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Significant Bankruptcy Case Law: 2018 in Review

Posted By USFN, Tuesday, November 13, 2018
Updated: Monday, November 5, 2018

November 13, 2018

by Michael J. McCormick
McCalla Raymer Leibert Pierce, LLC
USFN Member (Connecticut, Florida, Georgia, Illinois)

and Adam A. Diaz
SHD Legal Group, P.A.
USFN Member (Florida)

Alabama
Post-petition Mortgage Fees and Expenses — The opinion in In re England, Case No. 17-10197 (Bankr. M.D. Ala. Mar. 30, 2018), pertained to several Chapter 13 cases. It considered the question of whether a debtor is required by an underlying agreement and applicable nonbankruptcy law to pay post-petition mortgage fees and expenses (filed pursuant to Bankruptcy Rule 3002.1) to a creditor holding a note and mortgage on the debtor’s primary residence as provided in 11 U.S.C. § 1322(b)(5). The debtors in each case filed a motion to determine the extent to which post-petition fees and expenses claimed by creditors pursuant to Bankruptcy Rule 3002.1 must be paid.

As required under § 1322(b)(5), the debtors’ Chapter 13 plans provided for maintenance of the current mortgage payments as well as payment of all arrears to cure default over the life of the plan. Subsequent to filing proofs of claim on loans secured by the debtors’ primary residences, each creditor filed a Notice of Post-petition Fees, Expenses, and Charges as permitted under Rule 3002.1(c) for fees and expenses incurred within 180 days before service of the notice on the debtors. In response, the debtors filed motions to determine fees, pursuant to Bankruptcy Rule 3002.1(e), arguing that the court should disallow the post-petition fees and expenses.

When faced with a motion to determine mortgage fees and expenses pursuant to § 1322(e), the court must look to the underlying agreement and applicable nonbankruptcy law to determine if the amounts are permissible. Since § 1322(e) explicitly excepts § 506 from consideration, the “reasonableness standard” ordinarily used under § 506(b) does not apply to post-petition fees, expenses, or charges necessary to cure a default.

Relying in part on a case from 2006 (prior to the 2011 amendments to Bankruptcy Rule 3001, as well as the changes to the proof of claim forms in 2011 and 2015), the court also concluded that performing a plan review and preparing a proof of claim were simple matters, in part because the proof of claim forms are available online (as are the forms for completing the schedules).

Since entry of this decision, the court has been giving creditor firms the opportunity to amend or supplement their PPFNs with timesheets, invoices, and other evidence to support the claims. It should be kept in mind that since the presumption of prima facie validity applicable to proofs of claim does not pertain to the notices filed under Bankruptcy Rule 3002.1, the burden of proof lies with the creditor to substantiate the fees being sought.

Florida
Chapter 13 Plans and Balloon Payments — The decision in In re Benedicto, Case No. 15-28671-BKC-RAM (Bankr. S.D. Fla. June 29, 2018), was interestingly co-authored by Chief Judge Isicoff and Judge Mark. It focused on whether a Chapter 13 plan could be confirmed under Bankruptcy Code § 1325 when it includes provision for a balloon payment. The decision involved two Chapter 13 plans where the debtors sought to modify the underlying debt by cramming down the value of the loan and making a balloon payment at the end of the plan.

The creditors objected to the treatment due to the inclusion of the balloon payments, contending that the inclusion of the balloon payments violated § 1325, which requires the payments in a Chapter 13 plan to be “equal monthly payments.” The court noted that there was no precedent in Florida on this issue, and therefore looked to Georgia for assistance — specifically to the In re Cochran case. Ultimately, the court held that balloon payments are not period payments under § 1325, and the inclusion would result in a non-confirmable plan. However, the court cautioned that this ruling is limited in application.

Chief Judge Isicoff previously has ruled that the “equal monthly payment” requirement begins no earlier than the first payment after confirmation of a plan, rejecting the assertion that § 1325(a)(5)(B)(iii)(I) compels a debtor to make equal payments starting with the first pre-confirmation payment made after the petition is filed. The rule compelling equal monthly payments is not required any earlier than the first payment after confirmation. Additionally, “[i]f a modified plan is approved, the payments to secured creditors must be in equal amounts after the modified plan takes effect, but need not be in the same amount as the payments already made under the prior plan. This will protect debtors who confirm plans before mediation under the MMM Program is completed and later must modify the monthly payment to the mortgagee if the mediated payment amount is higher or mediation fails.”

Creditors’ Claims and the Statute of LimitationsIn re BCML Holding LLC, Case No. 18-11600-EPK, Adv. Proc. No. 18-01129-EPK (Bankr. S.D. Fla. May 24, 2018), involved an adversary proceeding where the debtor, who was a third-party purchaser of the property, sought to limit the creditor’s claim and rights based on the statute of limitations in Florida. Specifically, the debtor sought to reduce the creditor’s claim by all amounts that accrued more than five years from the petition date. The debtor obtained a default against the creditor in the adversary proceeding and sought a judgment in its favor.

The bankruptcy court determined that although the debtor obtained a default, the court could not grant the relief sought because the debtor failed to state a cause of action. The court went through a thorough analysis of the statute of limitations law in Florida and held that the creditor’s claim was not limited to only amounts accruing within five years from the filing of the petition. The court was critical of cases that held to the contrary in Florida — including Velden v. Nationstar Mortgage, LLC, 234 So. 3d 850 (Fla. 5th DCA Jan. 12, 2018) — finding that they were not well-supported by the law. Based on this bankruptcy holding, creditors would not need to limit their claims pursuant to the statute of limitations in Florida.

Mississippi
Nonstandard Plan Provisions — In In re Parkman, Case No. 188-50032-KMS (Bankr. S.D. Miss. Aug. 13, 2018), the Chapter 13 trustee filed an objection to confirmation, contending that the nonstandard plan provisions were “either unnecessary restatements of the law or impermissible infringements on the rights of creditors; unduly burdensome to the Trustee, creditors, and the bankruptcy process.”

As background: both districts in Mississippi opted out of the national plan (i.e., Form 113) and, as of December 1, 2017, all debtors in Mississippi are required to use the form plan authorized by Bankruptcy Rule 3015.1 and Miss. Bankr. L.R. 3015.1-1. The Mississippi Form Plan includes a final paragraph for “nonstandard provisions.” See Fed. R. Bankr. P. 3015.1(e)(1) (requiring final paragraph for nonstandard provisions). Under the Local Rules, only the judges are authorized to change the Mississippi Form Plan. Miss. Bankr. L.R. 3015.1-1. If the change is substantive, it will be advertised for public comment before final approval by the Fifth Circuit Judicial Council as an amendment to the Local Rules.

Shortly after December 1, 2017, counsel for the debtor in Parkman filed a plan — with twenty-three (including subparts) nonstandard provisions in it, formatted within the limitations of the online form as ninety-three single-spaced lines of text without bolding, italics, or underlines. The trustee argued that if the nonstandard plan provisions were approved, then the Southern District of Mississippi did not have a uniform Chapter 13 plan as required by the federal bankruptcy rules and local bankruptcy rules.

The court determined that the intent of debtor’s counsel to substitute his own plan for the Mississippi Form Plan is evident in the first nonstandard provision: “To the extent that the plan language and any nonstandard plan provisions listed here differ or contradict each other, the nonstandard plan provisions will control.” Furthermore, it was not reasonable to expect creditors to scrutinize ninety-three single-spaced lines of visually identical typeface in search of a nonstandard provision that might apply to them. Further, many of the nonstandard provisions were so poorly drafted that their intended meaning and application are indiscernible. With respect to the nonstandard plan provisions dealing with mortgages, several included incorrect statements of the law, and others were unnecessary (given the passage of Bankruptcy Rule 3002.1).

As to all but one of the nonstandard provisions, the trustee’s contentions were well-taken by the court. Accordingly, the objection to confirmation was sustained, and confirmation was denied.

Copyright © 2018 McCalla Raymer Leibert Pierce, LLC, & USFN. All rights reserved.
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