In re Janssen

396 B.R. 624

In re Richard D. JANSSEN, Debtor.

No. 04-11159 ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

November 7, 2008.

COPYRIGHT MATERIAL OMITTED

David A. Scholl, Michael A. Cataldo, for Debtor.

Brett L. Messinger, for Chase Home Finance.

MEMORANDUM

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

Presently before me is the Motion of Debtor Richard D. Janssen ("the Debtor") to Reopen his closed chapter 13 bankruptcy case ("the Motion to Reopen").

A few months after this case was closed, Chase Home Finance LLC ("Chase"), the holder of the mortgage on the Debtor's residence, started foreclosure proceedings against the Debtor in state court. The Debtor asserts that he fully performed all of his obligations under his chapter 13 plan, thereby curing his prepetition default under the mortgage, and also, that he paid all of the monthly mortgage payments that fell due on the mortgage after the conclusion of the bankruptcy case. The Debtor contends that Chase's initiation of foreclosure proceedings violates the terms of his confirmed plan. He wants to reopen the bankruptcy case to prosecute an adversary proceeding against Chase and obtain equitable relief.

Chase opposes the Motion to Reopen. Chase asserts that the Debtor defaulted on his mortgage obligations after the bankruptcy case was closed and that any dispute regarding this asserted post-closing default should be resolved in state court, not bankruptcy court.

For the reasons set forth below, the Motion to Reopen will be granted.

II. BACKGROUND

A.

The Debtor commenced this case by filing a chapter 13 bankruptcy petition on January 28, 2004.¹ Early in the case, on February 11, 2004, Chase filed a secured proof of claim in the total amount of $21,418.44, with prepetition arrears of $10,123.44 ("the Prepetition Arrears").² The Debtor then filed a Chapter 13 Plan on February 12, 2004. He later filed a First Modified Chapter 13 Plan ("the First Amended Chapter 13 Plan") and a document titled "Amended Plan Summary" ("the Plan Summary") on September 22, 2004. The First Amended Chapter 13 Plan was confirmed by Order dated November 2, 2004.

The confirmed First Amended Chapter 13 Plan provided for the Debtor to make periodic payments to the Chapter 13 Trustee totaling $25,233.00 ("the Base Amount"), but was terse in its description of the treatment of the various claims against the Debtor. The provision that appears to address Chase's claim is Paragraph (e), which states that the holder of an allowed secured claim shall retain its lien and "be paid cash in such amounts as to have a value, as of the effective date of the plan, that is not less than the allowed amount of such claim, or the debtor may surrender the security." This language suggests that the First Amended Chapter 13 Plan was intended to pay off Chase's entire allowed secured claim.³ However, the Plan Summary appears to contradict Paragraph (e). The Plan Summary provides for the distribution of the Base Amount as follows:

Debtor's counsel       $1,250.00
IRS                    $10,520.36
Chase Arrears of $10,127.44 with
regular post petition
City of Philadelphia   $1,280.00
Pro Rata Distribution to Unsecured Creditors

See Docket Entry No. 27 (emphasis added).

Reading the First Amended Chapter 13 Plan and the Plan Summary together— particularly the use of the words "arrears" and "with regular post petition" in the Plan Summary—it is obvious that the Debtor intended the plan to provide for a cure of the Prepetition Arrears pursuant to 11 U.S.C. § 1322(b)(5).⁴

On August 7, 2007, the Debtor filed a Motion to Modify Plan After Confirmation ("the Motion to Modify") and a single additional document titled "Second Modified Plan and a new Amended Plan Summary" ("the Second Amended Plan"). In the Motion to Modify, the Debtor asserted that the IRS had amended its priority claim of $10,520.36 to $0.00 and that all other secured and priority claims had been paid in full. Therefore, the Debtor sought to modify the confirmed plan to reduce the Base Amount from $25,233.00 to $16,904.00. There was no opposition to the Motion to Modify and the Second Amended Plan was approved by Order dated October 31, 2007.⁵

On January 11, 2008, the Chapter 13 Trustee filed his Final Report. The Final Report stated that the Chapter 13 Trustee distributed $10,124.44 to Chase, i.e., the full amount of the Prepetition Arrears.⁶ The court granted the Debtor a chapter 13 discharge by Order dated February 19, 2008. The bankruptcy case was closed on March 6, 2008. See 11 U.S.C. § 350(a).

On or about August 19, 2008, Chase filed an action in mortgage foreclosure against the Debtor in the Court of Common Pleas, Philadelphia County, docketed at No. 2477, August Term 2008 ("the Foreclosure Action"). On or about September 12, 2008, the Debtor filed a pro se Answer to the Complaint asserting, inter alia, that he had "made all of the payments in question" both during and after the conclusion of his bankruptcy case and that Chase was attempting to collect amounts "incurred prior to the bankruptcy discharge."⁷

B. The Debtor's Motion to Reopen

The Debtor also filed the Motion to Reopen on September 12, 2008. In the Motion to Reopen, the Debtor requests that his bankruptcy case be reopened to permit him "to enforce the terms of his confirmed plan" through the prosecution of an adversary proceeding.

Also on September 12, 2008, without waiting for the main case to be reopened, the Debtor initiated an adversary proceeding ("the AP") by filing an adversary complaint against Chase ("the AP Complaint"). See Adv. No. 08-0252. In the AP, he requests that the court enjoin Chase from proceeding in the foreclosure case and award him damages, costs and attorney's fees.

Chase filed a Response to the Motion to Reopen on October 10, 2008. Chase also filed a motion to dismiss the AP Complaint ("the Motion to Dismiss") on October 15, 2008.

A hearing on the Motion to Reopen was held and concluded on October 21, 2008. At the October 21, 2008 hearing, the parties agreed that the ruling on the Motion to Reopen in the main bankruptcy case will be dispositive with respect to the Motion to Dismiss in the AP.

III. THE PARTIES' CONTENTIONS

The Debtor's legal theory in requesting that the bankruptcy case be reopened to accord him relief is grounded in 11 U.S.C. § 1327(a). Section 1327(a) provides that the provisions of a confirmed plan "bind" the debtor and each creditor.

The Debtor contends that his confirmed plan provided for a "cure" of his prepetition mortgage delinquency under 11 U.S.C. § 1322(b)(5), that he performed all of his obligations under his confirmed plan and that, consequently, his prepetition mortgage default necessarily was "cured" at the conclusion of his bankruptcy case. Because he also contends that he paid all of his post-discharge monthly payments, the Debtor depicts Chase's initiation of the Foreclosure Action as based on its failure to treat the mortgage default as having been cured by the Debtor's performance of his obligations under the chapter 13 plan and, therefore, a failure to abide by the terms of the confirmed plan. The last step in the Debtor's theory is that a creditor's failure to comply with the terms of a confirmed plan violates 11 U.S.C. § 1327(a) and may be remedied by this court under 11 U.S.C. § 105(a). See AP Complaint ¶ 12. This legal theory finds support in In re Padilla, 389 B.R. 409, 425-31 (Bankr. E.D.Pa.2008) ("Padilla II").

Chase takes a different view. In its opposition papers, Chase concedes that the Debtor "fully complied" with his chapter 13 plan. Chase Response to Motion to Reopen at 1.⁸ Chase then asserts that the post-discharge foreclosure "arises out of Debtor's failure to make the ... post-discharge payments from February 2008 through July 2008," and that, as a result, the bankruptcy court lacks subject matter jurisdiction to determine the propriety of Chase's foreclosure efforts. Id.

At the October 21, 2008 hearing, Chase supplemented its jurisdictional argument, suggesting that even if the court has jurisdiction over this dispute, in its discretion, it should not exercise that jurisdiction.

The Debtor disputes Chase's contention that this dispute arises from events that post-date the conclusion of the bankruptcy case. The Debtor attached bank records to his Answer to the Complaint in the Foreclosure Action, copies of which were annexed to Chase's Response to the Motion to Reopen. The Debtor claims that these records demonstrate that he tendered all of the monthly payments that fell due after the conclusion of the bankruptcy case and that the parties' dispute necessarily concerns acts or omissions occurring during the pendency of the bankruptcy case—i.e., that Chase must have failed to credit all of his payments or have assessed improper charges, making it appropriate for this court to reopen the bankruptcy case and determine the propriety of Chase's conduct.

Thus, the parties disagree whether the Debtor was current on his mortgage when Chase initiated the Foreclosure Action— i.e., whether the Debtor's paid all of the monthly payments due under the mortgage or, instead, whether Chase misapplied the Debtor's payments made by the Debtor or, perhaps, assessed invalid charges against the Debtor's mortgage account.

The parties further disagree whether the dispute is traceable to:

(1) the manner in which the plan payments distributed by the Chapter 13 Trustee plan were credited against the prepetition default;

(2) monthly installments or other charges allegedly due Chase in the postpetition/pre-closing period and/or

(3) monthly instalments or other charges allegedly due Chase in post-closing period.

As explained below, the origin of the disputed default is relevant in analyzing the jurisdictional issues presented.

IV. THE COURT HAS SUBJECT MATTER JURISDICTION

I now consider Chase's threshold argument that the bankruptcy court lacks subject matter jurisdiction under 28 U.S.C. §...