United States, 566 U.S. 506 (same-meaning presumption for identical statutory language)
- Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S. 224 (same-meaning presumption for recurring statutory terms)
- Cohen v. de la Cruz, 523 U.S. 213 (presumption that equivalent words have equivalent meaning)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (error alone does not necessarily render a judgment void for Rule 60 relief)