Source: https://lundinonchapter13.com/Home/DisplaySectionContent?sectionNumber=67.2
Timestamp: 2019-07-16 10:55:30
Document Index: 771416749

Matched Legal Cases: ['§ 67', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 89', '§ 67', '§ 132', '§ 135', '§ 135', '§ 170', '§ 101', '§ 114', '§ 126', '§ 150', '§ 87', '§ 524', '§ 4', '§ 8', '§ 8', '§ 90', '§ 67', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 362', '§ 1301', '§ 1301', '§ 362', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 1301', '§ 101', '§ 1301', '§ 362', '§ 362', '§ 1301', '§ 362', '§ 1301', '§ 511']

67.2 - Plan Does Not Pay Debt in Full
§ 67.2 — Plan Does Not Pay Debt in Full
Relief from the § 1301 stay is required “to the extent that . . . the plan filed by the debtor proposes not to pay such claim.”1 Composition Chapter 13 plans—plans that pay less than the full amount of unsecured claims—allow creditors relief to proceed against cosigners.2 If the debtor’s plan proposes to pay 70 percent of unsecured claims, the creditor with a cosigner is entitled to relief to collect 30 percent from the codebtor.
Section 1301(c)(2) operates independently of § 1301(c)(1)—that the debtor’s plan does not propose full payment is a ground for relief from the codebtor stay even if the cosigner did not receive any of the original consideration.3 It has been held that relief from the codebtor stay is appropriate under § 1301(c)(2) when the plan is a composition plan, notwithstanding that the plan also provides that the co-signed debt will not be discharged at the completion of payments.4
Figuring out the extent to which a plan does not propose to pay a debt is not always simple. For example, some courts have held that a plan that fails to pay postpetition interest is a plan that fails to pay a debt in full for purposes of § 1301(c)(2),5 but calculating the amount of unpaid interest may be impossible until payments are completed under the plan. Some Chapter 13 plans propose to pay a fixed percentage of unsecured claims. In a fixed percentage case, the extent to which the creditor is entitled to relief to proceed against the cosigner would be the percentage of claims not promised through the plan. However, it is increasingly common for Chapter 13 debtors to calculate payments into a plan as the amount of disposable income available after deduction of all ordinary and necessary living expenses.6 When the debtor proposes, for example, to pay “$350 a month for 36 months,” it is not possible to immediately calculate the portion of claims that will be paid because the total of allowed claims cannot be known until after the deadline for filing claims and after resolution of objections to claims.7 The creditor with a co-signed claim need not wait until confirmation or consummation before seeking relief from the codebtor stay; however, it may be difficult as a matter of proof to demonstrate exactly the extent to which a claim will not be paid by the proposed plan.
Courts have struggled to fashion appropriate relief from the codebtor stay even though precise calculation of what is to be paid through the plan is not possible. For example, when the debtor’s plan proposed to pay “either $9,000 or 20 percent of all filed unsecured claims, whichever amount is greater,” the court granted relief to collect from the codebtor but directed that if the creditor collected too much, the codebtor would be subrogated and entitled to reimbursement from the debtor.8 Base plans9 will always present this problem—it will be impossible to calculate the precise percentage of claims that will be paid until months or years into the case. This is not a reason to delay relief from the codebtor stay, but it will require some imagination and careful calculation to determine what is collectible from the codebtor.
Note also that entitlement to relief from the codebtor stay under § 1301(c)(2) is based on the extent to which “the plan filed by the debtor proposes not to pay such claim.” The debtor can modify the proposed plan before10 or after11 confirmation. Calculating the extent to which the plan does not propose to pay claims may include dealing with modifications offered by the debtor in response to the request for relief from the codebtor stay. One common response to a request for relief from the codebtor stay is to propose a classification of claims that pays the co-signed claim in full through the plan.12
It is not clear whether a creditor is entitled to relief from the codebtor stay when the debtor’s plan proposes a balloon payment or reaffirmation.13 A plan calling for balloon payment in full or for reaffirmation does propose to pay the creditor’s claim, but at least one court has concluded that relief from the codebtor stay is warranted because delaying collection from the co-obligor pending a future reaffirmation constitutes irreparable harm under § 1301(c)(3).14
1 11 U.S.C. § 1301(c)(2).
2 In re Schaffrath, 214 B.R. 153, 155 (B.A.P. 6th Cir. 1997) (Bankruptcy court appropriately granted relief from codebtor stay because debtor’s plan did not propose to pay co-signed claim in full. “It is undisputed that the plan filed by this Debtor does not proposed to pay the entire claim of Firestone. 11 U.S.C. § 1301(c) is mandatory, stating that the court shall grant relief from the stay when one of the three enumerated subsections applies.”). Accord Household Fin. Corp. v. Jacobsen, 20 B.R. 648 (B.A.P. 9th Cir. 1982); Wiremen’s Credit Union, Inc. v. Laska, 20 B.R. 675 (Bankr. N.D. Ohio 1982); Old Phoenix Nat’l Bank v. Britts, 18 B.R. 203 (Bankr. N.D. Ohio 1982); Police Fed. Credit Union v. Holmes, 9 B.R. 454 (Bankr. D.D.C. 1981); First Pa. Bank v. Rondeau, 9 B.R. 403 (Bankr. E.D. Pa. 1981); In re Johnson, 6 Bankr. Ct. Dec. (CRR) 12 (Bankr. W.D.N.Y. 1980).
3 In re Rhodes, 85 B.R. 64 (Bankr. N.D. Ill. 1988); In re Lamoreaux, 69 B.R. 301 (Bankr. M.D. Fla. 1987).
4 In re Fink, 115 B.R. 113 (Bankr. S.D. Ohio 1990) (Student loan commission entitled to relief to collect from codebtor when plan proposes to pay only 10%, notwithstanding that plan excepts the student loans from discharge at the completion of payments.).
5 See § 89.1 [ Postpetition Interest, Attorneys’ Fees, Costs and Other Charges ] § 67.3 Postpetition Interest, Attorneys’ Fees, Costs and Other Charges.
7 See § 132.2 In General: Filing is Required for Allowance, § 135.5 Failure to File Proof of Claim and § 135.7 Untimely Filed Claims in Cases Filed after October 22, 1994.
8 First Nat’l Bank v. Garrett, 36 B.R. 432 (Bankr. M.D. Tenn. 1984).
9 Plans in which a minimum amount must be paid by the debtor to complete the plan, not necessarily calculated as a percentage of unsecured claims. See § 170.1 [ Methods of Paying Unsecured Claims ] § 101.3 Methods of Paying Unsecured Claims.
10 See discussion of modification before confirmation beginning at § 114.1 Timing, Procedure and Form.
11 See discussion of modification after confirmation beginning at § 126.1 Standing, Timing and Procedure.
12 See § 150.1 [ Co-signed Debts ] § 87.3 Co-signed Debts.
13 Reaffirmation under § 524 is available in Chapter 13 cases but rarely seen. See §§ 4.7 [ Substantial Reaffirmations Are Probable ] § 8.8 Too Many Reaffirmations and 4.8 [ Debtor Cannot Reaffirm or Redeem Property ] § 8.9 Debtor Cannot Reaffirm or Redeem Property.
14 Police Fed. Credit Union v. Holmes, 9 B.R. 454 (Bankr. D.D.C. 1981). See § 90.1 [ Irreparable Harm ] § 67.5 Irreparable Harm for discussion of 11 U.S.C. § 1301(c)(3).
Cain v. Cadle Co., No. 5:06-CV-182 MCR/EMT, 2007 WL 2852345, at *3 (N.D. Fla. Sept. 30, 2007) (unpublished) (Rodgers) (Relief from codebtor stay under § 1301(c)(2) is appropriate when plan does not pay claim in full notwithstanding that part of claim was disallowed. Creditor filed proof of claim for $87,161.95. Bankruptcy court disallowed all but $38,517.39. "Because relief from the codebtor stay under § 1301(c)(2) is not dependent on a determination of the allowed claim, the court concludes that the term 'claim' refers not to the allowed claim, but instead to the full claim.").
In re Dev, No. 18-00677-5-DMW, 2018 WL 5255294, at *12 (Bankr. E.D.N.C. Oct. 19, 2018), amended and superseded by, 593 B.R. 435 (Bankr. E.D.N.C. Oct. 26, 2018) (Warren)
(Codebtor stay relief is appropriate under § 1301(c)(2) because automatic stay expired 30 days after second petition within a year under § 362(c)(3)(A) effectively preventing debtor from paying the mortgage through any plan. Codebtor stay relief under § 1301(c)(3) is also appropriate because debtor’s three filings have frustrated foreclosure efforts and the harm may be irreparable if mortgagee is further stayed by § 1301(a). “The termination of the automatic stay as to CFCU under § 362(c)(3)(A) prevents effectively the Debtor from paying CFCU’s claim under the Note through a Chapter 13 plan, constituting cause for relief from the co-debtor stay pursuant to § 1301(c)(2). Additionally, relief is appropriate under § 1301(c)(3), because CFCU has been harmed by the Debtor’s repeated bankruptcy filings which have frustrated CFCU’s foreclosure efforts, and this harm may be irreparable if CFCU is further stayed by § 1301(a).”).
In re Powers, No. 15-03267-JJR13, 2018 WL 5255295 (Bankr. N.D. Ala. Oct. 15, 2018) (Robinson) (Pro se motion to alter or amend order granting relief from codebtor stay is denied when confirmed plan does not provide for mortgage and § 1301(c)(2) requires stay relief. Didn’t help that debtors used series of bankruptcy cases and other legal maneuvers to live in home without paying mortgage for nine years.), denying motion to amend, No. 15-03267-JJR13, 2018 WL 4154753 (Bankr. N.D. Ala. Aug. 28, 2018) (Robinson) (After 13 tag-team bankruptcies, several adversary proceedings, innumerable motions, orders and appeals, codebtor relief is ordered under § 1301(c)(2) together with order that no stay will arise from any future filing by the debtor or any codebtor. Through a succession of serial bankruptcy filings by a husband and wife, debtors managed to live rent free for almost nine years before complete relief was fashioned for mortgagee.).
In re Kunkel, 582 B.R. 184 (Bankr. W.D. Mich. Feb. 5, 2018) (Dales) (Relief from codebtor stay is appropriate under § 1301(c)(2) when plan treats credit union as an unsecured creditor to receive a small dividend and credit union has a security interest in certificates of deposit co-owned by debtor and debtor’s children. Plan does not pay the cosigned debt in full.).
In re Grace, No. 14-33624, 2015 WL 912532, at *2 (Bankr. N.D. Ohio Feb. 27, 2015) (Whipple) (Relief from codebtor stay under § 1301(c)(2) is required when plan proposes 24.5% payment of nursing home debt incurred by nonfiling spouse. "Debtor's confirmed plan will not pay Movant's claim in full. Rather, it will pay Movant 24.5% of its allowed claim . . . . Under the plain wording of § 1301(c)(2), Movant is entitled to relief from the co-debtor stay . . . .").
In re Moy, 515 B.R. 709 (Bankr. N.D. Ill. Aug. 25, 2014) (Lynch) (Relief from codebtor stay under § 1301(c)(2) appropriate when plan provided for only small portion of any deficiency resulting after foreclosure on real property quitclaimed to ex-spouse under marital settlement agreement that obligated debtor to pay mortgage.).
In re Hart, No. 13-52080-JDW, 2013 WL 6175655 (Bankr. M.D. Ga. Nov. 21, 2013) (Walker) (Relief from codebtor stay granted to collect contractual interest not provided for in plan. Plan provided for payment of claim in full with 5% interest. Contract interest rate was 24%. Creditor's "claim" under § 101(5)(A) includes any right to payment, including unmatured interest. Section 1301(c) refers to claim, rather than "allowed claim.").
Faulkner v. CEFCU (In re Faulkner), No. 12-08069, 2013 WL 2154790 (Bankr. C.D. Ill. May 17, 2013) (unpublished) (Altenberger) (When completed plan paid claim at lower interest rate than contract rate, codebtor stay did not require credit union to release lien on vehicle jointly owned by debtor and codebtor. Notwithstanding discharge, credit union could retain lien until full payment of claim by co-obligor.).
In re Nickles, No. 10-05033-MM13, 2010 WL 3999838 (Bankr. S.D. Cal. Oct. 8, 2010) (unpublished) (Mann) (Codebtor stay does not apply when plan does not propose to pay claim in full. Plan proposed to pay secured portion of bifurcated cosigned claim but did not pay unsecured portion in full.).
In re Lemma, 394 B.R. 315, 322-24 (Bankr. E.D.N.Y. Sept. 29, 2008) (Grossman) (Confirmation of plan that cures default and reinstates mortgage defeats relief from codebtor stay under § 1301(c)(2) notwithstanding prepetition foreclosure judgment and postpetition termination of stay under § 362(c)(3). Bank obtained foreclosure judgment before petition. After several failed Chapter 13 cases, court denied motion to extend stay under § 362(c)(3)and stay terminated in current case. Before foreclosure sale, plan was confirmed that cured prepetition arrears and maintained ongoing monthly payments. After confirmation, bank sought relief from codebtor stay under § 1301(c)(2) on the theory it was entitled to immediate payment of entire foreclosure judgment. "[T]ermination of the stay under [§ 362(c)(3)] did not terminate Debtors' right to cure the prepetition arrears and reinstate the mortgage. . . . The only effect termination of the stay had on this case was to permit the Bank to proceed against Debtors in state court. . . . [T]here is nothing in the Code to even suggest that once the stay is terminated, Debtors can no longer bind the Bank under a plan which implements the cure and reinstatement provisions provided in the Bankruptcy Code. . . . After a plan is confirmed, the creditors included in the plan can no longer seek relief from the automatic stay based on any facts which occurred preconfirmation. . . . Even where the stay is terminated prior to confirmation, the confirmed plan binds such creditor so long as the creditor's claim is treated under the plan, the plan was served on the creditor and the plan does not contain any language specifically preserving the rights of the parties under the prior order vacating the automatic stay. . . . [E]ven where the stay has been terminated preconfirmation by operation of law under section 362(c)(3) . . . the debtor still retains the right to bind the creditors under a confirmed plan. . . . Since the Bank failed to consummate the foreclosure prior to confirmation and did not object to its treatment under the Plan, the Bank is bound by the terms of the Plan.").
In re Hayes, No. 6:08-bk-03143-ABB, 2008 WL 5456059 (Bankr. M.D. Fla. June 16, 2008) (unpublished) (Briskman) (When plan did not propose payment in full of former spouse's joint obligation, creditor was entitled to codebtor stay relief and no remedy was available in bankruptcy court to co-obligor.).
In re Evans, No. 07-80922-13, 2007 WL 2491035 (Bankr. M.D.N.C. Aug. 27, 2007) (unpublished) (Carruthers) (When plan proposed to surrender rather than pay for mobile home, relief from codebtor stay is granted to permit Green Tree to foreclose.).
In re Williams, 374 B.R. 713 (Bankr. W.D. Mo. June 12, 2007) (Federman) (Relief under § 1301(c)(2) is appropriate because 0% plan does not propose to pay co-obligor claim in full; creditor's failure to file proof of claim is insignificant in context of 0% plan.).
In re Kleibrink, 346 B.R. 734 (Bankr. N.D. Tex. Aug. 2, 2006) (Houser) (Lienholder is entitled to relief to pursue codebtor when plan did not propose to pay in rem claim against the debtor's property that survived discharge in a prior Chapter 13 case. Although debtor is not personally liable, lien that survived discharge is a claim against the debtor's property that can be collected from codebtor when plan does not propose to pay the debt.).
In re Cain, 347 B.R. 428 (Bankr. N.D. Fla. Aug. 2, 2006) (Killian) (Creditor is entitled to relief from co-debtor stay to collect portion of debt that is not an allowed claim either because the codebtor stay does not apply or because plan proposes to pay only the allowed portion of the debt.).
In re Gervacio, No. 05-90477, 2006 WL 4667140 (Bankr. D. Md. July 17, 2006) (unpublished) (Schneider) (Relief from codebtor stay is granted in part because confirmed plan does not propose to pay postpetition obligations in full.).
In re Cockerham, 336 B.R. 592 (Bankr. S.D. Ga. June 24, 2005) (Davis) (Codebtor stay is lifted when plan proposed to surrender vehicle and pay nothing to GMAC; codebtor is not protected by Servicemembers Civil Relief Act, 50 U.S.C. § 511, when debtor is serviceman stationed in Iraq but debtor did not request Act's protection.).
Foust v. Patterson (In re Patterson), No. 00-31057S, 2000 WL 34532242 (Bankr. E.D. Va. Aug. 30, 2000) (unpublished) (Shelley) (The court may abstain from determination of proceeding involving debtor's interest in a vehicle owned jointly with a nondebtor, when vehicle is not necessary to an effective reorganization and disputes exist whether debtor properly claimed right to possess vehicle.).