§ 74.8     Direct Payment of Secured Claims by Debtor before BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 74.8, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

There is a pernicious practice among some debtors’ counsel in some jurisdictions of proposing the payment of some or all secured claims directly by the debtor rather than through the Chapter 13 trustee.1 Although 11 U.S.C. § 1326(c) contemplates that a confirmed plan can provide for payments to creditors other than by the Chapter 13 trustee,2 it is rarely in the best interests of debtors or creditors for the debtor to make plan payments directly to secured claim holders.3

[2]

Direct payment by the debtor to a secured creditor is a relic of practice under repealed bankruptcy laws. Under the Bankruptcy Act of 1938, Chapter XIII debtors were almost powerless to deal with nonconsenting secured claim holders: a plan dealing with a secured claim could not be confirmed over the objection of the claim holder.4 If a secured claim holder objected, the practice developed of providing in the plan that the secured claim would not be paid through the plan—the phrase “outside the plan” was used to describe the exile of nonconsenting secured claim holders.

[3]

The 1978 Bankruptcy Code empowered Chapter 13 plans to affect secured claims without the consent of the claim holder,5 eliminating the practice of excluding secured claims from the plan. That some debtors’ counsel persist in the practice is a testament that old habits die hard. Payment of a secured (or any) claim directly by the debtor can reduce the amount deducted for trustee’s fees and compensation,6 but the loss of stability, predictability, control and information caused by direct payments far exceeds the cost of involvement by the trustee.7

[4]

The terminology too often used in this context—payment “outside the plan”—is dangerously uncertain of meaning.8 Sometimes the phrase is used to describe a plan that makes no provision whatsoever for a secured claim—the plan is silent with respect to the treatment of the specific claim and makes no provision for any class of creditors into which the claim might fall. In contrast, “outside the plan” is more often misused to mean only that the debtor will be the disbursing agent for payments directly to the creditor.9

[5]

Of course, the difference between complete silence with respect to the treatment of a secured claim and a specific provision for payment directly by the debtor to the creditor is dramatic and substantive. A bald statement that a creditor will be dealt with “outside the plan” fails to satisfy any of the statutory ways in which the Chapter 13 plan can provide for an allowed secured claim under 11 U.S.C. § 1325(a)(5)10—unless the creditor “accepts” being “outside” for whatever it might mean.11 “Outside” does not preserve the lien of the affected creditor and does not guarantee present value of collateral—rights the secured creditor otherwise has at confirmation under § 1325(a)(5).12 Placing a secured claim “outside the plan” cannot rescue confirmation of a plan that does not satisfy the confirmation tests for treatment of secured claims.13

[6]

“Outside the plan” does not resolve whether the automatic stay applies to the continuing debtor-creditor relationship. Section 362(a) has provisions for stays with respect to the debtor, the estate, property of the estate and property of the debtor.14 “Outside the plan” has nothing clear to say about the automatic stay. The stay continues to apply, and creditors outside the plan must seek stay relief or risk sanctions.15

[7]

Placing a creditor “outside the plan” does not effect assumption or rejection of any lease between the debtor and the creditor.16 A creditor outside the plan may or may not be subject to discharge at the completion of payments: is a claim “outside the plan” “provided for” for purposes of § 1328(a)?17 Why would a creditor want or be willing to suffer uncertainty about its status with respect to discharge?

[8]

Use of the phrase “outside the plan” creates confusion with respect to other important provisions of the Bankruptcy Code that refer to payments “pursuant” to the plan or “provided for” by the plan.18

[9]

The difference between silence and direct payment has created significant confusion for the courts. A line of decisions that begins with Telfair v. First Union Mortgage Corp.19 in the Eleventh Circuit treats confirmation of a direct-payment plan as an event that terminates the automatic stay and limits bankruptcy court jurisdiction with respect to the creditor to whom the debtor makes direct payments.20 This conclusion disables Chapter 13 debtors to address mistakes or misconduct by mortgage holders and servicers during Chapter 13 cases in which a mortgage is paid directly by the debtor.21

[10]

Payment of a secured claim directly by the debtor requires a separate classification.22 Based on 11 U.S.C. § 1326(c), and with various limitations and exceptions, many courts permit Chapter 13 plans to classify some secured claims for direct payment by the debtor.23 One court held that the payment of one secured claim holder directly by the debtor and another through the Chapter 13 trustee violates the “equal treatment” requirement in § 1322(a)(3).24

[11]

The striking thing about the cases just cited is the almost complete lack of agreement among the courts about when and to what extent Chapter 13 debtors can make direct payments to secured creditors. In some districts, direct payment by debtors is so frowned upon that the practice is almost unheard of; in other districts, direct payment is liberally allowed and almost ruleless. Detailed elsewhere,25 this anarchy is particularly apparent with respect to the direct payment of home mortgages.

[12]

Given that the Bankruptcy Code permits direct payment by debtors without specific conditions or limitations, it is not surprising that the arguments for and against direct payment are practical and policy based. The principal argument by debtors in favor of direct payment is the avoidance of trustee fees.26 It is generally held that payments directly by a debtor are not subject to the statutory percentage fee collected by the trustee on payments made through the standing trustee’s office.27 Some courts have said that avoidance of trustee fees is a legitimate concern for debtors that favors direct payment of some secured claims.28 Other courts have held that avoidance of trustee fees is not alone sufficient reason to allow direct payment.29

[13]

Of course, if all debtors make direct payment of all secured debt—or of even a substantial portion of secured debt—there will be insufficient funds to operate the Chapter 13 system and standing trustees will not be able to perform their statutory duties.30 Many courts and commentators have noted that direct payment of secured debts—especially, home mortgages—threatens the stability and rate of completion of Chapter 13 plans in a district.31

[14]

Detailed elsewhere,32 the direct payment of home mortgages is a particularly difficult area of Chapter 13 practice. Home mortgage secured debt is separately and differently treated by the Bankruptcy Code in Chapter 13 cases: debts secured only by a security interest in real property that is the debtor’s principal residence cannot be modified in the many ways that other secured debts can be modified under § 1322(b)(2).33 There are often two or more components of a home mortgage in a Chapter 13 case—the arrears or default amount at the petition and the ongoing monthly payment of principal, interest and funding of an escrow for taxes and insurance. There is no national consensus with respect to whether and under what circumstances Chapter 13 debtors can make direct payment of some or all of the components of a home mortgage.34 A growing number of bankruptcy courts have enacted local rules that require payment of home mortgages through the Chapter 13 trustee unless specified conditions are demonstrated by the debtor.35 Some courts permit arrearages on a home mortgage to be paid through the Chapter 13 trustee even when the ongoing mortgage payment is made directly by the debtor; other courts condition direct payment that the debtor must be current at the petition.36

[15]

The direct payment of home mortgages in Chapter 13 cases has focused many bankruptcy courts on the fact that mortgage holders and servicers often cannot accurately account for payments in Chapter 13 cases.37 Debtors cannot be counted on to keep track of direct payments during the three to five years of the typical Chapter 13 case. Direct-payment plans leave the debtor at the mercy of the mortgage holder or servicer, and too many Chapter 13 debtors find themselves still in default at the completion of payments notwithstanding full compliance with the provisions of the confirmed plan.

[16]

Clarifying whether the debtor is current on a home mortgage or other secured debt at the end of a Chapter 13 case is often only possible if payments have been made through the trustee and the trustee’s records are available to prove payments to the mortgage holder or servicer.38 The avalanche of litigation between Chapter 13 debtors and mortgage holders and servicers with respect to accounting for payments in Chapter 13 cases39 is a testament to the dangers of direct payment of any secured debt.

[17]

Detailed elsewhere,40 the Supreme Court may have inadvertently encouraged the practice of providing for the payment of home mortgages directly by the debtor. In Nobelman v. American Savings Bank,41 the Supreme Court held that § 1322(b)(2) prohibits a Chapter 13 debtor from modifying the rights of an undersecured home mortgage holder by splitting the claim into its secured and unsecured components.42 In reaching this conclusion, the Nobelman opinion broadly identifies the rights protected from modification by § 1322(b)(2) to include all the contract and state law rights of the mortgage holder. Included among those contract rights in the typical home mortgage is a right to receive payments on or before a certain day of each month and the right to assess a late charge if a monthly payment is late. After Nobelman, it is at least arguable that Chapter 13 debtors with home mortgages protected from modification by § 1322(b)(2) will incur late charges every month in which distributions by the trustee occur after the contract deadline.43 To avoid this possibility, Chapter 13 debtors propose to make mortgage payments directly to the creditor.

[18]

Of course, direct payment by a Chapter 13 debtor simply means that the debtor has to make the ongoing mortgage payments on or before the due date of the mortgage—a probability that is hardly enhanced by the Chapter 13 case. Several courts have recognized that Chapter 13 debtors incur late payments with frequency when the plan allows direct payment by the debtor.44 Detailed elsewhere,45 knowledgeable Chapter 13 trustees have solved the late-fee problem with respect to ongoing mortgage payments through the trustee’s office by adjusting the calculation of arrearages and the timing of distributions to ensure that home mortgages are always paid in advance—before the penalty due date each month. So long as the debtors make payments to the trustee consistent with the confirmed plan, debtors do not incur late charges on home mortgage payments through the Chapter 13 trustee in districts with experience handling mortgage payments through the trustee.

[19]

Debtor’s counsel should resist a secured claim holder’s insistence on direct payment. Direct payments by debtors increase the likelihood of failure of the Chapter 13 plan.46 Especially when the security is an automobile or a home, the debtor will first make the direct payment and then pay the trustee, but only if there is money left. The result is a significantly higher failure rate for Chapter 13 plans that contain direct payments to creditors.

[20]

It is curious that creditors do not object more often to plans that propose direct payment to some claim holders. Courts have acknowledged that the feasibility test for confirmation in § 1325(a)(6) limits the payment of creditors directly by the debtor.47 One court denied confirmation on equitable principles when the plan proposed to pay all secured claim holders directly by the debtor.48 It is difficult or impossible for the Chapter 13 trustee to monitor payments by a debtor directly to a creditor, and the potential for abuse—overpayments or other preferential treatment—is great and will be invisible.49 Creditors paid through the Chapter 13 trustee are at increased risk of plan failure when the debtor pays other creditors directly. These concerns are appropriately raised by an objection to confirmation of a plan that proposes to make direct payments to selected secured claim holders.

[21]

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)50 did not change § 1326(c)—the Code section most directly addressing the possibility of payments by debtors directly to creditors. But other provisions of BAPCPA that affect the rights of secured claim holders in Chapter 13 cases have been cited by the courts both to support direct payment and as evidence that direct payment is a bad idea.

[22]

Detailed elsewhere,51 BAPCPA amended § 1326(a)(1) to require Chapter 13 debtors to make preconfirmation payments to certain personal property lessors and allowed secured claim holders “unless the court orders otherwise.”52 Many courts have ordered otherwise to enable the Chapter 13 trustee to receive and to make preconfirmation payments to lessors and allowed secured claim holders entitled to adequate protection in advance of confirmation.53 In In re Clay,54 the Bankruptcy Court for the District of Utah found in amended § 1326(a)(1) an indication that Congress intended to allow debtors to make some payments directly to secured creditors—at least in advance of confirmation. The court stated that the 2005 amendments to § 1326(a)(1) “might even infer that a debtor’s right to pay secured creditors directly is placed even further beyond question. . . . 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.”55

[23]

In contrast, the bankruptcy court in In re Breeding56 found that BAPCPA had destabilized the financing of Chapter 13 trustee offices, enhancing the need to tightly police the direct payment of debt by Chapter 13 debtors:

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.57

At best, the impact of BAPCPA on the direct-payment debate is uncertain at this writing.58 BAPCPA did not clearly resolve when Chapter 13 debtors should be permitted to make direct payment of secured debt. BAPCPA did not enact any provision that either requires or prohibits direct payment. The addition of § 524(i) by BAPCPA—arguably, a mechanism for enforcing the provisions of confirmed plans on secured creditors—requires a level of accurate evidence of payments that will be difficult to produce when debtors make direct payments.59 The courts can be expected to continue to struggle with the practical and policy reasons for and against direct payment. It has to be said that most debtors are better off with the stability and accountability of payments through the Chapter 13 trustee. This is especially true for debtors with home mortgages.60


 

1  See also §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee, 157.1 [ Direct Payments by Debtor ] § 89.1  Direct Payments by Debtor and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

2  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.”

 

3  See also §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 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.

 

4  Under § 651 of the former Bankruptcy Act, 11 U.S.C. § 1051 (repealed), a Chapter XIII plan was confirmed by the court if “accepted in writing by all creditors affected thereby.” If the plan was not unanimously accepted, an application could be made for confirmation under § 652, 11 U.S.C. § 1052 (repealed), and the court could confirm the plan if it had been accepted in writing by a majority in number and amount of unsecured creditors affected by the plan and accepted in writing “by the secured creditors whose claims are dealt with by the plan.” Thus, it was impossible to confirm a Chapter XIII plan without the acceptance of all secured creditors “dealt with by the plan.” To avoid this veto power, Chapter XIII debtors proposed plans that did not deal with secured creditors—nonconsenting secured claim holders were paid directly by the debtor,”outside the plan.” The former Bankruptcy Act further limited the ability of Chapter XIII debtors to deal with secured claims by excluding altogether from the definition of claims, “claims secured by estates in real property or chattels real.” 11 U.S.C. § 1006 (repealed).

 

5  See 11 U.S.C. §§ 1322(b)(2) and 1325(a)(5), discussed in § 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

6  See § 64.4 [ Compensation on Direct Payments by Debtor ] § 54.6  Compensation on Direct Payments by Debtor. This concern is better addressed by “no-costing” or lowered fees, as discussed below in this section and in §§ 64.1 [ Lowered Percentage in a Case ] § 54.3  Lowered Percentage in a Case, 64.2 [ “No-Costing” Payments on a Claim ] § 54.4  “No-Costing” Payments on a Claim and 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.

 

7  See also §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 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.

 

8  See, e.g., In re Sanford, 390 B.R. 873 (Bankr. E.D. Tex. July 2, 2008) (Parker) (Direct payment of IRS secured claim “outside” the plan is a “murky, amorphous proposal” that does not satisfy confirmation requirements for the treatment of the secured claim.).

 

9  See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 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.

 

10  See discussion of secured claims beginning at § 74.1  General Rules before BAPCPA.

 

11  See §§ 101.2 [ Acceptance of Plan ] § 74.3  Acceptance of Plan before BAPCPA and 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA.

 

12  See, e.g., In re Sanford, 390 B.R. 873, 878 (Bankr. E.D. Tex. July 2, 2008) (Parker) (Direct payment of IRS secured claim “outside” the plan “does not identify a schedule for its satisfaction, does not specify the payment of interest as a component to ensure that the present value of the claim is paid, and does not specifically provide for the retention of the lien currently held by the IRS.”).

 

13  See, e.g., In re Vincente, 260 B.R. 354, 356–58 (Bankr. E.D. Pa. Mar. 22, 2001) (Sigmund) (In context of dismissal for cause under § 1307(c), debtor cannot avoid inability to confirm a plan by placing mortgage “outside the plan.” “Debtor’s simple solution to my conclusion in [In re Vincente, 257 B.R. 168 (Bankr. E.D. Pa. Jan. 3, 2001) (Sigmund)] that Debtor is incapable of securing confirmation because he has insufficient disposable income to treat Advanta’s secured claim as required by § 1322(b) is to delete the claim from the plan and provide for payment outside the plan. . . . If he chooses to ignore Advanta in his bankruptcy case because he cannot propose a confirmable plan which includes its debt, he will be unable to modify Advanta’s rights and benefit from the provisions of the Bankruptcy Code afforded to debtors in connection with their Chapter 13 reorganizations. . . . [A] bankruptcy proceeding that does not deal with the claim of Debtor’s mortgage except to try and utilize the stay does not serve a valid bankruptcy purpose.”).

 

14  See §§ 68.1 [ Usual Protections ] § 58.1  Usual Protections74.1 [ Expiration of Stay ] § 58.14  Expiration of Stay.

 

15  See, e.g., In re Zambrano, No. 07-20876, 2007 WL 2916161, at *2 (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 interrupt automatic stay. “The Court . . . can find nothing which provides that a claim paid directly is no longer subject to the automatic stay. Clay and [In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey),] . . . did not discuss the impact of direct payments on the automatic stay. . . . [T]here are important policy reasons for not expanding the reach of Clay and associated case law.”). See also Nissan Motor Acceptance Corp. v. Salter (In re Salter), No. 05-28696, 2006 WL 4482000 (Bankr. D. Md. Oct. 2, 2006) (unpublished) (Schneider) (When confirmed plan provided for debtor to pay Nissan Motor Acceptance directly, postconfirmation default is cause for relief from the stay.).

 

16  In re Allen, 362 B.R. 866 (Bankr. N.D. Ohio Mar. 5, 2007) (Whipple) (Plan’s provision for direct payments to GMAC did not effectively assume vehicle lease.). See discussion of executory contracts beginning at § 102.1  Debtor Can Assume, Assign or Reject Executory Contracts.

 

17  See § 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. See, e.g., In re Zambrano, No. 07-20876, 2007 WL 2916161, at *2 (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. “Clay and [In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey),] stated that a claim paid directly is not subject to discharge or the chapter 13 trustee’s supervision. . . . Case and its progeny stated that a creditor paid directly is not subject to a chapter 13 discharge and is not bound by the terms of a confirmed chapter 13 plan.”). See §§ 234.1 [ Failure to Provide For ] § 121.3  Failure to Provide For and 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 for discussion of the effects of confirmation and discharge on claims “not provided for” by the plan.

 

18  See, e.g., In re Russell, No. 10-11720-SSM, 2010 WL 2671496, at *6 (Bankr. E.D. Va. June 30, 2010) (Mitchell) (Direct payment by debtor of nonresidential mortgage did not allow plan to avoid five-year limitation in § 1322(d) when plan bifurcated claim and would pay secured portion with interest over 360 months. “The court notes, first, that the statute is not phrased in terms of payments ‘under the plan’ or ‘through the trustee.’ Rather, what the statute says is that the plan ‘may not provide for payments over a period exceeding five years.’ And in any event, simply because payments are not being made through the trustee does not mean they are not being made ‘under’ the plan. If the plan defines the payment terms—and in this case it clearly does—then the payments are being made ‘under’ the plan regardless of whether the debtor pays the creditors directly or pays through the trustee.”); In re Padilla, 365 B.R. 492, 502 (Bankr. E.D. Pa. Mar. 26, 2007) (Frank) (“Section 1325(b)(5) has two components,” curing of any prepetition defaults and maintaining ongoing payments; maintenance of postpetition payments is element of plan even though payments are to be made directly by debtor. “It follows that a debtor’s contractual postpetition payments are made pursuant to the plan, not outside the plan.”).

 

19  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).

 

20  See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise and 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate for discussion of Telfair.

 

21  See, e.g., 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) (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), when confirmed plan provided that debtors make postpetition payments directly and property revested in debtors on confirmation, bankruptcy court was powerless to review application of payments by mortgagee. Plan required debtors to maintain payments on mortgage, current at time of confirmation. Plan provided that property would revest in debtors at confirmation. During pendency of case, mortgage company imposed an $845 fee, which debtors sought to challenge after they sold their property and satisfied mortgage obligation. “Having excluded their contractual relationship with GMAC from the plan—a decision that, among other things, allowed plaintiffs to sell the mortgaged property without oversight from the Bankruptcy Court, payment of bankruptcy trustee’s fees, or remittance of any profits on the sale to creditors with stripped liens—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.”).

 

22  See § 103.1 [ Classification of Secured Claims ] § 74.7  Classification of Secured Claims. See also §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee and 157.1 [ Direct Payments by Debtor ] § 89.1  Direct Payments by Debtor. See, e.g., In re Wittenmeier, 4 B.R. 86 (Bankr. M.D. Tenn. Mar. 10, 1980) (Jennings) (Secured claim of home mortgage holder can be separately classified for payment by debtor.). Accord In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey).

 

23  See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 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., Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1269 (5th Cir. May 12, 1997) (Smith, Parker, Justice) (Citing Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), “although § 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. . . . Although some courts have drawn a distinction between direct payment of current mortgage payments and arrearage payments, see, e.g., [In re Aberegg,] 961 F.2d 1307, 1310 n. 3 (7th Cir. Apr. 20, 1992) (Cudahy, Manion, Reynolds), we 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 [sic] 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.’”); First Bank & Trust v. Gross (In re Reid), 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.”); Friendly Fin. Discount Corp. v. Bradley, 705 F.2d 1409 (5th Cir. May 12, 1983) (Gee, Randall, Tate); Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall); Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 690 (B.A.P. 9th Cir. Apr. 28, 2010) (Hollowell, Montali, Markell) (Citing Cohen v. Lopez (In re Lopez), 550 F.3d 1202 (9th Cir. Dec. 24, 2008) (Noonan, Silverman, Bea), Chapter 13 debtors do not have an absolute right to make direct payments but may be permitted to do so when the claim is unimpaired; bankruptcy court erred when it denied confirmation of a direct-payment plan without articulating standards regarding when it is permissible to pay a creditor directly. “[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.”); Cohen v. Lopez (In re Lopez), 372 B.R. 40, 47–55 (B.A.P. 9th Cir. Aug. 3, 2007) (Markell, Brandt, Pappas) (“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.”); Perez v. Peake (In re Perez), 373 B.R. 468, 470–93 (S.D. Tex. July 19, 2007) (Rosenthal) (Citing §§ 1322(a)(1) and 1326(c) and Foster v. Heitkamp (In re Foster), 670 F.2d 478 (5th Cir. Mar. 1, 1982) (Garza, Randall), “the provisions in the Local Rule and Procedures that debtors must make their mortgage payments through the trustee unless the bankruptcy court exercises its discretion to order otherwise do not violate the Bankruptcy Code. The Local Rule and the Procedures are consistent with the long-standing general presumption that a debtor makes monthly payments to the Chapter 13 trustee for distribution, subject to the bankruptcy court’s discretion to allow the debtor to pay creditors directly rather than through the trustee based on the facts of a specific case.” Prior practice of permitting Chapter 13 debtors to make monthly mortgage payments directly to home lenders “resulted in a large number of motions to lift stay filed by mortgage companies. Such motions were costly and burdensome . . . . ‘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. . . . The bankruptcy court’s analysis of the need for and benefits of a presumption in favor of conduit payments to mortgage lenders in Chapter 13 cases is supported by the existence of similar local rules in other districts, empirical data, and legal research and analysis by bankruptcy law experts. . . . [T]o the extent the Local Rule, Procedures, and Uniform Plan might result in a modification of a mortgage contract, they did so only by allowing the debtor to cure the default occurring as a result of the mortgagee receiving the first monthly payment from the trustee after the due date and grace period had passed. . . . To the extent the Local Rule, Procedures, and Uniform Plan allow the trustee to make mortgage payments on a different date than specified in the mortgage contract, that is not an impermissible modification under . . . In re Lee, 167 B.R. 417, 419 (Bankr. S.D. Miss. 1992), aff’d, 22 F.3d 1904 (5th Cir. 1994). . . . [I]t is unclear whether it is proper to characterize preconfirmation payments of monthly mortgage payments as adequate protection payments. But it is also unclear that section 1326(a)(2) prohibits preconfirmation conduit payments of mortgage installments to the lenders. . . . The appellants’ position that administrative expenses must be paid in full before the trustee can make any postpetition mortgage installment payment to a home mortgage lender rests on an interpretation of a Code provision so unclear that bankruptcy courts have divided over its meaning. The appellants’ position is in direct conflict with the clear Code command to protect the rights of home mortgage lenders. . . . [A]voiding the trustee’s percentage fee cannot be the sole reason for allowing debtors to make home mortgage payments directly.”); United States v. Donald (In re Donald), 170 B.R. 579 (S.D. Miss. July 29, 1994) (Gaines) (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 ongoing mortgage “directly to FmHA by the debtors.”); In re Russell, No. 10-11720-SSM, 2010 WL 2671496 (Bankr. E.D. Va. June 30, 2010) (Mitchell) (Chapter 13 plan can pay nonresidential mortgage directly by debtor, but payments are still subject to five-year limitation in § 1322(d).); 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 Santiago, No. 08-15360-BKC-LMI, 2009 WL 3515705 (Bankr. S.D. Fla. Oct. 29, 2009) (unpublished) (Isicoff) (Citing In re Brown, 244 B.R. 603 (Bankr. W.D. Va. Jan. 21, 2000) (Stone), In re Ford, 179 B.R. 821 (Bankr. E.D. Tex. Apr. 5, 1995) (Sharp), and In re Clay, 339 B.R. 784 (Bankr. D. Utah May 2, 2006) (Thurman), debtor can modify nonresidential mortgage but must pay modified debt through the Chapter 13 trustee.); Kohler v. Astoria Fed. Sav. (In re Kohler), No. 08-146, 2009 WL 2912484, at *3 (Bankr. E.D. Pa. Apr. 22, 2009) (Raslavich) (Debtor can pay mortgage arrearages through the trustee and regular postpetition mortgage payments directly by the debtor, but confirmation of such a plan does not determine whether all postpetition monthly payments are actually remitted by the debtor.); 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.”); In re Carey, 402 B.R. 327, 330 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Motions to allow direct payment of ongoing mortgages are denied consistent with local rule that debtors current on mortgage payments at petition may choose to make ongoing mortgage payments directly or through trustee, but debtors delinquent at the petition must make ongoing mortgage payments through trustee unless court orders otherwise. Record-keeping problems multiply when debtors attempt to make direct payments. Debtors often default, resulting in stay relief motions or other difficulties in plan administration. “[T]he Chapter 13 Trustee testified, and Debtors’ counsel acknowledged that, even if no motion for relief is filed during the case, debtors 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.” Feasibility is often an issue when debtors propose to make direct payments, and debtors have enhanced burden to demonstrate ability to make plan payments and ongoing mortgage payments. Concerns about trustee fees are offset by likelihood of debtors’ “consistently incurring late charges.”); In re Stafford, No. 05-83418-G3-13, 2008 WL 3853341, at *1 (Bankr. S.D. Tex. Aug. 18, 2008) (unpublished) (Letitia Clark) (Motion to pay ongoing mortgage directly to mortgage holder is denied when debtor presented “no evidence to enable the court to make a determination on whether to permit direct disbursement.” Under local rule, regular mortgage payments are made through Chapter 13 trustee when plan proposes to cure default.); In re Sanford, 390 B.R. 873 (Bankr. E.D. Tex. July 2, 2008) (Parker) (Although Foster v. Heitkamp (In re Foster), 670 F.2d 478, 486 (5th Cir. Mar. 1, 1982) (Garza, Randall), permits some direct payments, debtor failed to prove cause for direct payment.); In re Zambrano, No. 07-20876, 2007 WL 2916161 (Bankr. D. Utah Aug. 3, 2007) (unpublished) (Thurman) (Direct payment of a car claim is permitted, but the debt will not be discharged and the automatic stay continues to apply to the creditor.); 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.”); In re Padilla, 365 B.R. 492, 502 (Bankr. E.D. Pa. Mar. 26, 2007) (Frank) (“Section 1325(b)(5) has two components,” curing of any prepetition defaults and maintaining ongoing payments; maintenance of postpetition payments is element of plan even though payments are to be made directly by debtor. “It follows that a debtor’s contractual postpetition payments are made pursuant to the plan, not outside the plan.”); 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 justification by debtor 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 Vigil, 344 B.R. 624, 629–33 (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. “The plain language of 11 U.S.C. § 1326(c) is that the plan or the order confirming the plan can ‘otherwise provide’ for payments to creditors under the plan. . . . The code, therefore, does not prohibit direct payments at the same time that it presumes that most payments will be made through the trustee. . . . [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) . . . . [T]he Debtors need not demonstrate compelling circumstances in order to justify confirmation of a plan that provides for direct payment according to the contract terms to a creditor that is fully secured by personal property provided the Debtors do not otherwise seek to modify the creditor’s claim, and provided that the plan otherwise meets all requirements for confirmation. . . . [T]he Court cannot conclude that BAPCPA abrogated a debtor’s ability to ‘otherwise provide’ for payments under a chapter 13 plan.”); In re Venuto, 343 B.R. 120, 135 (Bankr. E.D. Pa. June 6, 2006) (Frank) (Consequence of direct payment of mortgage during Chapter 13 case is that debtor will bear burden of proof that postpetition payments are current in the event of dispute with mortgagee; although arrears were paid in full through Chapter 13 trustee and discharge was entered, debtor failed to carry burden of proof that all monthly installments were made directly during Chapter 13 case. “[I]n this district, chapter 13 debtors regularly act as the disbursing agent for the postpetition mortgage payments, which must be made in a plan that invokes § 1322(b)(5). Historically, the discharge order has been entered in chapter 13 cases in this district after completion of the plan payments disbursed by the trustee regardless whether the debtor has paid all of the postpetition payments to a secured creditor under § 1322(b)(5). . . . Not all districts give chapter 13 debtors the option of serving as the plan disbursing agent for postpetition monthly mortgage payments and a debtor obtains a number of benefits by doing so, including a reduction in the amount of the chapter 13 trustee’s statutory commission. The quid pro quo for those benefits is that if a dispute arises, the debtor may have to prove that all of those payments were made as required by the plan.”); 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.); In re Coutee, No. 03-52145, 2006 WL 3899909 (Bankr. W.D. La. Jan. 23, 2006) (unpublished) (Schiff) (Confirmed plan provided for mortgage payments “outside the plan”; under Louisiana law tender of balance of mortgage did not toll interest accrual since tender was less than actual amount due.); In re Eason, 181 B.R. 127, 135 (Bankr. N.D. Ala. Feb. 15, 1995) (Cohen) (That the plan appears to pay a first mortgage according to its terms directly by the debtor while modifying the terms of a second mortgage for payment through the Chapter 13 trustee does not “intrinsically weigh in favor of any creditor or discriminate against another.”); In re Tartaglia, 61 B.R. 439 (Bankr. D.R.I. May 16, 1986) (Votolato); In re Case, 11 B.R. 843 (Bankr. D. Utah June 10, 1981) (Mabey); In re Wittenmeier, 4 B.R. 86 (Bankr. M.D. Tenn. Mar. 10, 1980) (Jennings).

 

24  First Bank & Trust v. Gross (In re Reid), 179 B.R. 504, 507 (E.D. Tex. Feb. 28, 1995) (Cobb) (Plan violates § 1322(a)(3) by proposing to pay one secured claim holder directly and another through the Chapter 13 trustee. The debtor scheduled a bank as partially secured by a car and Dillard’s as partially secured by other collateral. The plan called for a reaffirmation agreement with the bank and payments directly to the bank by the debtor. Dillard’s would be paid through the Chapter 13 trustee. “The amended plan fails to treat all impaired secured creditors equally under 1322(a)(3) and, as such, fails to satisfy 1325(a)(1). Dillard’s, an impaired secured creditor, is treated differently than the Bank. The debtors do not pay Dillard’s directly under their amended plan and, as a result, Dillard’s could not avoid the administrative expenses trustee’s fee during the loan repayment period. Under the amended plan, only the Bank could avoid these expenses by ‘booking’ its collateralized cash flow. Consequently, the plan violates section 1322(a)(3).”), aff’d, No. 95-40249 (5th Cir. Dec. 11, 1995) (per curiam) (Table decision at 77 F.3d 473). See § 149.1 [ Power to Classify Unsecured Claims: Tests for Unfair Discrimination ] § 87.1  Power to Classify Unsecured Claims: Tests for Unfair Discrimination.

 

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

 

26  See 28 U.S.C. § 586(e), discussed beginning at § 54.1  Standard Percentage Fee and ExpensesSee also § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, § 74.9  Direct Payment of Secured Debt after BAPCPA and § 85.6  Direct Payment of Mortgage or Payment by Trustee.

 

27  See § 64.4 [ Compensation on Direct Payments by Debtor ] § 54.6  Compensation on Direct Payments by Debtor.

 

28  See, e.g., In re Venuto, 343 B.R. 120 (Bankr. E.D. Pa. June 6, 2006) (Frank) (A “reduction in the amount of the Chapter 13 trustee’s statutory commission” is one of the benefits Chapter 13 debtors receive from direct payment of a mortgage.).

 

29  See, e.g., Perez v. Peake (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.”), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal). See also In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Responding to debtor’s concerns that paying trustee fees for ongoing mortgages through the trustee’s office is expensive, bankruptcy court notes that the likelihood of debtors “consistently incurring late charges” on missed direct payments offsets any concern about the payment of trustee fees.).

 

30  See, e.g., In re Stonier, 417 B.R. 702 (Bankr. M.D. Pa. Nov. 2, 2009) (Opel) (Absence of evidence that direct payment would burden the trustee’s responsibility to monitor the Chapter 13 case is one factor bearing on whether direct payment is permissible. Court also cites funding of the Chapter 13 trustee’s office as a legitimate consideration.); In re Breeding, 366 B.R. 21, 27 (Bankr. E.D. Ark. May 14, 2007) (Mixon) (“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.”).

 

31  See, e.g., Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 690 (B.A.P. 9th Cir. Apr. 28, 2010) (Hollowell, Montali, Markell) (“[T]he determination that there is a reduction of plan failure when all payments are made through the plan” is a factor that would support the refusal by a bankruptcy court of a debtor’s proposal to make direct payment of even an “unimpaired” claim holder.); In re Carey, 402 B.R. 327, 330 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Feasibility is an issue whenever a Chapter 13 debtor proposes to make direct payment to a mortgage holder, and debtors face an enhanced burden to demonstrate that they will be able to make payments under the plan as well as ongoing mortgage payments in any direct-payment plan.). See also Gordon Bermant & Ed Flynn, Chapter 13: Who Pays the Mortgage?, 20 Am. Bankr. Inst. J. 20, 21 & n.9 (2001) (Requiring home mortgage payments through the Chapter 13 trustee should increase the likelihood that debtors will complete payments under the plan.); Michael S. McManus & Michael H. Meyer, Payment of Post-Petition Mortgage Installments Through the Chapter 13 Plan 12 (paper presented to the Central California Bankruptcy Association (Sept. 2000)) (Requiring payment of postpetition mortgage payments through the plan makes it more likely that Chapter 13 cases will result in the completion of payments.).

 

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

 

33  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.

 

34  See § 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee. See, e.g., In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Local rule permits debtors who are current on mortgage payments at the petition to pay mortgage directly, but debtors delinquent at the petition must make ongoing mortgage payments through Chapter 13 trustee absent court permission otherwise.); 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), and the “universally” accepted practice of direct payment of home mortgages, debtor can pay home mortgages and car loans directly to lienholders at their discretion.); In re Perez, 339 B.R. 385, 414 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm) (Local rule requiring Chapter 13 debtors to pay ongoing conduit mortgage payments and vehicle payments through the Chapter 13 trustee assists trustees in the performance of their statutory duties, helps prevent abuse of the bankruptcy system and does not conflict with any provision of the Bankruptcy Code.), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal).

 

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

 

36  See § 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee. See, e.g., In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Ongoing mortgage payments can be made directly by the debtor or through the trustee if the mortgage is current at the petition, but debtors delinquent at the petition must make ongoing mortgage payments through the trustee unless court orders otherwise.); In re Stafford, No. 05-83418-G3-13, 2008 WL 3853341 (Bankr. S.D. Tex. Aug. 18, 2008) (unpublished) (Letitia Clark) (Regular mortgage payments are made through the Chapter 13 trustee when plan proposes to cure default.).

 

37  See §§ 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee, 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues, 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA and 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA. 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) (Record-keeping problems multiply when debtors attempt to make direct payments. “[T]he Chapter 13 Trustee testified, and Debtors’ counsel acknowledged that, even if no motion for relief is filed during the case, debtors 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.”).

 

38  See, e.g., In re Breeding, 366 B.R. 21, 27 (Bankr. E.D. Ark. May 14, 2007) (Mixon) (“[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.”).

 

39  See §§ 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues, 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction and 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

40  See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise and 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.

 

41  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

42  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 for a detailed discussion of undersecured home mortgages and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

43  In a case decided before the Supreme Court’s decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), but after the Fifth Circuit’s opinion in Nobelman (affirmed by the Supreme Court), one court held that the failure of a Chapter 13 trustee’s office to disburse mortgage payments before the contract due date each month was not a postconfirmation default that would constitute cause for relief from the stay. See In re Lee, 167 B.R. 417, 426–29 (Bankr. S.D. Miss. Oct. 30, 1992) (Ellington), aff’d, 22 F.3d 1094 (5th Cir. May 4, 1994) (Davis, Jones, Duhé) (Secured claim holder is not entitled to postconfirmation relief from the stay based on minor discrepancies in payments caused by the timing of payments by debtors’ employers to the Chapter 13 trustee and caused by the payment of administrative expenses during the early months of distributions under plans. “Since a creditor’s rights are redefined by the terms of the confirmed plan, where a debtor materially defaults under the terms of his confirmed plan the creditor may be entitled to relief from the automatic stay. . . . While evidence was presented at trial that certain of the Debtors are in arrears under the terms of their confirmed plans, the arrearage amounts are insignificant in relation to the amount of money that the Debtors have paid and are paying into their plans. A post-confirmation default must be material in order to constitute grounds for relief from the automatic stay. . . . Green Tree’s argument that the Court should hold the Debtors responsible for the manner in which the Trustee disburses funds is wholly unfounded. . . . Where an administrative expense, such as the debtor’s attorney fee in this instance, is paid in full during the early part of the plan, other creditors necessarily receive less than their designated portion of the total plan payment during these months of preemption. However, once the preempting administrative expense is paid in full, the creditors then receive a monthly amount greater than the amount designated by the plan for a period of time. Assuming the debtor completes the plan, the creditors will receive the appropriate amount over the life of the plan. . . . Green Tree has failed to show that any of the Debtors are in material default under their respective plans.” The court also rejected the argument that payments by the Chapter 13 trustee on a day of the month different from the due date required by contract constituted an impermissible modification of rights under § 1322(b)(2). Citing the Fifth Circuit’s opinion, as affirmed in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), “the Trustee’s office disburses between 10,000 and 15,000 checks to creditors each month. It would be extremely burdensome for the Chapter 13 Trustee to review every contract involving a home mortgage, determine the due date, and pay each individual creditor in accordance with its particular contract. If Green Tree’s argument were accepted by this Court, then the only way a debtor could comply with the Bankruptcy Code would be to pay any secured creditor protected from modification of its rights under § 1322(b)(2) outside of the plan. Such a result is not mandated by § 1322(b)(2).”).

 

44  See § 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee. See, e.g., In re Carey, 402 B.R. 327, 330 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Concerns that debtors will incur trustee fees if mortgage payments are made through the Chapter 13 trustee are offset by the likelihood that debtors will “consistently incur[ ] late charges.”).

 

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

 

46  See § 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise.

 

47  See, e.g., Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 690 (B.A.P. 9th Cir. Apr. 28, 2010) (Hollowell, Montali, Markell) (Among the standards bankruptcy courts should consider to determine whether direct payment is allowed are “fairness and treatment” of other creditors and the determination whether “there is a reduction of plan failure when all payments are made through the plan.”); In re Carey, 402 B.R. 327 (Bankr. W.D. Mo. Mar. 9, 2009) (Federman) (Feasibility is often an issue when debtors propose to make direct payments, and debtors have enhanced burden of demonstrating ability to make plan payments as well as ongoing mortgage payments.); In re Clay, 339 B.R. 784 (Bankr. D. Utah May 2, 2006) (Thurman) (Direct payments by a debtor are subject to challenge on the grounds of good faith or feasibility.); In re Perez, 339 B.R. 385, 409–10 (Bankr. S.D. Tex. Mar. 23, 2006) (Bohm) (Among the 21 factors applicable to the decision whether to allow Chapter 13 debtor to make direct payment of a home mortgage, bankruptcy court should consider whether the debtor has been responsible in making payments in the past and is likely to be able to make direct payments and also fund the Chapter 13 plan.), aff’d, 373 B.R. 468 (S.D. Tex. July 19, 2007) (Rosenthal).); 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.).

 

48  In re Wright, 82 B.R. 422 (Bankr. W.D. Va. Feb. 11, 1988) (Pearson) (To maintain viable Chapter 13 system, there must be adequate commissions to the Chapter 13 trustee. Plan that proposes to pay all secured claim holders directly by the debtor and that makes insufficient provision for payments through the Chapter 13 trustee will be denied confirmation on “traditional principles of equity.” Ongoing monthly mortgage payment may be paid directly by the debtors; other secured claims will be paid by the trustee; unsecured debt will be paid by the trustee.).

 

49  See In re Genereux, 137 B.R. 411, 413 (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. “Monitoring [the debtor’s] payments will impose some additional burden on the trustee; monitoring potentially hundreds of debtors’ direct payments would necessitate a substantial effort. The burden of valuing all personal property collateral in hundreds of Chapter 13s would be great, as would the potential for abuse . . . because of the difficulties the trustee would have in the monitoring and valuation process. Finally, . . . allowing 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.”).

 

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

 

51  See §§ 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.

 

52  11 U.S.C. § 1326(a)(1), as amended by BAPCPA.

 

53  See §§ 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.

 

54  339 B.R. 784 (Bankr. D. Utah Mar. 15, 2006) (Thurman).

 

55  339 B.R. at 788. See also In re Vigil, 344 B.R. 624, 633 (Bankr. D.N.M. June 19, 2006) (McFeeley) ([T]he Court cannot conclude that BAPCPA abrogated a debtor’s ability to ‘otherwise provide’ for payments under a chapter 13 plan.”).

 

56  366 B.R. 21 (Bankr. E.D. Ark. May 14, 2007) (Mixon).

 

57  366 B.R. at 27.

 

58  See § 454.2 [ Direct Payment of Secured Debt after BAPCPA ] § 74.9  Direct Payment of Secured Debt after BAPCPA.

 

59  See §§ 454.1 [ Principal Residence Redefined? ] § 79.2  Principal Residence Redefined by BAPCPA and 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA.

 

60  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.