In re Mastro-Edelstein

645 B.R. 603

IN RE: Harvey Edelstein, Kathleen MASTRO-EDELSTEIN, Debtors.

Bankruptcy Case No. 17 B 11461

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed November 7, 2022

Mary A. Leuthner, Prairie State Legal Services, West Chicago, IL, for Debtors.

Glenn B. Stearns, Lisle, IL, Trustee, pro se.

MEMORANDUM OPINION

Janet S. Baer, United States Bankruptcy Judge

This matter is before the Court for ruling on the Motion to Determine Final Cure and Post-Petition Mortgage Amount filed by Harvey Edelstein and Kathleen Mastro-Edelstein (the "Debtors"). The Debtors seek a determination, pursuant to Federal Rule of Bankruptcy Procedure 3002.1(h), that: (1) they have cured their pre-petition mortgage arrears, and (2) the amount of their post-petition mortgage arrears is $5,494.96. For the reasons set forth below, the Debtors’ motion will be granted in its entirety.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).

BACKGROUND

The material facts in this matter are gleaned from the docket and the pleadings, as well as the exhibits attached thereto. Those facts are as follows.

History of the Debtors’ Chapter 13 Case

On April 11, 2017, the Debtors filed both a voluntary petition for relief under chapter 13 of the Bankruptcy Code and a "Model" chapter 13 plan that was in use at the time of filing. (Dkt. Nos. 1, 2, 38 at 7.¹ ) The Debtors’ plan proposed to cure the pre-petition arrears owed on their reverse mortgage with Bank of America, N.A. (the "Bank") and to pay ongoing property taxes during the term of the plan. (Dkt. No. 2 at 1, 3, 5.) The plan provided, in relevant part, as follows:

If the debtor pays the cure amount specified in Paragraph 5 of Section E, while timely making all required postpetition payments, the mortgage will be reinstated according to its original terms, extinguishing any right of the mortgagee to recover any amount alleged to have arisen prior to the filing of the petition.

* * * 5. Mortgage arrears . Payable as set forth below, regardless of contrary proofs of claim , except that the arrears payable may be reduced either with the consent of the mortgagee or by court order, entered on motion of the debtor with notice to the trustee and the mortgagee. Any such reduction shall be effective 14 days after either the trustee's receipt of a notice of reduction consented to by the mortgagee or the entry of a court order reducing the arrearage.

(Id. at 1, 3 (emphasis added).) The amount of pre-petition mortgage arrears listed "as set forth below" was $17,513.56. (Id. at 3.)

The day after the Debtors filed their proposed plan, the Bankruptcy Noticing Center certified that it sent a "Notice of [the] Chapter 13 Bankruptcy Case" to the Bank—as well as to several other creditors and interested parties—by electronic transmission. (Dkt. No. 10.) The Bank did not object to the Debtors’ proposed plan before it was confirmed on June 9, 2017. (Dkt. No. 15.) Subsequently, however, on July 18, 2017, the Bank timely filed a proof of claim in which it asserted pre-petition arrears of $35,016.96, nearly double the amount listed in the Debtors’ confirmed plan. (Claims Reg., No. 8-1; Dkt. No. 49, Ex. B at 2.) Despite the discrepancy between the figures, the Debtors did not object to the Bank's proof of claim, and the Bank did not appeal or otherwise challenge confirmation of the Debtors’ plan.

For approximately fifty-seven months, the Debtors timely made all of their required plan payments. (See Dkt. Nos. 2, 37, 38 at 9.) However, they failed to make the property tax payment that was due on September 3, 2021. (Dkt. Nos. 38 at 9, 49 at 4.) As a result, on October 27, 2021, the Bank filed a notice of post-petition mortgage default indicating that the Debtors owed the Bank $5,494.96 for the tax payment advanced by the Bank. (Id. )

On January 25, 2022, after the Debtors had made all of their plan payments, the chapter 13 trustee (the "trustee") filed a "Notice of Payment of Final Mortgage Cure" in which he stated that the "amount required to cure the default on the claim ha[d] been paid in full." (Dkt. No. 34.) The Bank responded to the trustee's notice on February 4, 2022, asserting that the Debtors still owed $17,503.40 in pre-petition arrears and $6,345.46 in post-petition arrears. (Dkt. No. 49, Ex. C at 1.) On February 11, 2022, the trustee filed a reply to the Bank's response, stating that he had "administered the mortgage arrears" to the Bank "correctly per the terms" of the Debtors’ confirmed plan. (Dkt. No. 36 at 2.) On February 16, 2022, the trustee filed a notice of completion of plan payments, and the Debtors filed the instant motion. (Dkt. Nos. 37, 38.) A discharge order was subsequently entered on February 28, 2022. (Dkt. No. 45.)

The Debtors’ Motion

In the instant motion, the Debtors seek a determination that they have cured their pre-petition mortgage arrearage by paying $17,513.56, the figure reflected in their confirmed plan. (Dkt. No. 38 at 10.) The Debtors also ask the Court to determine that their post-petition mortgage default totals $5,494.96, the amount that the parties agree represents the unpaid real estate tax payment.² (Id. ) Because the parties do not contest the amount of the post-petition default, the sole issue here is whether the Debtors have cured their pre-petition mortgage arrears.

The Debtors argue that they paid the full amount of the mortgage arrears as required by the plan and that they do not owe the Bank any additional pre-petition arrears. (See Dkt. No. 50 at 8–9.) According to the Debtors, the Bank received adequate notice of the plan and did not object to the contents of the plan prior to confirmation. (Id. at 5–8.) The Debtors further contend that the order confirming the plan's terms is a final and binding judgment that controls over the Bank's subsequently filed proof of claim. (Id. at 8–10.) As a result, the Debtors say, the Bank is not entitled to recover any additional pre-petition arrears. (See id. at 7–10.)

The Bank argues, in turn, that it has the right to recover "outside of and after the closing of the [Debtors’] bankruptcy" an additional $17,503.40 in pre-petition arrears, which the Bank alleges remains due and owing after crediting payments it received during the Debtors’ case. (Dkt. No. 49 at 6.) According to the Bank, its allowed proof of claim included $35,016.96 in pre-petition arrears, and, as a result, that amount must be paid in full. (See id. at 5–7.) The Bank also contends that pursuant to both the language of the Debtors’ plan and the Bankruptcy Code, the Bank may be paid less than the pre-petition arrearage amount reflected in its proof of claim only with the Bank's consent or by court order, entered upon motion or claim objection filed by the Debtors. (Id. at 5–6.) Here, the Bank says, it did not consent to a reduction of pre-petition arrears, nor did the Court enter an order reducing the amount of the arrearage. (Id. )

The Debtors’ motion has been fully briefed. Having reviewed all the relevant documents, the arguments of the parties, and the applicable case law, the Court is now ready to rule.

DISCUSSION

The terms of a confirmed chapter 13 plan "bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). In United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010), the United States Supreme Court held that when a creditor receives adequate notice of a proposed chapter 13 plan and does not object to that plan prior to confirmation, a subsequent confirmation order "remains enforceable and binding." Id. at 275, 130 S.Ct. 1367 (concluding that the confirmation order was not void, even though the bankruptcy court made "a legal error" by failing to find that the student loan debt imposed an undue hardship). If a plan is confirmed after adequate notice and without objection, enforceability depends on the applicable Bankruptcy Code provisions implicated, a case's procedural posture, and the specific language provided in the plan. See id. at 273 n.10, 130 S.Ct. 1367 ; Reuland v. I.R.S. (In re Reuland) , 591 B.R. 342, 348–52 (Bankr. N.D. Ill. 2018).

The Bankruptcy Code also provides that a claim, proof of which is timely filed, is deemed allowed, unless a party in interest objects. 11 U.S.C. § 502(a). A properly filed proof of claim "constitute[s] prima facie evidence of the validity and amount of the claim." Fed. R. Bankr. P. 3001(f).

In this matter, it is undisputed that the amount required to cure the pre-petition arrearage is identified as $17,513.56 in the Debtors’ chapter 13 plan. (Dkt. No. 2 at 3.) The parties also do not dispute that, after the Debtors’ plan was confirmed without objection, the Bank timely and properly filed its proof of claim—asserting $35,016.96 in pre-petition mortgage arrears—and that the Debtors did not object to the claim. (See Dkt. Nos. 49 at 6–7, 50 at 8–10.) Thus, whether the Debtors have cured their pre-petition mortgage arrears depends on what governs the issue: the Debtors’ confirmed plan or the Bank's allowed proof of claim.

The Seventh Circuit has not addressed the precise issue at bar. However, two of the court's post- Espinosa opinions suggest that the Seventh Circuit would likely hold that the pre-petition arrearage amount specified in a confirmed plan controls over a conflicting but allowed proof of claim. See Bartlett v. Fifth Third Bank , 619 F. App'x 525, 528 (7th Cir. 2015) (noting that " ‘a party with adequate notice of a bankruptcy [case] cannot ordinarily attack a confirmed plan’ "); In re Altheimer & Gray , 601 F.3d 740, 741 (7th Cir. 2010) (explaining that an uncontested claim was "allowed" but that "it [was] too late...