§ 53.10     Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 53.10, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The Chapter 13 trustee has primary responsibility to make payments to creditors under the plan. Since 1978 the Code has provided that, absent a provision of the plan or the order of confirmation to the contrary, the Chapter 13 trustee collects the money required by the plan from the debtor and “shall” disburse the money to creditors under the plan.1 It has been stated that there is a presumption in favor of disbursement to creditors by the Chapter 13 trustee.2 Periodic payments to the trustee and disbursement by the trustee are the normal practice in Chapter 13 cases, and departure from the norm is appropriate only when the debtor demonstrates a reason for doing so.3

[2]

The debtor is permitted by § 1326(c) to act as a disbursing agent to make some payments directly to creditors without the assistance of the Chapter 13 trustee.4 The Bankruptcy Code does not provide rules or specify the conditions under which a debtor can make direct payments to a creditor. The resulting discretion has been described in these broad terms by the Bankruptcy Appellate Panel for the Ninth Circuit:

[U]nder the Code, a chapter 13 debtor may directly pay a creditor. . . . The Bankruptcy Code provides no direction as to “when it is appropriate to insert such direct payment provisions in the plan or in the confirmation order.”. . . [B]ankruptcy courts have been afforded the discretion to make the determination of when direct payments may or may not be appropriate based upon the confirmation requirements of § 1325, policy reasons, and the factors set forth by case law, local rules or guidelines. . . . Bankruptcy courts may require that payments be made through the plan based on specific factors or reasons such as administrative efficiency, tracking of payments, fairness and treatment of creditors, and the determination that there is a reduction of plan failure when all payments are made through the plan.5
[3]

It has been held that the feasibility test in § 1325(a)(6) limits the extent to which a Chapter 13 debtor can make payments directly to creditors.6 It is sometimes said that if the plan “modifies” or “alters” the rights of the creditor, then payments must be made through the Chapter 13 trustee.7 Whether the debt will “mature” before or after the completion of payments under the plan has been cited as a condition on whether direct payment will be permitted.8 The courts have recognized that it would be impossible to maintain a viable Chapter 13 program with adequate compensation of the trustee if all Chapter 13 plans proposed that the debtor directly pay secured claim holders.9

[4]

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)10 did not amend § 1326(c) and did not otherwise directly address whether and under what circumstances Chapter 13 debtors can make direct payments to creditors. BAPCPA did amend other subsections of § 1326 to create new preconfirmation entitlements for some personal property lessors and some allowed secured claim holders.11 One bankruptcy court concluded that the 2005 amendments to § 1326(a)(1)—which allow Chapter 13 debtors, unless the court “orders otherwise,” to make payments directly to lessors and allowed secured claim holders before confirmation—supported the discretion to allow direct payment of creditors by debtors after confirmation.12 In contrast, another bankruptcy court concluded that BAPCPA created significant funding problems for the Chapter 13 system that discourage direct payment of claims by Chapter 13 debtors because direct payment reduces funding available to the standing Chapter 13 trustee.13 The direct payment of secured claims—especially the direct payment of home mortgages—has produced much litigation and a proliferation of new local rules after the enactment of BAPCPA.14

[5]

There are financial incentives for the debtor to propose to make payments directly to creditors: The commission payable to the Chapter 13 trustee is calculated as a percentage of funds received by the Chapter 13 trustee;15 if the debtor acts as a disbursing agent, it is possible to avoid the payment of commissions to the trustee. It has been held that a Chapter 13 debtor cannot make payments directly to a creditor when the only purpose offered is to avoid paying commissions to the Chapter 13 trustee.16 One court permitted direct payment by the debtor to a creditor with the stated purpose of avoiding commissions when the proposed payment was a lump sum from a single transaction and allowing compensation to the Chapter 13 trustee was described as a windfall.17

[6]

Direct payment has been refused when the trustee has responsibilities with respect to the claim holder—for example, monitoring payment of the claim the debtor proposes to pay directly.18

[7]

One bankruptcy court has read the Code to prohibit direct payment of any claim that is to be paid from the debtor’s future income. As explained in In re Harris,19 § 1322(a)(1) mandates that the plan “shall provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan.” The court reasoned that any claim provided for with payments from the debtor’s future income falls within § 1322(a)(1) and must be paid with income submitted to the control of the Chapter 13 trustee:

Congress enacted a scheme and mechanism for the self-funding of Chapter 13 standing trusteeship. . . . Section 1322(a)(1) helps ensure that the case administered by the trustee will, on the whole, generate sufficient payments to fund the trustee’s program; and the uniform application of the fee to these payments relieves the trustee from having to apply for a fee in each case and to allocate his or her time and expenses on a case-by-case basis. Under such a mechanism, some debtors, inevitably, will pay more—perhaps much more—than their share of the cost of the trustee’s program; but this is necessary because others will pay less than their share or nothing at all. . . . [T]he system, though somewhat crude and inequitable, serves a purpose, further evidenced by the fact that the Bankruptcy Code makes no provision for adjustment of the standing trustee’s fee in individual cases, on a case-by-case basis. In fact, the bankruptcy court lacks authority in Chapter 13 cases to set, review, or otherwise adjudicate the amount of the fee. . . . The future income (including future earnings) that, under § 1322(a)(1), a debtor is obligated to submit to the trustee is only one of the sources from which a debtor might conceivably fund plan payments. Payments might also be funded, at least in part, with prepetition cash, with proceeds from the sale of prepetition assets, with proceeds of postpetition loans, and with monies received as gifts from third parties. Plan payments from these sources would not be subject to § 1322(a)(1). . . . To the extent that the plan is dependent on funding from other sources, § 1322(a)(1) does not obligate the debtor to submit such funding to the trustee. Therefore, the Court need not read unstated exceptions into § 1322(a)(1) in order to supply the circumstances in which, as § 1326(c) recognizes, a debtor might legitimately make payments directly. . . . [T]o the extent that plan payments on modified secured claims are funded with future earnings or other future income, such funding must be submitted to the trustee, and the Court may not permit direct payment, regardless of the circumstances of individual cases. . . . [T]he Bank has no right to direct payment. Section 1322(a)(1) is categorical. . . . [W]hen Congress enacted that subsection, it must have understood that payment through the Trustee would to some extent delay creditors’ receipt of payment.20
[8]

Harris prohibits direct payment of every claim provided for by the plan if the source of payment is a Chapter 13 debtor’s future income. The only room left for § 1326(c) would be the rare exception cited in Harris—payments from a source other than the debtor’s future income. Most courts have found greater discretion in the interaction of §§ 1322(a)(1) and 1326(c).21 If there is a trend in the decisions, it is the identification of factors or criteria that bankruptcy courts consider to determine whether to permit direct payment by a debtor.22

[9]

Some jurisdictions have recognized a major limitation on the debtor’s choice to make payments directly to creditors—if the debtor proposes to cure an arrearage on a home mortgage, then the regular monthly mortgage payment must also be made by the trustee.23 Other courts permit direct payment of ongoing mortgage installments notwithstanding that an arrearage claim will be paid through the Chapter 13 trustee.24 Requiring payment of home mortgages through the Chapter 13 trustee—especially when there have been prepetition defaults—is certainly a reasonable outcome based on experience in districts with large Chapter 13 programs that handle hundreds or thousands of mortgage payments every year.25 That the debtor came into the Chapter 13 case already in default of the fundamental financial obligation to maintain a home is evidence that the debtor cannot be depended on to make timely mortgage payments during the plan. Allowing such a debtor to continue to make payments directly to the mortgage holder is an invitation to disaster in the Chapter 13 case. Chapter 13 plans are more likely to succeed if both the arrearage and the regular monthly payment are paid through the Chapter 13 trustee based on a payroll deduction order to the debtor’s employer. As explained by the Bankruptcy Court for the Southern District of Texas, payment of home mortgages through the Chapter 13 trustee benefits all of the players in the Chapter 13 system:

        Bankruptcy courts across the nation have recognized the need for debtors to make residential mortgage payments through the trustee and have mandated it in increasing numbers:
The data . . . show secured debt accounting for 54-59 percent of total disbursements over the years 1994-2003. Obscured in the numbers is a re-allocation of percentages of post-petition payments and mortgage arrearage payments. . . . During the past four years, the numbers of trustees making post-petition mortgage payments inside the plan (“conduit payments”), and the amounts being paid, have increased substantially. . . . There are good reasons to believe that this practice works to the benefit of creditors, debtors, and trustees.
Gordon Bermant, Trends in Chapter 13 Disbursements, Feb-24 Am. Bankr. Inst. J. 20 (2005) [App. E].
        A research report sponsored by the endowment of the National Conference of Bankruptcy Judges carried out by Gordon Bermant, a retired research professional of the Federal Judicial Center, emphasizes that Chapter 13 plans are more effective when home mortgage payments are made through the trustee. Gordon Bermant, Paying the Ongoing Mortgage Through the Chapter 13 Plan: A Beneficial Practice for All Involved (This report is a draft and will be developed further prior to publication.) [App. F]. In light of the benefits of making mortgage payments through the Chapter 13 trustee, the local rules for the Eastern District of Michigan virtually require debtors to do so:
The district has used local rules to make the practice virtually compulsory by placing the burden of justifying direct payments on the debtor. Debtor’s attorneys have also settled on routine plan language that assures agreement between the trustee’s records and the mortgage holder’s records at the time the case is terminated. Another local rule requires holders to serve notice in advance of any changes contemplated for the size [of] a debtor’s required monthly payment. Requiring notice avoids later litigation in circumstances where the mortgage holder has, for example, obtained force-placed insurance to protect the collateral and passes the cost to the debtor with unannounced increases in the loan amount. All of these provisions benefit the court as well as the debtor, by reducing the amount of litigation over alleged debt remaining at the time the case is terminated.
Id. at 29 (citing Marilyn R. Somers and Kimberly Shorter-Siebert, Is It Really a Fresh Start?, NACTT Quarterly 16 (2004)).26
[10]

The court of appeals that once required mortgages in default to be paid through the Chapter 13 trustee retreated from that rule in more recent cases. In 1982 in Foster v. Heitkamp (In re Foster),27 the Fifth Circuit seemed to hold that if the Chapter 13 debtor provided for mortgage arrearage payments through the trustee, then the plan also had to provide for payment to the trustee of the ongoing monthly mortgage payment. Bankruptcy and district courts in the Fifth Circuit struggled to read Foster less strictly.28 Fifteen years after Foster, the Fifth Circuit itself reread Foster to state a rule of broad discretion with respect to direct payments by Chapter 13 debtors:

[A]lthough § 1326(c) states the general rule that payments are to be made through the trustee, Chapter 13 permits the debtor to act as the disbursing agent and to make payments to a creditor directly. . . . [W]e believe that the bankruptcy court is in the better position to ascertain whether or not the debtor is capable of acting as a disbursing agent and make direct payments of either current mortgage payments or arrearage payments. The only limitation is that the bankruptcy court in making this determination “must determine whether the debtor will be able to make those payments and . . . comply with the plan.”29
[11]

Bankruptcy courts are appropriately reluctant to allow debtors to act as their own disbursing agents. The practice of paying some creditors directly grew up under the former Bankruptcy Act when it was the law that an objecting secured creditor could not be dealt with through the Chapter XIII plan.30 The only alternative was to provide for the nonconsenting creditor “outside” the plan. The confusing terminology “inside” and “outside” the plan—somewhat meaningful under the former Act, but significant only for the confusion it creates under the 1978 Code—has been loosely used by bankruptcy practitioners since enactment of the Code.31 One bankruptcy court aptly described a proposal for direct payment of a secured claim “outside” the plan as a “murky, amorphous proposal” that did not satisfy the requirements for confirmation under § 1325(a)(5).32 It is the experience of many bankruptcy courts that permitting debtors to make payments directly to creditors increases the failure rate of Chapter 13 plans and burdens the Chapter 13 trustee with cases in which too few funds are received to cover the costs of administration. Many reported decisions refuse to confirm plans that propose to pay certain creditors or classes of creditors directly by the debtor, especially when the proposed direct payment is to an unsecured claim holder.33

[12]

A debtor’s proposal to make payments directly to certain creditors may create a classification-of-claims problem at confirmation.34 Some courts use different forms of the disposable income test at confirmation depending on whether payment is through the Chapter 13 trustee or directly by the debtor.35 It has been held that direct payment by the debtor does not “provide for” the debt for purposes of discharge under § 1328(a) at the completion of payments.36

[13]

A particularly disturbing consequence of direct payment by the debtor was identified by the U.S. Court of Appeals for the Eleventh Circuit in Telfair v. First Union Mortgage Corp.37 The confirmed plan in Telfair required the debtor to pay the regular monthly mortgage payment directly to the mortgage holder. “Supplemental payments” to cure arrearages were made through the Chapter 13 trustee. The debtor defaulted in the direct payments and First Union Mortgage Corporation incurred attorney’s fees and premiums for forced-written hazard insurance. First Union applied payments received from the debtor and from the trustee to reimburse itself for the attorney’s fees and hazard insurance premiums. The debtor sought sanctions for violation of the automatic stay and of the discharge injunction. The Eleventh Circuit concluded that payments by the debtor directly to First Union ceased to be property of the estate and were not protected by the automatic stay after confirmation:

In this case, after confirmation, only the amount required for the plan payments remained property of the estate. Telfair’s regular loan payments, made outside of the plan, were therefore no longer property of the estate and First Union’s application of a portion of those payments to attorney’s fees pursuant to the Deed did not violate section 362(a).38
[14]

Telfair offers a good reason for Chapter 13 debtors to avoid direct payment to creditors: at least in the Eleventh Circuit, payments directly by the debtor to a creditor are not protected by the automatic stay. It is not clear from the Telfair opinion how the Eleventh Circuit reached this conclusion,39 but even the threat of loss of the protections of the automatic stay is reason enough to avoid direct payment of creditors. Other courts have cited Telfair for the proposition that direct payment severely limits a Chapter 13 debtor’s ability to police the application of direct payments by a mortgage creditor.40

[15]

It is in the best interests of all creditors that payments be made through the Chapter 13 trustee, not directly by the debtor. The Chapter 13 trustee’s checks never bounce. Requiring that payments be made through the Chapter 13 trustee gives creditors information, control and leverage. The automatic stay remains in effect even when the plan permits some payments by the debtor directly to creditors.41 A creditor that is not receiving payments directly from the debtor is still prohibited from contacting the debtor after confirmation to determine what is wrong. If all payments are made through the Chapter 13 trustee, the status of the case and of the debtor’s postconfirmation financial condition is more easily determined. The Chapter 13 trustee becomes an ally in the effort to police the case. Often the trustee will have information not available to individual creditors—for example, that the debtor has been sick or temporarily laid off and unable to make payments. If a creditor is not receiving its proper direct payments, the creditor will have to hire counsel and file its own motion for stay relief or to convert or dismiss. If the creditor is not receiving its proper payments from the Chapter 13 trustee, the trustee will usually be out front representing all creditors with a motion to convert or dismiss.

[16]

The avalanche of recent litigation between Chapter 13 debtors and mortgage servicers has demonstrated that mortgage lenders and servicers cannot be counted on to accurately account for payments during Chapter 13 cases.42 The enactment of § 524(i) by BAPCPA—ostensibly intended to provide a remedy when creditors fail to properly credit payments during a Chapter 13 case43—demands that evidence be available at the end of every Chapter 13 case from which payments to creditors can be determined with certainty. Payment of all debts through the Chapter 13 trustee is the only reliable mechanism to produce accurate records of payments in and out of Chapter 13 plans in a district.

[17]

In 1993, the Supreme Court may have inadvertently created new incentives for Chapter 13 debtors to seek to pay home mortgages directly rather than through the trustee. Discussed in more detail elsewhere,44 in Nobelman v. American Savings Bank,45 the Supreme Court held § 1322(b)(2) prohibits splitting an undersecured claim into its secured and unsecured components if the claim is secured only by real property that is the debtor’s principal residence. In his opinion for a unanimous Supreme Court, Justice Thomas reasoned that § 1322(b)(2) prohibits a Chapter 13 plan from modifying the rights of the holders of claims that are secured only by real property that is the debtor’s principal residence. Among the “rights” that are protected from modification by § 1322(b)(2) are contract rights and rights under state law, including the right to the monthly payment and interest rate specified in the contract, the right to retain a lien until the mortgage is paid in full, the right to accelerate upon default, the right to collect a deficiency if permitted by state law and the like.46

[18]

Most mortgage contracts require payment by a certain day of each month. Justice Thomas’s analysis in Nobelman indicates that a Chapter 13 debtor cannot modify the right of a mortgage holder to receive timely payment consistent with the contract. Because Chapter 13 trustees typically disburse money to creditors once a month, it is unlikely that the regular monthly disbursement by the trustee will satisfy every Chapter 13 debtor’s contractual obligation to make mortgage payments by a certain date each month. Nobelman could expose Chapter 13 debtors who make their mortgage payments directly to the creditor or through the Chapter 13 trustee to contractual late charges in any month in which the direct payment or trustee’s disbursement date is after the contract due date.47

[19]

To avoid this result after Nobelman, Chapter 13 trustees have developed procedures for disbursements to mortgage holders that avoid contractual late charges and penalties.48 For example, by careful calculation of the arrearages to include the months between the petition and confirmation, some trustees actually pay the ongoing mortgage payments in advance at the end of each month after confirmation, thus avoiding all late charges.

[20]

The trustee’s obligation to make payments to creditors is limited by Bankruptcy Rule 3010. The trustee need not make distribution to any creditor in an amount less than $15 except as provided by local rule or order. Especially in tight plans where only a small amount is available in any one month for distribution to unsecured claim holders, it may take several months before more than $15 is accumulated for distribution to any one creditor.

[21]

One court of appeals decision suggests that the trustee’s obligation to make payments to creditors has content beyond the usual disagreements about timing and commissions. In Ford Motor Credit Co. v. Stevens (In re Stevens),49 through a combination of insurance proceeds and payments under a plan, Ford was overpaid its allowed secured claim. The trustee sued to recover the overpayment. The bankruptcy court allowed the recovery and authorized the trustee to collect the overpayment by withholding payments due Ford in other Chapter 13 cases. On appeal, the Eleventh Circuit validated the trustee’s right to recover the overpayment but reversed the authorization to collect by withholding payments to Ford in other Chapter 13 cases. Citing the trustee’s duty to make payments to creditors under the plan in § 1326(c), the Eleventh Circuit explained:

By withholding the amount of the overpayment from the unrelated plans, the Trustee violated his statutory obligation to make payments to creditors as required under the terms of a confirmed plan by, in effect, refusing to make the full payment required under the terms of the other plans administered by the Trustee. . . . The Trustee’s action violated his duty to make payments on the behalf of the other debtors, placing them at risk for default.50
[22]

The Bankruptcy Reform Act of 1994 added an imperative to the trustee’s responsibility to make payments to creditors. Section 307 of the 1994 Act amended § 1326(a)(2) to provide: “If a plan is confirmed, the trustee shall distribute any [payment received from the debtor] in accordance with the plan, as soon as practicable.”51 Congressman Brooks offered this explanation of the 1994 amendment:

Currently, the practice of making payouts under a chapter 13 plan varies from one court to another. This section clarifies Congressional intent that the trustee should commence making the payments “as soon as practicable” after the confirmation of the chapter 13 plan. Such payments should be made even prior to the bar date for filing claims, but only if the trustee can provide adequate protection against any prejudice to later filing claimants caused by distributions prior to the bar date.52
[23]

One trustee’s effort to make distributions “as soon as practicable” produced a tub of hot water for the trustee. In In re Wilson,53 the confirmed plan provided full payment of secured and priority claims and “variable” payment of unsecured claims based on what was left after payment of secured and priority creditors. This was a sort of “base” plan54 in which the debtor would pay the trustee $4,425 per month for 59 months ($261,075) and, after paying secured and priority claims in full, unsecured creditors would get all the remaining money.

[24]

The plan in Wilson was confirmed before the governmental claims bar date,55 and the trustee immediately began distributions. Unfortunately for the trustee, some general unsecured claims had already been filed, and the trustee’s computer determined—based on the scheduled amounts of priority and secured debts—that it could cut checks to unsecured creditors with the first distribution. Just prior to the governmental claims bar date, priority claims were filed that substantially exceeded the priority debts listed in the schedules. There was no longer enough money in the “base” to pay secured and priority claims in full. The trustee was stuck. The bankruptcy court denied the trustee’s motion to modify the plan to increase the base, reasoning that the decision to begin distributions to unsecured creditors before the governmental claims bar date was a risky interpretation of the responsibility to commence payments “as soon as practicable”:

From the legislative history, it appears that Congress intended “as soon as practicable” to mean such time as the trustee is able to determine that distributions to claimants having filed proofs of claim will not result in prejudice to other creditors that later file claims. If the Chapter 13 trustee is unable to do so based on the information available at the time, the trustee must defer making distributions until such time as sufficient information is available to make such determination. In some cases, the trustee may be required to await the expiration of the claims bar date. In the instant case, the trustee, in an exercise of her judgment, determined, based only on the debtors’ schedules, that distributions could be made to the general unsecured creditors prior to the filing of the IRS’ and District of Columbia’s proofs of claim. The trustee’s determination was in error. . . . [T]he trustee assumed the risk that the secured and priority claims of the IRS and District of Columbia could be, as ultimately was the case, so large as to render the distributions on the non-governmental general unsecured claims prejudicial to the secured and priority claims to be paid through the plan. Because the distributions have resulted in prejudice to the IRS and District of Columbia, it is clear that the trustee began making distributions prior to it being “practicable” to do so in contravention of § 1326(a)(2). Accordingly, it is appropriate to place the onus of resolving the shortfall of funds necessary to administer the debtors’ case upon the trustee.56
[25]

There is much local variation in the timing of confirmation of Chapter 13 plans and the commencement of distributions to creditors.57 Insertion of the phrase “as soon as practicable” in § 1326(a)(2) does not bring certainty to the timing of distributions. The commentary by Congressman Brooks is some evidence of legislative intent that trustees should not delay distributions, but what is the trustee supposed to do in a district where the bankruptcy court insists on delaying confirmation until after the bar date for filing timely proofs of claim?58 Congressman Brooks’s remarks support the view that bankruptcy courts should not wait until after the claims bar date to confirm plans.59

[26]

Once a plan is confirmed, “as soon as practicable” should compel the Chapter 13 trustee to immediately distribute the money on hand to creditors. It is the practice in most districts that plan payments received by check are held by the Chapter 13 trustee for a brief period to ensure that the funds are good. Most Chapter 13 trustees make distributions to creditors every month, and thus within a month (plus a few days) of confirmation.60 However, there are districts that do not make distributions every month. Creditors complain that there are districts in which they wait three, four or more months after confirmation before receiving a first distribution—even creditors with secured claims that are entitled to regular monthly payments under the confirmed plan. Section 1326(a)(2) requires that trustees and courts reconsider practices that delay payments to creditors.

[27]

Congressman Brooks’s statement that Chapter 13 trustees must “provide adequate protection against any prejudice” from beginning distributions to creditors before the claims bar date is troublesome. The concern seems to be that if the trustee makes distributions to creditors immediately after confirmation and before the claims bar date, creditors that file early proofs of claims may get money before creditors of equal status that file timely but later claims. If the case converts or is dismissed before distributions to similarly classified creditors have been equalized, “prejudice” results.

[28]

Congressman Brooks’s use of the term of art “adequate protection” is distracting. As defined in § 361 of the Code,61 adequate protection is not easily applied in this context. How is a Chapter 13 trustee supposed to protect (adequately or otherwise) creditors that have not filed proofs of claim and with respect to which allowance of and entitlement to distributions are unknown? After BAPCPA, there are new statutory entitlements of some secured claim holders to “adequate protection” before62 and after63 confirmation that must be respected within the distribution scheme for Chapter 13 cases in every district.

[29]

In districts with long experience confirming plans and beginning distributions before the claims bar date, some Chapter 13 trustees have programmed their computers to accumulate funds in anticipation of payments to certain classes of creditors without regard to whether those creditors have actually filed proofs of claim. For example, between confirmation and the claims bar date, a trustee might accumulate the monthly payment to a secured claim holder even if that claim holder has not filed a proof of claim. When the creditor files a proof of claim, the trustee will have on hand the money necessary to bring that creditor current, consistent with the plan. The accumulated money certainly protects the unfiled creditors from “prejudicial” distributions to filed creditors between confirmation and the claims bar date. When the claims bar date passes, the funds on hand can be distributed to filed creditors if no timely proof of claim is filed by the claim holder being protected by the trustee’s computer. The delay in distribution of the accumulated money is only modestly “prejudicial” to the diligent creditors that filed claims timely and early.

 


 

1  11 U.S.C. § 1326(c) provides: “Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan.”

 

2  Jutila v. Rodgers (In re Jutila), 111 B.R. 621 (W.D. Mich. Apr. 25, 1989) (Enslen). Accord In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Section 1326(c) presumes all payments to be made to prepetition creditors will flow through the trustee.); In re Vigil, 344 B.R. 624, 629 (Bankr. D.N.M. June 19, 2006) (McFeeley) (“The code, therefore, does not prohibit direct payments at the same time that it presumes that most payments will be made through the trustee.”); In re Slaughter, 188 B.R. 29, 31 (Bankr. D.N.D. Sept. 19, 1995) (Hill) (“[T]he presumption has always been for distribution made by the trustee.”).

 

3  In re Gregory, 143 B.R. 424 (Bankr. E.D. Tex. July 22, 1992) (Sharp). Accord Barber v. Griffin (In re Barber), 191 B.R. 879, 885 (D. Kan. 1996) (“[C]ourts have permitted debtors to make direct payment to creditors under limited or unique circumstances.”); First Bank & Trust v. Gross (In re Reid), 179 B.R. 504, 507–09 (E.D. Tex. Feb. 28, 1995) (Cobb) (Citing In re Gregory, 143 B.R. 424 (Bankr. E.D. Tex. July 22, 1992) (Sharp), court denies confirmation of plan that would pay bank secured by car directly by the debtor pursuant to a reaffirmation agreement while paying department store with partially secured claim through the Chapter 13 trustee. “[T]he general rule requires that debts provided for in a Chapter 13 plan be paid through the Chapter 13 Trustee. 11 U.S.C. § 1322(a)(1). Section 1326(c) demonstrates that this method of disbursement is not exclusive. . . . [T]he decision to permit a debtor to act as his own disbursing agent is left to the discretion of the bankruptcy judge. . . . [T]he bankruptcy court analyzed the viability and enforceability of the reaffirmation agreement. . . . The court mused that the only way to enforce this agreement would be to make it part of the plan and thereby force the trustee to monitor the payment schedule. Common sense dictates that the payments should be made through the trustee if the trustee would be forced to expend effort to monitor the payment schedule. . . . The motivation for the reaffirmation agreement appears to be to avoid the payment of the trustee’s fee. In analogous cases, other courts refused to allow debtors to make periodic payments directly to secured creditors simply to avoid payment of the trustee’s fee and circumvent the bankruptcy game. . . . [The debtors] offer no valid reasons why the bank’s secured automobile loan should be paid directly by the debtor. The questions surrounding the validity and enforceability of the reaffirmation agreement coupled with the fact that payments under this agreement are periodic as opposed to lump sum payments, and the possibility that the debtors will abuse the bankruptcy system if they are permitted to act as disbursing agents simply to avoid trustee’s fees, show that the bankruptcy court’s decision to deny the confirmation of this Chapter 13 plan was proper. It requires little imagination to envision the abuse which could be engendered if the bankruptcy court’s decision is reversed. A person teetering on the feathered edge of financial stability in his own community could incur debts for a myriad of goods . . . with a tacit or explicit understanding that a subsequent reaffirmation would occur after discharge. This reaffirmation would reorganize liens previously given, with or without uneven amounts of repayment obligations, and thereby eviscerate the valid and laudatory reasons for Congress’ enactment of Chapter 13 which was to allow individuals a new start in this troubled national economy.”), aff’d without op., Case No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473); In re Sanford, 390 B.R. 873, 876 (Bankr. E.D. Tex. July 2, 2008) (Parker) (In Foster v. Heitkamp (In re Foster), 670 F.2d 478, 486 (5th Cir. Mar. 1, 1982) (Garza, Randall), the Fifth Circuit “acknowledged at that time that ‘§ 1326(b) also makes it clear that the Chapter 13 trustee is normally to make distributions to creditors of the payments made under the plan by the debtors.’”); In re Bernard, 201 B.R. 600, 603 (Bankr. D. Mass. Apr. 18, 1996) (Feeney) (“[D]ebtors may depart from the norm of payments to creditors by the Chapter 13 Trustee only if they advance a ‘significant reason’ for doing so.”); In re Slaughter, 188 B.R. 29, 31 (Bankr. D.N.D. Sept. 19, 1995) (Hill) (“[T]he presumption has always been for distribution made by the trustee. . . . Deviation from this presumption has been allowed by courts where there appears some significant reason for doing so.”).

 

4  See §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See, e.g., In re Aberegg, 961 F.2d 1307 (7th Cir. Apr. 20, 1992) (Cudahy, Manion, Reynolds) (Reading §§ 1326(c) and 1322(a)(1) together, Chapter 13 debtors can make payments directly to some secured creditors, if plan otherwise meets the requirements for confirmation under § 1325(a).). Accord Friendly Fin. Discount Corp. v. Bradley, 705 F.2d 1409 (5th Cir. May 12, 1983) (Gee, Randall, Tate); In re Evans, 66 B.R. 506 (Bankr. E.D. Pa. Oct. 28, 1986) (Scholl); In re Olah, 40 B.R. 900 (Bankr. S.D. Ohio July 17, 1984) (Anderson); In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey); In re Berry, 5 B.R. 515 (Bankr. S.D. Ohio Mar. 18, 1980) (Anderson); In re Centineo, 4 B.R. 654 (Bankr. D. Neb. June 16, 1980) (Crawford); In re Wittenmeier, 4 B.R. 86 (Bankr. M.D. Tenn. Mar. 10, 1980) (Jennings).

 

5  Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 690 (B.A.P. 9th Cir. Apr. 28, 2010) (Hollowell, Montali, Markell).

 

6  Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1269 (5th Cir. May 12, 1997) (Smith, Parker, Justice) (“[W]e believe that the bankruptcy court is in the better position to ascertain whether or not the debtor is capable of acting as a disbursing agent and make direct payments of either current mortgage payments or arrearage payments. The only limitation is that the bankruptcy court in making this determination ‘must determine whether the debtor will be able to make those payments and  . . . comply with the plan.’”); Barber v. Griffin (In re Barber), 191 B.R. 879, 885 (D. Kan. Jan. 29, 1996) (Crow) (Among the factors a bankruptcy court should consider to determine whether to permit direct payments by a Chapter 13 debtor to creditors is “the impact of direct payments on plan feasibility.”); In re Slaughter, 188 B.R. 29, 31 (Bankr. D.N.D. Sept. 19, 1995) (Hill) (Among the criteria used by courts to determine whether to confirm a plan providing for direct payments is “the impact of direct payments, on plan feasibility.”); In re Carson, 85 B.R. 460 (Bankr. S.D. Ohio Feb. 8, 1988) (Sellers) (Feasibility test prohibits debtor from making payments directly to automobile lessor if the lease payments are in default.). See In re Teagardner, 98 B.R. 318, 321 (Bankr. S.D. Ohio Mar. 20, 1989) (Cole) (Local bankruptcy rule requiring “conduit mortgage payment”—payment of home mortgage through the Chapter 13 trustee if the mortgage is in arrears at the petition—“serves the salutary policy of facilitating performance under Chapter 13 plans by debtors who have demonstrated a questionable prepetition payment track record.”); In re Caulfield, 82 B.R. 55, 56 (Bankr. S.D. Ohio Jan. 12, 1988) (Waldron) (Debtor permitted to “exclude” payments on a “true lease” of a motor vehicle. To determine whether a Chapter 13 debtor will be permitted to act as a disbursing agent, court should consider “the effect the excluded debt will have on the mandatory provisions of the debtor’s plan [§ 1322(a)] and the effect the excluded debt will have on other creditors’ rights.”).

 

7  In re Santiago, No. 08-15360-BKC-LMI, 2009 WL 3515705 (Bankr. S.D. Fla. Oct. 29, 2009) (unpublished) (Isicoff) (Nonresidential mortgage that can be modified by plan cannot be paid directly to mortgage holder but must be paid through the Chapter 13 trustee.); In re Vigil, 344 B.R. 624, 630 (Bankr. D.N.M. June 19, 2006) (McFeeley) (Chapter 13 debtors can pay secured claims directly when debts are not modified and if other requirements for confirmation are satisfied. “[C]onfirmation should be granted unless the secured claim the debtor proposes to pay directly outside the plan is modified in some way, or the plan otherwise fails to meet the requirements for confirmation outlined in 11 U.S.C. § 1325(a).”); In re Clay, 339 B.R. 784 (Bankr. D. Utah May 2, 2006) (Thurman) (Citing In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey), debtors can choose to pay secured creditors directly so long as the contract rights of those creditors are not altered.); In re Brown, 244 B.R. 603, 607 (Bankr. W.D. Va. Jan. 21, 2000) (Stone) (“Heilig-Meyers suggests that payments upon all secured debt owed to it be paid directly by the Debtors . . . . The savings would be on the Trustee’s commission. The savings resulting from payment to Heilig-Meyers only would be relatively nominal and not worthwhile in the Court’s judgment. Furthermore, the Court does not believe it is appropriate to encourage or permit payment ‘outside’ of the Plan of an entirely modified obligation payable to a partially secured creditor. The rights of such a creditor are entirely contained in the confirmed Plan and accordingly are different than those of a fully secured creditor whose original contractual payments are being maintained during the life of the Plan. Whether payments to such a fully secured creditor with an unmodified obligation would be appropriate ‘outside’ of the Plan payments is not necessary to decide here.”); In re Ford, 179 B.R. 821, 824 (Bankr. E.D. Tex. Apr. 5, 1995) (Sharp) (“This Court, therefore, holds that § 1322(b)(2), read in conjunction with other Code provisions, requires all claims modifications to be made through the Chapter 13 plan subject to the limitations imposed upon such plan by applicable Code provisions.” Debtors are not permitted to pay secured claim holders “outside the plan” after negotiating reaffirmation agreements.).

 

8  In re Smith, No. 07-82462, 2009 WL 937144, at *3 (Bankr. C.D. Ill. Mar. 24, 2009) (unpublished) (Perkins) (Direct payment of a secured debt is permissible when debt extends beyond term of plan, but secured debt that will mature during life of plan is payable through trustee. “The Chrysler claim is for a debt that extends beyond the term of the plan and, as such, is permissibly payable outside of the plan. The Harley debt, however, matures during the plan and is more properly payable through the plan.”).

 

9  Barber v. Griffin (In re Barber), 191 B.R. 879, 885 (D. Kan. Jan. 29, 1996) (Crow) (Among the factors to consider in the decision whether the debtor can make payments directly to a creditor is “whether a direct payment by debtor under the plan will impair the trustee’s ability of perform his/her standing trustee duties.”); In re Stonier, 417 B.R. 702 (Bankr. M.D. Pa. Nov. 2, 2009) (Opel) (Direct payment of mortgage is permitted when mortgagee consented, debtors acted in good faith and there was no evidence of burden on trustee.); In re Harris, 200 B.R. 745, 747 (Bankr. D. Mass. Sept. 30, 1996) (Kenner) (“Congress enacted a scheme and mechanism for the self-funding of Chapter 13 standing trusteeship. . . . Section 1322(a)(1) helps ensure that the case administered by the trustee will, on the whole, generate sufficient payments to fund the trustee’s program.”); In re Ford, 179 B.R. 821, 823 (Bankr. E.D. Tex. Apr. 5, 1995) (Sharp) (“To allow debtors and creditors to pick and choose those claims they will submit to the supervision of the Trustee undermines the integrity of the entire trustee system.”); In re Genereux, 137 B.R. 411 (Bankr. W.D. Wash. Feb. 28, 1992) (Brandt) (Applying the 13-factor test from In re Pianowski, 92 B.R. 225 (Bankr. W.D. Mich. Oct. 25, 1988) (Gregg), debtor is not permitted to make car payments directly to lender. “[A]llowing payments outside plans on any large scale would directly affect the source of the trustee’s compensation, and might indirectly affect the U.S. Trustee’s funding.”); In re Harris, 107 B.R. 204 (Bankr. D. Neb. June 21, 1989) (Minahan) (Bankruptcy cases must generate fees sufficient to pay the costs and expenses of administration of the bankruptcy system. Ordinarily, monthly and periodic payments to secured claim holders must be made through the trustee, except regular mortgage payments. Court attempts a confusing distinction between “inside” and “outside” and “direct” and “provided for.”); In re Wright, 82 B.R. 422 (Bankr. W.D. Va. Feb. 11, 1988) (Pearson). But see In re Mathenia, 220 B.R. 427, 431 (Bankr. W.D. Okla. Apr. 24, 1998) (Lindsey) (Questions Chapter 13 trustee’s policy of objecting to plans that propose “direct” payment of secured claims other than home mortgages. Budget revealed a $439.12 monthly payment for a car driven by the debtor’s non-filing spouse. Mathenia was personally liable on this debt, but his non-filing spouse’s personal liability was discharged in her separate prior Chapter 7 case. Chapter 13 trustee objected to effect of plan which was to pay for the car with direct payments by the non-filing spouse. “The Trustee, however, has never agreed to the confirmation of plans proposing the direct payment of other long term obligations, such as car payments. Perhaps, as the Trustee contends here, she fears that extending the policy to other debts would establish a dangerous precedent and encourage manipulation of transactions, schedules and proposed plans so as to reduce the payment of Trustee fees to a point that the viability of the Chapter 13 program would be threatened. In this court’s view, such fears are groundless. One of the principal benefits of Chapter 13 is the ‘cram down’ option. . . . [A] Chapter 13 plan proposing to pay an obligation on a vehicle in accordance with its terms and without modification is rather rare. . . . This court fails to see the logic of permitting the direct payment by debtors of current, unmodified obligations on home mortgages while requiring payment of current, unmodified obligation on other collateral to be made through the Trustee, particularly in cases where, as here, such payments will not be completed during the life of the plan, and where personal liability on the debt therefore will not be discharged at the completion of the plan.”).

 

10  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

11  See 11 U.S.C. § 1326(a)(1), as amended by BAPCPA, discussed in §§ 419.1 [ Payments to Creditors before Confirmation ] § 53.11  Payments to Creditors before Confirmation, 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.

 

12  In re Clay, 339 B.R. 784, 788 (Bankr. D. Utah May 2, 2006) (Thurman) (A Chapter 13 debtor may still choose to pay secured creditors directly so long as those debts are paid pursuant to contract terms, despite changes effected by BAPCPA. The Chapter 13 trustee objected to the debtor’s proposal to pay secured creditors directly. The court found that In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey), was still good law and a debtor may choose to pay secured creditors so long as their rights were not altered. The amendments effected by § 1326 “might even infer that a debtor’s right to pay secured creditors directly is placed even further beyond question.” By requiring debtors to start making payments within 30 days of filing “directly to a creditor holding an allowed claim secured by personal property,” the Code clearly contemplates that the debtor will make payments directly to secured creditors. “It would seem an awkward result if the debtor could make payments directly to secured creditors before plan confirmation but never make such payments after confirmation. The Court believes that, if anything, the changes to § 1326(a)(1) indicate a Congressional intent to allow debtors to continue making payments to secured creditors directly under the terms of the contract.” Although direct payments by a debtor may be subject to challenge on the grounds of good faith or feasibility, there is not a per se rule prohibiting the payment of secured creditors.).

 

13  In re Breeding, 366 B.R. 21, 27 (Bankr. E.D. Ark. May 14, 2007) (Mixon) (Although direct payment of secured claim holder is allowed by statute, direct payment is refused as an exercise of discretion in part because of funding problems created by BAPCPA. “By case law a presumption exists that favors distribution by the trustee. . . . A trustee collects no commission on funds that the debtor distributes directly to a creditor . . . and the Debtors in the instant case seek to avoid paying the Trustee’s commission. . . . Permitting debtors to pay creditors outside the plan over the objection of the trustee does potentially jeopardize the operation of the Office of the Chapter 13 Trustee as a self-funded program. After the advent of BAPCPA, the Court takes judicial notice that the rate of case filings has decreased dramatically, thereby reducing the amount of money passing through the office of the Chapter 13 Trustee . . . . New provisions of BAPCPA . . . could combine to produce more confirmable Chapter 13 plans that make no distribution to unsecured creditors, especially for above-median income debtors. . . . [R]equiring payment to be made to the Chapter 13 trustee by debtors produces an audit trail that minimizes debtor-creditor disputes over whether and when a payment has been made. For these reasons, the objection to confirmation on the basis that the Debtors improperly propose to pay Green Tree outside the plan is sustained.”).

 

14  See § 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See also §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA and 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.

 

15  28 U.S.C. § 586(e). See discussion of compensation of Chapter 13 trustee beginning at § 54.1  Standard Percentage Fee and Expenses.

 

16  Jutila v. Rodgers (In re Jutila), 111 B.R. 621 (W.D. Mich. Apr. 25, 1989) (Enslen). Accord First Bank & Trust v. Gross (In re Reid), 179 B.R. 504, 508 (E.D. Tex. Feb. 28, 1995) (Cobb) (“The motivation for the reaffirmation agreement appears to be to avoid the payment of the trustee’s fee. In analogous cases, other courts refused to allow debtors to make periodic payments directly to secured creditors simply to avoid payment of the trustee’s fee and circumvent the bankruptcy game.”), aff’d without op., Case No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473) (“We write briefly today only to emphasize that In re Foster, 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), stands clearly for the principle that the bankruptcy court has broad discretion in determining whether a debtor may act as disbursing agent in place of the trustee, thereby avoiding the Chapter 13 trustee’s fees.”); In re Miles, 415 B.R. 108 (Bankr. E.D. Pa. Apr. 7, 2009) (Sigmund) (Trustee’s objections to payment of all secured creditors directly by debtors are sustained when it appeared that debtors were making direct payments for sole purpose of avoiding trustee’s commission. In one case direct payments would leave trustee without any duties, justifying denial of confirmation. In second case, plan was confirmed in which trustee would make distributions on mortgage arrearage and debtors would make ongoing mortgage payments directly to creditor.); In re Perez, 339 B.R. 385, 410 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm) (“[I]t is improper for the Court to permit debtors to make home mortgage payments directly for the sole purpose of avoiding the trustee’s percentage fee.”); In re Bernard, 201 B.R. 600 (Bankr. D. Mass. Apr. 18, 1996) (Feeney) (That direct payment of home mortgage by the debtor would increase the money available to unsecured claim holders by $9,964.02 is not sufficient basis for the mortgage holder’s motion to require the Chapter 13 debtor to pay the mortgage directly to the bank to avoid trustee’s fees.). But see Michel v. Beard (In re Beard), 45 F.3d 113, 120 n.9 (6th Cir. Apr. 12, 1995) (Kennedy, Boggs, Hillman) (In a Chapter 12 case, debtors can pay the secured portion of an undersecured debt directly to the creditor in order to avoid paying the standing Chapter 12 trustee fees under 28 U.S.C. § 586(e)(1)(B). “[J]ust as a Chapter 12 debtor may bypass the trustee and directly pay fully secured claims, so may the debtor directly pay the secured portion of undersecured claims. If our holding results in a reduction of trustees’ fees, it also results in a reduction of their workload.” In a footnote, “[t]he Eighth Circuit has recently resolved a similar question in Wagner v. Armstrong, 36 F.3d 723 (8th Cir. [Sept. 20, 1994) (Bowman, Loken, Stevens)]. . . . [T]he court upheld the direct payments.”). See also §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

17  In re Gregory, 143 B.R. 424, 427–28 (Bankr. E.D. Tex. July 22, 1992) (Sharp) (Section 1326(c) permits debtor to act as disbursing agent for lump-sum payment to IRS from equity in homestead that is to be sold at some point during the 36-month plan. “[A] Court must balance numerous considerations before permitting a debtor to act as a disbursing agent. . . . [D]eviation from the normal periodic payments to the trustee and disbursal of those payments by the trustee should only be departed from when the debtor can demonstrate a significant reason for doing so. . . . An important factor is that the IRS has agreed to this rather unorthodox treatment of its claim. . . . Furthermore, the Court places great weight on the fact that this proposal envisions one payment from one source, i.e. the sale of the Debtor’s home. . . . Also, . . . this Court finds that Debtors’ remaining creditors are not prejudiced by this proposal. Finally, the Trustee has not demonstrated how the administration of this estate would be assisted by requiring the Debtors to funnel the balloon payment through the Trustee’s office. . . . To require this type of one time payment to the trustee would be more in the nature of a windfall to the trustee rather than compensation for monitoring and distributing payments made on a periodic basis.”).

 

18  See Barber v. Griffin (In re Barber), 191 B.R. 879 (D. Kan. Jan. 29, 1996) (Crow) (That it would be extremely difficult for the trustee to keep track of the debtor’s payments is one reason given why the bankruptcy court did not abuse its discretion in denying confirmation of a plan which proposed direct payments to a car lender.); First Bank & Trust v. Gross (In re Reid), 179 B.R. 504, 508 (E.D. Tex. Feb. 28, 1995) (Cobb) (“Common sense dictates that the payments should be made through the trustee if the trustee would be forced to expend effort to monitor the payment schedule.” Court denies confirmation of a plan that would pay a bank secured by a car directly by the debtor pursuant to a reaffirmation agreement while paying a department store with a partially secured claim through the Chapter 13 trustee.), aff’d without op., Case No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473).

 

19  200 B.R. 745 (Bankr. D. Mass. Sept. 30, 1996) (Kenner).

 

20  200 B.R. at 747–49.

 

21  See §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See, e.g., In re Aberegg, 961 F.2d 1307 (7th Cir. Apr. 20, 1992) (Cudahy, Manion, Reynolds) (Reading §§ 1326(c) and 1322(a)(1) together, Chapter 13 debtors can make payments directly to some secured creditors, if plan otherwise meets the requirements for confirmation under § 1325(a).); Cohen v. Lopez (In re Lopez), 372 B.R. 40 (B.A.P. 9th Cir. Aug. 3, 2007) (Markell, Brandt, Pappas), aff’d, 550 F.3d 1202 (9th Cir. Dec. 24, 2008) (Noonan, Silverman, Bea) (adapting opinion of BAP) (“Section 1322(a)(1) does not require that all debts must be paid through the plan; it merely requires that the debtor must submit enough money from his future earnings to ‘the supervision and control of the trustee’ as is necessary to fund the plan.”).

 

22  See §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See, e.g., Barber v. Griffin (In re Barber), 191 B.R. 879, 885 (D. Kan. Jan. 29, 1996) (Crow) (Bankruptcy court did not abuse discretion in denying confirmation of plan that proposed direct payments to car lender. Debtor had failed in two previous Chapter 13 cases. Direct payment would preferentially pay unsecured portion of car lender’s claim in advance of other unsecured claim holders. It would be extremely difficult for trustee to keep track of the debtor’s direct payments. Although § 1326(c) clearly envisioned direct disbursements by Chapter 13 debtors, “courts have permitted debtors to make direct payment to creditors under limited or unique circumstances.” Factors to consider include “whether the creditor receiving direct payments has the economic incentive and ability to monitor future direct payments . . . whether the creditor receiving direct payments is capable of taking the requisite action of protecting its interests in the event of a default . . . the impact of direct payments on plan feasibility . . . [w]hether the debt is modified by the plan, the sophistication of the creditor, . . . the ability of the debtor to reorganize absent direct payments, whether the payment cannot be delayed, the number of payments proposed to satisfy a claim, whether a direct payment by debtor under the plan will impair the trustee’s ability to perform his/her standing trustee duties, and unique or special circumstances of a particular case.”); In re Stonier, 417 B.R. 702 (Bankr. M.D. Pa. Nov. 2, 2009) (Opel) (Applying factors from In re Miles, 415 B.R. 108 (Bankr. E.D. Pa. Apr. 7, 2009) (Sigmund), direct payment of mortgage is permitted when mortgagee consented, debtors were acting in good faith and there was no proof of burden on trustee monitoring, salary or funding.); In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm) (Citing 21 factors and Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), Chapter 13 debtors are not entitled to relief from local rule that requires home mortgage payments to be made through the trustee. Responsibility in past dealings with creditors and the trustee is the most important factor.), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal); In re Hodonou, No. 04-82516-G3-13, 2007 WL 760235 (Bankr. S.D. Tex. Mar. 6, 2007) (unpublished) (Letitia Clark) (Deviation from local rule that required ongoing mortgage payments to be paid through trustee unless there is no default at petition date requires proof from the debtor consistent with factors identified in In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal).); In re Slaughter, 188 B.R. 29, 31 (Bankr. D.N.D. Sept. 19, 1995) (Hill) (Citing Wagner v. Armstrong (In re Wagner), 36 F.3d 723 (8th Cir. Sept. 20, 1994) (Bowman, Loken, Stevens), Chapter 13 debtor has qualified right to provide for direct payments to impaired secured creditors. “[T]he presumption has always been for distribution made by the trustee. . . . Deviation from this presumption has been allowed by courts where there appears some significant reason for doing so. . . . In determining whether to confirm a plan providing for direct payments, courts in the past have developed detailed criteria, the foremost of which are: (1) whether the creditor receiving direct payments has the economic incentive and ability to monitor future direct payments; (2) whether the creditor receiving direct payments is capable of taking the requisite action of protecting its interests in the event of a default; (3) the impact of direct payments, on plan feasibility and whether, in the case of a Chapter 13 debtor engaged in business, meaningful reorganization is dependent upon direct payment.” Direct payments of taxes is permitted because the taxing authority is “highly sophisticated” and can protect itself in the Chapter 13 case. Proposed plan would be “incapable of cash flowing” if all payments were subject to the 10% commission. Direct payment of priority tax claims, of all unmodified claims, and of impaired real estate–secured and chattel-secured claims is permitted.).

 

23  See §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See, e.g., In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Requests to make postpetition mortgage payments directly to creditors are denied consistent with local rule that requires payments through trustee when mortgage is delinquent at petition. Section 1326(c) presumes all payments to be made to prepetition creditors will flow through trustee. Whether debtor should be permitted to make ongoing postpetition mortgage payments directly to creditor is “‘very much a matter left to the considered discretion of the bankruptcy court’” (quoting Foster v. Heitkamp (In re Foster), 670 F.2d 478, 486 (5th Cir. Mar. 1, 1982) (Garza, Randall)). Local rule provided that if debtors are current on mortgage payments at time of filing, they may have choice of making ongoing mortgage payments directly or through trustee, but for debtors who are delinquent at filing, “then the ongoing mortgage payments must be made through the plan, unless the court orders otherwise.”); In re Hodonou, No. 04-82516-G3-13, 2007 WL 760235 (Bankr. S.D. Tex. Mar. 6, 2007) (unpublished) (Letitia Clark) (Consistent with local rule, ongoing mortgage payment must be paid through the trustee unless there is no default at the petition; variation from that rule requires proof from the debtor consistent with factors in In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal).); In re Weber, 114 B.R. 194, 198 (Bankr. D. Neb. Sept. 28, 1988) (Minahan) (Citing Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), and § 1322(b)(5), the court held that the debtor is not allowed to “bifurcate” a mortgage by curing defaults with payments to the trustee while making current monthly payments directly to the mortgage holder. “[Section] 1322(b)(5) provides for the curing of a default of a mortgage only when the plan also includes the maintenance of the current mortgage payments while the case is pending.”). See also Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall); Greenspan v. Davis (In re Glasper), 28 B.R. 6 (B.A.P. 9th Cir. Feb. 11, 1983) (George, Hughes, Volinn); In re Tartaglia, 61 B.R. 439 (Bankr. D.R.I. May 16, 1986) (Votolato); Citicorp Person-to-Person Fin. Ctr., Inc. v. Jordan, 32 B.R. 867 (Bankr. S.D. Ohio Sept. 8, 1983) (Anderson).

 

24  See §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See, e.g., Cohen v. Lopez (In re Lopez), 372 B.R. 40 (B.A.P. 9th Cir. Aug. 3, 2007) (Markell, Brandt, Pappas), aff’d, 550 F.3d 1202 (9th Cir. Dec. 24, 2008) (Noonan, Silverman, Bea) (“Fulkrod I essentially required Chapter 12 trustees to pay claims that the court referred to as ‘impaired’ by the Chapter 12 plan through the plan, while allowing the debtor to pay directly those claims not impaired by the plan. We hold to that distinction . . . . [A] plan impairs an obligation if it allows or provides for payment designed to cure a default and reinstate a scheduled maturity date after acceleration. . . . Mr. Lopez’s plan thus correctly provides for payment of the mortgage arrears by the Chapter 13 trustee. But Mr. Lopez’s obligations, which mature after his bankruptcy filing, are not impaired by the plan. . . . Under Fulkrod I, they could be paid directly by the debtor outside of the plan. . . . Section 1322(a)(1) does not require that all debts must be paid through the plan; it merely requires that the debtor must submit enough money from his future earnings to ‘the supervision and control of the trustee’ as is necessary to fund the plan. Section 1322(a)(1) says nothing else, though, about what exactly must be paid through the plan. . . . A plain reading of [§ 1326(c)] leads to the conclusion that Congress intended that some debts other than those specifically enumerated in Section 1326(a)(1) could also be paid by the debtor outside of the plan, so long as either the plan itself or the order confirming the plan allows it. . . . While the panel sympathizes with the NACTT’s concerns [about the new statutory duties in § 1302(b)(1) and § 1307(c),] . . . this concern could be alleviated through a requirement by the trustee . . . that the debtor send proof of direct payment regularly to the trustee.”); In re Miles, 415 B.R. 108 (Bankr. E.D. Pa. Apr. 7, 2009) (Sigmund) (Plan was confirmed in which trustee would make distributions on mortgage arrearage and debtors would make ongoing mortgage payments directly to creditor.); In re Machado, 378 B.R. 14, 18 (Bankr. D. Mass. Nov. 6, 2007) (Somma) (When plan cures default and maintains payments on long-term student loan, arrearage payments must be made through the Chapter 13 trustee and are subject to the trustee’s commission; maintenance payments can be made directly by debtor to student loan creditor without paying trustee compensation. “I find that distinction—between payment defaults modified by the Plan and maintenance payments not modified but rather resumed—a basis for determining whether payment should be made directly to creditors by the Debtor or by the Debtor through the trustee. . . . [T]he cure component of the cure and maintain treatment is properly made through the trustee (and such cure payments are subject to the trustee’s percentage fee), and . . . the maintenance component of the cure and maintain treatment is permissibly made directly to creditors (and such maintenance payments are not subject to the calculation of the trustee’s percentage fee).”).

 

25  See § 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.

 

26  In re Perez, 339 B.R. 385, 391–92 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm).

 

27  670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall).

 

28  See, e.g., United States v. Donald (In re Donald), 170 B.R. 579 (S.D. Miss. July 29, 1994) (Pickering) (Distinguishing Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), it is permissible to provide for payment of arrearages to the Farmers Home Administration through the Chapter 13 trustee and the payment of the current mortgage “directly to FmHA by the debtors.” The FmHA mistakenly interprets Foster to prohibit “direct” payment by a debtor of an ongoing mortgage obligation where there is an arrearage to be paid through the Chapter 13 trustee’s office. The Fifth Circuit in Foster recognized the difference between “direct” payment by a debtor and payments “outside the plan,” which really describes a claim that is not provided for at all under the plan. Foster holds that a Chapter 13 debtor cannot provide for the payment of an arrearage through the Chapter 13 trustee and then make no provision for payment of the ongoing mortgage. Here, the debtor has made provision for payment of the ongoing mortgage “directly” by the debtor, and thus the plan can provide for payment of the arrearage through the Chapter 13 trustee’s office.).

 

29  Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1269 (5th Cir. May 12, 1997) (Smith, Parker, Justice). Accord First Bank & Trust v. Gross (In re Reid), 179 B.R. 504, 507–09 (E.D. Tex. Feb. 28, 1995) (Cobb), aff’d without op., Case No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473) (“We write briefly today only to emphasize that [Foster v. Heitkamp] (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), stands clearly for the principle that the bankruptcy court has broad discretion in determining whether a debtor may act as disbursing agent in place of the trustee, thereby avoiding the Chapter 13 trustee’s fees. . . . Although Foster recognizes that the debtor should have flexibility in formulating Chapter 13 plans, . . . we find no error in the bankruptcy court’s rejection of the proposed, amended plan, which, in this instance, included a modification of First Bank and Trust’s original loan to the debtors.”).

 

30  See § 652 of former Act, 11 U.S.C. § 1052 (repealed), discussed in § 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA. See also § 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

31  See, e.g., Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. July 7, 2000) (Tjoflat, Marcus, Kravitch), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666 (Jan. 8, 2001) (Direct payments by the debtor to mortgage holder “made outside of the plan” are not property of the estate and are not protected by the automatic stay.); United States v. Donald (In re Donald), 170 B.R. 579 (S.D. Miss. July 29, 1994) (Pickering) (The FmHA mistakenly interprets Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), as prohibiting “direct” payment by a debtor of an ongoing mortgage obligation where there is an arrearage to be paid through the Chapter 13 trustee’s office. The Fifth Circuit in Foster recognized the difference between “direct” payment by a debtor and payments “outside the plan”—which really describes a claim that is not provided for at all under the plan. Foster holds that a Chapter 13 debtor cannot provide for the payment of an arrearage through the Chapter 13 trustee and then make no provision for payment of the ongoing mortgage. Here, the debtor has made provision for payment of the ongoing mortgage “directly” by the debtor, and thus the plan can provide for payment of the arrearage through the Chapter 13 trustee’s office.); In re Mascari, 70 B.R. 325 (Bankr. N.D.N.Y. Feb. 9, 1987) (Gerling); In re Hankins, 62 B.R. 831 (Bankr. W.D. Va. July 1, 1986) (Pearson) (After discussion of historical roots, secured claim holders may not be dealt with “outside” the plan. All creditors must be provided for in the plan. Forbids the future use of the concept “outside” the plan but debtor may act as a disbursing agent in appropriate circumstances.).

 

32  In re Sanford, 390 B.R. 873, 878 (Bankr. E.D. Tex. July 2, 2008) (Parker).

 

33  See, e.g., First Bank & Trust v. Gross (In re Reid), 179 B.R. 504 (E.D. Tex. Feb. 28, 1995) (Cobb) (Court denies confirmation of plan that would pay bank secured by car directly by the debtor pursuant to a reaffirmation agreement while paying department store with partially secured claim through the Chapter 13 trustee.), aff’d, Case No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473); In re Fitzgerald, No. 08-60013-LYN, 2008 WL 5412906, at *3 (Bankr. W.D. Va. Oct. 10, 2008) (unpublished) (Anderson) (IRS objection to confirmation is sustained when plan proposed that debtors make direct payments of trust fund taxes. “While no law has been brought to the attention of the Court that specifically requires the payment of general unsecured and priority unsecured claims through the chapter 13 trustee, there are very good reasons for requiring it. Foremost among these is that the chapter 13 trustee will be able to monitor whether a debtor has made such payments. . . . Consequently, before the Court would confirm such a plan, it would require that there be some good reason for the direct payments.”); In re Sanford, 390 B.R. 873, 876, 878 (Bankr. E.D. Tex. July 2, 2008) (Parker) (Debtor failed to prove cause for payment of IRS “outside the plan.” IRS objected to direct payment. Although Fifth Circuit recognized in Foster v. Heitkamp (In re Foster), 670 F.2d 478, 486 (5th Cir. Mar. 1, 1982) (Garza, Randall), that Chapter 13 debtor is permissible disbursing agent, “it acknowledged at that time that ‘§ 1326(b) also makes it clear that the Chapter 13 trustee is normally to make distributions to creditors of the payments made under the plan by the debtors.’” “By excluding a claim from plan treatment, a debtor is essentially issuing an open invitation to the holder of that claim to seek relief from the automatic stay in order to enforce that claim through any method authorized by applicable law.”); In re Veasley, 204 B.R. 24 (Bankr. E.D. Ark. Dec. 5, 1996) (Scott) (Municipal court order requiring the debtor to pay fines directly to the court or risk incarceration does not justify postconfirmation modification to pay fines “outside” the plan.); In re Bettger, 105 B.R. 607 (Bankr. D. Or. Sept. 29, 1989) (Radcliffe) (Direct payments to unsecured creditors are prohibited because it would be difficult for the trustee and the court to know if the debtor had made all the required payments under the plan. Direct payments by debtors to fully secured creditors where no arrearages exist and the terms of the original contract are not modified are permitted. Debtor is permitted to make a lump sum payment directly to a creditor from the sale of property.); In re Hartdegen, 67 B.R. 230 (Bankr. N.D. Ala. Sept. 30, 1986) (Watson) (Direct payment of unsecured claim holders omitted from original statements and schedules is allowed where preconfirmation modification to cure the omission is permitted.); In re Evans, 66 B.R. 506 (Bankr. E.D. Pa. Oct. 28, 1986) (Scholl) (Unsecured tax liabilities that must be paid in full under § 1322(a)(2) must be paid through the Chapter 13 trustee and cannot be dealt with “outside” the plan.); In re Eby, 38 B.R. 318 (Bankr. D. Or. Apr. 12, 1984) (Hess) (General unsecured claim holders must be paid by trustee.); In re Reines, 30 B.R. 555 (Bankr. D.N.J. Feb. 14, 1983) (DeVito) (Nonconsenting taxing authority cannot be forced to accept payments directly from the debtor.). But see In re Machado, 378 B.R. 14 (Bankr. D. Mass. Nov. 6, 2007) (Somma) (When plan cures default and maintains payments on a long-term unsecured student loan, arrearage payments must be made through the Chapter 13 trustee, but maintenance payments can be made directly by the debtor to student loan creditor.).

 

34  See §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA and 157.1 [ Direct Payments by Debtor ] § 89.1  Direct Payments by Debtor. See, e.g., In re Benner, 156 B.R. 631 (Bankr. D. Minn. July 28, 1993) (Dreher) (It is not unfair discrimination for debtors to pay long-term student loan “outside” plan and to cure default on such loan within the plan, notwithstanding that the result will be 57% payment of the student loan during the plan period and only 5% payment of other nonpriority unsecured claims. Proposed “long-term” treatment of the student loan outside the plan meets the four-part test in Mickelson v. Leser (In re Leser), 939 F.2d 669 (8th Cir. Sept. 17, 1991) (Bowman, Heaney, Dumbauld). See also In re Veasley, 204 B.R. 24, 25–26 (Bankr. E.D. Ark. Dec. 5, 1996) (Scott) (Court refuses proposed postconfirmation modification to separately classify municipal court fines for payment directly by the debtor. “[T]he fact that the creditor demanding disparate treatment is a court does not . . .  justify separate classification . . . or intrusion by the state court into the bankruptcy jurisdiction. . . . No creditor or other court has the power or authority to direct the debtor to act in contravention of the law or make particular provisions in a plan of reorganization.”).

 

35  See § 163.1 [ In General ] § 91.1  In General. See, e.g., In re Padro, 252 B.R. 809, 811 (Bankr. M.D. Fla. July 17, 2000) (Proctor) (An additional consequence of providing that the debtors will make direct payments to a creditor is a different form of disposable income test analysis: “Although the Court follows the minority position with respect to payments made through the plan, payments made outside of the plan require the court to analyze questioned expenses individually, essentially conducting a majority view analysis.”).

 

36  See In re Zambrano, No. 07-20876, 2007 WL 2916161 (Bankr. D. Utah Aug. 3, 2007) (unpublished) (Thurman) (Interpreting In re Clay, 339 B.R. 784 (Bankr. D. Utah May 2, 2006) (Thurman), direct payment of car claim does not discharge the debt and does not alter creditor’s contract rights notwithstanding that automatic stay continues to apply to the creditor.); Mayflower Capital Co. v. Huyck (In re Huyck), 252 B.R. 509, 513–14 (Bankr. D. Colo. Aug. 21, 2000) (Brooks) (Real estate mortgage paid “outside” the plan was not provided for and was not discharged; holder can pursue the debtors personally for a deficiency when the property was foreclosed after discharge. The confirmed plan provided for the cure of prepetition mortgage arrearages through the trustee and payment of the continuing monthly payment “outside the plan.” Debtors completed payments and a discharge was entered. After discharge, the debtors defaulted and mortgage holder foreclosed. A $61,529.07 deficiency resulted. Mortgage holder filed a complaint for a declaratory judgment whether the deficiency was discharged. “Defendants [the debtors] chose not to modify the rights of Community Bank. . . . Accordingly, Defendants, consistent with 11 U.S.C. § 1322(b)(2), left unaffected the bundle of rights of [sic] Community Bank had under its Note—this bundle of rights included the right to pursue a deficiency.” Citing Rake v. Wade, 508 U.S. 464, 474, 113 S. Ct. 2187, 2192, 124 L. Ed. 2d 424 (June 7, 1993), “‘The most natural reading of the phrase to ‘provid[e] for the plan’ is to ‘make provision for’ or ‘stipulate to’ something in the plan.’ . . . Here, the Defendants’ Plan split Community Bank’s secured claim into two separate categories: (1) the amount to cure—paid through the Plan and (2) the regular monthly payments—paid outside of the Plan. The amount to cure was ‘provided for’ under the Plan. The regular monthly payments—i.e., the maintenance of the underlying Note and Deed of Trust during the pendency of the bankruptcy—were not ‘provided for’ under the Plan. . . . The Defendants simply chose to make ongoing payments to this secured creditor outside of the Plan. The ramification of this decision was that the Defendants did not (and could not) invoke the ‘cramdown’ provisions of 11 U.S.C. § 1325(a)(5). Instead, Defendants, outside of the Chapter 13 Plan, would be required to either pay the debt according to the original contract or work out some arrangement with Community Bank . . . . Another byproduct of the Defendant’s choice to make regular ongoing payments to Community Bank outside of the Plan was that the debt would not be discharged under 11 U.S.C. § 1328(a).”). But see In re Redd, No. 04-30591-DHW, 2006 WL 2631623 (Bankr. M.D. Ala. Sept. 12, 2006) (unpublished) (Williams) (Payment of car claims directly by debtor “provided for” car lender, and claims were discharged at completion of payments to other creditors notwithstanding that relief from stay was granted after confirmation, cars were liquidated and deficiency resulted. Discharge turns on whether debt is “provided for” without regard to whether payments are made by debtor or through Chapter 13 trustee.). See also § 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502.

 

37  216 F.3d 1333 (11th Cir. July 7, 2000) (Tjoflat, Marcus, Kravitch), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666 (Jan. 8, 2001).

 

38  216 F.3d at 1340.

 

39  Even if the payments directly by the debtor were not property of the estate, applying those direct payments to collect attorney’s fees and insurance premiums pursuant to the prepetition mortgage contract certainly smells like an act of collection with respect to property of the debtor for purposes of the automatic stay in § 362(a)(5) or (a)(6). See discussion of automatic stay beginning at § 58.1  Usual Protections.

 

40  See Henthorn v. GMAC Mortgage Corp. (In re Henthorn), No. 03-4156, 2005 WL 293646, at *2 (3d Cir. Feb. 9, 2005) (unpublished) (Scirica, McKee, Chertoff) (Debtors cannot challenge oversecured mortgage holder’s charge of $845 for costs and expenses when plan provided that debtors would make payments “outside of bankruptcy” and a year after confirmation the debtors sold the property to satisfy the mortgage. Citing Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. July 7, 2000) (Tjoflat, Marcus, Kravitch), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666 (Jan. 8, 2001), “[s]ection 506(b) does not apply here because the debtors excluded the GMAC mortgage obligation from their confirmed bankruptcy plan, and the challenged fees were paid to GMAC from the debtors’ post-confirmation sale of the mortgaged property. . . . Having excluded their contractual relationship with GMAC from the plan . . . plaintiffs cannot later, post-confirmation, invoke § 506(b) and § 105(a) to superintend the ‘reasonableness’ of fees collected by GMAC from the proceeds of the sale of its collateral.”).

 

41  See, e.g., In re Zambrano, No. 07-20876, 2007 WL 2916161, at *2 (Bankr. D. Utah Aug. 3, 2007) (unpublished) (Thurman) (“The Court . . . can find nothing which provides that a claim paid directly is no longer subject to the automatic stay.”).

 

42  See §§ 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues and 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction. See, e.g., Perez v. Peake (In re Perez), 373 B.R. 468, 472–73 (S.D. Tex. July 19, 2007) (Rosenthal) (“‘As mortgages are packaged and sold in greater numbers, the record-keeping of the note holders, and their servicing agents, has deteriorated. The absence of accurate records of payment receipts, combined with the endemic failure of consumer debtors to maintain accurate records of their payments, has caused confusion and delay in the prosecution and resolution of motions to lift stay and, in some cases, has resulted in debtors losing their homes because they could not prove that payments have been made.’ . . . [R]equiring debtors to use the ‘trustee as the disbursing agent’ minimized such problems, ‘as trustees typically keep impeccable records,’ in contrast to both debtors and mortgage lenders.”). In re Carey, 402 B.R. 327, 330 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (“[D]ebtors in Chapter 13 are, with increasing frequency, finishing their cases with a significant deficiency due to changes in payment amounts or fees and charges, which are unbeknownst to them, and end up losing the house shortly after exiting bankruptcy.”). See also In re Venuto, 343 B.R. 120 (Bankr. E.D. Pa. June 6, 2006) (Frank) (One consequence of direct payment of mortgage during Chapter 13 case is that debtor will bear difficult burden of proof that postpetition payments are current in the event of dispute with lender or servicer.).

 

43  See 11 U.S.C. § 524(i), discussed in § 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA. See also §§ 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

44  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

45  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

46  508 U.S. at 331.

 

47  See §§ 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

48  See §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA. See also § 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges for discussion of the payment of late charges as an element of curing default under § 1322(b)(5).

 

49  130 F.3d 1027 (11th Cir. Dec. 12, 1997) (Cox, Barkett, Hunt).

 

50  130 F.3d at 1031.

 

51  11 U.S.C. § 1326(a)(2), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 307, 108 Stat. 4106 (1994) (emphasis added).

 

52  140 Cong. Rec. H10,770 (section-by-section analysis by Congressman Brooks).

 

53  274 B.R. 4 (Bankr. D.D.C. Dec. 6, 2001) (Teel).

 

54  See § 170.1 [ Methods of Paying Unsecured Claims ] § 101.3  Methods of Paying Unsecured Claims.

 

55  See § 276.1 [ Governmental Units ] § 132.3  Governmental Units.

 

56  274 B.R. at 10–11.

 

57  See § 216.1 [ Timing of Hearing on Confirmation ] § 115.1  Timing of Hearing on Confirmation before BAPCPA.

 

58  The bar date for filing timely proofs of claim is discussed beginning at § 132.1  1994 Code Amendments Changed the Rules.

 

59  See § 216.1 [ Timing of Hearing on Confirmation ] § 115.1  Timing of Hearing on Confirmation before BAPCPA.

 

60  See In re Williams, 190 B.R. 365, 367–68 (Bankr. E.D. Mo. Jan. 2, 1996) (Schermer) (“[T]he Trustee holds funds received through employer withholding orders for ten (10) days before distributing the proceeds to creditors according to the terms of the confirmed Chapter 13 plans. . . . [T]he purpose of this ten day policy is to ensure the funds deposited are actually collected. Next, the Trustee’s payment policy is to disburse funds to creditors once monthly on the 25th day of each month. The combined effect of the Trustee’s ten day policy and the monthly distribution is that all checks received on or prior to the 15th of any month are distributed in that month. Conversely, checks received from the 16th to the 24th of any month result in disbursements on the 25th day of the following month. . . . The Court endorses the Trustee’s ten day policy and holds that it is both a prudent and reasonable policy. Additionally, the once monthly distribution policy of the Trustee is appropriate as no other Chapter 13 trustee in the three state United State [sic] Trustee Region 13 distributes funds more than once per month, and this Court knows of no such practice anywhere in the country.”).

 

61  See § 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1  Adequate Protection of Lienholders before Confirmation for discussion of adequate protection prior to confirmation.

 

62  See 11 U.S.C. § 1326(a)(1)(C), discussed in §§ 404.1 [ Adequate Protection before Confirmation ] § 47.2  Preconfirmation Adequate Protection after BAPCPA, 419.1 [ Payments to Creditors before Confirmation ] § 53.11  Payments to Creditors before Confirmation and 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA.

 

63  See 11 U.S.C. § 1325(a)(5)(B)(iii)(II), discussed in § 449.1 [ “Adequate Protection” after Confirmation ] § 74.15  “Adequate Protection” after Confirmation after BAPCPA.