National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Modification

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Modification under CARES Act

For plan modification under the CARES Act, the debtor need not have been current in plan payments prior to enactment of the Act. In re Gilbert, No. 16-12120 (Bankr. E.D. La. Oct. 6, 2020).

In four separate cases, debtors sought to modify their chapter 13 plans under section 1329(d) which Congress added to the Bankruptcy Code as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In all four cases, the debtors’ plans were confirmed and they fell behind on payments prior to March 27, 2020. In three of the cases, the debtors sought modification of their plans to pay off the arrearages and extend the length of the plan beyond sixty months. In the fourth case, the debtor sought only to reduce payments to unsecured creditors. The trustee opposed the modifications arguing that the CARES Act permits modifications only if the debtors first fell behind in their plan payments after March 27, 2020, and the sole reason for the default was the pandemic.

The bankruptcy court disagreed. [Read more…] about Modification under CARES Act

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Debtor May Not Modify to Surrender Residence after 60 Month Plan Complete

Debtors were precluded from modifying their plan to surrender their residence where the surrender was a “payment” under the plan and was beyond the sixty-month plan period. Derham-Burk v. Mrdutt (In re Mrdutt), No. 17-1256 (B.A.P. 9th Cir. May 6, 2019).

When chapter 13 debtors, Christina and David Mrdutt, filed their bankruptcy petition, Wells Fargo held two liens on their residence. The first lien was under-secured and the second was wholly unsecured. The Mrdutts were also almost $65,000 in arrears on their mortgage. They proposed a plan providing for curing their mortgage arrearage either after loan modification or as proposed in a later plan modification. In the meantime, the Mrdutts agreed to maintain direct mortgage payments to Wells Fargo outside the plan.

The bankruptcy court confirmed their plan while their request to modify the primary mortgage was still pending with Wells Fargo. The Mrdutts made all 60 of their plan payments but failed to maintain necessary direct payments to Wells Fargo. Ms. Mrdutt died of cancer during the bankruptcy, and Wells Fargo, being Wells Fargo, refused to discuss loan modification with Mr. Mrdutt because only Ms Mrdutt’s name was on the loan. Wells Fargo never approved a loan modification, and the mortgage arrears were not cured either through the plan or outside it. [Read more…] about Debtor May Not Modify to Surrender Residence after 60 Month Plan Complete

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District Court Certifies Appeal of 100% Plan Language Restricting Right to Modify

In Brown v. Viegelahn, No.18-282  the District Court for the Western District of Texas, on its motion, certified an appeal to the Fifth Circuit to resolve a dispute among lower courts concerning the so-called Molina language in which a Chapter 13 debtor paying less than his entire disposable income to his 100% plan, is required to agree that he will not later modify the plan to pay less than 100% to unsecured creditors. (appeal certified, Jan. 22, 2019).  [Read more…] about District Court Certifies Appeal of 100% Plan Language Restricting Right to Modify

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Court Takes a Hard Line on Curing Direct Mortgage Payment Default

A loan modification to cure a post-confirmation default on direct mortgage payments must be approved by the court prior to expiration of the chapter 13 plan. In re Hanley, 2017 WL 3575847, No. 11-76700 (Bankr. E.D. N.Y. Aug. 14, 2017).

Brian and Anahi Hanley’s confirmed chapter 13 plan provided for cure of their mortgage default through the plan and for regular mortgage payments to be made directly to the mortgagee, Nationstar Mortgage, LLC. They fell behind on their direct mortgage payments and, several months before completion of their plan, they entered into a trial loan modification which would cure the post-confirmation default. Though the Hanleys made all payments under the loan modification, they failed to sign and return the Loan Modification Approval Letter within the time required by Nationstar.

At the expiration of their plan, Nationstar filed a Rule 3002.1 Response notifying the court of the default based on the loan as it stood prior to the trial loan modification. The trustee moved to dismiss their bankruptcy without discharge. The Hanley’s moved to strike Nationstar’s Response and sought to modify their plan to allow them to cure the default in accordance with the terms of the loan modification.

For purposes of its decision, the court adopted the Hanleys’ factual assertion that the parties had agreed to the loan modification but had not submitted it to the court for approval. It thus framed the issue as “whether a chapter 13 debtor may cure an acknowledged default in post-petition direct mortgage payments, to be made pursuant to a confirmed chapter 13 plan, through a loan modification approved after the expiration of the 60th month.”

In answer to this question, the court found that the debtors had two choices for dealing with the post-petition default: modify the loan or modify the plan. It explained that a loan modification entered into by the parties outside the plan may cure a default even though the new loan terms are not memorialized in a plan modification. Alternatively, the cure of a post-confirmation default may be accomplished through a plan modification without an agreement between the parties to modify the loan. However, both options, the court emphasized, required approval by the court prior to expiration of the plan.

Acknowledging the “draconian” nature of denying discharge after the Hanleys had made all plan payments for five years, the court reasoned that its equitable powers were constrained by the Code and the terms of the Hanleys’ plan. Section 1328(a) makes discharge contingent upon completion of all plan payments, and relevant case law establishes that where a plan provides for mortgage payments outside the plan, those payments must be current as well.

The court noted that there is a line of cases in which courts have held that post-confirmation plan modifications to cure post-petition mortgage defaults are not permitted at all under section 1329. The court disagreed with or distinguished those cases, finding that, where, as here, the secured creditor’s rights under the loan agreement would not be altered by the modification, section 1329(a)(2) permits a modification extending the time for repayment. The court reiterated, however, that any such plan modification must take place prior to the expiration of the plan.

The court also recognized that some courts permit chapter 13 debtors to cure defaults post- plan completion either on equitable principles or on the theory that “the debtors are not seeking to extend the plan, rather they are only curing a default on already scheduled payments.” The court declined to adopt their reasoning finding instead that the Code does not allow for leeway in curing a default on plan payments. Citing sections 1322(a)(4), (d)(1), (d)(2), 1325(b)(1)(B) and 1329(c), and calling it a “drop dead jurisdictional deadline,” the court concluded that the right to discharge requires all plan payments be complete at the expiration of the plan.

Nor would the court permit a retroactive loan modification to cure the default in light of Nationstar’s position that it had not ultimately agreed to the modification.

The court granted the trustee’s motion to dismiss under section 1307(c)(6) due to a “material default.”

Hanley Bankr ED NY opinion Aug 2017

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Plan Modification to Surrender 910 Vehicle Permissible

So long as the modification is proposed in good faith a debtor may modify a plan which originally provided for a “910 Claim” to be paid off in its entirety, to one in which she surrenders the vehicle and treats any deficiency as unsecured. In re Fayson, No. 16-10013 (Bankr. D. Del. July 13, 2017).

After experiencing maintenance problems and a dispute relating to an undelivered warranty on her 910 vehicle, Tabitha Fayson sought to modify her Chapter 13 plan to surrender the vehicle and treat the deficiency as unsecured. Citing In re Nolan. 232 F.3d 528 (6th Cir. 2000), the creditor argued that the modification she sought was prohibited under the Code. The court disagreed and joined the majority of bankruptcy courts finding that treatment of 910 claims may be modified in the manner sought by Ms. Fayson. [Read more…] about Plan Modification to Surrender 910 Vehicle Permissible

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Ingram v, AAA Cooper Transportation, No. 16-11440 (11th Cir.)

Type: Amicus
Date: June 16, 2016
Description: Whether Chapter 13 debtors have a free-standing duty to amend their bankruptcy schedules to reflect the post-petition acquisition of a legal claim. Whether judicial estoppel is appropriately applied against former Chapter 13 debtors who attempt to amend their bankruptcy schedules.
Results: Pending

Ingram NACBA Amicus 11th Cir June 2016

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Trustee’s Valuation of Unresolved Pre-Petition Cause of Action Rejected

A bankruptcy court rejected a Chapter 13 trustee’s valuation of the debtor’s pre-petition cause of action and found that an estimated value of the state court case should not be included in the plan distributions but that the plan may be modified if the debtor obtains a money judgment during the commitment period. In re Morales, No. 12-7296 (Bankr. P.R. July 2, 2015). [Read more…] about Trustee’s Valuation of Unresolved Pre-Petition Cause of Action Rejected

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Co-Debtor’s Death Drops Debtor to Below-Median Permitting Reduced ACP

When the major contributor to the debtors’ joint Chapter 13 plan died, the surviving spouse fell to below median status and the applicable commitment period fell from 5 years to 3 years. In re Childers, No. 10-10405 (Bankr. N.D. Tex. Jan. 26, 2015). [Read more…] about Co-Debtor’s Death Drops Debtor to Below-Median Permitting Reduced ACP