§ 84.1     In General
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 84.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Calculating plan payments to cure default on a home mortgage starts out simple enough but quickly becomes unruly. The big picture is to sort based on four characteristics:

 

  
Is the mortgage subject to modification under § 1322(b)(2)?1 If it is, then claim splitting and other modifications can be used to change the treatment of the claim and the terms for curing default. Even if the mortgage is subject to modification, the debtor often has no better choice than to cure default under § 1322(b)(3) or § 1322(b)(5) after modifying the claim.2
 

 

 

 

  
Is the mortgage oversecured or undersecured? The answer may determine the mortgage holder’s entitlement to interest on defaults cured through the plan.3
 

 

 

 

  
Was the mortgage entered into before or after October 22, 1994? If before, then curing default is much affected by Rake v. Wade.4 If the contract is dated after October 22, 1994, then § 1322(e) controls and the amount necessary to cure the default is determined “in accordance with the underlying agreement and applicable nonbankruptcy law.”5
 

 

 

 

  
Is the mortgage long term or short term? If long term, then § 1322(b)(5) may be the only mechanism available for curing default.6 If the mortgage fits the short-term description in § 1322(c)(2), then modifying the claim and paying the claim in full through the plan under § 1325(a)(5) are options.7
 

 

 

[2]

Many combinations of these questions are possible. There will be pre-October 22, 1994, contracts that can be modified and those that can’t. There will be both long term and short term pre- and post-October 22, 1994, contracts. There will be oversecured and undersecured mortgages in all three of the other categories. And the financial circumstances of individual debtors affects whether the mortgage can be paid in full or simply maintained during the life of the plan. The sections that follow contain examples of the calculations for some of the possible combinations of characteristics.

[3]

Calculating payments through the plan to cure defaults is only half the story. The other half is how payments are applied by the mortgage holder. It is an understatement to say that mortgage servicing companies are not equipped to accurately account for the multiple monthly payments received in the typical Chapter 13 case.8 If debtor’s counsel understands the precise calculations that led to the payments required by the plan, the debtor is best positioned to instruct and police the mortgage holder with respect to payments.

[4]

The usual way to cure monetary defaults on a home mortgage through a Chapter 13 plan is monthly payments in addition to the regular monthly mortgage installment. For example, if there is a four-month arrearage and if the regular payment is $483 per month, the debtor must cure defaults in the amount of $1,932 through the plan. If the debtor is able to pay $100 a month in addition to all other plan payments, then the mortgage arrearage will be cured in 21 months with 10 percent interest.9

[5]

Sometimes debtors are not able to make regular monthly payments on the arrearage, keep the regular payment current and pay other creditors through the plan. Counsel may have to search for some other source of funds, less regular than the debtor’s wages, from which to cure defaults. For example, if the debtor expects a tax refund or will be entitled to a bonus or vacation pay, the plan might propose to cure the arrearages in a lump sum by a date certain. The challenge will be to convince the court of the certainty of the event that will produce the money. Balloon payment of mortgage arrearages was rejected in one reported decision for failure of proof that the proceeds of a lawsuit would be available during the plan.10

[6]

Prior to Nobelman v. American Savings Bank,11 it was common in many jurisdictions for Chapter 13 debtors to bifurcate undersecured mortgage claims under § 506(a), and for the plan to cure defaults and maintain payments under § 1322(b)(3) or § 1322(b)(5) on the secured portion. In Nobelman, the Supreme Court held that it is an impermissible modification under § 1322(b)(2) to split an undersecured mortgage under § 506(a).12 After Nobelman, bifurcation of an undersecured home mortgage is possible only if the claim is not protected from modification by § 1322(b)(2).13 Prior to Nobelman, in jurisdictions that permitted bifurcation, calculation of the payments necessary to cure defaults was complicated by the claim-splitting process. This complication continues for any undersecured home mortgage that is not protected from modification by § 1322(b)(2) when the debtor cures default and maintains payments under § 1322(b)(5).14

[7]

The examples in the following sections are tedious and at some points not very satisfying. But in the end, saving a Chapter 13 debtor’s home comes down to math: it either works or it doesn’t. There is no substitute for being able to do the calculations correctly before you get to court. A $40 business calculator can do all the number crunching you need. But you have to be able to translate the characteristics of the debtor’s particular loan and circumstances into the right combination of payments to satisfy the Code and ultimately produce a stable mortgage that is current in all respects.


 

1  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.

 

2  See §§ 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and 128.2 [ Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations ] § 80.14  Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations.

 

3  See § 83.1  In General: Rake and Contracts before October 22, 1994§ 83.2  Section 1322(e): Contracts after October 22, 1994§ 83.4  Rate of Interest to Cure Default: Contracts after October 22, 1994§ 83.5  Undersecured Mortgage and Interest to Cure Default and § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges. See also § 78.5  Oversecured Claim Holders.

 

4  508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993). See § 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994.

 

5  11 U.S.C. § 1322(e). See § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

6  See § 129.1 [ Overview: General Rules for Saving Debtor’s Home ] § 81.1  Overview: General Rules for Saving Debtor’s Home.

 

7  See §§ 142.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 ] § 85.1  Demand, Matured and Balloon Loans; “Short-Term” Mortgages before October 22, 1994 and 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

8  See, e.g., In re Gorshtein, 285 B.R. 118, 121–26 (Bankr. S.D.N.Y. 2002) (Creditors are sanctioned for filing false affidavits in support of motions for relief from the stay. “[I]n motions by secured creditors for relief from the automatic stay . . . the facts are customarily presented in the form of an affidavit, affirmation or other pleading signed by an attorney for the secured creditor. . . . The certification in each of these motions that the debtor had failed to make any post-petition payments for ‘X’ months prior to the date of certificate was just plain false. . . . [A]ll of the movants and their attorneys protested their good faith. . . . [I]n each case the movant had the institutional ‘knowledge’ embodied in documentary evidence in its own files that the debtors had paid or tendered payment of all of the mortgage payments which were certified as unpaid. Reasonable investigation of its own records could and did reveal or confirm to the movant that the payments in question had all been made or tendered. . . . The integrity of the judicial process is undermined when the court is asked to grant substantive relief based on a certification of purported fact which is contradicted by the movant’s own records. In such cases, sanctions are warranted.”); Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 101, 116–17 (Bankr. D. Mass. 2002) (In a compelling account of misconduct by a mortgage lender/servicer, Fairbanks Capital Corporation violated RESPA, the FDCPA and Massachusetts Consumer Protection statutes: “Fairbanks, at no time, produced, or showed that it had, a payment history for the Debtor’s loan. Fairbanks, at no time, produced, or showed that it had, copies of the TILA disclosures that are required by law, including the MCCDA, to be given to a mortgagor. Fairbanks, at no time, produced, or showed that it had, the original or a copy of the Debtor’s Note. Thus, Fairbanks does not have, and never had, any way of ascertaining the extent of the Debtor’s obligation . . . . Nevertheless, Fairbanks, in a shocking display of corporate irresponsibility, repeatedly fabricated the amount of the Debtor’s obligation to it out of thin air. There is no other explanation for the wildly divergent figures it concocted in correspondence with the Debtor and her agents and in pleadings and documents filed with the bankruptcy court.”); In re Wines, 239 B.R. 703, 708 n.7 (Bankr. D.N.J. 1999) (To calculate amount due when debtors sold house and paid off mortgage during Chapter 13 plan, late charges are allowed according to the contract. In a note, “Fleet could have charged interest on the fees and expenses included in its arrears, but chose not to.”).

 

9  A business calculator shows the amortization of $1,932 with 10% interest and a monthly payment of $100 requires just over 21 months.

 

10  In re Ziegler, 88 B.R. 67 (Bankr. E.D. Pa. 1988).

 

11  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993).

 

12  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.

 

13  See discussion beginning at § 80.1  In General: Claims That Are Not Secured Only by Security Interest in Real Property That Is the Debtor’s Principal Residence.

 

14  For the reasons discussed in § 129.1 [ Overview: General Rules for Saving Debtor’s Home ] § 81.1  Overview: General Rules for Saving Debtor’s Home, even when the home mortgage is not protected from modification by § 1322(b)(2), often the best relief available to the debtor is to cure default and maintain payments under § 1322(b)(5). The combination of treatments—claim splitting under § 506(a) and curing default and maintaining payments under § 1322(b)(5)—is controversial but a recurring fact pattern in Chapter 13 practice. See §§ 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and 128.2 [ Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations ] § 80.14  Providing for and Accounting for an Unprotected Mortgage: Modifying, Curing Default, Maintaining Payments and Combinations.