Opinion
Case No. 8:19-bk-07412-RCT
08-17-2020
In re: Dominic Anthony Montesano, Debtor.
Chapter 13 ORDER OVERRULING , IN PART, CHAPTER 13 TRUSTEE'S AMENDED OBJECTION CONCERNING CONFIRMATION OF DEBTOR'S CHAPTER 13 PLAN
A hearing to consider confirmation of Debtor's amended chapter 13 plan occurred on July 15, 2020. Appearing were Eva Donohue, Esq. on behalf of the Debtor and Caroline Printy, Esq. on behalf of the chapter 13 trustee (the "Trustee"). No other interested party appeared or filed an objection to the amended plan.
At the hearing, the question presented was whether the plan, which proposes a balloon payment in its final month, violates section 1325(a)(5) of the Bankruptcy Code and, thus, cannot be confirmed. The balloon payment is intended to satisfy the arrears on the secured claim filed by mortgage creditor PennyMac Loan Services, LLC ("PennyMac"). The Trustee argued that a balloon payment violates section 1325(a)(5)(B)(iii) because the payments to PennyMac are not in "equal monthly amounts." Debtor countered that the plan need not satisfy section 1325(a)(5)(B) as it satisfies 1325(a)(5)(A) because PennyMac is deemed to have accepted the plan due to its failure to object.
11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code").
Background
Debtor commenced this case on August 5, 2019, and along with his petition, filed his chapter 13 plan. The plan proposes a monthly payment of $1,217 for the entire 60-month plan and, as to PennyMac, indicates an intent to seek mortgage modification mediation.
Docs. 1 and 3.
PennyMac timely filed its proof of claim on October 15, 2019. The fully secured claim is in the amount of $170,045.54 and indicates a prepetition arrearage of $14,265.54.
Claim No. 11-1.
Shortly before PennyMac filed its claim, Debtor obtained a referral to mortgage modification mediation. But, on January 3, 2020, the mediator filed his final report indicating that the parties had failed to reach an agreement.
Doc. 16.
Doc. 25.
Debtor thus filed an amended chapter 13 plan on June 2, 2020. The amended plan proposes stair-step monthly payments beginning at $1,217.00 per month. The payments increase in month 11 to $1,591.00, then in month 25 to $1,769.00, and then in month 48 to $1,827.00. The plan ends in month 60 with a balloon payment of $54,706.00. Debtor proposes to reinstate the PennyMac mortgage, providing for ongoing payments of $1,150.91 and curing the arrears.
Doc. 32. The amended plan was filed one day before a properly noticed hearing on confirmation. The June 3 hearing was continued to July 15. As was true of the July 15 hearing, only counsel for Debtor and the Trustee appeared at the June 3 hearing.
PennyMac did not object to the amended plan.
Shortly after the confirmation hearing, the Trustee filed her amended objection to confirmation, reinforcing the arguments made at the hearing (the "Amended Objection"). And within the time allowed by the Court, Debtor's counsel filed a brief in support of her arguments.
Doc. 40. The Trustee also objects to the amended plan on the basis that the plan payments are insufficient to pay both the monthly adequate protection payments to secured creditors and the required Trustee fees "during the period of the Plan." Doc. 40 ¶ 1. The objection is unclear as to which period the Trustee refers. By the Court's rough calculation, the payment appears nearly sufficient beginning in month 25. Nonetheless, the Court declines to resolve this objection as it appears intertwined with the Trustee's prior objections based, inter alia, on liquidation (Doc. 14).
Doc. 42.
The Court has considered the papers, the record, and the arguments of counsel as well as the relevant case law. As discussed below, the Court agrees with the Debtor.
Discussion
For a chapter 13 plan to be confirmed, it must meet the requirements of section 1325(a) of the Bankruptcy Code. Among these is section 1325(a)(5), which provides that, subject to an exception not relevant here, the court shall confirm a plan if:
with respect to each allowed secured claim provided for by the plan—
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that—
(I) the holder of such claim retain the lien securing such claim until the earlier of—
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law;
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and
(iii) if--
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or
(C) the debtor surrenders the property securing such claim to such holder[.]
§ 1325(a)(5) (emphasis added).
Section 1325(a)(5) is phrased in the disjunctive, requiring "either that: (1) the claim holder had accepted the plan; (2) the plan comply with the provisions of § 1325(a)(5)(B); or (3) the debtor surrender the property securing the claim to the claim holder." Here, Debtor does not propose to surrender his homestead, leaving him the choice either to comply with section 1325(a)(5)(B) or to obtain PennyMac's acceptance of the amended plan.
Hamilton v. Wells Fargo Bank, N.A. (In re Hamilton), 401 B.R. 539, 542 (B.A.P. 1st Cir. 2009); see also Flynn v. Bankowski (In re Flynn), 402 B.R. 437, 442 (BAP 1st Cir. 2009).
While the issue of whether a balloon payment is allowed under § 1325(a)(5)(B)(iii) is hotly contested, that particular issue is not implicated here because, as Debtor argues, most courts find that § 1325(a)(5)(A) is satisfied "where secured creditors have had proper notice and no secured creditor is objecting." It is not disputed that PennyMac had proper notice of both the amended plan and the hearing on confirmation and that it had not objected. When a secured creditor does not object to confirmation, it is deemed to have accepted the plan, satisfying the requirement of section 1325(a)(5)(A) and rendering a section 1325(a)(5)(B) analysis unnecessary.
Compare Hamilton, 401 B.R. at 546 (finding a balloon payment violates § 1325(a)(5)(B)(iii)), and In re Benedicto, 587 B.R. 573, 576 (Bankr. S.D. Fla. 2018) (same), with In re Olsen, 604 B.R. 790, 801-06 (Bankr. W.D. Wis. 2019) (discussing and adopting the "growing minority" view that a balloon payment does not violate § 1325(a)(5)(B)(iii)).
In re Carr, 584 B.R. 268, 275 (Bankr. N.D. Ill. 2018) (listing cases); see In re Flynn, 402 B.R. at 443 ("[T]he courts that have considered the question have overwhelmingly concluded that a secured creditor's lack of objection may constitute acceptance of the plan for purposes of § 1325(a)(5)(A).").
The amended plan treats only one other secured claim belonging to Santander Consumer USA Inc. dba Chrysler Capital ("Santander") (Claim No. 3-1). Like PennyMac, Santander has not objected to the amended plan.
See, e.g., In re Schultz, 363 B.R. 902, 907 (Bankr. E.D. Wis. 2007).
For these reasons, it is ORDERED that the Trustee's Amended Objection (Doc. 40) to the extent it is based on the failure to comply with section 1325(a)(5)(B) of the Bankruptcy Code is OVERRULED.
ORDERED.
Dated: August 17, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Attorney Eva Donohue, Esq. is directed to serve a copy of this order on interested parties who do not receive service by CM/ECF and file a proof of service within three days of entry of this order.