Chapter 13 Debtors were Entitled to Discharge Even Though they Failed to Remain Current on Post-Petition Mortgage Payments

Chapter 13 Debtors were Entitled to Discharge Even Though they Failed to Remain Current on Post-Petition Mortgage Payments

  Chapter 13 debtors are entitled to a discharge of most debts upon, inter alia, completion of all payments under the plan. In the case at bar, the below-median income debtors moved for entry of a chapter 13 discharge despite failing to remain current on their post-petition mortgage payments but then, and pursuant to an agreed order entered after the chapter 13 Trustee’s notice of plan completion but prior to the 60th month of the plan, paid the remaining claim in full. Given this set of facts, the question of first impression for this Court is whether the debtors are in fact eligible to receive a discharge?

The below-median income Debtors filed a Chapter 13 petition, and proposed a 60-month plan, even thought they could have proposed a 36-month plan. Section 1 of the Plan provisions for 60 monthly payments in the amount of $450.00 to the chapter 13 Trustee  totaling $27,000.00. Additionally, Section 7 of the Plan provisions for Debtors to pay the OneMain monthly mortgage in accordance with the pre-petition contract and not through the Trustee.  The Court confirmed their plan.

On August 19, 2013, CitiFinacial, Inc.  filed a proof of claim in the amount of $18,746, in which OneMain continued to act as servicer for the mortgage. On April 30, 2014, CitiFinancial amended its claim and took over as the servicer on the mortgage.

On July 11, 2016, CitiFinancial filed a Motion for Relief from Stay alleging that Debtors were $2,577.28 behind in their post-petition mortgage payments.

On July 26, 2016, while CitiFinancial’s motion for relief was pending, the Trustee, after receiving all payments required by the Plan, issued a Notice of Plan Completion in which Trustee represented, inter alia, that Debtors had made all payments to Trustee under the Plan. Specifically, the Notice reads that Trustee “represents that the Debtors have attended a meeting of creditors, submitted to an examination under oath and have made all payments to the Chapter 13 Trustee as required by the Order Confirming the Chapter 13 Plan.” [ECF No. 69]. Additionally, the Notice lists various options regarding Debtors’ mortgage, which provides that:

A. no home mortgage payments were made under the plan, or
B. the mortgage was paid pro-rata, or
C. the collateral was surrendered, or
D. the Debtors made home mortgage payments directly to the mortgagee, or
E. the Trustee made ongoing mortgage payments during the course of the plan; however no payment changes were noticed by the mortgagee subsequent to confirmation or the last modification of the plan, or
F. all unsecured claims were paid in full per confirmation requirements, or
G. there was a net decrease in the mortgage payment.

Id. Under the terms of the confirmed Plan, July 2016 was month 55 of Debtors’ Plan.

On August 1, 2016, CitiFinancial and Debtors entered into an Agreed Order Conditioning the Automatic Stay wherein Debtors stipulated that the amount of unpaid post-petition mortgage payments totaled $2,776.80. Pursuant to the Agreed Order, Debtors were required to pay CitiFinancial $2,776.80 within 30 days after entry of the Agreed Order or file a plan modification and resume regular mortgage payments. In exchange, CitiFinancial agreed that the automatic stay should remain in place on Debtors’ Property until there was either: (i) a final default, (ii) case dismissal, or (iii) Debtors’ received their discharge.

On August 18, 2016, Debtors filed their Certification and Motion for Entry of Chapter 13 Discharge seeking an entry of discharge pursuant to 11 U.S.C. § 1328(a). Further, the Motion certifies that Debtors made all payments required by the Plan.

On September 15, 2016, this Court set a hearing on the Motion for October 4, 2016. At the October 4, 2016 hearing, Debtor testified that he made all required payments to Trustee and that he and his wife are current on their mortgage payments to CitiFinancial. The Court questioned Debtors as to whether the delinquent amount due under the Agreed Order had been paid. Debtor responded by stating that he sent a check, which CitiFinancial cashed, however, the Court was not provided any evidence of such check. Accordingly, the Court reset the hearing to November 7, 2016.

At the November 7, 2016 hearing, Debtors offered, and the Court admitted, Exhibit A which is a copy of a cancelled check, dated August 18, 2016, issued to CitiFinancial in the amount of $2,776.80, which represented the payment under the Agreed Order.  The Debtors represented that they continue to make regular mortgage payments to CitiFinancial and requested entry of their discharge. The Court questioned Trustee’s filing of the Notice, which attested to the fact that there were no mortgage payments made under the plan when, in fact, Debtors were making payments under Section 7 of the Plan to CitiFinancial, but were behind $2,776.80 at the time of the Notice. Debtors argued that Trustee was likely acknowledging that Trustee did not administer any mortgage payments through her office. Further, Debtors asserted that all payments have been completed and that they are entitled to a discharge. The Court requested briefing on the issue of whether Debtors have in fact timely completed all payments under the confirmed plan and were entitled to a chapter 13 discharge and ordered Debtors to submit a brief on or before December 7, 2016, and Trustee to file a responsive brief no later than December 22, 2016.

On December 8, 2016, Debtors filed their Brief in Support of the Motion that asserted that all payments under the Plan were completed when Debtors complied with the Agreed Order, not when Trustee filed a Notice of Plan Completion.

On December 22, 2016, Trustee filed her Response to Debtors’ Brief and posits that filing the Notice was appropriate because Debtors had in fact completed all payments to Trustee under the Plan.  Trustee asserts that it would be unreasonable to require her to determine whether a debtor made all direct mortgage payments and suggests that the Notice has no impact on whether Debtors are eligible for a discharge. The matter is now ripe for decision.


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