United States District Court, E.D. Virginia, Newport News Division
OPINION AND ORDER AFFIRMING DECISION OF THE
G. DOUMAR UNITED STATES DISTRICT JUDGE.
matter comes before the Court on Marlene Dcnise Evans'
("Appellant" or "Debtor') appeal from the
United States Bankruptcy Court for the Eastern District of
Virginia's March 7. 2016 Order Granting Trustee's
Amended Motion to Approve Motion to Convert or Dismiss.
Bankruptcy Case No. 10-51101-SCS (hereinafter
"Bankruptcy Proceedings"), ECF No. 86. For the
reasons set forth below, this Court AFFIRMS the decision of
the Bankruptcy Court.
filed her Voluntary Petition ("Petition") for
adjustment of her debts under Chapter 13 of the Bankruptcy
Code on June 11, 2010, and her Chapter 13 Plan on June 16,
2010, Bankruptcy Proceedings, ECF Nos. 1, 6. On November 29,
2010. the Bankruptcy Court confirmed her plan. Bankruptcy
Proceedings, ECF No. 12.
March 1, 2011. Appellant filed an Amended/Modified Chapter 13
Plan. Bankruptcy Proceedings. ECF No. 23, that was rejected
by the Bankruptcy Court on April 21, 2011, Bankruptcy
Proceedings, ECF No. 26. Appellant filed a Second Amended
Plan on March 10, 2011, Bankruptcy Proceedings, ECF No. 31.
which the Bankruptcy Court approved on May 17, 2011,
Bankruptcy Proceedings, ECF No. 40. On August 5. 2014. the
Bankruptcy Court further approved a loan modification
agreement that altered the original contract between
Appellant and her lender, CitiFinancial, Inc.
("Lender"). Bankruptcy Proceedings, ECF No. 55. On
September 24, 2014, Appellant filed a Third Amended Plan to
accommodate the terms of the loan modification, Bankruptcy
Proceedings, ECF Nos. 58, 59; on November 14, 2014, the
Bankruptcy Court approved the Third Amended Plan, Bankruptcy
Proceedings, ECF No. 60.
August 26, 2015, R. Clinton Stackhouse, Jr.
("Appellee" or "Trustee") filed a Notice
of Final Cure Payment pursuant to Fed. R. Bank. P.
3002.1(f). Bankruptcy Proceedings, ECF No. 63. On
September 16, 2015, the Lender filed a Response to Notice of
Final Cure Payment stating that the Lender agreed that the
Trustee had paid the arrearage claim in full and that
Appellant was past due on her direct payments. See
infra pp. 4-5. See also ECF No. 2-1, at 7. On
October 15, 2015, the Trustee filed a Motion to Close Case
without Entry of Discharge. Bankruptcy Proceedings, ECF No.
64. On December 11, 2015, the Bankruptcy Court held a hearing
on the Motion and issued an Opinion finding that the
Appellant was not entitled to a discharge because she had not
completed all payments under the Chapter 13 plan but ordering
the Trustee to file an Amended Motion moving for conversion
or dismissal, rather than closure without discharge. In
re Evans. 543 B.R. 213, 235 (Bankr. E.D. Va. 2016). The
Trustee then filed an Amended Motion to Convert or Dismiss,
Bankruptcy Proceedings, ECF No. 79, which the Bankruptcy
Court granted on March 7, 2016, Bankruptcy Proceedings, ECF
No. 86. This appeal followed. ECF No. 1.
STANDARD OF REVIEW
Court has jurisdiction over this appeal pursuant to 28 U.S.C.
§ 158(a). The Bankruptcy Court's application of the
law is reviewed de novo. However, the Bankruptcy
Court's findings of fact will not be set aside unless
they are clearly erroneous. In re Biondo. 180 F.3d
126, 134 (4th Cir. 1999). "A finding is 'clearly
erroneous' when[, ] although there is evidence to support
it, the reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has been
committed." Anderson v. City of Bessemer City.
470 U.S. 564, 573 (1985) (internal citations quotations
omitted). "This standard plainly does not entitle a
reviewing court to reverse the finding of the trier of fact
simply because it is convinced that it would have tried the
case differently." Id.
parties stipulate to the facts in this case. ECF Nos. 6, at
3; 7, at 4. See also In re Evans. 543 B.R. at 215.
Accordingly, this Court finds no reason to overturn the
Bankruptcy Court's findings of fact.
facts are as follows. After Appellant filed for bankruptcy
protection under Chapter 13 of the Bankruptcy Code, Appellee
was appointed Appellant's Chapter 13 trustee on June 12,
2010. As of the filing date and all relevant dates
thereafter, Appellant owned her primary residence at 38
Corwin Circle, Hampton, Virginia. Appellant and Lender had
entered into a pre-Petition contractual relationship in which
Appellant funded the purchase of the residence pursuant to
the Deed of Trust and Note ("Note") executed by the
Appellant. The Note required, among other provisions, that
beginning in January 2007 Appellant would remit 360 monthly
payments of $1, 316.56 to the Lender. ECF No. 7, at 6. The
Note was secured by a lien on the residence; the property
remains subject to the lien and the Appellant remains liable
to the Lender under the Note. In re Evans. 543 B.R.
discussed above, Appellant subsequently filed a series of
Amended/Modified Plans. See supra pp. 1-2. Of
importance to the appeal on hand, on September 26, 2014,
Appellant filed a Third Amended Plan, Bankruptcy Proceedings,
ECF Nos. 58, 59; on November 14, 2014, the Bankruptcy Court
approved the Third Amended Plan, Bankruptcy Proceedings, ECF
Third Amended Plan was filed in part to accommodate
Appellant's loan modification. On May 2, 2014, Appellant
had filed a Motion to Approve Loan Modification After
Confirmation. Bankruptcy Proceedings, ECF No. 49. After
Appellee consented to the loan modification agreement, the
Bankruptcy Court entered an order on August 5, 2014 granting
the Motion. Bankruptcy Proceedings, ECF No. 55. The modified
loan reduced Appellant's monthly mortgage payments on her
Hampton residence from $1, 000 to $665.16; reduced her
interest rate from 8.832% to 5.00%; and provided for a loan
term of 420 months. The modified loan also brought her
account into a current status by re-amortizing her arrears,
resulting in a new principal balance of $163.996.34. In
re Evans. 543 B.R. at 218-19.
Third Amended Plan also provided that Appellant would remit
to the Appellee: (1) nine monthly payments of $320.00,
followed by (2) 42 monthly payments of $496.00, followed by
(3) nine monthly payments of $107.00 ("trustee
payments"). The Appellee was to remit the trustee
payments, after deducting his commission, to creditors who
filed claims for any amounts owed pre-Petition (including
amounts owed to the Lender for pre-Petition arrearages). The
plan further provided that the Appellant would continue to
remit post-Petition monthly payments, as they became due,
directly to the Lender pursuant to the terms of the Note
("direct payments"), without modification, except
as to any arrears owed to it. Id. at 216-18. See
infra p. 10.
August 26, 2015, the Appellee issued a Notice of Final Cure
Payment, pursuant to Fed. R. Bank. P. 3002.1(f), see
supra n. 1, that was sent to the Lender. Bankruptcy
Proceedings, ECF No. 64. Appellee paid the arrearage
claim-$400.00-owed as of the Petition date to the Lender. On
September 16, 2015, the Lender filed a Statement in Response
to Notice of Final Cure Payment, confirming its agreement
that its claim in the case had been paid in full; however,
the Statement further noted that Appellant was past due on
direct payments, with a balance of $6, 344.08 as of September
16, 2015. In re Evans. 543 B.R. at 218-19. At
hearings before the Bankruptcy Court, Appellant confirmed she
remained in arrears on her direct payments on her mortgage
and advised she had fallen behind because she had suffered
reductions in her income and was supporting displaced
relatives who were now residing with her. She further
confirmed she owed post-Petition fees to her homeowners'
association totaling between $14, 000 and $15, 000. In re
Evans. 543 B.R. at 219. See also Bankruptcy
Proceedings, ECF No. 69.
receipt of Appellant's confirmation of the Lender's
Statement, Appellee filed the Motion to Close Case without
Entry of Discharge, requesting that the Bankruptcy Court
close the case without issuance of a discharge because
Appellant had not completed all payments under the Chapter 13
plan and therefore was not entitled, pursuant to the terms of
11 U.S.C. § 1328, to a discharge. Bankruptcy
Proceedings, ECF Nos. 64, 65. Appellant then filed an
opposition to the requested relief, instead arguing that she
should receive a discharge because she had made all of her
trustee payments and therefore all the payments necessary for
a discharge. In re Evans. 543 B.R. at 219. See
also Bankruptcy Proceedings, ECF No. 68.The Bankruptcy
Court then (1) denied the entry of a discharge after
concluding that Appellant had failed to make all of the
necessary payments under the Chapter 13 Plan that would
qualify her for a discharge and (2) also held that the case
could not be closed as requested by the Appellee. The
Bankruptcy Court instead ordered Appellee to file an amended
motion requesting conversion or dismissal of the case.
Appellee then filed the Amended Motion requesting dismissal
of the case without discharge, which the Bankruptcy Court
granted. Bankruptcy Proceedings, ECF No. 76. This appeal
followed. ECF No. 7, at 7-8.
before this Court on appeal are two questions of law: first,
did the Bankruptcy Court correctly find that Appellant was
not entitled to a discharge pursuant to 11 U.S.C. §
1328(a) based on her failure to complete the direct payments
to the Lender? Second, was dismissal of Appellant's
Chapter 13 case pursuant to 11 U.S.C. § 1307 the
appropriate remedy? This Court will now consider each of
these issues in turn.
Denial of the Discmarge
the terms of a Chapter 13 plan, a debtor sets forth a
proposed plan for repaying obligations owed as of the date of
the filing of the bankruptcy case, including a repayment
proposal as to any past due amounts owed to a secured lender
and any payments that may become due to that lender during
the course of the plan term. Once the plan has been
confirmed, "the provisions of a confirmed plan bind the
debtor and each creditor." 11 U.S.C. § 1327.
the completion of all payments under a confirmed plan,
11' U.S.C. § 1328(a) provides: "[A]s soon as
practicable after completion by the debtor of all payments
under the plan, ... the court shall grant the debtor a
discharge of all debts provided for by the plan or disallowed
under section 502 of this title . . . ." Thus, once a
debtor completes all payments under the plan.
Section 1328 of the Bankruptcy Code provides for-with a
number of exceptions-a Chapter 13 discharge of the debts
provided for by the plan.
exception to discharge is any debt provided for under 11
U.S.C. § 1322(b)(5). 11 U.S.C. § 1328(a)(1). Under
Section 1322(b)(5), certain long-term debts "on which
the last payment is due after the date on which the final
payment under the plan is due" cannot be discharged (for
example, mortgages). The bankruptcy plan may nonetheless
"provide for the curing of any default within a
reasonable time and maintenance of payments while the case is
pending" on any such long-term debts. 11 U.S.C. §
1322(b)(5) (emphasis added). Thus, "[Section] 1322(b)(5)
requires that Debtors cure and maintain payments for long
term debt. That is, Debtors may cure a pre-petition mortgage
delinquency through the plan, but they must do so by staying
current on their mortgage." In re Heinzle. 511
B.R. 69, 80 (Bankr.W.D.Tex. 2014). See also In re
Kessler. 655 Fed.App'x 242 (5th Cir. 2016).
at issue is whether the term "all payments under the
plan" as found in 11 U.S.C. § 1328(a) encompasses
solely the trustee payments (which would qualify Appellant
for receipt of a discharge) or also includes direct payments
(which would preclude Appellant from receiving a discharge),
particularly given that Section 1322(b)(5) makes certain
long-term debts-here, the direct payments for Appellant's
mortgage to the Lender-non-dischargeable.
the Fourth Circuit has not directly addressed this question,
this District has previously noted that:
[S]imply because payments are not being made through the
trustee does not mean they are not being made 'under'
the plan. If the plan defines payment terms . . . then the
payments are being made 'under' the plan regardless
of whether the debtor pays the creditor directly or pays
through the trustee.
In re Russell. 458 B.R. 731, 739 (Bankr. E.D. Va.
2010) (citations omitted). The Bankruptcy Court for the
Western District of Virginia has also noted that direct
payments "are nonetheless payments 'under the
Plan' in the sense that they are dealt with by the Plan .
. . ." In re Hankins. 62 B.R. 831, 835 (Bankr.
W.D. Va. 1986).
number of other district courts have also concluded that
direct payments to a creditor are deemed payments under the
plan if they are made pursuant to the provisions or terms of
a plan, or are "dealt with" by a plan. In re
Hovt-Kieckhaben. 546 B.R. 868, 871 (Bankr. D. Colo.
2016). See also In re Kessler. 2015 WL 4726794, at
*2 (Bankr. N.D. Tex. June 9, 2015); In re Perez. 339
B.R. 385, 390 n. 4 (Bankr. S. D. Tex. 2006). This, in turn,
begs the question: what does it mean for a Chapter 13 plan to
"define" or "deal with" direct payments?
circuit courts, only the Fifth Circuit has more precisely
addressed this issue, holding that post-petition mortgage
payments, whether direct or trustee payments, are paid
"under the plan" when the plan also
provides for the curing of pre-petition arrears on the debt.
In re Foster. 670 F.2d 478, 486, 488-89 (5th Cir.
1982). The Fifth Circuit explained that "a plan cannot
provide that the current portion of a mortgage claim will be
made 'outside the plan' . . . when the arrearages on
the mortgage claim are being cured under [Section]
1322(b)(5)." Id. at 488-89. The Fifth Circuit
Section 1322(b)(5) provides for the curing of any default,
then, only when the plan also provides for the maintenance of
the current mortgage payments while the case is pending.
Conversely, where a fully secured mortgage claim is not
treated under the provisions of Section 1322(b)(5), or any
other provision of Chapter 13, payments on that claim need
not be made under the plan.
Id. Thus, although a Chapter 13 plan does not
necessarily need to provide for curing of default on
long-term debts under Section 1322(b)(5), if a plan
does, the plan must also provide for maintenance of
post-petition payments. As the payments that will go toward
the curing of pre- petition arrears and the payments that
will go toward post-petition maintenance concern the
same claim, both types of payments-regardless
of who the recipients of the payments are-will fall
"under the plan." As the Fifth Circuit emphasized:
"[W]e find no warrant in the Bankruptcy Code for
labelling part of the treatment of a claim 'outside the
plan' and part of it 'under the plan' where the
entire treatment is that which has been made available to the
debtor through the provisions of Chapter 13."
Id. at 493. See also In re Heinzle. 511
B.R. at 80 ("[R]egardless how a plan is written,
post-petition mortgage payments are payments made pursuant to
the plan and the failure to maintain [direct] payments will
result in dismissal, conversion, or denial of
recently, In re Kessler. 2015 WL 4726794, at *2
considered a claim made by Chapter 13 debtors similar to the
one made by Appellant: that because the debtors had made all
their trustee payments curing their pre-petition arrears, but
had failed to complete all direct payments, the debtors were
entitled to a Section 1328 discharge. In denying the
discharge, the Bankruptcy Court for the Northern District of
Texas applied the reasoning of In re Foster to
conclude that "post-petition payments of a mortgage
debt, a long-term debt, whether paid direct or
through the trustee, are treated as paid under the
plan when the plan also provides for the curing of
pre-petition arrears on the debt." Id. The
Fifth Circuit affirmed the decision, noting that In re
Foster broadly decided that "post-petition payments
of [Section] 1322(b)(5) debts fall under the plan when
pre-petition defaults are also provided for in the
plan"; accordingly, because the debtors' Chapter 13
plan "included terms for curing their pre-petition
mortgage arrears and provided for maintenance of
post-petition payments, " yet the debtors "failed
to complete post-petition mortgage payments that [fell] under
the plan, " the debtors "[did] not qualify for
discharge under the plain terms of § 1328(a), which
instructs a court to grant discharge only after completion of
all payments under the plan." In re Kessler.
655 Fed.App'x at 244.
sets forth three central arguments as to why direct payments
do not constitute payments "under the plan" and,
accordingly, why Appellant is entitled to a discharge. In
response, Appellee sets forth a number of arguments
supporting the proposition that payments "under the
plan" include the direct payments, and because of