In re Evans

• Decision Date: 05 January 2016
• Docket Number: Case No. 10–51101–SCS
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re: Marlene Denise Evans, Debtor.

543 B.R. 213

In re: Marlene Denise Evans, Debtor.

Case No. 10–51101–SCS

United States Bankruptcy Court, E.D. Virginia, Newport News Division .

Signed January 5, 2016

Jessica R. Casey, Casey Legal, P.C., Newport News, VA, for Debtor.

MEMORANDUM OPINION

STEPHEN C. ST. JOHN, Chief United States Bankruptcy Judge

This matter came on for hearing on December 11, 2015 ("Second Hearing"), on the Motion to Close Case Without Entry of Discharge ("Motion") filed by R. Clinton Stackhouse, Jr., Chapter 13 Trustee ("Trustee"), on October 15, 2015. ECF No. 64. Counsel for the Debtor, Marlene Denise Evans (the "Debtor"), filed an answer to the Motion on November 2, 2015, in which she denies the case must be closed without a discharge and prays that the Court grant the Debtor her discharge. This matter was originally scheduled to be heard on November 6, 2015 ("Original Hearing"), but was continued to December 11, 2015, because the Debtor did not appear at the Original Hearing.

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a). Upon consideration of the pleadings and following the conclusion of the presentation of arguments by counsel for the parties, the Court took the matter under advisement. The Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. Factual Stipulation

The Trustee and the Debtor entered into a factual stipulation concerning the Motion that provides as follows:

1. On June 11, 2010, the Debtor sought bankruptcy protection under chapter 13 of title 11 of the United States Code (the "Bankruptcy Code") and relief was ordered.

2. [On] June 12, 2010, the Trustee was appointed to act as the chapter 13 trustee in the Debtor's case (the "Case").

3. The Trustee continues as the chapter 13 trustee in the Case.

4. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157 and 134 [sic ].

5. Venue is proper pursuant to 28 U.S.C. § 1409.

6. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

7. As of the Petition Date, the Debtor owned the real estate and improvements located at 38 Corwin Circle, Hampton, Virginia 23666 (the "Property").

8. The Debtor has remained the owner of the Property throughout the Case.

9. The Debtor and CitiFinancial, Inc. (the "Lender") entered into a contractual relationship, whereby the Debtor was provided the funding to purchase the Property, pursuant to a note (the "Note").

10. The Note required the Debtor to remit 360 monthly payments to the Lender of $1,316.56 beginning January 2007.

11. The obligation evidenced by the Note was secured by the Property, as evidenced by the Deed of Trust dated December 8, 2006 (the "Deed of Trust").

12. The Property remains subject to the Deed of Trust.

13. The Debtor remains liable to the Lender under the Note.

14. On September 26, 2014, the Debtor filed her chapter 13 plan (the "Plan"; Docket Item No. 59).¹

15. The Plan provides, among other things, that the Debtor will remit nine (9) monthly payments of $320.00, followed by forty-two (42) monthly payments of $496.00, followed by nine (9) monthly payments of $107.00, to the Trustee (the "Trustee's Payments").

16. The Plan further provides, in paragraph 5 A. of the Plan, that the Debtor will make payments to the Lender pursuant to the Note (the "Direct Payments"), without modification, except as to any arrears owed to it.

17. Paragraph 5 A. of the Plan also provided that the Trustee would remit payments to the Lender, as to any arrears owed to the Lender, through the Trustee's Payments.

18. This Court confirmed the Plan by order entered on November 14, 2014 (the "Confirmation Order"; Docket Item No. 60).

19. On or about August 26, 2015, the Trustee issued the Notice of Final Cure Payment (the "Notice"), pursuant to Fed. R. Bank. P. 3002.1(f), which was sent to the Lender.²

20. As more fully identified in the Notice, the Trustee paid the arrearage claim owed, as of the Petition Date, to the Lender, for $400.00.

21. The Debtor paid the Trustee's Payments.

22. On September 16, 2015, the Lender filed its Statement in Response to Notice of Final Cure Payment (the "Statement"). According to the Statement, the Lender confirmed its agreement that its claim in the Case had been paid in full.

23. The Statement further noted, however, that the Debtor was past due on the Direct Payments, with a balance of $6,344.08, as of September 16, 2015.

24. On September 29, 2015, the Trustee sent a letter to counsel for the Debtor (the "Letter").

25. In the Letter, the Trustee inquired as to whether the Debtor agreed with the information contained in the Statement, namely whether the Debtor was behind on the Direct Payments.

26. To date, Counsel for the Debtor has not responded in writing to the Letter but has orally confirmed that the Debtor is behind on the Direct Payments.

Joint Stipulation of Facts, filed November 4, 2015, Case No. 10–51101–SCS, ECF No. 69 (hereinafter, "Stipulation").

II. Findings of Fact

In addition to the stipulated facts, which the Court hereby adopts as findings of fact, the Court makes the following factual findings based upon the uncontroverted record of the case. Counsel for the Debtor filed a Motion to Approve Loan Modification After Confirmation on May 2, 2014. ECF No. 49. When the Trustee consented to the loan modification agreement, the Court entered an Order Granting the Motion to Approve Loan Modification After Confirmation on August 5, 2015. ECF No. 55. The modified loan reduced the Debtor's monthly mortgage payments from $1,000.00 to $665.16; reduced her interest rate from 8.832% to 5.00%; and provided for a loan term of 420 months. The modified loan brought her account into a current status by reamortizing her arrears, resulting in a new principal balance of $163,996.34. The Plan filed September 26, 2014, and the Amended Schedule J filed in support of the Plan, provided, as set forth in paragraphs 16 and 17 of the Stipulation, that the Debtor would make Direct Payments on the Note to the Lender in the amount of $665.00, and that the Trustee would pay the estimated arrearage of $400.00 to the Lender.³ As set forth in paragraph 18 of the Stipulation, the Court entered the Confirmation Order on November 14, 2014. ECF No. 60.

At the Original Hearing, counsel for the Debtor requested the Court take notice that she filed the Debtor's Certification of Compliance with 11 U.S.C. § 1328 on August 20, 2015. Transcript of November 6, 2015 Hearing, at 12–13 (hereinafter, "Tr."). Counsel for the Debtor confirmed that the Debtor owed postpetition arrears to the Lender totaling $6,344.08. Id. at 2–3. Counsel for the Debtor also represented that the Debtor was behind on her postpetition payments to the homeowners' association wherein the Property is located, in addition to being in arrears on her Direct Payments to the Lender. Id. at 4.

The Debtor appeared at the Second Hearing, where she admitted, in accordance with her counsel's earlier representations, that she remained in arrears on her Direct Payments on her mortgage. The Debtor was unaware of the exact amount of the arrears but estimated she owed at least ten (10) monthly payments. She was unsure as to when she last made a Direct Payment. Upon inquiry by the Court, the Debtor represented she fell behind on her Direct Payments and homeowners' association obligations because she suffered reductions in her income and was also supporting displaced relatives who came to live with her. The Debtor confirmed on the record that she owed postpetition fees to her homeowners' association totaling between $14,000.00 and $15,000.00. Counsel for the Debtor explained that these amounts related to noncompliance fees assessed because the Debtor had been unable, due to her financial circumstances, to make required repairs to the Property.

III. Conclusions of Law

The dispute between the Trustee and the Debtor involves two discrete issues. First, where the Debtor admits she completed her payments to the Trustee as required under the Plan but also admits that she failed to make Direct Payments to the Lender as provided for in the Plan, does the Debtor's failure to make those Direct Payments preclude her from receiving her discharge pursuant to § 1328 of the Bankruptcy Code ? Secondly, if the Debtor is not entitled to receipt of a discharge, what remedy should follow from the failure to obtain a discharge? In support of his position on the first issue, the Trustee's argument is succinct: the reference in § 1328(a) to "completion by the debtor of all payments under the plan " (emphasis added) plainly states that a debtor is entitled to a discharge when all payments under the Chapter 13 plan are complete, which includes all payments contemplated to be made by the debtor under the plan, whether to the Chapter 13 trustee or directly to a creditor. Motion ¶¶ 32, 35.

The Debtor asserts she has met all of the requirements under Chapter 13 of the Bankruptcy Code to receive her discharge. First, the Debtor disagrees with the Trustee's interpretation of § 1328(a), arguing that both the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure use the phrase "under the plan" in numerous sections and rules, and reliance must be placed on the use and context of that phrase elsewhere to determine the phrase's meaning under § 1328(a). Debtor's Answer at 4, filed November 2, 2015, Case No. 10–51101–SCS, ECF No. 68 (hereinafter, "Answer"). The Debtor specifically cites the use of the phrase in Federal Rule of Bankruptcy Procedure 3002.1(f), positing that by serving the Notice of Final Cure Payment pursuant to that rule, the Chapter 13 trustee is making a representation that a debtor has made all required payments under the plan. The Debtor also contends that her payments to the Lender "cannot be considered payments under the plan when considering the plain language of [§] 1322(b)(5)"⁴ because such debt is precluded from discharge...