On a question where the courts are split, Bankruptcy Judge Jerrold N. Poslusny, Jr. of Camden, N.J., allowed a debtor to pay post-petition mortgage arrears through an amended chapter 13 plan.
Siding with the two circuits that ruled in favor of the debtors, Judge Poslusny decided that the amendment was in accord with the plain language of the statute, along with the legislative history and “the underlying principles of Chapter 13.”
Three Post-Petition Mortgage Defaults
The debtor confirmed a 36-month plan in 2018 that would cure mortgage arrears while the debtor made post-petition mortgage payments directly to the servicer. Twice after confirmation, the debtor defaulted on post-petition mortgage payments. After the lender moved for stay relief, Judge Poslusny entered a consent order both times requiring the debtor to cure the defaults.
Following the third default, the servicer again sought stay relief. The debtor opposed, saying that her husband lost his job as a result of the pandemic. In addition, the debtor sought to modify her plan to cure the post-petition defaults and to extend the duration of the plan to 73 months.
The servicer opposed plan modification, contending that a modified plan may not cure post-petition defaults on a home mortgage. Judge Poslusny disagreed in his June 24 opinion.
The Split
Judge Poslusny said that the courts are split. However, the Fifth and Eleventh Circuit both permit modified plans to cure post-petition home mortgage defaults.
The outcome turned largely on the language of Section 1322(b)(2) and (5). Subsection (2) bars a chapter 13 plan from modifying a mortgage on the debtor’s principal residence. However, subsection (5) allows a plan to cure “any default within a reasonable time.”
The two circuits found the answer in the plain language of subsection (5) that allows a plan to cure “any default,” notwithstanding the anti-modification language in subsection (2). According to Judge Poslusny, the two circuits emphasized the lack of language in subsection (5) limiting cures to prepetition defaults.
Judge Poslusny paraphrased the Eleventh Circuit by saying that an amendment would be “‘consistent’ with legislative intent, legislative history, and underlying principles of Chapter 13 to provide for flexible payments plans” while giving homeowners “‘continuing rights to cure default and preserve their primary assets.’” Green Tree Acceptance Inc. v. Hoggle (In re Hoggle), 12 F.3d 1008, 1010 (11th Cir. 1994).
Judge Poslusny found the circuits more persuasive than other courts “adopting a restrictive reading of the Code.” He noted how subsection (5) has no restrictive language and “makes no distinction between a pre-petition default and a post-petition default.”
A Plan Longer than 60 Months
Having decided that the debtor may cure a post-petition default, Judge Poslusny turned to the question of whether the debtor could extend the plan for a total of 73 months.
The debtor rested her proposition of a plan longer than 60 months on the Coronavirus Aid, Relief and Economic Security Act of 2020. It allows extending a chapter 13 plan up to 83 months if the debtor has incurred “material financial hardship” as a result of the pandemic.
No one contested the debtor’s claims that her husband lost his job as a result of the pandemic. Judge Poslusny therefore approved the amended plan, with a proviso that the debtor must remain current on mortgage payments.
On a question where the courts are split, Bankruptcy Judge Jerrold N. Poslusny, Jr. of Camden, N.J., allowed a debtor to pay post-petition mortgage arrears through an amended chapter 13 plan.
Siding with the two circuits that ruled in favor of the debtors, Judge Poslusny decided that the amendment was in accord with the plain language of the statute, along with the legislative history and “the underlying principles of Chapter 13.”
Three Post-Petition Mortgage Defaults
The debtor confirmed a 36-month plan in 2018 that would cure mortgage arrears while the debtor made post-petition mortgage payments directly to the servicer. Twice after confirmation, the debtor defaulted on post-petition mortgage payments. After the lender moved for stay relief, Judge Poslusny entered a consent order both times requiring the debtor to cure the defaults.
Following the third default, the servicer again sought stay relief. The debtor opposed, saying that her husband lost his job as a result of the pandemic. In addition, the debtor sought to modify her plan to cure the post-petition defaults and to extend the duration of the plan to 73 months.
The servicer opposed plan modification, contending that a modified plan may not cure post-petition defaults on a home mortgage. Judge Poslusny disagreed in his June 24 opinion.