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In re Jones

United States District Court, M.D. Tennessee
Jan 8, 1980
No. 77-30662 (M.D. Tenn. Jan. 8, 1980)

Opinion

No. 77-30662

January 8, 1980


Former Bankruptcy Act — Wage Earners Plan — Penalties — Allowances — Late Charges

Late charges may not be imposed against a Chapter XIII debtor on an arrearage which accrued prior to filing, nor may the creditor impose a late charge on monthly payments made under the plan which are received late. Such late charges, even if authorized by a statute other than the Bankruptcy Act, constitute penalties and are therefore not allowable under Section 57j of the Bankruptcy Act. See Sec. 57j at ¶ 2519 and Sec. 724(a) at ¶ 10,107.

[Digest of Opinion]

The creditor, thee mortgagee of the debtor, sought to impose late charges against the debtor on an arrearge which accrued prior to the filing of her Chapter XIII proceeding, until the deficiency was satisfied. The creditor further sought to impose a 2% late charge on each monthly mortgage payment received from the Chapter XIII trustee which was more than 15 days late. The creditor had filed a proof of claim accepting the debtor's plan as to the deficiency. By amendment, the debt was brought inside the plan and a proof of claim accepting this arrangement was filed by the creditor. Subsequent proofs of claim had been filed accepting payment through the plan of certain arrearages that arose during the administration of the case.

Section 57j of the Bankruptcy Act forbids allowance of penalties owing to the United States, a state or a subdivision thereof. Although this section does not deal with penalties based on private contracts in which the debtor promises certain payments in the event of his breach of the agreement, bankruptcy courts have refused to enforce penalties of any type both because of their status as courts of equity, and because "Congress may be presumed not to have granted to a private individual what by § 57j it denied to the sovereign state." Further, the policy of disallowance penalties is especially applicable in a Chapter XIII proceeding in which the debtor is attempting financial rehabilitation under the protection of the bankruptcy court. The creditor maintained that the authorization of the 2% late charge by the National Housing Act controlled in this situation. However, this "ignores the jurisdiction grant of the Bankruptcy courts." Having determined that the late charges constituted a penalty under Section 57j, the court refused to allow them.


Summaries of

In re Jones

United States District Court, M.D. Tennessee
Jan 8, 1980
No. 77-30662 (M.D. Tenn. Jan. 8, 1980)
Case details for

In re Jones

Case Details

Full title:IN RE JONES

Court:United States District Court, M.D. Tennessee

Date published: Jan 8, 1980

Citations

No. 77-30662 (M.D. Tenn. Jan. 8, 1980)