In re Coughlin

568 B.R. 461

IN RE: Denis J. COUGHLIN, Debtor.

In re: Louis P. Sangamaya & Pristila S. Sangamaya, Debtors.

Case No.: 11–76202–AST

Case No: 12–71109–AST

United States Bankruptcy Court, E.D. New York.

Signed June 15, 2017

Robert H. Solomon, Long Beach, NY, for Debtor.

MEMORANDUM OPINION ON EFFECT OF FAILURE TO PAY POST–PETITION MORTGAGE PAYMENTS ON DEBTORS' RIGHTS TO THEIR DISCHARGES, THE COURT'S AUTHORITY TO REVOKE A DISCHARGE, AND REQUEST TO MODIFY A CHAPTER 13 PLAN

Alan S. Trust, United States Bankruptcy Judge

Issues Presented

Pending before the Court in these two otherwise unrelated chapter 13 cases is a common issue: whether a chapter 13 debtor is entitled to a discharge when he/she does not make his/her direct post-petition mortgage payments due under a confirmed plan. The Coughlin case involves the additional issue of whether the Court should vacate a discharge granted to a debtor who failed to make direct post-petition mortgage payments, while the Sangamaya case involves the additional issue of whether debtors should be allowed to modify a confirmed plan in the final month to change the treatment of their home from retain to surrender.

For the reasons set forth herein, this Court has determined: (1) a chapter 13 debtor's direct payments to a secured creditor pursuant to a "cure and maintain" plan are payments "under the plan" and a debtor who fails to make such payments is not entitled to a discharge under § 1328(a); (2) Coughlin's discharge should not be vacated or revoked because he did not obtain his discharge by fraud and the Court did not issue the discharge through mistake or inadvertence; (3) the Sangamayas may modify their confirmed chapter 13 plan because the timing of the motion is not barred by the Bankruptcy Code, no opposition thereto was filed, and granting their discharge is consistent with prior practice in this district.

JURISDICTION

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (I), (J), (L) and (O), and 1334(b), and the Standing Orders of Reference in effect in the Eastern District of New York dated August 28, 1986, and as amended on December 5, 2012, but made effective nunc pro tunc as of June 23, 2011.

Coughlin

On August 31, 2011, Denis J. Coughlin ("Coughlin") filed a petition for relief under chapter 13 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code").¹ At that time, he resided at 214 West Market Street, Long Beach, New York (the "Coughlin Property"), which was encumbered by a mortgage.²

Marianne DeRosa was appointed the Chapter 13 Trustee (the "Trustee") for Coughlin's chapter 13 case.

On December 6, 2011, Coughlin filed an Amended Chapter 13 Plan (the "Coughlin Plan"), which provided, inter alia , that he would make 60 monthly payments to the Trustee, including pre-petition arrears of $15,000, and pay his post-petition mortgage payments "outside the plan." [11–76202; dkt item 22]

On December 16, 2011, the Court entered an Order confirming the Coughlin Plan. [11–76202; dkt item 24]

On July 15, 2016, the Trustee filed her Certification of Completed Plan, which provides: "Trustee, states that upon information and belief, the Debtor has completed the Chapter 13 Plan." [11–76202; dkt item 32]

On August 15, 2016, the Trustee filed her Notice of Final Cure Payment and Completion of Payments under the Plan as required by Bankruptcy Rule 3002.1(f) (the "Coughlin 3002.1 Notice"). [11–76202; dkt item 35]

On September 2, 2016, Deutsche Bank National Trust Company as Trustee for Harborview Mortgage Loan Trust Mortgage Pass–Through Certificates, Series 2005–9 ("Deutsche"), filed a response to the Coughlin 3002.1 Notice using Official Form 4100R (the "Deutsche Response"), in which Deutsche asserts that Coughlin paid in full the amount required to cure the pre-petition default on Deutsche's claim, but that as of March 1, 2016, he was delinquent on direct post-petition mortgage payments totaling $17,441.25.³

On September 20, 2016, the Trustee filed her Final Report and Account, which, inter alia , provides that she did not pay any of the post-petition mortgage payments which Coughlin was to pay "outside the plan." [11–76202; dkt item 36]

On November 15, 2016, JPMorgan Chase Bank, N.A. as Servicer for Deutsche ("JPMorgan"), filed a motion seeking relief from the automatic stay pursuant to § 362(d)(1), alleging that as of March 1, 2016, Coughlin failed to make the post-petition mortgage payments totaling $17,441.25 (the "Coughlin Lift Stay Motion"). [11–76202; dkt item 37]

On December 14, 2016, the Court entered an Order granting Coughlin a discharge under § 1328(a) (the "Discharge Order"). [11–76202; dkt item 40]

On December 15, 2016, the Court held a hearing on the Coughlin Lift Stay Motion and raised concerns over whether the Discharge Order was entered inadvertently, in light of the arrearages on post-petition mortgage payments.

On December 21, 2016, the Court issued its Order to Show Cause why the Discharge Order should not be vacated and why the Coughlin Lift Stay Motion should not be granted (the "Coughlin OSC"). [11–76202; dkt item 43]

On January 18, 2017, Coughlin filed opposition to the Coughlin OSC. [11–76202; dkt item 45]

On January 26, 2017, the Trustee filed a response to the Coughlin OSC, supporting vacating the Discharge Order. [11–76202; dkt item 48]

On February 2, 2017, JPMorgan filed a response to the Coughlin OSC, arguing why stay relief should be granted, but taking no position on whether the Discharge Order should be vacated. [11–76202; dkt item 54]

On February 2, 2017, the Court entered an Order granting the Coughlin Lift Stay Motion in favor of JPMorgan. [11–76202; dkt item 55]

On February 7, 2017, Coughlin filed a supplemental opposition to the Coughlin OSC. [11–76202; dkt item 56]

The Sangamayas

On February 27, 2012, Louis P. Sangamaya and Pristila S. Sangamaya (the "Sangamayas") filed a joint petition for relief under chapter 13. At that time, they resided at 114 Farmers Avenue, Bethpage, New York (the "Sangamaya Property"). The Sangamaya Property was encumbered by two mortgages.⁴

Marianne DeRosa was appointed Trustee for the Sangamayas' chapter 13 case.

The Sangamayas' Schedule I listed their combined average monthly income as $5,791.00 and Schedule J listed their average monthly expenses as $5,270.87 including payments on a home mortgage of $2,781.87; thus they showed a monthly net income of $520.13. [12–71109; dkt item 1]

On June 12, 2012, the Court entered an Order granting the Sangamayas' motion to strip off the second mortgage on the Sangamaya Property incident to their chapter 13 plan (the "Sangamaya Second Mortgage"), to be effective upon the Trustee filing her certificate of completion of plan payments. [12–71109; dkt item 19]

On June 13, 2012, the Sangamayas filed their First Amended Chapter 13 Plan, which provided, inter alia , for the Sangamayas to make 60 monthly plan payments and that the holder of the Sangamaya First Mortgage will be paid "pre-petition arrears in the sum of $2,781.97 over the life of the plan and to be paid post-petition payments outside the plan." (the "Sangamaya Plan"). [12–71109; dkt item 20]

On June 15, 2012, the Sangamayas filed amended schedules, which provided, inter alia , that their combined average monthly income is $6,322.00 and their average monthly expenses are $5,775.87, including $2,781.87 for mortgage payments, for a monthly net income of $546.13. [12–71109; dkt item 25]

On June 28, 2012, the Court entered an Order confirming the Sangamaya Plan. [12–71109; dkt item 26]

On December 17, 2014, the Sangamayas filed their first Motion to Approve Modification of a Confirmed Plan, along with a Second Amended Plan, which did not change the treatment of the Sangamaya First Mortgage. [12–71109; dkt items 32, 33]On April 14, 2015, the Sangamayas filed amended schedules, which provided, inter alia , that their combined average monthly income is $6,196.57 and their average monthly expenses are $5,922.87, including $2,781.87 for mortgage payments, for a monthly net income of $273.70. [12–71109; dkt item 40]

On May 19, 2015, following a transfer of the Sangamaya First Mortgage, the Sangamayas filed a Third Amended Plan which, again, did not change the treatment of the Sangamaya First Mortgage. [12–71109; dkt item 42]

On June 3, 2015, the Court entered an Order approving the modification of the Sangamayas' confirmed chapter 13 plan. [12–71109; dkt item 44]

On May 26, 2016, Nationstar Mortgage LLC ("Nationstar") filed a motion seeking relief from the automatic stay pursuant to § 362(d)(1) as to the Sangamaya Property, alleging, inter alia , that between August 1, 2015 and April 1, 2016, the Sangamayas failed to make nine post-petition mortgage payments of $2,711.36 each for a total of $24,402.24 (the "Sangamaya Lift Stay Motion"). [12–71109; dkt item 46] The Sangamayas did not file opposition to the Lift Stay Motion.

On June 23, 2016, the Court held a hearing on the Sangamaya Lift Stay Motion, at which Nationstar and counsel for the Sangamayas appeared (the "June 23 Hearing"). Counsel for the Sangamayas represented that they defaulted on the mortgage after February 2016, that one of the Sangamayas had been having health problems, and as a result had been hospitalized on the day before the June 23 Hearing, and asked for an adjournment of the Sangamaya Lift Stay Motion, which the Court granted.

On August 25, 2016, the Court held an adjourned hearing on the Sangamaya Lift Stay Motion, at which Nationstar appeared and counsel for the Sangamayas appeared; debtors' counsel again represented that one of the Sangamayas had health problems and as a result had sporadic income. At the conclusion of that hearing, the Court found cause to grant Nationstar relief from the automatic stay.

On September 9, 2016, the Court entered an Order granting stay relief in favor of Nationstar. [12–71109; dkt item 49]

On February 15, 2017, the Sangamayas filed amended schedules which provided, inter alia , that their...