by A mortgage paid outside the plan is not “provided for by the plan” for purposes of discharge of the debtor’s personal liability under section 1328(a). Dukes v. Suncoast Credit Union, No. 16-16513 (11th Cir. Dec. 6, 2018).
When she filed her bankruptcy petition, Chapter 13 debtor, Mildred Dukes, was current on two mortgages held by Suncoast Credit Union. Though she listed both mortgages in her schedules, the credit union filed a proof of claim only for the second mortgage. Her confirmed plan stated that the mortgages would be paid outside the plan. Ms. Dukes successfully completed her plan payments and was granted discharge of all debts provided for by the plan. During the course of the plan, however, Ms. Dukes defaulted on both mortgages. The credit union foreclosed on the property under the second mortgage, and sought deficiency judgment against Ms. Dukes under the first mortgage. It moved to reopen her bankruptcy to obtain an order that her personal liability on the first mortgage was not discharged. The bankruptcy court found in favor of the credit union, and the district court affirmed.
Addressing, as a matter of first impression, whether the first mortgage, for which the credit union had not filed a proof of claim, was “provided for by the plan,” within the meaning of section 1328(a), the court found it was not. For a debt to be provided for by the plan, the court determined, the plan must affect or govern the debt’s repayment. Merely mentioning the debt while providing for its payment outside the plan does not meet this requirement.
In so holding, the court relied in part on Rake v. Wade, 508 U.S. 464 (1993), where the Supreme Court interpreted the phrase “provided for” in section 1325(a)(5). In Rake, the debtor scheduled mortgage arrearage payments to be administered inside the plan, while maintaining regular payments outside the plan. The Court found that the arrearages were “provided for” under the plan and that the creditor was therefore entitled to interest on the arrearages under section 1325. Though Rake did not specifically address whether the non-arrearage portion of the mortgage was likewise provided for by the plan, the Dukes court found that, under the reasoning of Rake, for a debt to be “provided for” there must be a stipulation or provision in the plan addressing it. The court also found that the Rake Court at least implicitly suggested that for a debt to be provided for by the plan, plan terms rather than the original terms in the lending agreement, must govern its repayment.
Here, the court found the relevant terms in Ms. Dukes’ plan merely addressed what was included and what was excluded from the plan, they did not stipulate or provide for the first mortgage.
The court further found that even if the first mortgage could be deemed “provided for by the plan,” the anti-modification provision in section 1322(b) would prohibit a finding that Ms. Dukes’ personal liability on the debt was discharged upon completion of her plan. Here, the court found that including the first mortgage in the discharge of Ms. Dukes’ personal liability would have the effect of modifying the credit union’s rights without regard to the requirements for modification provided for in the Code. The court rejected Ms. Dukes’ argument that the credit union’s failure to object to the plan constituted consent to the modification, finding that because the plan did not propose a modification, the credit union did not agree to one by its failure to object.
The court was also unpersuaded by Ms. Dukes’ argument that discharging her personal liability on the mortgage was not a modification because the credit union retained its right to foreclose on the property. The court found that under state law, the credit union would have a right to seek a post-foreclosure deficiency judgment against Ms. Dukes and that loss of that relief would constitute a modification of the credit union’s rights as contemplated by section 1322(b). Nor could discharge, as a statutory provision, be considered distinct from a contractual modification. Discharge applies to debts provided for in the plan and therefore, is subservient to the terms of the plan, not the reverse.
The court found that Ms. Dukes waived her argument that, by failing to file a proof of claim for the first mortgage, the credit union lost its right to argue that she retained personal liability on the debt post-discharge. Ms. Dukes raised the issue for the first time on appeal to the district court, and that court declined to address it. In any case, the court found that failure to file a proof of claim does not prevent a lien from passing through bankruptcy unaffected, and the Eleventh Circuit has held that where a secured creditor’s rights are protected by the anti-modification provision, that pass-through includes the debtor’s personal liability.
In summary, the court held: “We affirm the bankruptcy court and district court and hold that Debtor’s plan did not discharge the Credit Union’s mortgage. In doing so, we hold that, for a debt to be ‘provided for’ by a plan under § 1328(a), the plan must make a provision for or stipulate to the debt in the plan. Because Debtor’s plan did nothing more than state that the Credit Union’s mortgage would be paid outside the plan, it was not ‘provided for’ and was not discharged. Even if it was provided for, we hold that discharge of the Credit Union’s debt would violate § 1322(b)(2) by modifying the Credit Union’s right under the original loan documents to obtain a deficiency judgment against Debtor. We also hold that the issue of whether the Credit Union’s failure to file a proof of claim for its first mortgage resulted in the mortgage’s discharge was not preserved for appeal because Debtor did not raise it before the bankruptcy court, and, alternatively, that failure to file a proof of claim did not discharge the Credit Union’s mortgage because, again, discharge would violate § 1322(b)(2).”