John E. Waites, US Bankruptcy Judge District of South Carolina.
This matter comes before the Court upon the filing of a Certification of Plan Completion and Request for Discharge ("Request for Discharge") filed by Gregory Dee Dowey and Sandra Karen Dowey ("Debtors"). At the time of the filing of the Request for Discharge, Debtors were not current on their ongoing post-petition payments to be paid directly to their mortgage creditor U.S. Bank National Association ("Mortgage Creditor") as required by their confirmed plan. A hearing was held on the Request for Discharge, attended by Debtors, Debtors' counsel, and the Chapter 13 Trustee. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core matter pursuant to 28 U.S.C. § 157. Based upon the record of this case and applicable law, the Court makes the following findings of fact and conclusions of law.
1. Debtors filed a petition for relief under chapter 13 of the Bankruptcy Code on March 29, 2012.
2. On April 3, 2012 Debtors filed their chapter 13 plan of reorganization, which was subsequently amended on June 4, 2012 ("Chapter 13 Plan"). Debtors proposed to treat US Bank Home Mortgage, the previous holder of the mortgage debt secured by Debtors' principal residence ("Mortgage Debt"), pursuant to 11 U.S.C. § 1322(b)(5).
3. On June 20, 2012, the Court entered an Order confirming the Chapter 13 Plan.
4. On May 6, 2016, the Chapter 13 Trustee filed a Report of Trustee of Completion of Plan Payments by Debtor, in which the Trustee indicated that he has received all payments that were to be made to him from Debtors according to the Chapter 13 Plan.
5. The Chapter 13 Trustee then filed a Notice of Final Cure Payment pursuant to Fed. R. Bankr. P. 3002.1(f), indicating that the amount required to cure the pre-petition default on the Mortgage Debt has been paid in full, and alerting Mortgage Creditor to file a response under Fed. R. Bankr. P. 3002.1(g).
6. On May 16, 2016, Debtors filed the Request for Discharge, certifying under penalty of perjury that "[a]ll plan payments have been completed and the debtors are entitled to a discharge."
7. Mortgage Creditor filed its response to notice of final cure on May 25, 2016, indicating that it agrees that the pre-petition arrears have been cured through the payments to the Chapter 13 Trustee, but that Debtors were not current on the post-petition maintenance payments as $4,988.20 remained due.
8. On June 17, 2016, Debtors filed a Motion to Determine Final Cure and Mortgage Payment pursuant to Fed. R. Bankr. P. 3002.1(h).
9. On July 1, 2016, Mortgage Creditor filed a response to the Motion to Determine Final Cure and Mortgage Payment, indicating its belief that the Response to Notice of Final Cure was accurate.
10. Debtors filed a withdrawal of the Motion to Determine Final Cure and Mortgage Payment, stating that it was done "Upon Debtor's Request." Debtors do not dispute that they are not current on their post-petition payments to Mortgage Creditor.
11. A hearing was scheduled on the Request for Discharge, which was continued to allow Debtors to submit a memorandum.
12. Debtors then filed a Motion for Hardship Discharge pursuant to § 1328(b) on September 13, 2016.
13. On September 30, 2016, Debtors filed a memorandum in support of the Request for Discharge under § 1328(a), which was subsequently amended.
14. Thereafter, the Court held hearings on Debtors' Motion for Hardship Discharge and Debtors' Request for Discharge. After receiving unchallenged testimony from Sandra Karen Dowey and with the consent of the Chapter 13 Trustee, the Court granted Debtors' Motion for Hardship Discharge under § 1328(b) as reflected in the Court's order filed on October 21, 2016. At the request of Debtors,
The central issue of this matter is whether Debtors are entitled to a discharge under § 1328(a) when Debtors have failed to make all of the maintenance payments required under § 1322(b)(5), which were to be paid directly to Mortgage Creditor under the terms of Debtors' confirmed Chapter 13 Plan.
As an initial matter, the Court notes that due to Debtors' hardship discharge under § 1328(b), their request for a discharge under § 1328(a) is now moot. Section 1328(b) allows the Court to "grant a discharge to a debtor that has not completed payments under the plan." Therefore, sections 1328(a) and 1328 (b) are mutually exclusive — a debtor either completes or does not complete the "payments under the plan." By receiving a hardship discharge under § 1328(b), Debtors are bound to the position that they did not make all of the payments under the plan; and therefore, they would not qualify to receive a discharge under § 1328(a). Nevertheless, because this matter is of importance to the Bar and because of the significant memoranda and arguments presented in this matter, the Court will consider Debtors' arguments regarding § 1328(a), including whether § 1322(b)(5) maintenance payments are "payments under the plan" for purposes of § 1328.
Debtors argue that they are entitled to a discharge under § 1328(a) based on the language of the statute, alleging that it is ambiguous.
Nearly identical arguments were recently made on an appeal to the District Court for the Eastern District of Virginia in
After careful consideration, the Court agrees with the reasoning of these cases that § 1322(b)(5) maintenance payments are "payments under the plan" for the purposes of discharge. In particular, the Court is convinced with the reasoning of the Fifth Circuit in
In addition, in support of the argument that maintenance payments under the plan are "payments under the plan," the Court notes that the failure to make § 1322(b)(5) maintenance payments can serve as grounds for dismissal under § 1307. Section 1307 provides that "on request of a party of interest or the United States trustee and after notice and a hearing, the court ... may dismiss a case under [chapter 13] ... for cause, including... material default by the debtor with respect to a term of a confirmed plan...." The promise to maintain post-petition payments to a mortgage creditor is a mandatory element of the treatment of claims addressed by § 1322(b)(5), and it is not severable. A failure to perform this promise is a material default of the plan.
Further, the computation of disposable income to pay unsecured creditors under § 1325(b) takes into account the promised direct payments for housing, including Debtors' § 1322(b)(5) maintenance payments. Failure to pay these housing payments may be a grounds to require a higher dividend to unsecured creditors.
For these reasons, the Court concludes that "payments under the plan" as stated in § 1328(a) include the ongoing maintenance payments under § 1322(b)(5) that the debtor makes directly to the creditor.
For the foregoing reasons, Debtors' request for a discharge under § 1328(a) is denied as Debtors have failed to make all of their payments under their confirmed
In furtherance of their argument, Debtors analogize DSOs to claims treated under § 1322(b)(5). In both instances, the debtor generally pays the post-petition payments directly to the creditor, while pre-petition amounts are cured through a debtor's payments to the trustee. Therefore, Debtors suggest that inasmuch as DSO payments are not "under the plan," § 1322(b)(5) maintenance payments are also not "under the plan."
While similar, payments under § 1322(b)(5) are not completely parallel to DSO payments because the Bankruptcy Code treats them differently. When a debtor elects to treat a claim under § 1322(b)(5), the Code requires the plan to include both the debtors' cure payments and the maintenance payments. Conversely, while the Code requires under §§ 507(a)(1) and 1322(a)(2) that debtors cure any claims filed for DSO payments that were due pre-petition through payments in their chapter 13 plan, there is no corresponding requirement under the Code that the plan must control the payment of DSOs that becomes due post-petition.
Further, Debtors assert that the holding in
