May 6, 2014
by Kevin T. Dobie
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)
The Eighth Circuit Court of Appeals Bankruptcy Appellate Panel recently confirmed that a default in the mortgage payments pursuant to a confirmed chapter 13 plan is “cause” for relief from the automatic stay under 11 U.S.C. § 362(d)(1), regardless of the amount of equity cushion. CitiMortgage, Inc. v. Borm (In re Borm), __ B.R. __, 2014 Bankr. LEXIS 1254 (8th Cir. B.A.P. April 2, 2014). (The Eighth Circuit is comprised of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.)
CitiMortgage, the holder of a claim secured by the debtors’ residence, moved for relief from the automatic stay after the debtors failed to make post-petition payments pursuant to a confirmed plan. The plan provided that the debtors would make the post-petition payments directly to CitiMortgage. Without a response from the debtors, the bankruptcy court denied the motion sua sponte because the debtors had an equity cushion and the debtors were making some payments. The bankruptcy court suggested that CitiMortgage would have to wait until the mortgage debt exceeded the property value before it could obtain relief from the automatic stay.
CitiMortgage appealed the decision, and the Bankruptcy Appellate Panel (BAP) reversed the bankruptcy court. The BAP agreed with CitiMortgage and held that the amount of equity was irrelevant in light of the fact that the debtors defaulted on the required plan payments. Although not stated in the BAP’s decision, this author believes that the bankruptcy court used the “for cause” standard for relief in a pre-confirmation motion for relief from the automatic stay. Before confirmation, adequate protection and equity are certainly relevant under a § 362(d)(1) analysis (most often in a chapter 11 case), but once the plan is confirmed, the creditor and the debtor must live with the plan treatment.
While the standard for relief from stay upon a plan default is not uniform across the country, (e.g., at least one bankruptcy court in Colorado has held that a default in the mortgage payments under a confirmed plan is grounds for dismissal, not relief from stay), the standard in the Eighth Circuit is now clear. A failure to make the mortgage payments pursuant to a confirmed chapter 13 plan is “cause” for relief from stay under § 362(d)(1).
Editor’s Note: The author’s firm represented CitiMortgage, Inc. in the bankruptcy court and appellate proceedings summarized in this article.
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