and charges can arise and why no attempt to collect those fees and
charges is generally made until after a debtor's bankruptcy case is
closed, the question becomes this: What, if anything, can a debtor do
to prevent an unmanageable demand for payment after the chapter 13
case is closed? This section examines (1) attempts to use §506(b)
to limit the amount assessed, (2) attempts to use §524(i) to
force a recalculation of amounts allegedly owed, (3) directly paying
the creditor or including post-confirmation defaults into the terms of

a confirmed plan and (4) providing language in a confirmed plan to
deal with post-confirmation assessments. Section 506(b)
Reasonableness Attempts by debtors to reduce or eliminate a
secured creditor's fees and charges assessed pursuant to an underlying

mortgage note and deed of trust usually occur within the context of 11

U.S.C. §506(b). In general, §506(b) allows an oversecured
creditor to add "reasonable" fees, charges and interest to
its secured claim.2 "Unreasonable" fees and charges

are generally bifurcated from the creditor's secured claim and remain
an unsecured claim against the estate.3 Importantly, in
the context of determining the amount of a secured creditor's claim,
three distinct time periods exist: (a) pre-petition, (b) post-petition

and pre-confirmation, and (c) post-confirmation. A mortgage creditor's
pre-petition lien already includes pre-petition interest and
attorney's fees. Post-petition and pre-confirmation is the time period

to which §506(b) and its reasonableness standard
applies.4 Post-confirmation is when—at least in
theory—all claims are set and when all that remains is execution

of the plan. Also important to remember is that §506(b) only
applies where the creditor is oversecured; no similar debtor
protection is applicable to the fees and charges assessed by an
undersecured creditor. Some authority exists for using the
reasonableness standard of §506(b) to limit the amount of fees,
costs or charges that a home mortgage creditor may add to its secured
pre-petition claim.5 The Bankruptcy Code, however, has two
prohibitions against using §506(b) to modify the rights of an
oversecured creditor in a debtor's principal residence. First,
§1322(e) of the Bankruptcy Code expressly precludes the application

of §506(b) in regards to the amount needed to cure a mortgage
arrearage claim.6 Second, chapter 13 debtors are expressly
prohibited from modifying the underlying terms of a mortgage note
secured by the debtor's principal residence.7 At least one
court has determined that the §506(b) reasonableness standard
applies notwithstanding these prohibitions.8 Apart from the
cannon of statutory interpretation dictating that the more express
anti-modification provisions of §§1322(b)(2) and 1322(e)
trump the more general provisions of §506(b),9 the
logical anomaly in this position is easy to spot. In short, §506(b)

only applies to oversecured claims. Because §506(b) does not
apply to undersecured claims, the §506(b) reasonableness standard

would not be available to eliminate or reduce the fees and charges
assessed by an undersecured creditor that would otherwise be
prohibited for the oversecured creditor. To keep the property after
the case is closed, the debtor must pay those fees and charges
regardless of whether or not the mortgage creditor is under or
oversecured. Accordingly, §506(b) does not have any application
to the post-confirmation fees, costs or charges assessed by the
mortgage creditor that is secured by the debtor's principal residence.

Section 524(i) Proper Allocation of Plan Payments Enacted
as part of the Bankruptcy Abuse Prevention and Consumer Protection Act

of 2005 (BAPCPA), §524(i) of the Bankruptcy Code grants a debtor a

cause of action against a mortgage creditor for "[t]he willful
failure...to credit payments received under a plan confirmed under
this title, unless...the plan is in default, or the creditor has not
received payments required to be made under the plan in the manner
required by the plan...."10 Two elements of this
newly created cause of action are immediately apparent. First, the
failure of a mortgage creditor to credit plan payments must be
"willful." In other contexts, the term "willful"
has an established meaning. For example, in stay violation cases under

§362(k), a "willful violation of the stay" is one that
is done "deliberately with knowledge of the bankruptcy
petition."11 A "willful injury," as the term
is used in the context of an exception-to-discharge case under
§523(a)(6), requires more than an intentional act that leads to
an injury; rather, it requires that the party must have intended the
consequences of the act.12 Exactly how the term
"willful" will be interpreted in the context of §524(i)

is yet to be determined. Second, for a cause of action to be
successful, the creditor must not only receive payments required to be

made under the plan, but must also receive them in the manner required

by the plan. The cause of action will not arise until the plan is
completed. When a debtor makes a late payment under the confirmed
plan, or makes additional payments to the trustee to
"catch-up" a missed or prior partial payment without
officially obtaining modification of the confirmed plan,
then—arguably—all payments were not made in a manner
required by the plan. Given the high rate of chapter 13 defaults, and
the fact that a substantial number of chapter 13 plans that were
previously three years in length will now be five years in length, the

cause of action provided by §524(i) may not be available to many
debtors. In any event—even if that cause of action is available

to a debtor after the completion of the plan—post-confirmation
assessments are generally not debts provided for by the plan. Section
524(i), however, may provide a debtor with some measure of relief in
certain cases. For example, if a mortgage creditor assesses a
post-confirmation late fee for a payment received under the plan, in a

manner provided for by the plan, then the debtor may have a strong
argument that the late fee ought not to have been assessed. On the
other hand, the mortgage creditor could argue that it did not violate
the payment application provision because it applied the payment as
directed; the underlying loan documents authorized the assessment of
the late fee. Direct Pay or Including Post-Confirmation Defaults
in a Confirmed Plan Although the automatic stay prohibits a
creditor from attempting to collect on debts against property of the
estate during the pendency of a chapter 13 plan, nothing would prevent

the debtor from contacting the creditor to determine if any
post-confirmation assessments exist. One court has even prospectively
approved an "innocent notice" procedure whereby a creditor may

inform a debtor of a post-confirmation assessment.13 Other
jurisdictions may have adopted local rules to deal with the
issue.14 However, while §524(j) states that the
discharge injunction is not violated by a creditor that sends notices
to a debtor after the discharge is entered regarding amounts due under

a valid security interest in lieu of pursuing in rem relief to
enforce the lien, no similar provision exists in §362(b) to excuse
creditor communications with the debtor from constituting a violation
of the automatic stay. Outside of an "innocent notice" or

a direct-pay procedure, there are three methods generally used to
bring payments on a post-petition mortgage assessment under the
swaddling of the Bankruptcy Code: pre-confirmation modification,
post-confirmation modification or adequate protection. When a
mortgage creditor assesses fees and charges and declares them to be
due after a chapter 13 petition is filed and before confirmation of the
chapter 13 plan, a debtor could add the additional sum to the
creditor's secured claim to be paid under the plan. A debtor is
expressly entitled to modify the proposed plan at any time before
confirmation.15 Moreover, §1322(b)(5) allows a plan to

cure any default, which has been interpreted to include post-petition
defaults.16 Additionally, Congress specifically allows
oversecured creditors to include as part of their pre-petition claim
any assessment that accrues post-petition and pre-confirmation. Of
course, §1322(e) curtails the use of §506(b) to eliminate or

reduce the amount necessary to cure the default assessed pursuant to
the underlying loan documentation, but nothing in that section otherwise

eliminates the use of §506(b). Practically, a home mortgage
creditor's proof of claim will often already include any post-petition

assessments simply because that claim is not required to be filed
until 90 days after the meeting of creditors, and creditors usually
include the total amount payable as of the date the claim was filed,
even if the post-petition assessment has not been previously been
declared to be due.17 If the assessment occurs after
confirmation, however, the propriety of a debtor including that
post-confirmation assessment in the confirmed plan pursuant to a
modification18 is more tenuous because §§1323 and
506(b) are not applicable in the post-confirmation context and because

confirmation is a significant event in a case inasmuch as the rights
of the parties are generally fixed and—in theory—all that
remains is the execution of the confirmed plan. A post-confirmation
default is a new debt. Some courts have forbidden the cure of
post-petition defaults through a confirmed plan,19 while
others have allowed it.20 A debtor's post-confirmation
alteration of a confirmed plan is limited to the grounds set forth in
§1329. Subsection 1329(a)(1) allows a plan modification to
increase or reduce the amount of payments on claims of a particular
class provided for by the plan. The debt secured by a home mortgage is

a claim provided for in the plan, but the particular post-confirmation

assessment is not. Indeed, the post-confirmation assessment may not
even be due. Absent some other authority for adding post-petition
claims to a plan—such as §§506(b) or 1305—the
term "claim" generally refers to the pre-petition claim
submitted by the creditor. Authority for adding post-confirmation
assessments to a confirmed plan through a modification is generally
found in §1322(b), which is specifically applicable to
modifications.21 Read together, §§1322(b) and 1329
provide that a plan modification may cure any
"default."22 The term "default"may be
specially defined by the loan documents, but in general terms a
"default" means "the failure to pay a debt when
due."23 Careful attention should be paid to the loan
documents to determine if an assessment is due at the time the
assessment is made even though it is not communicated to the debtor, in

which case a strong argument may be made that a default exists that is
subject to being cured through a modification, or whether the lender
has the option to declare an assessment to be due, in which case there

might not be any default subject to being cured through a
modification.24 Also, post-petition claims are
specifically dealt with in chapter 13 cases under §1305. Under
that section, an entity holding a post-petition claim may file a proof

of claim if the debt is a consumer debt that arises post-petition and
that is for property or services necessary for the debtor's performance

under the plan.25 However, it is the election of the
creditor—not the debtor—to file a post-petition claim and
to participate in the chapter 13 plan.26

<blockquote><blockquote>
<hr>
<big><center>
[C]hapter 13 debtors have little or no legal basis under the Bankruptcy
Code for protesting the post-closing collection of fees and charges
assessed by a mortgage creditor secured by a lien or the debtor's
principal residence during a debtor's chapter 13 plan.
</center></big>
<hr>
</blockquote></blockquote>

Moreover, an issue exists over whether
a bankruptcy court would even have jurisdiction over post-confirmation

mortgage assessments when the mortgage creditor does not undertake any

act to collect amounts due until after the case is closed. Most
bankruptcy plans do not provide treatment for claims that have not yet

come into existence; thus, a close nexus to a confirmed plan may be
lacking. Likewise, it is difficult to see how a post-confirmation
assessment—that by necessity is not a debt treated in the
confirmed plan—could affect the interpretation, implementation,
consummation, execution or administration of that plan when that
assessment is not declared to be due until after the case is
closed.27 On the other hand, when a mortgage creditor
declares a post-confirmation assessment to be in default and seeks
relief from the automatic stay to foreclose on that default, or when
the loan documents provide that an assessment is due and payable once
entered on the creditor's books, a close nexus to the confirmed plan
is present, §1322(b) may be applicable, other rights arising in or

under the Bankruptcy Code are invoked, and consequently, bankruptcy
court jurisdiction over the post-confirmation default exists.
Absent exceptional circumstances, a home mortgage creditor is likely
to agree to have any post-petition assessments paid through a debtor's

chapter 13 plan. The assessment is not subject to modification under
the Bankruptcy Code; it continues to be secured by the debtor's
principal residence regardless of when it arises, and if the debtor
wishes to obtain a discharge of debts other than the long-term
mortgage debt, all payments under the plan will be made. Likewise, if
a post-confirmation assessment is added to a confirmed plan under
§1322(b)(5), then that debt is not subject to
discharge.28 Even if a court does not allow
post-confirmation assessments to be cured through a plan modification
under §1329, it may nonetheless be possible to pay the assessment

under the guise of adequate protection should the creditor bring a
motion for relief from the automatic stay. For this to happen, however,
the creditor must first declare the amount to be due—which may
consequently trigger any right to cure under §1322(b).
Practically, however, once a home mortgage creditor files the motion
for relief, the debtor will have the opportunity to pay the amount due

considering that—absent exceptional circumstances—a
debtor's home is not likely to proceed to foreclosure based on a
post-confirmation fee, charge or default when the debtor proposes a
cure. Treatment of Nonexistent Post-Confirmation Claims in a
Confirmed Plan The U.S. Bankruptcy Court for the Northern
District of Illinois has included in its standard confirmation order a

procedure to bring any home mortgage post-confirmation assessment
before the bankruptcy court for adjudication.29 If a plan
proposes to cure a pre-petition home mortgage default, then (1) within

30 days of the final payment of the cure amount, the chapter 13
trustee is to provide notice to the mortgage creditor that the cure
has been paid and that the mortgage is "fully current unless the
debtor has failed to make timely payments of post-petition
obligations;" (2) if unpaid post-petition fees and charges exist,

then the mortgage creditor is to provide an itemized statement of those

amounts with the court; (3) if the itemized statement is not filed,
then the post-petition fees and charges are waived; and (4) if an
itemized statement is filed, then the debtor may challenge the fees
and charges in a contested matter and propose a modification of the
plan to cure legitimate amounts due.30 When these plan
provisions were challenged as violating the anti-modification
provision of §1322(b)(2), the bankruptcy court held that merely
providing a procedural framework within which to ascertain what a
debtor owes, and within which to enforce those rights, did not violate

§1322(b)(2).31 The parties did not appear to argue
that the confirmation order violated §1322(b)(2) on the basis
that it altered the applicable state statute of limitations, which by
necessity was part of the mortgage contract.32 While it is
true that a confirmed plan binds the debtor and each
creditor,33 it is also true that a confirmed or modified
plan must comply with the provisions of title 11, which includes the
anti-modification provisions of §1322(b)(2).34 Other
than forcing a mortgage creditor to declare a post-confirmation
assessment to be due, there is no practical difference between this
plan provision and proposing a post-confirmation modification to add a

post-petition default to be paid under the plan. Practically, the
confirmation order is a boon to debtors because it affords the debtor
the framework to pay legitimate post-confirmation assessments under
the protection of their pending case, it forces the creditor to act in

a timely manner on penalty of waiver, and it obviates the need for a
debtor to incur additional expenses in filing a new chapter 13 case to
deal with the debt, if appropriate.35 Conclusions

In sum, chapter 13 debtors have little or no legal basis under
the Bankruptcy Code for protesting the post-closing collection of fees

and charges assessed by a mortgage creditor secured by a lien or the
debtor's principal residence during a debtor's chapter 13 plan. To
attack the validity of a post-confirmation assessment by a mortgage
creditor, the debtor is largely left to local bankruptcy court rules
or an interpretation of the underlying contract and state
law—rights that exist in the absence of any bankruptcy filing.
<blockquote> </blockquote><hr><h3>Footnotes</h3> 1 The views
expressed in this article are solely those of the author. 2 11
U.S.C. §506(b); Rake v. Wade, 508 U.S. 464, 475 (1993)
(holding that an oversecured creditor is "entitled to
pre-confirmation and post-confirmation interest on arrearages paid off

under petitioners' plans"), superceded by 11 U.S.C. §1322(e)

(eliminating post-confirmation interest on a home mortgage arrearage -

which itself might include pre-confirmation interest—so long as
it was not permitted by the underlying loan documents or state law).
3 See, e.g., Welzel v. Advocate Realty Investments, LLC
(In re Welzel), 275 F.3d 1308, 1318 (11th Cir. 2001)
(explaining that §506(b) does not deny a creditor's claim; it
only affords a certain portion of an allowed claim secured status
under §502; "if a portion of the fees are deemed unreasonable,

however, the fees should be bifurcated between the reasonable portion,

treated as a secured claim, and the unreasonable portion, treated as
an unsecured claim"). 4 Section 506(a) expressly sets the
amount of the creditor's allowed secured claim as the extent to which
its interest is secured in estate property. 11 U.S.C. §506(a). In

most cases, a secured creditor's claim is determined as of the date
the debtor files bankruptcy. §502(b) (stating that if an
objection to a claim is made, the court "shall determine the amount

of such claim...as of the date of the filing of the
petition..."). Section 506(b) then allows the claim—if it
is oversecured—to accrue post-petition interest and reasonable,
post-petition fees, costs or other charges. 11 U.S.C. §506(b).
Section 506(b) is widely held not to apply in the post-confirmation
context. See, e.g., Rake v. Wade, 508 U.S. 464, 471 (1993)
("[A]s the parties acknowledge, [§506(b)] interest accrues
as part of the allowed claim from the petition date until the
confirmation or effective date of the plan"), superceded on other

grounds by 11 U.S.C. §1322(e);4 Collier on Bankruptcy

|506.04[2] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.
2004) ("§506(b) has no application to a secured creditor's
entitlement to postconfirmation interest [fees and charges]"). But
see Welzel v. Advocate Realty Invs., LLC (In re Welzel),

275 F.3d 1308, 1314-15 (11th Cir. 2001) (applying §506(b) to both

pre-petition and post-petition attorney fees). 5 In re
Gray, 182 B.R. 15, 16-17 (Bankr. W.D. Va. 1995) (holding that a
court may deny fees due to a creditor secured by the debtor's principal
residence under §506(b) because there was no equity in the
collateral; the Bankruptcy Code is to be liberally construed in favor
of the debtor; modification of the creditor's rights was not done
pursuant to the plan, but was done pursuant to another bankruptcy
statute, and applying §506(b) post-confirmation did not
contravene the policy behind §1322(b)(2), which was to protect the

home mortgage market). Although decided in 1995, Gray does not
discuss §1322(e), which was only added to the Bankruptcy Code in
1994 and which may not have been applicable to the case. 6
§1322(e) ("notwithstanding...§506(b)...if it is proposed
in a plan to cure a default, the amount necessary to cure the default
shall be determined in accordance with the underlying agreement and
applicable nonbankruptcy law"); Smiriglio v. Hudson United
Bank, 98 Fed. Appx. 914, 915 (3d Cir. 2004) (unpub.) ("while
the relationship of §506(b) and §1322(e) has not been
extensively considered by the courts, every bankruptcy court to
consider the matter appears to have agreed or assumed that 'when a
debtor seeks to cure a pre-petition payment default over the life of a

chapter 13 plan...the amount of the arrearage must be 'determined in
accordance with the underlying agreement and applicable nonbankruptcy
law,' as provided under §1322(e)"), quoting In re
Plant, 288 B.R. 635, 641 (Bankr. D. Mass. 2003). 7 11 U.S.C.
§1322(b)(2). 8 In re Gray, 182 B.R. at 16-17.

9 Missouri v. Ross, 299 U.S. 72, 76 (1936). See, e.g.,
In re Hayes, 111 B.R. 924, 928 (holding that §1322(b)(2)
allows the accrual of interest on undersecured claims between the
petition and confirmation dates—notwithstanding
§506(b)—because §1322(b)(2) is the more specific
provision). 10 11 U.S.C. §524(i). 11 Knaus v.
Concordia Lumber Co. (In re Knaus), 889 F.2d 773, 775 (8th
Cir. 1989). 12 Kawaauhau v. Geiger, 523 U.S. 57, 60, 61-62

(1998). 13 In re Martinez, 281 B.R. 883, 887-89 (Bankr.
W.D. Tex. 2002). The Martinez court opined that in many
instances, damages for violations of the automatic stay are
nonexistent; the court approved an example of an "innocent
notice" when a creditor did not receive a post-confirmation monthly

payment: Dear: According to our records, your monthly mortgage payment

is $ . Also, according to our records, we have not received your
mortgage payment for the month of _____, which was supposed to have
been received by _____. If our records are in error, either you or
your attorney should contact us at [furnish telephone number] so that
we can correct our records. If our records are correct, however,
either you or your attorney should promptly contact us to see about
bringing your mortgage current. Id. at 888. 14 See,
e.g., Local Bankruptcy Rule 4001-1(b), U.S. Bankruptcy Court for
the Middle District of North Carolina ("in chapter 13 cases,
affected allowed secured creditors may inquire of the debtor in
writing of the following: 1. the status of insurance coverage... 2.
whether insurance premiums are paid directly by the debtor; 3. the
location, inspection and appraisal of the collateral; and 4. the
status of direct payments..."). 15 11 U.S.C. §1323.

16 §§1322(b)(3), (5) (stating that a plan may provide
for the curing of any default); Greentree Acceptance, Inc. v.
Hoggle (In re Hoggle), 12 F.3d 1008, 1010 (11th Cir. 1994)
("§1322(b)(5) permits cure of any default whether occurring
prior to the filing of the petition or subsequent to confirmation of
the plan"). 17 Fed. R. Bankr. P. 3002(c). 18 11
U.S.C. §1329 (allowing plan payments to a class of creditors to
be increased). 19 In re Nicholson, 70 B.R. 398, 401
(Bankr. D. Colo. 1987) (asserting that §1322(b)(2) and (5) do not

allow a chapter 13 plan to modify the rights of a creditor holding a
claim secured only by a mortgage on the debtor's principal residence
except to cure pre-petition defaults within a reasonable time).
20 Mendoza v. Temple-Inland Mortg. Corp. (In re
Mendoza), 111 F.3d 1264, 1268 (5th Cir. 1997) (ruling that the
bankruptcy court committed reversible error by failing to allow
modification of a plan to cure a post-petition arrearage reasoning
that §1325(b)(5) expressly authorized a plan to provide for the
curing of any default, notwithstanding the anti-modification provisions

of §1322(b)(2)). 21 11 U.S.C. §1329(b)(1). 22
§1322(b)(5). 23 Black's Law Dictionary 449 (8th ed.
2004). 24 See Harris v. First Union Mortg. Corp. (In re
Harris), No. 96-14029, 2002 Bankr. LEXIS 771 at *16-18 (Bankr. S.D.
Ala. 2002) (rejecting a creditor's argument that the assessment of
attorney's fees did not constitute a "default" on the basis
that the creditor's fees should have been disclosed under §506(b)).

25 11 U.S.C. §1305. 26 See, e.g., In re Sims,
288 B.R. 264, 267 (Bankr. M.D. Ala. 2003) (reaching the result because

(1) §1329 governs modifications proposed by the debtor; (2)
§1305 claims are provided for in a plan under §1322(a)(6),
claims not allowed under §1305 cannot be provided for in a plan;
(3) if claim is not filed by a creditor under §1305, there can be

no allowed claim; and (4) §1305 uses permissive language and does

not give the debtor the option to force a post-petition creditor into
a pre-existing chapter 13 plan ); In re Haith, 193 B.R. 341,
342 (Bankr. N.D. Ala. 1995) ("if a debtor or the trustee could
file proofs of claims for post-petition debts that would be paid
through existing chapter 13 plans, the cases and the plans they
represent would be perpetual. Neither the Bankruptcy Code nor the
Bankruptcy Rules allow a debtor to force a post-petition creditor into

an existing chapter 13 plan. If a post-petition creditor desires to
participate in the existing plan and meets other criteria, a
post-petition claim may be filed with and, depending on the facts,
allowed or disallowed by the court"). 27 See supra,
note 13 and accompanying text. 28 11 U.S.C. §1328(a)(1),
(c)(1); Telfair v. First Union Mortg. Corp., 216 F.3d 1333,
1337 n.8 (11th Cir. 2000) ("§524 clarifies that a discharge
voids any conflicting judgments on discharged debt and bars any future
claim for discharged debt. The bankruptcy and district courts found
these provisions inapplicable to the post-confirmation attorney's fees

sought by First Union because (1) they were not provided for under the

plan, (2) they were not disallowed under §502 and (3) they would
be excludable in any event under §1322(b)(5)"). 29
In re Wilson, 321 B.R. 222 (Bankr. N.D. Ill. 2005). 30
Id. at 224. 31 Id. at 225. 32 Home Bldg.

& Loan Asso. v. Blaisdell, 290 U.S. 398, 429-30 (1934)
("'the laws which subsist at the time and place of the making of a
contract, and where it is to be performed, enter into and form a part
of it, as if they were expressly referred to or incorporated in its
terms. This principle embraces alike those which affect its validity,
construction, discharge and enforcement'") (citation omitted).
33 11 U.S.C. §1327(a). 34 §§1322(b)(2);
1325(a)(1); 1329(b)(1). 35 See, e.g., In re Rodriguez, 225

B.R. 628, 634 (Bankr. S.D. Tex. 1998) ("if modification were not
allowed, a debtor might dismiss the case and file a second case to
include the unsecured creditor in the second plan discharging the
debt. There would be no reason to require dismissal and a new bankruptcy

filing to achieve the same result as might be achieved merely by plan
modification"); contra, In re Moore, 247 B.R. 677, 684
(Bankr. W.D. Mich. 2000) ("while such a procedure [dismissal and
refiling] appears burdensome when compared to the alternative
[modification] which debtors advocate, the court will not succumb to
the siren song of expediency as the rationale for ignoring the clear
language of §1329").

Journal Authors

Ryan Winquist Johnson

Journal Date

Saturday, July 1, 2006 - 12:00

Bankruptcy Rule

2006

1322

none