In re Burkhart
| Decision Date | 24 August 1988 |
| Docket Number | Bankruptcy No. 87-04676. |
| Citation | 94 BR 724 |
| Parties | In re Harold Jean BURKHART, Debtor(s). |
| Court | U.S. Bankruptcy Court — Northern District of Florida |
Charles Wynn, Marianna, Fla., for trustee.
John E. Venn, Jr., Gulf Breeze, Fla., for debtor.
THIS MATTER came on for hearing on confirmation of the debtor's Chapter 13 plan. The standing Chapter 13 trustee represented to the Court that the debtor was current on the payments called for in the plan at the time of the hearing and that the plan appeared to be feasible; however, the trustee objected to confirmation on the basis that the plan provided for the debtor to pay his secured creditors directly and thus avoid the payment of a trustee's commission on those payments.1 The debtor contends that the Bankruptcy Code allows him to act as disbursing agent for the payments on his home mortgages and that the trustee's fee should be computed only on the payments received by the trustee. This Court has frequently in the past allowed Chapter 13 debtors to pay their secured creditors directly and thus avoid paying a trustee's fee on those payments. Having reexamined its position on this issue, the Court now affirms its stance and concludes that a trustee's fee must be paid only on those payments received by the trustee and that the Court has the discretion to determine which claims may be paid directly by the debtor.
The debtor has five unsecured creditors with total claims of $5,387.37 and three secured creditors, all of whom have mortgages on his principal residence, with total claims of $74,500.00. The debtor is in default in the amounts of $2,610.00, $6,106.32, and $2,481.30 to the first, second, and third mortgage holders respectively. The debtor's plan proposes, pursuant to 11 U.S.C. § 1322(b)(5), to cure the defaults and maintain current payments on his secured debts during the pendency of the case. The debtor's current monthly mortgage payments total $1,016.70. The plan provides for the debtor to cure each of the three mortgages over 18 months by making additional monthly payments of $145.00 on the first mortgage, $340.00 on the second mortgage, and $137.85 on the third mortgage bringing the total arrearage payments under the plan to $622.85 per month. The plan provides that both the arrearage and the current payment are to be made directly to the three mortgage holders. The debtor further proposes to pay $400.00 per month to the trustee for 18 months to pay all other allowed claims, including administrative expenses, in full. Article 4.1 of the plan provides that, "The trustee's fees and expenses shall be paid in accordance with the Rules of Bankruptcy Procedure and the Bankruptcy Code. . . ."
The first question is whether or not and to what extent the debtor may act as disbursing agent for payments under the plan. Section 1322(a)(1) of the Bankruptcy Code provides that, "The plan shall provide for the submission of all or such portion of future earnings or other income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan." Section 1326(c) provides that, "except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan." The Bankruptcy Code thus contemplates that the trustee will act as the disbursing agent in most instances. It nonetheless clearly envisions that there will be exceptions. In Matter of Foster, 670 F.2d 478 (5th Cir.1982), the Fifth Circuit concluded, based upon the foregoing statutory language, that, ". . . Chapter 13 permits a debtor to act as disbursing agent, subject to the bankruptcy court's `feasibility' determination under 11 U.S.C. § 1325(a)(6)." Id. at 486; e.g., In re Tartaglia, 61 B.R. 439 (Bankr.D.R.I.1986); In re Hines, 7 B.R. 415 (Bankr.D.S.D.1980); In re Wittenmeier, 4 B.R. 86 (Bankr.M.D. Tenn.1980). In Foster the debtors were delinquent on two mortgages on their home. Their plan proposed to pay the arrearage payments to cure the mortgages to the trustee and to pay the current payment directly to the creditor. The Court went on to say that:
Id. at 486, 487 (emphasis added). In Hines the court explained that:
There are valid reasons for a debtor to continue making payments directly to creditors holding mortgages on a debtor\'s homestead property. Long after the Chapter 13 plan has expired a debtor is usually still making payments on the mortgage. The code contemplates that such an event will occur. It would be ridiculous to have debtors subject the mortgage payments to the trustee for the term of the plan and then have to go through the process of picking the payments up again.
Hines, supra at 421. This Court agrees. The debtor continues to make the current payment pursuant to the terms of the original agreement between the parties. Neither the amount of the payment nor the term of payment are affected by the plan. In fact, it may very well be to the secured creditor's benefit continue to receive and account for the payment in its usual fashion — the mechanics are already in place and need not be altered. Therefore, the debtor should be allowed to disburse the current mortgage payment on his home directly to the secured creditor in most instances.
Arrearage payments, on the other hand, should be paid to the trustee to disburse. As heretofore explained, absent any exception, the trustee should act as disbursing agent for payments under the plan. While there are sound reasons to except the current payment from the trustee's control, the debtor in this case has not advanced, nor has the Court found, any reason to create an exception for the arrearage payments. The debtor's ability to cure the default on a home mortgage is frequently the heart of a Chapter 13 plan. The arrearage payments are temporary and catch-up in nature, and they typically are accounted for separately by the secured creditor. The trustee can disburse the arrearage payment without interfering with the established debtor-creditor relationship, and, furthermore, in so doing the trustee is thereby able to continue to monitor the debtor's compliance with the plan.
With regard to the Court's determination of feasibility, it has been this Court's experience that whether or not the debtor is allowed to act as the disbursing agent has little to do with the debtor's actual ability to comply with the plan. Chapter 11 debtors (and Chapter 13 debtors in this district) have always made direct payments to creditors without posing any difficulty for the creditors, the Court, or the debtor himself. In re Erickson Partnership, 77 B.R. 738, 748 (Bankr.D.S.D.1987). (Although this was a Chapter 12 case, the relevant provisions in Chapter 12 and Chapter 13 are identical). The question is more one of enforceability rather than feasibility, and, in that regard, the Court foresees little problem. "A creditor holding a mortgage is usually quite capable of looking after its own interest." Hines, supra. Therefore, unless the trustee or the affected creditor has some justifiable objection, the Court will continue to allow the debtor disburse the current payment where the plan so provides.
Next the Court must consider the question of how the Chapter 13 trustee's fees should be computed. The debtor maintains that the trustee's fee should be paid only on the payments actually received by the trustee. Former Section 1302(e) of the Bankruptcy Code2 provided in pertinent part that:
Resolution of the trustee's fee issue under Section 1302(e) turned on which payments were construed by the Court to be "under the plan." The majority of courts which considered the question reached the conclusion that, where the debtor's plan proposes to cure the default and maintain current payments on a secured claim pursuant to 11 U.S.C. § 1322(b)(5), the current payments are "under the plan," and the trustee's fee should be computed on those payments irrespective whether the debtor or the trustee makes the actual disbursement. E.g., Foster, at 491; In re Hankins, 62 B.R. 831 (Bankr.W.D.Va.1986); see In re Case, 11 B.R. 843 (Bankr.D.Utah 1981); In re Centineo, 4 B.R. 654 (Bankr.D.Neb. 1980).3
The fees of the standing Chapter 13 trustees are now fixed by the Attorney General pursuant to 28 U.S.C. § 586(e). Section 586(e)(2), which was amended by The Bankruptcy...
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