Kentucky Bankruptcy Law

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Curing Post-Petition Arrears and Other Fun Stuff

Last Friday I posted about the ability to cure post-petition arrears that may arise on a secured debt paid outside the Chapter 13 plan, such as falling behind again on house payments. It can be done, but there are a couple of things you and your attorney need to keep in mind.

First, if you are raising your plan payments in order to effect the cure of the new arrears, there should be no problem. However, if you are attempting to keep your plan payments the same but just force unsecured creditors to receive a smaller pro-rata share of the plan’s distributions, you may have a fight on your hand. The creditors or the trustee will likely look at the whole picture and see what exactly caused the new arrears to determine whether or not to fight the matter.

Second, and this is important, the trustee is still only going to distribute to the creditor what their last claim lists as the arrears. If you get the modified plan approved, but the creditor never amends their claim to show the new arrears amount, it will not get paid. You really do not want to pay extra into your Chapter 13 plan to cover arrears only to end up arguing at the end of the bankruptcy as to whether they are still owed or not. So, your attorney will have to follow-up with the creditor to make sure the claim is amended or, eventually, file an amended claim for them (which is not preferred).

December 3, 2012 Posted by | Bankruptcy, Chapter 13, Plan, Plan payments, Secured loan arrears | , , , , , , , , , | Leave a comment

Chapter 13 and Post-Petition Arrears

In my prior post, I warned Debtors to be aware of payments made outside the Chapter 13 plan on certain secured debts and to make it a priority to stay current on those debts. Unfortunately, unexpected expenses can hit anyone as well as job losses or other income decreases. So, sometimes a Chapter 13 Debtor will be forced into a tough spot of whether to make a house payment or not. If this happens, all is not lost.

First, if the expense or income drop is beyond the Debtor’s control and it is ongoing, then the Chapter 13 should be modified to reflect the new circumstances. It may even be necessary to re-evaluate if the home can still be saved within the Chapter 13. But, if this is one of those out of the blue events and the Debtor can soon be back on track, then the question becomes whether brand new, post-petition arrears can be cured (caught up). Again, this usually arises when one is trying to save their home by way of the Chapter 13 (see this prior post). So, I will focus on post-petition home loan arrears, especially since there are special protections for these creditors in the Code.

First, let me explain what is special about home loans. Under 11 U.S.C. Sect. 1322(b)(2), the Chapter 13 plan cannot modify the rights of secured creditors where the loan is secured only by a principal residence. This is targeted to fit all your ordinary home loan situations. Creditors have argued that this provision stops Chapter 13 plans from forcing them to allow post-petition arrears to be cured. However, 11 U.S.C. Sect. 1322(b)(5) says that “any” defaults while the case is pending so long as the final payment on the whole loan is not due until after the Chapter 13 ends (technically after when the last payment in the Chapter 13 is due). I suppose creditors may misunderstand the “notwithstanding paragraph (2)” language to mean the opposite, but in truth, it makes it very clear that 1322(b)(2) does not preclude curing post-petition arrears.

It is no surprise, then, that the Eastern District of Kentucky Bankruptcy Court ruled just this last June, 2012, that Debtors could cure post-petition arrears that developed (See In re Cable, 11-70169 entered June 19, 2012). So, if you fall behind a little in your Chapter 13 on your home loan or other secured loan paid outside the plan, then it is vital you let your attorney know right away so the plan can be modified. Whether it will work or not depends on how much the new arrears will raise your plan payment.

But, this is not the end of the story…

November 30, 2012 Posted by | Automatic Stay, Bankruptcy, Chapter 13, Foreclosure, Plan, Secured loan arrears | , , , , , , , , , | 1 Comment