by The winner? Confirmed plan. Where the mortgagee had notice and opportunity to object to confirmation of the debtors’ chapter 13 plan providing for mortgage arrears in the amount of approximately half the mortgagee’s allowed proof of claim, the mortgagee could not be heard, at the debtors’ successful completion of their plan, to complain that the debtors still owed pre-petition arrears. In re Edelstein, No. 17-11461 (Bankr. N.D. Ill. Nov. 7, 2022).
In their bankruptcy schedules, the debtors listed $17,513.56 in mortgage arrears. At the same time, they their proposed chapter 13 plan with the provision that if they paid off the arrears through bankruptcy, the mortgage would continue post-bankruptcy on the original terms. The plan further stated that the mortgage arrears would be payable as specified elsewhere in the plan, without regard to contrary proofs of claim and that, upon motion by the debtor, the arrearage may be reduced by consent of the mortgagee or by court order.
The mortgagee did not object to confirmation of the plan, but filed a proof of claim for just over $35,000, almost double the amount the debtors listed in their schedules. The debtors did not challenge the proof of claim, so it was allowed.
On January 25, 2022, the debtors completed their plan payments and, at long last, the discrepancy between the debtors’ listed amount of arrearages and the mortgagee’s proof of claim reared its ugly head. The mortgagee responded to the trustee’s Notice of Payment and Final Mortgage Cure with the contention that the debtors owed an additional $17,000 in mortgage arrears based on the amount listed in its proof of claim. The trustee answered that he had administered the mortgage arrears in accordance with the terms of the plan and filed a notice of completion of plan payments. The court granted the debtors’ discharge in February, 2022.
The debtors then filed a Motion to Determine Final Cure and Post-Petition Mortgage Amount, seeking an order that their pre-petition arrearage was cured through their plan payments.
Citing United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), the bankruptcy court began with the general rule that parties are bound by the terms of a confirmed plan. It went on to note, however, that under section 502(a) a proof of claim to which no objection has been raised, is deemed to be allowed. Not surprisingly, the parties disagreed as to which rule controlled when the two conflicted.
Though the Seventh Circuit has no post-Espinosa case addressing the issue, the court noted two pre-Espinosa cases that suggested that the terms of the confirmed plan control in cases such as these. In In re Harvey, 213 F.3d 318 (7th Cir. 2000), the court was persuaded that the confirmed plan controlled where the issue raised by the creditor was readily apparent and could therefore have been raised at the confirmation hearing. Other, post-Espinosa cases out of the district likewise have held creditors to an obligation to raise objections to a plan at the confirmation hearing.
In this case, the court found it would have been entirely reasonable for the mortgagee to raise the issue of the pre-petition arrearage amount at the confirmation hearing when the discrepancy was clear. Moreover, the plan itself contemplated contrary proofs of claim and flatly stated that the arrearage would be as provided for in the plan despite contrary claims.
The court found the mortgagee’s argument that the amount of arrearages could be reduced only by motion of the debtors, misconstrued the terms of the plan. That provision referred only to a post-confirmation reduction. But here, the arrearage remained the same through the life of the plan and was fully paid by the plan’s end. The debtors never needed to seek a reduction.
The court found the debtors had cured their pre-petition arrears and granted their motion.