If a chapter 13 plan cures arrears on a secured claim, is the lender entitled to interest on the arrears to be paid over time?
Bankruptcy Judge Robert J. Faris of Hawaii ruled that the lender is entitled to interest at the contract rate on the principal arrears, because that’s what the note said.
The chapter 13 debtor filed a plan adopting Section 1322(b)(5), which says that a plan
may . . . (5) . . . provide for the curing of any default 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.
The home mortgage lender filed a claim stating that about $2,700 was in arrears. In his January 26 opinion, Judge Faris said that the arrears included about $1,200 in fees and interest of some $1,000. The delinquent principal was about $500.
The chapter 13 trustee objected to the confirmation because the plan did not specify how much interest, if any, would be paid on the arrears.
If a plan proposes to cure a default, Section 1322(e) says that “the amount necessary to cure the default[] shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.” To divine the answer, Judge Faris studied the loan documents and nonbankruptcy law.
The loan agreement allowed the lender to charge fees after default but did not entitle the lender to claim interest on the fees. Similarly, the note did not call for interest on unpaid interest. Hawaii law was to the same effect, barring compound interest.
However, the note did call for interest on unpaid principal. The contract rate was 3.875%.
Judge Faris ruled that the lender was entitled to 3.875% interest on the $500 in principal arrears but not on any other part of the arrears.
If a chapter 13 plan cures arrears on a secured claim, is the lender entitled to interest on the arrears to be paid over time?
Bankruptcy Judge Robert J. Faris of Hawaii ruled that the lender is entitled to interest at the contract rate on the principal arrears, because that’s what the note said.
The chapter 13 debtor filed a plan adopting Section 1322(b)(5), which says that a plan
may . . . (5) . . . provide for the curing of any default 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.
The home mortgage lender filed a claim stating that about $2,700 was in arrears. In his January 26 opinion, Judge Faris said that the arrears included about $1,200 in fees and interest of some $1,000. The delinquent principal was about $500.