[CLBS] FW: Providing for mortgages in the new plan form- paragraph 3.1 and other concerns

Fri Jan 26 09:01:28 MST 2018

See the below post from Ms. McCallister.

From: Kathleen McCallister [mailto:kam at kam13trustee.com]
Sent: Friday, January 26, 2018 8:49 AM
To: Patrick Geile <PGeile at foleyfreeman.com>
Cc: Alexandra Caval (alex at cavallawoffice.com) <alex at cavallawoffice.com>
Subject: FW: Providing for mortgages in the new plan form- paragraph 3.1 and other concerns

Patrick - here is an email I wanted to post on the list serve for the benefit of the Chapter 13 practitioners.

Thank-you

We have now had almost two months using the new form plan and there are a couple of areas where we are seeing the most mistakes.  In particular is the treatment of the mortgages in paragraph 3.1. Per the plan language (see below), the Trustee will pay the arrears per the proof of claim.  This is regardless of whether the debtor or the trustee is the disbursing agent on the current mortgage payments.  If you check the box that disbursements will be made by the Trustee you are indicating that you want the trustee to make the current mortgage payments.  While there are a few attorneys that take advantage of having the trustee make the current mortgage payments, most of you prefer to have the debtors make the mortgage payments directly.  Therefore you should check the box that says "Debtors"  where the form says "Disbursed by:"

We are also seeing that many of you are putting the contract rate of interest on the mortgage in the box that says "interest rate on the arrearage."  If you put the mortgage interest rate in that box then the trustee is obliged to pay the arrears at that interest rate.  In the majority of cases we should not be paying interest on the arrears as interest is being charged on the principal.  This box should typically be blank or 0.

The amount of the arrears should be listed in the last box "estimated total payments by Trustee."  If trustee is paying the mortgage payments then the estimated total payments by Trustee will be the total number of payments in the plan multiplied by the amount of the mortgage payments plus any arrears.  This number goes on the final page on line a and will help in determining if the plan is funded.

If anyone is interested in filing a plan that proposes to have the trustee make the current mortgage payments please email me directly as we have developed some language you can add to paragraph 8.1 that addresses the gap payments.  Gap payments are those payments that become due immediately after the case is filed and before Debtors begin making plan payments so that Debtors are not in default on the post-petition mortgage payments.

Treatment of Secured Claims
3.1        Maintenance of payments and cure of default, if any.
Check one.
None. If "None" is checked, the rest of § 3.1 need not be completed or reproduced.

The debtor(s) will maintain the current contractual installment payments on the secured claims listed below, with any changes required by the applicable contract and noticed in conformity with any applicable rules. These payments will be disbursed either by the trustee or directly by the debtor(s), as specified below. Any existing arrearage on a listed claim will be paid in full through disbursements by the trustee, with interest, if any, at the rate stated. Unless otherwise ordered by the court, the amounts listed on a proof of claim filed before the filing deadline under Bankruptcy Rule 3002(c) control over any contrary amounts listed below as to the current installment payment and arrearage. In the absence of a contrary timely filed proof of claim, the amounts stated below are controlling. If relief from the automatic stay is ordered as to any item of collateral listed in this paragraph, then, unless otherwise ordered by the court, all payments under this paragraph as to that collateral will cease, and all secured claims based on that collateral will no longer be treated by the plan.
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The other line that seems to cause trouble is paragraph 5.1.  This line is for "best interest"  the amount to be put in this line is what general unsecured creditors should receive if the case were filed as a chapter 7 proceeding.  Often that is 0.  If a debtor incorrectly lists $50,000 on line 5.1 and the plan provides for unsecured creditors to receive significantly less than $50,000, then I believe that there is a notice issue. If non-exempt equity is truly $50,000 then the plan should be sufficiently funded to meet best interest.

Lastly, remember notice for amended plans is now 28 days instead of 21 days which means a total of 31 days with the mailing rule.

I hope this is helpful for everyone.  Until people are comfortable with the new plan form I have been reviewing a lot of plans for attorneys prior to them being filed and I appreciate the opportunity to do this.  I still have a small stack that I have not gotten to yet.  If you would like assistance prior to filing your plan feel free to email me, however keep in mind that it may take several days for me to get it back to you.

I hope to see everyone at the annual bankruptcy seminar on February 15-17.  There will be a breakout session on the new plan and rules as well as a paralegal session on the new plan that would be helpful for your staff.

Thank you

Kathleen McCallister
Chapter 13 Trustee
PO Box 1150
Meridian, ID 83680
208-922-5100 phone
208-922-5599 fax

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