An important issue as it relates to a chapter 13 bankruptcy and mortgages was recently decided by the 11th Circuit Court of Appeals in Dukes V. Suncoast Credit Union (In Re Dukes.)
The issue, in its most simplistic form, is this:
What happens to a mortgage debt if a chapter 13 is filed and provides for the mortgage payment to be paid directly by the debtor in bankruptcy to the mortgage company? What happens if the debtor falls behind on the mortgage and/or the home is vacated during the life of the chapter 13 plan?
A Lesson: Dukes V. Suncoast Credit Union
In the Dukes case, Ms. Dukes Chapter 13 plan provided for the payment of her monthly mortgage payments directly by her to her credit union lender outside of the bankruptcy and not through the bankruptcy trustee. Ms. Dukes made all payments under her chapter 13 plan to the Trustee and her discharge stated, pursuant to 11 U.S.C. §1328(a), that “all debts provided for by the plan” were discharged.
The problem, however, was that Ms. Dukes defaulted on her house payments to her credit union during the term of the chapter 13 plan. The credit union subsequently foreclosed on the property after the chapter 13 discharge and sought a judgment against Ms. Dukes for the remaining balance. The credit union even reopened her bankruptcy case to have the court determine that her personal liability on the loan had not been discharged.
The bankruptcy court, and then the federal district court that heard the initial appeal, both determined that the debt was not “provided for” and was, therefore, not discharged at the completion of the chapter 13 plan. This ruling tells us that simply stating the credit union would be paid outside the plan does not mean that it is “provided for” in the plan. The analysis of the 11th circuit goes into great detail about what a debtor is or is not allowed by statute to modify under a chapter 13 plan.
To sum it up simply, however, the 11th Circuit found that because the chapter 13 plan did not propose any modification, whether or not prevented by statute, or stipulate to any terms about the credit unions mortgage then, by default, the mortgage remained governed by the original loan documents and was not provided for in the plan.
What We Can Learn From The Dukes Case
As a Chapter 13 Debtor or potential Chapter 13 Debtor, this is an important warning to you. If this happens to you, that, during the life of your chapter 13 plan you default on your mortgage loan debt that is paid outside of your plan, it is important that you notify your attorney so that steps can be taken to modify your plan to provide for the debt to be discharged.
You must file a specific motion to modify your plan to surrender the property to the mortgage company so that the debt is addressed which will allow it to be discharged at the end of the chapter 13 plan.
Contact a Trusted Chapter 13 Bankruptcy Attorney Today
Situations like this one are the reason that it is best to seek counsel from an experienced and reputable Bankruptcy attorney. If you are experiencing financial difficulty of any kind, please contact our nearest office for a free consultation.
Amy K Tanner is a shareholder in several of the Bond & Botes Law Offices. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Thomas Goode Jones School of Law. She focuses primarily on consumer bankruptcy law in the Huntsville and Decatur offices.Read her full bio here.