In re Simmons

608 B.R. 602

IN RE: Dominico Cartrall SIMMONS, Debtor

In re: Wilbert Wayne Smith, Debtor

Number 14-10757, Number 14-10056

United States Bankruptcy Court, S.D. Georgia, Augusta Division, Augusta Division.

Signed September 30, 2019

Matthew James Duncan, Duncan & Brow, Attorneys at Law, LLLP, Augusta, GA, for Debtor.

Huon Le, Augusta, GA, for Trustee.

ORDER AND OPINION

Susan D. Barrett, United States Bankruptcy Judge This order addresses the Chapter 13 Trustee's ("Trustee") Motions to Dismiss Pursuant to 11 U.S.C. § 1307(c)(6) filed in the Wilbert Wayne Smith ("Smith") and the Dominico Cartrall Simmons ("Simmons") cases. In Smith, the Trustee also seeks denial of the discharge for the failure to make post-petition direct mortgage payments.¹ Collectively, Smith and Simmons are referred to as "Debtors." Debtors argue "cause" does not exist to dismiss their cases. This issue is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (J), and (0) and the Court has jurisdiction pursuant to 28 U.S.C. § 1334. For the following reasons, the Trustee's Motions to Dismiss and the Motion to Deny Discharge are denied in part, with the Clerk directed to set a hearing on the good faith arguments.

FINDINGS OF FACT

The Trustee and Debtors have stipulated to the following facts:

Smith

1. [Smith]'s chapter 13 petition and his Chapter 13 Plan and Motion ("Plan") (ECF No. 2) were filed January 10, 2014.

2. [Smith]'s Plan, as modified by the Trustee's Motion to Confirm, as Amended (ECF No. 25) provided for monthly payments of $543.00 to the Trustee, with a minimum commitment period of 36 months and a 0 percent dividend to general unsecured creditors.

3. The Plan further provided in paragraph 2(d) that post-petition payments of $842.00 owed to "Chase" would be paid "direct to creditor according to the contract." The Plan did not provide for payment of a prepetition arrearage to Chase.

4. On April 9, 2014, an Order Confirming Plan ("Confirmation Order") (ECF No. 30) was entered. The Order requires: "As soon as practical following confirmation, the Trustee shall file a report of all claims filed in the case and the Trustee's proposed treatment of such claim under the plan as confirmed." (Confirmation Order ¶ 3).

5. On Schedule J to the petition, [Smith] listed an expense of $843.00 for "rental or home ownership expense."

6. Subsequent to confirmation, on May 27, 2014, The Bank of New York Mellon, f/k/a The Bank of New York, as Successor-in-interest to JPMorgan Chase Bank, N.A. ("BONY") timely filed Proof of Claim No. 8 for $97,289.86, secured by Debtor's residence located at 4303 White Pines Court, Hephzibah, Georgia 30815. The claim also showed an arrearage of $8,392.33.

7. On August 13, 2014, the Trustee filed a motion to increase payments to fund the prepetition arrearage (ECF No. 32).

8. On August 13, 2014, the Trustee also filed the report (ECF No. 31) ("Trustee's Report") required by the Confirmation Order providing that the Trustee would make disbursements to BONY on the arrears in the amount of $8,392.33 pursuant to Proof of Claim No. 8, but that no distribution would be made by Trustee on the ongoing mortgage payments to BONY which are referenced as "DIRECT PAY CLM FILED AS SECURED (Y)."

9. On October 9, 2014, [Smith] filed an objection to BONY's proof of claim (ECF No. 37). The objection was subsequently withdrawn (ECF No. 52), and an order increasing plan payments to $745.00 was entered on November 20, 2014 (ECF No. 52). The purpose of the increase was to fund the prepetition arrearage claim.

10. [Smith] completed his plan payments and the Trustee paid the prepetition arrearage to BONY in the amount of $8,392.33.

11. On November 1, 2018, the Trustee filed a Notice of Completion of Plan Payments and Notice of Final Cure Payment (ECF No. 76).

12. On November 21, 2018, BONY filed a Response to Notice of Final Cure Payment ("BONY Response") as a supplement to Proof of Claim No. 8. The BONY Response states that [Smith] is delinquent on his post-petition mortgage payments in the amount of $47,334.88.

13. [Smith]'s budget throughout this case included funds for the monthly payments on his mortgage. [Smith] has not provided an explanation of why the mortgage payments were not made and how the $47,334.88 set aside for payment of his mortgage was spent.

14. Until the filing of the BONY Response, the Trustee was unaware of [Smith]'s significant default under the terms of his confirmed Plan.

Dckt. No. 88, Joint Stipulation of Facts.

Simmons

1. [Simmons'] chapter 13 petition was filed April 30, 2014.

2. [Simmons'] second amended plan before confirmation (ECF No. 27) ("Amended Plan") was filed August 6, 2014, providing for monthly payments of $294.00, a commitment period of 60 months and a 0 percent dividend to general unsecured creditors.

3. [Simmons'] Amended Plan further provided in paragraph 2(d) that post-petition payments of $1,725 owed to U.S. Bank Home Mortgage ("U.S. Bank") would be paid "direct to creditor according to the contract." The Plan did not provide for payment of a prepetition arrearage.

4. As further amended by the Trustee's Motion to Confirm Plan, As Amended (ECF No. 36) increasing plan payments to $310.00, the Amended Plan was confirmed on or about November 13, 2014 (ECF No. 38).

5. On Schedule J to the petition, [Simmons] listed an expense of $1,725.00 for "rental or home ownership expense."

6. On August 13, 2014, U.S. Bank timely filed Proof of Claim No. 8 for $228,506.29, secured by [Simmons'] residence located at 4036 Lakewood Drive, Grovetown, Georgia 30813. The claim also showed a small arrearage of $472.08 due to an alleged escrow shortage.

7. On December 9, 2014, U.S. Bank filed a motion for relief from stay (ECF No. 42) asserting its principal balance had increased to $236,269.00 and that Debtor was in default for post-petition payments from September 1, 2014 through December 1, 2014. On March 5, 2015, U.S. Bank withdrew the motion for relief (See ECF No. 56).

8. By letter to the Trustee dated September 23, 2015, [Simmons] requested approval of a loan modification with U.S. Bank.

9. On September 28, 2015, the Trustee filed an Approval of Application to Modify Mortgage (ECF No. 62) in which U.S. Bank's loan was modified. The principal amount of the loan was reduced to $171,812.00 with monthly payments of approximately $1,621.00 for 360 months. On September 16, 2016, U.S. Bank filed an amended proof of claim consistent with the loan modification.

10. On November 9, 2018, U.S. Bank filed a motion for relief from stay (ECF No. 73) due to [Simmons'] failure to pay his mortgage payments from July 2016 through October 2018-a total of twenty-eight payments. After giving credit for a suspense balance, U.S. Bank alleged that [Simmons] has a post-petition deficiency of $47,168.23.

11. At a hearing on December 6, 2018, a consent order granting U.S. Bank relief from stay was executed stating [Simmons] did not have evidence to offer in opposition to the motion for relief. The order granting relief from stay (ECF No. 77) was entered on December 28, 2018.

12. [Simmons'] budget throughout this case included funds for the monthly payments on his mortgage. [Simmons] has not provided an explanation of why he has not paid his mortgage and how the $47,168.23 set aside for payment of his mortgage was spent.

13. Until the filing of the motion for relief on November 9, 2018, the Trustee was unaware of [Simmons'] significant default under the terms of his modified mortgage and his Amended Plan.

14. [Simmons] is current in his plan payments and, as of this date, has approximately two months remaining in his case.

Dckt. No. 84, Joint Stipulation of Facts.

CONCLUSIONS OF LAW

"The goal of a Chapter 13 bankruptcy is to aggregate the debtor's outstanding debts, create a repayment plan for those debts, and prescribe the order, manner, and terms of repayment. The plan is proposed by the debtor, is subject to approval ... and must ultimately be confirmed by the bankruptcy court under a specific set of criteria." In re Dukes, 909 F.3d 1306, 1316 (11th Cir. 2018). Chapter 13 plans must contain certain provisions set forth in § 1322(a)² and may contain other provisions set forth in § 1322(b). See 11 U.S.C. § 1322(a) and (b). Relevant to this analysis "the plan may provide for the curing of any defaults within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due." 11 U.S.C. § 1322(b)(5). This is frequently referred to as the cure and maintenance provision for long-term debt which allows debtors to cure their pre-petition arrearages, while maintaining their ongoing post-petition obligations.

The Southern District of Georgia, like many districts, is a non-conduit³ jurisdiction allowing debtors to pay their post-petition mortgage payments directly to the lender, rather than through the chapter 13 trustee. Among other things, this saves already cash strapped debtors the added expense of the chapter 13 trustee commission being applied to a debtor's monthly post-petition mortgage payments, often a debtor's most significant expense. Also, from a timing perspective, it allows cash strapped debtors some added flexibility in managing their finances.

If a debtor fails to make these direct payments, the creditor generally files a motion for relief. The post-petition delinquency is then addressed through a contested matter where relief from stay may be granted, with the secured creditor's bankruptcy claim being stricken (with a right to seek a post-foreclosure deficiency claim, if appropriate). Traditionally, debtors may have lost their home, but if they continued making their monthly plan payments to the Chapter 13 Trustee they could still expect to receive their discharge after making "all payments under the plan." 11 U.S.C. § 1328(a). With the 2011 adoption of Rule 3002.1, courts have begun to reexamine whether "payments under the plan"...