Direct Payments to Mortgagee are “ Payments under the Plan ”
“ A chapter 13 debtor ’ s direct payments to a secured creditor pursuant to a ‘ cure and maintain ’ plan are ‘ payments under the plan ’ for purposes of § 1328 ( a ), and a debtor who fails to make such payments is not entitled to a discharge under 11 U . S . C . § 1328 ( a ).” In re Coughlin , No . 11-76202 and In re Sangamaya , No . 12-71109 ( Bankr . E . D . N . Y . June 15 , 2017 ).
Coughlin was before the court on the trustee ’ s motion to vacate the discharge order which was entered after the trustee had filed the Certification of Completed Plan , the Coughlin 3002.1 Notice , and her Final Report and Account , and after the creditor had notified the court that Denis Coughlin was behind on his direct mortgage payments and filed for relief from stay .
The Sangamaya case was before the court on the debtors ’ motion to modify which they filed with one week left on their 60-month plan and in which they sought to surrender the property after they defaulted on their direct payments to the mortgagee .
The court began with the threshold question of whether payments on a debt made outside the plan are “ payments under the plan ” within the meaning of section 1328 ( a ). The court found guidance in Rake v . Wade , 508 U . S . 464 ( 1993 ), where the Supreme Court interpreted section 1328 ( a )’ s provision that a court shall grant discharge to a debtor who has made all payments under the plan to the extent that the payments are for debts “ provided for by the plan .” The Rake Court found that a debt is “ provided for ” when the plan “ makes provision for ,” “ deals with ,” or “ refers to ,” the debt . A debt that the debtor has opted to “ cure and maintain ” under section 1322 ( b )( 5 ) is “ provided for under the plan .” The Coughlin court agreed with post-Rake courts such as
Kessler v . Wilson ( In re Kessler ), 655 F . App ’ x 242 , 243 ( 5th Cir . 2016 ), that have applied similar reasoning to the phrase “ payments under the plan ” to include payments made directly by the debtor to the creditor on an allowed claim .
Citing cases such as Ransom v . FIA Card Servs ., N . A ., 562 U . S . 61 ( 2011 ), the court found that because a debtor ’ s plan payments are based on income less expenses , where a debtor deducts certain expenses from that calculation but fails to make the payments that justify the expense , the debtor is “ essentially claiming a deduction to which [ he ] is not entitled .” The court thus concluded that mortgage payments paid directly by the debtor to the mortgagee in a cure and maintain plan are “ payments under the plan ” which must be completed before the debtor is entitled to discharge under section 1328 ( a ).
Having reached this conclusion , the court turned to its effect on the unique facts of both of the cases before it . In determining whether it should vacate the discharge order entered in Coughlin , the court found it should not . Discharge may be vacated where it was obtained through fraud , and the requesting party did not know of the fraud until after the discharge was granted , or under Rule 60 ( b )( 1 ) where the discharge order was a result of “ mistake , inadvertence , surprise , or excusable neglect .” The court found that , as Mr . Coughlin had not made any false representation as to his plan payments , the justification for vacating its discharge order under section 1328 ( e ) was not present .
Furthermore , the court rejected the trustee ’ s argument that the discharge fell under Rule 60 ( b )( 1 ) because the order was issued while a motion for relief from stay was pending . The court reasoned that , prior to the discharge order , the law regarding whether payments made directly to creditors are “ payments under the plan ,” had not been resolved , nor was the issue of whether discharge may be granted after a creditor has filed a notice under Rule 3002.1 ( g ) that the debtor is behind on payments . Therefore , the court did not make a clerical error or mistake of law in granting discharge . As in United Student Aid Funds , Inc . v . Espinosa , 559 U . S . 260 ( 2010 ), the need for finality in judgments supported a finding that Mr . Coughlin ’ s discharge order should not be vacated .
In Sangamaya , the issue was whether the debtors should be permitted in the final week of their plan to modify and surrender their property under section 1329 ( a ) after they failed to make their direct payments to the mortgagee . Because the motion was made prior to the expiration of the applicable commitment period , otherwise complied with the requirements for modification , and was not subject to objection by the trustee , the court granted the motion .
CoughlinSangamaya Bankr . ED NY opinion June 2017 - http :// www . ncbrc . org / blog / 2017 / 07 / 06 / direct-payments-to-mortgagee-arepayments-under-the-plan / attachment / coughlinsangamaya-bankr-ed-nyopinion-june-2017 /
National Association of Consumer Bankruptcy Attorneys Summer 2017 CONSUMER BANKRUPTCY JOURNAL 39