§ 82.4 — Reasonable Time to Cure Defaults
Revised: June 1, 2004
Chapter 13 debtors who invoke § 1322(b)(5) to cure defaults with respect to a long-term home mortgage must do so “within a reasonable time.”1 Few provisions of the Bankruptcy Code have generated so much case law completely lacking in uniformity. In almost every jurisdiction—by local rule, case law or cultural imperative—there is a rule of thumb that home mortgage arrearages must be cured within “X” months of confirmation. “X” varies from jurisdiction to jurisdiction, and in some jurisdictions, “X” varies from case to case. If there is any trend in the reported decisions, it is the increasing use of factors to determine reasonableness. But it cannot be said that the application of factors has produced any greater consistency or predictability in the cases.
Elsewhere, in § 365(b)(1), the Bankruptcy Code requires a trustee to “promptly cure” defaults with respect to a lease or executory contract as a condition of assumption.2 Ordinary usage of the words “reasonable” and “promptly” suggests that reasonable should be a less rigorous test for the debtor.
If there is equity in the property securing the mortgage, debtor’s counsel is in a stronger position to argue that a longer period for curing defaults subjects the creditor to no inappropriate risk: if the plan fails, the creditor will realize the full amount of its mortgage and arrearages at any future foreclosure sale. If the debtor has filed successive bankruptcy cases in an unsuccessful effort to deal with a home mortgage arrearage, the creditor is positioned to argue for a more immediate cure.
Several courts have reduced the reasonableness determination to a list of factors. The bankruptcy court in In re Chavez3 formulated an eight-factor test for the reasonable time within which to cure defaults:
(1) the nature and repayment period of the original obligation; (2) the nature of the property held as security; (3) debtors’ payment record; (4) the amount and reason for the arrearage; (5) the availability of the debtors’ discretionary income to cure the default; (6) the ability of the debtors to meet the obligations of their plan and to continue current payments on their installment obligations; (7) whether the debtors are putting forth their best effort to cure the default; and (8) the necessity of the asset to an effective rehabilitation of the debtors.4
Some of the factors listed in Chavez duplicate other statutory conditions for confirmation5 or are considerations appropriate to a mortgage holder’s request for relief from the stay.6 Another court has formulated a five-factor test that is arguably more specific to the reasonableness of the time for curing defaults:
(1) the debtor’s past payment history on the debt at issue; (2) the total length of the repayment period under the contract; (3) the reason for the arrearage; (4) the nature of the collateral; (5) whether or not the debtor is putting forth their best effort to cure.7
Although not without controversy, one court has held that a Chapter 13 debtor can cure arrearages over the remaining term of a home mortgage that extends beyond the life of the plan.8 Several courts have held it is reasonable to cure an arrearage over the maximum 60-month duration of a Chapter 13 plan.9 One court found 56 months to be a reasonable time for curing defaults.10 There are many reported decisions permitting the curing of defaults in 24 to 40 months.11 There are also cases approving or requiring the curing of defaults in 14 months or less.12
The cases disapproving proposed periods for curing defaults are uncomfortably similar to those approving proposed periods. There are many reported decisions rejecting as unreasonable periods in the 24- to 60-month range.13 Twenty-one months14 and 19 months15 have been found unreasonable, and one court refused to confirm a plan that exceeded one year to cure a mortgage deficiency.16 Another reported decision indicated that three to six months is the maximum allowable time to cure a default.17
There is no reason to expect the future to bring any consistency to determining a reasonable time within which to cure mortgage defaults under § 1322(b)(5). This is a fact-bound issue that will turn on the nuances of individual cases.
The Bankruptcy Appellate Panel for the Ninth Circuit rejected one bankruptcy court’s effort to standardize the time for curing one common default in Chapter 13 cases. In Steinacher v. Rojas (In re Steinacher),18 the Bankruptcy Appellate Panel for the Ninth Circuit invalidated a Central District of California local bankruptcy rule that required repeat Chapter 13 filers to bring home mortgages current within 15 days of the petition. This 15-day rule violated the “reasonable time” allowed by § 1322(b)(5):
A local rule of the bankruptcy court requires Chapter 13 debtors who had any bankruptcy cases pending within six months of filing their Chapter 13 petitions to tender to the Chapter 13 trustee, within fifteen days of their petition dates, the lesser amount of (1) mortgage payments that became due (but were not paid) during the pendency of the prior case or (2) mortgage payments that became due in the six months prior to the filing of the Chapter 13 case. . . . The rule impermissibly forces all debtors who had cases pending in the six months prior to the petition date to cure specified pre-petition defaults within 15 days of their Chapter 13 petition dates, rather than within the “reasonable time” provided by statute. They thus lose the ability to extend payment of those arrearages through the plan. Consequently, the Six Month Rule abridges the substantive rights regarding cure provided to all debtors under section 1322(b).19
Notice that there is no reasonableness limitation on the time within which the plan must cure or waive defaults under 11 U.S.C. § 1322(b)(3). If the debtor cures default using § 1322(b)(3)20 rather than § 1322(b)(5), it is arguable that the time to cure need not be reasonable. Given the lack of agreement about how long is reasonable under § 1322(b)(5), it is even less likely that courts would agree on the limits to curing default under § 1322(b)(3).
1 11 U.S.C. § 1322(b)(5).
2 See § 173.1 [ Debtor Must Cure Defaults and Assure Future Performance ] § 102.2 Debtor Must Cure Defaults and Assure Future Performance.
3 117 B.R. 730 (Bankr. S.D. Fla. 1990).
4 117 B.R. at 732. Accord In re Lessman, 159 B.R. 135 (Bankr. S.D.N.Y. 1993) (Applying eight-factor test from In re Chavez, 117 B.R. 730 (Bankr. S.D. Fla. 1990).).
5 Whether the debtor is able to meet obligations under the plan is the condition for confirmation in 11 U.S.C. § 1325(a)(6). See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1 Able to Make Payments and Comply with Plan.
6 The necessity of the debtor’s home to an effective rehabilitation is like the test for relief from the stay in 11 U.S.C. § 362(b)(2)(B). See § 83.1 [ Application of § 362(d)(2) in Chapter 13 Cases ] § 64.5 Application of § 362(d)(2) in Chapter 13 Cases.
7 In re Ford, 221 B.R. 749, 754 (Bankr. W.D. Tenn. 1998).
8 PNC Mortgage Co. v. Dicks (In re Dicks), 199 B.R. 674, 683 (N.D. Ind. 1996) (Debtor can add defaults to the principal balance and pay arrearages over mortgage’s 25-year term. “[T]he language of § 1322(b)(5) makes clear that a debtor may cure a mortgage default in spite of the prohibition in § 1322(b)(2). . . . It is clear, then, that the provision under 11 U.S.C. § 1322(d) that Chapter 13 plans cannot exceed five years in duration does not apply to defaults cured pursuant to § 1322(b)(5). Accordingly, the [mortgage company’s] argument that the plan cannot cure the debtor’s defaults by spreading repayment of arrearages over a twenty-five year term must fail.”). Contra In re Keays, 36 B.R. 1018, 1018 (Bankr. E.D. Pa. 1984) (Not reasonable to cure arrearage over remaining 20-year term of mortgage. “The Bankruptcy Code clearly does not permit a Chapter 13 debtor to cure mortgage arrearages . . . over a period of time which exceeds the length of the Chapter 13 plan.”). See § 202.1 [ Payment of Claims beyond Length of Plan ] § 112.5 Payment of Claims beyond Length of Plan.
9 United Cal. Sav. Bank v. Martin (In re Martin), 156 B.R. 47 (B.A.P. 9th Cir. 1993) (Proposed 60-month cure of mortgage default is reasonable notwithstanding that debtor tried and failed to cure mortgage arrearages in a prior Chapter 13 case. The maximum 60-month period is counted from the commencement of payments under the second confirmed plan and is not tacked on to the period of attempted repayment during the prior failed Chapter 13 case.); In re Hatcher, 202 B.R. 626, 631 (Bankr. E.D. Okla. 1996) (Applying Hardzog v. Federal Land Bank of Wichita (In re Hardzog), 901 F.2d 858 (10th Cir. 1990), “‘in the absence of special circumstances, such as the market rate being higher than the contract rate, Bankruptcy Courts should use the current market rate of interest used for similar loans in the region.’” Because the only evidence presented was the 10% rate charged by the mortgage holder for similar loans, 10% interest on arrearage claim was appropriate interest rate.), aff’d in part, dismissed in part for lack of jurisdiction, 208 B.R. 959 (B.A.P. 10th Cir. 1997); Cole v. Cenlar Fed. Sav. Bank (In re Cole), 122 B.R. 943 (Bankr. E.D. Pa. 1991) (60 months); In re Seem, 92 B.R. 134 (Bankr. E.D. Pa. 1988) (60 months); In re Harmon, 72 B.R. 458 (Bankr. E.D. Pa. 1987) (60 months).
10 In re Masterson, 147 B.R. 295 (Bankr. D.N.H. 1992). See also In re Lobue, 189 B.R. 216 (Bankr. S.D. Fla. 1995) (Fifty-three-month cure is reasonable where creditor is oversecured, plan will pay mortgage in full with contract interest and creditor is in the business of making loans.); In re East, 172 B.R. 861 (Bankr. S.D. Tex. 1994) (Fifty-two months is reasonable, notwithstanding that “short-term” mortgage would mature before completion of payment of arrearages.).
11 Central Fed. Sav. & Loan v. King, 23 B.R. 779 (B.A.P. 9th Cir. 1982) (31 months); Grundy Nat’l Bank v. Stiltner, 58 B.R. 593 (W.D. Va. 1986) (36 months); Philadelphia Sav. Fund Soc’y v. Stewart, 16 B.R. 460 (E.D. Pa. 1981) (40 months); In re Townsend, 186 B.R. 248 (Bankr. E.D. Mo. 1994) (24 months is reasonable); First Nat’l Bank v. Sidelinger (In re Sidelinger), 175 B.R. 115 (Bankr. D. Me. 1994) (On a preconfirmation motion for relief from the stay, 36-month cure was reasonable and probable of success.); In re Randolph, 102 B.R. 902 (Bankr. S.D. Ga. 1989) (35 months is reasonable.); In re Van Gordon, 69 B.R. 545 (Bankr. D. Mont. 1987) (36 months); In re Trigwell, 67 B.R. 808 (Bankr. C.D. Cal. 1986) (24 months); In re Lapp, 66 B.R. 67 (Bankr. D. Colo. 1986) (24 months); In re Hickson, 52 B.R. 11 (Bankr. S.D. Fla. 1985) (25 months); In re Frey, 34 B.R. 607 (Bankr. M.D. Pa. 1983) (36 months is reasonable); In re LaCrue, 33 B.R. 569 (Bankr. D. Colo. 1983) (33 months); In re Wiggins, 21 B.R. 532 (Bankr. D.S.C. 1982) (25 months); In re Lynch, 12 B.R. 533 (Bankr. W.D. Wis. 1981) (36 months); In re Sapp, 11 B.R. 188 (Bankr. S.D. Ohio 1981) (24 months).
12 In re Ford, 221 B.R. 749 (Bankr. W.D. Tenn. 1998) (Although plan was ambiguous, six-month period to cure arrearages on long term, unsecured debt for reimbursement of an insurance company is reasonable.); In re Brady, 86 B.R. 166 (Bankr. D. Minn. 1988) (unusual to exceed 12 months); In re Thomas, 60 B.R. 7 (Bankr. E.D.N.Y. 1986) (approving six months); In re Dockery, 34 B.R. 95 (Bankr. E.D. Mich. 1983) (12 months would be reasonable but is not required.); In re Ivory, 32 B.R. 788 (Bankr. D. Or. 1983) (Curing of all defaults upon confirmation is reasonable.); In re Smith, 19 B.R. 592 (Bankr. N.D. Ga. 1982) (14 months).
13 United States v. Easley, 216 B.R. 543, 547 (W.D. Va. 1997) (Plan fails to cure defaults within a reasonable time when arrearages total $6,891.61, plan will pay $3,000 during 60 months and remainder of arrearage is to be paid “upon completion of their plan.” This plan “does not make provisions for the payment of the remaining arrearages. The plan, thus, does not cure the arrearages within the five year life of the plan. Accordingly, the plan does not cure the arrearages ‘within a reasonable time,’ as is required by § 1322(b)(5).” In a note, “[i]f the amended plan called for the remainder of the arrearages to be cured in a lump sum at the conclusion of the five year period, then the arrearages would be cured within the life of the amended plan.”); Coleman v. Brown, 5 B.R. 812 (W.D. Ky. 1980) (36 months unreasonable); In re Binder, 224 B.R. 483 (Bankr. D. Colo. 1998) (In the context of postconfirmation modification to cure postpetition mortgage arrearage, proposal to cure the arrearage in 52 months is not reasonable. Debtor’s precarious financial condition makes length of cure too unpredictable.); In re Lessman, 159 B.R. 135 (Bankr. S.D.N.Y. 1993) (Applying eight-factor test from In re Chavez, 117 B.R. 730 (Bankr. S.D. Fla. 1990), cure over 60 months of proposed plan is not reasonable.); In re Penick, 108 B.R. 776 (Bankr. W.D. Okla. 1989) (39 months not reasonable); In re Schenk, 67 B.R. 137 (Bankr. D. Mont. 1986) (60 months unreasonable); In re Miller, 53 B.R. 100 (Bankr. S.D. Ohio 1985) (60 months unreasonable); In re Brooks, 51 B.R. 741 (Bankr. S.D. Fla. 1985) (25 months unreasonable); In re Acevedo, 9 B.R. 852 (Bankr. E.D.N.Y. 1981) (36 months unreasonable); In re Sardella, 8 B.R. 401 (Bankr. S.D. Ohio 1981) (40 months unreasonable); In re Pollasky, 7 B.R. 770 (Bankr. D. Colo. 1980) (24 months unreasonable).
14 In re Ashton, 63 B.R. 244 (Bankr. D.N.D. 1986).
15 In re Brooks, 51 B.R. 741 (Bankr. S.D. Fla. 1985).
16 GMAC v. Lawrence, 11 B.R. 44 (Bankr. N.D. Ga. 1981). See In re Newton, 161 B.R. 207 (Bankr. D. Minn. 1993) (Presumption is that any cure period longer than 12 months is unreasonable. Vague proposal to cure default by sale within 18 months is not confirmable. Twenty-three-month proposal in companion case is not confirmable.).
17 In re Hailey, 17 B.R. 167 (Bankr. S.D. Fla. 1982).
18 283 B.R. 768 (B.A.P. 9th Cir. 2002).
19 283 B.R. at 769–74.
20 See § 115.1 [ Curing Default, Waiving Default, Maintaining Payments and Combinations ] § 78.4 Curing Default, Waiving Default, Maintaining Payments and Combinations.