TOM R. CORNISH, UNITED STATES BANKRUPTCY JUDGE.
The Court is faced with two issues: 1) whether to allow an untimely proof of claim filed by the Debtor's home mortgage creditor, JPMorgan Chase Bank; and 2) whether to confirm the Debtor's Amended Plan which proposes to pay nothing on the mortgage debt but be deemed current on his mortgage at the conclusion of his chapter 13 plan. For reasons set forth below, the Court finds that it must disallow Chase's late-filed claim, but it cannot confirm the Debtor's Amended Plan as proposed.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(a). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and (L).
This case was filed on February 1, 2016. The Notice of Chapter 13 Bankruptcy was entered and mailed to creditors, including Creditor JPMorgan Chase Bank ("Chase"), that same day. The Notice provided that the Meeting of Creditors would be held March 10, 2016, a confirmation hearing would be held April 7, 2016 with objections to the Plan due the Friday before, and that creditors desiring to receive a distribution under the chapter 13 plan must file a proof of claim by June 8, 2016. Debtor filed his Plan and Summary of Plan on February 12, 2016. He mailed notice to JPMorgan Chase Bank. Debtor's Plan listed Chase's secured claim on his homestead at $ 82,944.58, payable at the contract rate of interest, and listed a pre-petition arrearage of $ 10,500. Debtor proposed a sixty month plan term, including $ 760 a month on the principal amount, and $ 175 a month on the arrearage claim.
The Plan contains numerous notices to creditors that they must file a proof of claim and participate in the confirmation process if they expect to receive distributions under the plan. The Plan begins with this warning:
Following this opening, Section 1 of the Plan includes the definitions of terms used in the plan.
The plan also states that where default is cured and payments maintained on long term debts, liens are retained and the debt shall be declared fully reinstated:
Chase's counsel, Michael J. George III, entered an appearance on March 7, 2016, and filed an Objection to Confirmation. The Objection stated that Chase held a secured claim of $ 90,789.36 plus interest at 3.875%, costs and attorney's fees on real property in Ardmore, Oklahoma. It also stated that the pre-petition arrearage was approximately $ 11,180.64 plus interest. This amount was only $ 680.84 more than Debtor's plan proposed to pay Chase as a Class II.B Pre-Petition Arrearage Claim. Chase requested that the Court either modify the plan to pay the arrearage claim in full with interest or deny confirmation of the Plan.
Debtor was granted a continuance of the confirmation hearing because Chase had not yet filed its proof of claim. Chase did
Two days later, Dustin Perry and John Richer entered their appearance as counsel for Chase, and filed an Objection to Confirmation of this Amended Plan (Doc. 47). On August 1, 2016, Mr. George filed a Proof of Claim on behalf of Chase. The Claim was for $ 90,789.36 in principal, and $ 11,180.64 in pre-petition arrearages, with an interest rate of 3.875%. Chase indicated that its claim did not amend a previously-filed claim. Amanda Wells, Vice President of Chase in Monroe, Louisiana, completed and executed the proof of claim on July 29, 2016.
Debtor filed an Objection to Chase's proof of claim (Doc. 48). Debtor urged the Court to disallow Chase's claim as untimely pursuant to 11 U.S.C. § 502(b)(9), and Debtor again requested that the Court order the debt to Chase be deemed current upon conclusion of the Plan. Trustee filed a Response to Debtor's Objection (Doc. 52) stating his support for disallowance of the claim on the grounds that it was not filed by the claims bar date of June 8, 2016 despite numerous pleas from his office to do so. Chase filed a response to these objections (Doc. 55) admitting that it did not file a timely proof of claim and that failure to do so prevented it from receiving distributions under the plan. Chase also moved for summary judgment asserting that its proof of claim should be allowed and that its objection to confirmation should be sustained.
Chase and Trustee entered into the following stipulation:
Chase's position is disputed by Trustee and Debtor. Both argue that late-filed proofs of claim must be disallowed, and that Chase must meet the deadlines set by this Court if it wishes to receive distributions under the plan. They also argue that failure to adhere to those deadlines should result in Debtor being declared current on his mortgage with Chase at the end of the plan term. Trustee suggests that should the Court disallow Chase's claim, he could make ongoing postpetition payments on the mortgage, although that provision does not appear to be in the Amended Plan and Summary before the Court. For reasons set forth below, the Court cannot fully endorse either approach. Instead, the Court will disallow Chase's Proof of Claim but it must also deny confirmation of Debtor's Amended Plan as proposed.
Where an objection to a filed proof of claim is filed as it was in this case, § 502(b) states that the court shall determine the amount of the claim and allow the claim, "except to the extent that—(9) proof of such claim is not timely filed. . . ."
The result of the disallowance of a claim is that Chase may not receive distributions under the plan. The terms of the plan plainly provide that failure to timely file a proof of claim may result in loss of payment under the plan. The Court sustains Debtor's objection only on the ground that Chase's proof of claim was filed after the bar date. It declines to grant Debtor's request in his objection that he be deemed current on his mortgage at the conclusion of the plan for reasons explained below. The Court declines to sustain
Chase admits that it filed an untimely proof of claim but argues that as a secured creditor it is not obligated to file a claim. While Chase is correct, and Trustee does not dispute this position, the Court believes that all creditors, whether secured or unsecured, must file a proof of claim if they hope to have an allowed claim and participate in plan distributions. The Court adopts the reasoning of the Seventh Circuit in In re Pajian, 785 F.3d 1161, 1163 (7th Cir. 2015), that all creditors, unsecured and secured, who wish to receive distributions under a chapter 13 plan must file a timely proof of claim in accordance with Fed. R. Bankr. P. 3002(c).
Based upon Chase's stipulation that it is not asserting any equitable basis for allowance of its claim, the Court assumes that Chase waives its suggestion that the Court could allow the claim "for cause" or as a matter of equity under 502(j). However, to clarify, the Court does not believe there is cause to allow Chase's disallowed claim on any ground based upon the stipulations and facts before it. When the Court balances the equities, they do not tip in Chase's favor to persuade it to allow Chase's late-filed claim.
Nothing in the Bankruptcy Code or Rules tells courts what they are supposed to do when a secured creditor does not file a timely proof of claim. Although Chase failed to timely file its proof of claim, it did file an objection to confirmation of Debtor's original plan and to Debtor's Amended Plan. The basis for Chase's objection is that the plan does not pay its claim in full. The Notice to Creditors appearing at the beginning of the plan states:
However, as the Court has already determined, it has no choice but to disallow Chase's untimely proof of claim. Fed. R. Bankr. P. 3021 provides that Trustee can only make distributions to creditors whose claims have been allowed, not on claims that are disallowed, so it follows that a plan that excludes payment on a disallowed claim is confirmable. Debtor is entitled to present a plan that does not make distributions on disallowed claims. Further, § 1325 addresses confirmation of plans that provide for allowed secured claims. Chase's claim is not allowed so a plan that does not include Chase's disallowed claim does not appear to run afoul of § 1325. And, the Court also believes that Chase's treatment under the Amended Plan is primarily a result of its own making. Thus, the Court believes that it could confirm a plan that makes no payment on Chase's disallowed claim, despite Chase's objection to confirmation.
But the Amended Plan Debtor proposes goes beyond that. The question before the Court is whether it can confirm a plan that makes no provision to pay a claim secured only by a security interest in real property that is the debtor's principal residence but includes a provision that the mortgage shall be deemed current at the end of the plan, effectively resulting in the curing of any default? Under the facts presented in this case, the Court finds that it cannot. First, such a determination is premature. The Court will not confirm a plan today that predetermines a result months in the future. As Trustee suggests, the Court may determine the amount of Chase's lien upon completion of the case based upon evidence to be presented then. While the Court agrees that under the terms of the plan, no distribution may be made on claims that are disallowed, it will not confirm a plan over the secured creditor's objection that proposes to reduce the debt owed under Debtor's mortgage and declare him current without making any attempt to cure default or maintain payments during the life of that plan. The Court cannot determine at this stage of the case whether Debtor can be deemed current based upon the information presented.
Second, the Bankruptcy Code makes special provision for home mortgage creditors in § 1322(b)(2): debtors may not propose a plan the modifies the rights of their mortgage creditor. There is no further explanation of what an impermissible modification of those rights might be, except as is found in subsection (b)(5) for debts that will continue after the end of the plan. Permissible modifications identified therein are curing a default on such secured claims "within a reasonable time" and maintenance of payments during the life of the plan. So long as the plan complies with the provisions of chapter 13, has been proposed in good faith and not by any means forbidden by law, the court "shall" confirm it. 11 U.S.C. § 1325. Thus, unless this Court finds that Debtor's plan, which makes no provision to pay Chase, is an impermissible modification of Chase's rights, or is proposed in bad faith or in violation of law, it shall confirm his plan.
As Chase has asserted, its rights as a secured creditor under the mortgage are determined by the relevant mortgage instruments and state law.
Chapter 13 provides debtors a way to retain their property while paying their debts over a fixed period of time. Plan terms as outlined in § 1322 contemplate that debtors who want to keep their homes will make some attempt to cure default and make regular monthly payments if they intend to exit bankruptcy caught up and current on those mortgages and not facing foreclosure. Here, however, Debtor wants to gain the protections afforded him by bankruptcy such as the automatic stay, without servicing his debt. By failing to timely file a proof of claim, Chase has waived its right to receive payment under Debtor's plan. However, this does not result in the waiver of its rights to receive payment on the debt. In accordance with the terms of the mortgage, Debtor is required to service the debt in some way. If he fails to do this, he will exit bankruptcy in default to Chase and Chase will no doubt attempt to enforce its rights to the property in accordance with the note and mortgage under state law. See In re Matteson, 535 B.R. 156 (6th Cir. BAP 2015).
The Court understands the dilemma: Debtor and Trustee are frustrated by Chase's failure to abide by deadlines. Chase is a sophisticated creditor, well-represented by attorneys who regularly practice in bankruptcy court. Indeed, Chase concedes that the consequence of its failure to timely file its proof of claim is that it receive no distributions through the plan. But, Debtor and Trustee fail to cite any authority for their position that the mortgage can be deemed current at the end of the plan without Debtor curing any defaults or making any payments to Chase during the life of the plan. The facts of this case are not like the cases cited by Trustee. Here, Chase has been involved in the case from the beginning, vigorously objecting to its treatment under Debtor's proposed plans. In In re Henry, 532 B.R. 844 (Bankr. N.D. Okla. 2014), the debtor made a good faith effort to propose a plan that cured the pre-petition arrearage during the life of the plan and provided for ongoing regular monthly payments to be made through the plan. Chase did not object, and the plan was confirmed. When Chase failed to file its own proof of claim, debtor filed one that matched the plan. Chase didn't object to that proof of claim. It was only when Chase attempted to file an amended claim two years later that the bankruptcy court decided it had waived its right to collect the additional amounts and that the debtor was not required to modify the confirmed plan to pay the additional arrearage claim. Similarly, in In re Alonso, 525 B.R. 195 (Bankr. D. P.R. 2015), the debtor's plan paid the mortgage creditor the amounts requested in the creditor's timely proof of claim. When the creditor attempted to amend its claim in month 57, the court granted debtor's objection to the amended claim and found that not paying the additional arrearage claim in full was not an impermissible modification of the
These cases are a far cry from the facts present here. Debtor is making no attempt to cure the pre-petition arrearage and making no attempt to maintain regular payments through his plan. Chase heeded the warning in the Plan and filed an objection to confirmation. Although the Court does not believe it has authority to order that payments be made on a disallowed claim, it can decline to confirm this plan with its proviso that deems the mortgage current after twenty-six months without payment. If Debtor wanted to ensure that he would be deemed current on the mortgage and not exit bankruptcy in default on his mortgage, he had an opportunity to do so. Pursuant to § 501(c) and Fed. R. Bankr. P. 3004, either Debtor or Trustee could have filed a proof of claim on behalf of Chase within 30 days after the claims filing deadline. The Court understands that they are not required to do this and chose not to do so in this case. However, the Court is of the opinion that if debtors expect to receive chapter 13's benefits of the automatic stay while curing defaults and maintaining payments on long-term secured debt they should take advantage of this opportunity to do so. See Matteson, 535 B.R. at 164 (6th Cir. BAP 2015); In re Heft, 564 B.R. 389, 400 (Bankr. C.D. Ill. 2017).
The Court declines to confirm Debtor's Amended Plan as proposed. The Court may be required to confirm a plan that makes no payments on disallowed claims. However, it will not prematurely determine that Debtor's mortgage will be deemed current upon conclusion of the plan where a Debtor makes no attempt to cure a default or maintain ongoing monthly payments, and where the secured creditor has objected to the Debtor's plan throughout the confirmation process. The results here cannot be palatable to either Debtor, Trustee or Chase, but they have no one to blame but themselves. Both sides missed their respective deadlines and opportunities to achieve their goals in this case. The Court cannot fashion a remedy under this set of facts. Time has expired for each party to file a proof of claim. No extension was requested by Debtor or Trustee. Although the parties are free to explore another way for Debtor to cure his default and make ongoing payments on the mortgage post-petition, the Court is unable to find any authority that would allow it to confirm a plan that makes payments on a disallowed claim.
Chase's proof of claim will be disallowed on the grounds that it was filed after the bar date. Debtor's Amended Plan as proposed cannot be confirmed. Debtor is directed to file an amended plan. A separate order consistent with this Opinion will be entered.