by A mortgage refinance agreement approved by the court is not equivalent to a motion to modify under section 1329. The debtors, who failed to pay their property taxes directly as required by their plan were not entitled to discharge even though the mortgagee paid those taxes on their behalf and the debtors and mortgagee refinanced their lending agreement to encompass that change. In re Villarreal, No. 16-10106 (Bankr. S.D. Tex. April 12, 2022).
The below-median chapter 13 debtors filed a sixty-month plan under which they would pay their mortgagee, Wilmington, $38,007.78 through the trustee and pay their property taxes directly to the taxing authorities. The plan commenced in May, 2016, and the debtors made their final payment on June 4, 2021. However, during the course of the plan, the debtors failed to pay four years of property taxes. Wilmington paid those taxes. As a result, on June 29, 2021, the debtors sought to refinance their mortgage with Wilmington to add $11,754.18 to the claim, extend the maturity date to December 2022, and increase monthly payments. In September, the trustee filed her notice of plan completion and the debtors certified to the court that they had made all payments due under the plan.
The court approved the refinance agreement in September, 2021, but questioned the debtors’ right to discharge under section 1328(b) due to their failure to pay the taxes as proscribed by the plan. The court ordered briefing and a hearing, and, in January, 2022, seven months after the date of their final plan payment, the debtors moved to modify their plan. The proposed plan modification listed the first payment date on the new obligation as July 1, 2021, and provided that payments would continue until the debt was paid off.
The debtors argued that their loan modification should be considered a de facto plan modification under section 1329. The court disagreed. Section 1329(a) places an imperative on the debtor to make a request to the court for plan modification. In their loan modification, they did not seek plan modification. “Absent a request to modify the Plan, the plain language of § 1329 is not satisfied.” Additionally, Rule 3015(h) requires a debtor seeking plan modification to serve notice on interested parties and to file the proposed modification. Here, the debtors complied with the timing and notification requirements, but failed to include the modified plan proposal in their motion. Likewise, the debtors’ motion failed to comply with technical requirements set forth in Local Rule 3015-1(c).
The debtors next argued that their motion for plan modification was timely even though they filed it seven months after their ostensible final payment of June 4, 2021. The plain language of section 1329 permits modification “[a]t any time after confirmation of the plan but before the completion of payments under such plan . . . .” The debtors argued that because they had failed to pay the taxes as required by the plan, they did not complete their plan payments. The court noted that the Fifth Circuit has held that when a plan requires a debtor to make direct payments to a creditor, those payments are considered “payment under such plan,” and must be taken into consideration when determining whether the debtor has made all such payments for modification purposes. For that reason, the court found the debtors’ motion for modification was timely.
The debtors’ motion to modify proposed to incorporate the loan modification into the new plan, deem the tax debt paid, and remove the debtors’ obligation to pay taxes directly. The court noted several defects in the proposed modified plan. First, the debtors changed the official form for modification and added the loan modification as an addendum despite the assertion in the modification motion that “[b]y filing this Modified Plan, Debtor(s) and their counsel represent that the Modified Plan is in the official form authorized by the Court. There are no addenda or other changes made to the official form, except those contained in Paragraph 29.”
Second, the debtors sought to designate their treatment of Wilmington’s claim as a “cure and maintain” under section 1322(b)(5), but that section applies only to claims for which the final payment is due after the expiration of the plan period. In this case, Wilmington’s claim matured prior to the completion of the debtors’ original plan. Therefore, the court found section 1322(b)(5) was inapplicable.
Section 1329(c) provides that a plan may not be modified to extend beyond sixty months. Here, the date of the first payment under the modified plan would be July 1, 2021, more than sixty months after the date of the first plan payment. The court found that it lacked the authority “to confirm Debtors’ Plan Modification which proposes payments under the Plan for a wholly new loan to begin beyond Debtors’ 60-month Plan term and continue well beyond.” For that reason, the court denied the debtors’ motion for modification without prejudice to refiling.
As to the issue of whether the debtors were entitled to discharge under section 1328, the court found they were not. Notwithstanding their certification of having made all payments under the plan, it was Wilmington that made the tax payments, not the debtors. The trustee argued that the loan modification rendered the debtors’ failure to make the tax payments irrelevant and that the debtors should receive a discharge. The court disagreed. Section 1327(a), which binds the parties to the terms of the confirmed plan, requires that the debtor make all plan payments, not a third party. The court found that the debtors should have sought to modify their plan under section 1329(a)(3) to account for payments made outside the plan.
The court concluded that unless the debtors filed an acceptable plan modification, they would not be entitled to discharge.